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PetroHunter
Energy Corporation
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Maryland
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000-51152
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98-0431245
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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N/A
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[ ]
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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[ ]
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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[
]
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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[
]
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
4.02.
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Non-Reliance
on Previously Issued Financial Statements or a Related Audit Report or
Completed Interim Review.
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1.
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Detachable Warrants with
Convertible Debentures – The Company recorded a correcting entry
during the third quarter to correct an error in relation to its accounting
for the value of detachable warrants that were issued in relation to its
Convertible Debentures. During the first quarter, the Company
established a value of $2.9 million for these warrants, and had
immediately charged this amount to interest expense in error, versus
establishing the value of the warrants as a discount against the value of
the Convertible Debentures and amortizing the discount to interest expense
over the remaining term of the convertible debentures using the
effective interest method. The effect of correcting this error
during the third quarter was to understate the Company’s reported third
quarter net loss (and interest expense) by $2.8 million (net of
amortization effects), and to overstate its reported first quarter net
loss (and interest expense) by $2.9
million.
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2.
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Detachable Warrants with
Global Debt Facility – The Company recorded a correcting entry
during the third quarter to correct an error in relation to its accounting
for detachable warrants issued in relation to its Global Credit
Facility. First, the Company inappropriately used a warrant
term assumption in its Black-Scholes calculation of fair value that was
less than the contractual life of the warrants, which understated the
initial value of the warrants. Second, the Company failed to
properly record deferred financing costs for the warrants that were issued
in connection with securing the Facility. The effect of the
correction of this error during the third quarter was to overstate the
Company’s reported net loss (and interest expense) by $0.4 million as a
result of recording catch-up amortization charges, and understate both its
first and second quarter reported net losses (and interest expense) by
$0.2 million.
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3.
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Proceeds from Heavy Oil Asset
Sale – The Company discovered an error in its accounting for the
proceeds to be received in relation to the sale of its Heavy Oil Projects,
during the preparation of its second quarter financial
statements. The Company corrected that error during the second
quarter, which affected the reported results for its first quarter ended
December 31, 2007. In accounting for the proceeds from the sale
of these assets during the first quarter, the Company erroneously included
contingent consideration (in the form of the common stock of the acquirer)
relating to the sale of assets that did not ultimately transfer to the
buyer, in its accounting for the transaction. The effect of the
correction of this error during the second quarter was to understate the
reported net loss by $0.9 million (and trading security losses), and
overstate the reported first quarter net loss (and trading security
losses) by the same amount.
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4.
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Related Party
Consulting Agreement Termination –
The Company discovered an error in its accounting for the
termination of certain consulting services that had been provided by a
significant shareholder, during the preparation of the second quarter
financial statements. The Company corrected that error during
the second quarter, which affected the reported results for its first
quarter ended December 31, 2007. In conjunction with the
termination of the consulting services, the Company made a clerical error
in recording the reversal of amounts previously accrued, and in addition,
made an error in determining the proper accounting for the transaction,
which should have been recorded as a contribution to paid-in capital,
versus a credit to general and administrative expense. The
effect of the correction of this error during the second quarter was to
overstate the reported second quarter net loss and loss from operations by
$0.4 million (and general and administrative expense), and understate the
reported first quarter net loss and loss from operations (and general and
administrative expense) by the same
amount.
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5.
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Contingent Purchase Obligation
– During the second quarter ended March 31, 2008, the Company
recorded a $2.8 million intangible asset and offsetting contingent
purchase obligation to recognize a financial guarantee in relation to
capital costs incurred by a third party in conjunction with the
construction of a gas gathering system and the provision of gas gathering
services for its Buckskin Mesa Project. The current arrangement
is the product of successively increasing financial and legal commitments,
with the majority of the underlying financial commitments being incurred
during the first quarter ended December 31, 2007. The Company
determined that of the $2.8 million contingent purchase obligation
recorded as of March 31, 2008, $2.3 million should have been recorded as
of December 31, 2007, so the reported first quarter intangible assets and
offsetting contingent purchase obligation were understated by that
amount.
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6.
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Accrued Property Costs -
During the preparation of the Company’s second financial statements
for the period ended March 31, 2008, $0.7 million of unrecorded
obligations relating to property accounts were discovered. Such
obligations should have been recorded during the first quarter ended
December 31, 2007. These costs were recorded as of March 31,
2008. The effect of this error was to understate the Company’s
accounts payable and property accounts by $0.7 million as of December 31,
2007.
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7.
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Maralex Transaction –
On November 28, 2006, the Company entered into a lease and development
agreement, with consideration of $2.9 million in the form of a note and
2.4 million shares of stock, for total consideration of approximately $7.1
million. There were several amendments to the agreement
resulting from the Company’s failure to pay the note under its terms, and
several million additional shares of stock were issued to satisfy
penalties and providing incentive for modifications to the loan
terms. The value of these share issuances were recorded as
interest expense in the 2007 fiscal year. On December 4, 2007,
the Company was
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| notified that 80% of the shares issued for the acquisition of the property and in relation to the modifications of the note agreement were being returned to the Company. The Company originally recorded this return of shares and the release of the leases and related unpaid liabilities to Maralex by reversing the $1.5 million unpaid balance of the note against the Company’s full cost pool and then reversing the $5.5 million balance of the full cost pool amount against additional paid-in capital. The Company should have accounted for the return of the shares at the then fair value of the shares, resulting in approximately $4.1 million that should have remained in the full cost pool as of December 31, 2007, and therefore subject to potential impairment. This error is the most significant of the errors that have been discovered since the Company filed its initial disclosure under this Item 4.02 on August 14, 2008. |
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PETROHUNTER
ENERGY CORPORATION
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November
20, 2008
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By /s/
Charles
Josenhans
Charles
Josenhans
Interim Chief Financial Officer
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