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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934; For the Fiscal Year Ended: June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 000-25496
HYPERDYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 82-0400335
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2656 South Loop West, Suite 103
Houston, Texas 77054
(Address of principal executive offices, including zip code)
(281) 681-9300 Prior to 10/4/97
(713) 839-9300 After 10/4/97
(Registrant's telephone number, including area code)
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Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on which Registered
N/A N/A
Securities registered pursuant to 12(g) of the Exchange Act:
Title of Each Class
Common Stock, $.001 par value
Indicate by check mark whether the registrant (i) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (ii) has been subject to such filing requirements fo
the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [x ]
Issuer's revenues for the year ended June 30, 1997 were $1,520,928.
The aggregate market value of Common Stock held by non-affiliates of the
registrant at September 1, 1997, based upon the last reported sales prices
on the OTCBB was $ 3,452,489 . As of September 1, 1997, there were 5,596,989
Shares of Common Stock outstanding.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I
Item 1. Business .............................................3
Item 2. Properties ...........................................7
Item 3. Legal Proceedings ....................................7
Item 4. Submission of Matters to a Vote of Security Holders ..8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ...............................8
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..............9
Item 7. Financial Statements ................................11
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure ...........11
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of
The Exchange Act .................................12
Item 10. Executive Compensation ..............................13
Item 11. Security Ownership of Certain Beneficial Owners and
Management .......................................14
Item 12. Certain Relationships and Related Transactions ......16
Item 13. Exhibits and Reports on Form 8-K ....................16
</TABLE>
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<PAGE>
PART I
Item 1. BUSINESS
Historical Background of Business
The Company changed its name to HyperDynamics Corporation in January
1997. The Company was formerly known as RAM-Z Enterprises, Inc. and was
incorporated under the laws of the State of Utah on July 29, 1983. The Company
was formed for the purpose of investing in one or more high-technology products,
such as medical devices, computer hardware and software or such other products
that the Company deemed advisable. The Company went public on December 19, 1983,
pursuant to a Regulation D offering. The Company sold 5,000,000 shares at $0.02
cents per share. The aggregate dollar amount raised in the Regulation D offering
was one hundred thousand dollars ($100,000). After several unsuccessful
investments and higher than expected operating expenses, the Company did not
have the funds necessary to continue its business operation after 1985. On May
17, 1994 the management formed a Delaware corporation named RAM-Z Enterprises,
Inc., for the purpose of merging with and changing the domicile of the Company.
The State of Utah approved the merger on May 27, 1994. The merger of the two
companies was on the basis of one share of common stock exchanged for one share
of common stock in the surviving corporation.
Pursuant to an Agreement and Plan of Reorganization (the "Plan")
between RAM-Z Enterprises, Inc. (the "Company"), its principal stockholders (the
"Principal Stockholders"), HyperDynamics Corporation, a Texas corporation
("HyperDynamics"), and certain stockholders of HyperDynamics who owned more than
eighty percent (80%) of the outstanding voting securities of HyperDynamics and
who executed and joined in the Plan (the "HyperDynamics Stockholders"), the
HyperDynamics Stockholders became the controlling stockholders of the Company in
a business combination transaction that was effected in the form of a "reverse
acquisition", and completed on August 26, 1996. Immediately prior to the
completion of the Plan, the Company had no material assets, liabilities or
business operations. The "reverse acquisition" by RAM-Z has been accounted for
by the purchase method of accounting in the fiscal year ending June 30, 1997.
Consequently, all prior financial statement history of RAM-Z is eliminated in
the combination.
HyperDynamics was formed March 7, 1996, to facilitate the acquisitions
of one or more computer hardware/services-related companies, and to facilitate
the merger with RAM-Z, which was a registered 12(g) company under the Securities
Act of 1934, as amended, with no recent ongoing operations to date. Both Houston
Creative Connections, Inc. ("HCCI") and MicroData Systems, Inc. ("MDSI") were
acquired by HyperDynamics on August 15, 1996, in transactions accounted for as
poolings of interest.
At the time of the adoption of the Plan, the Company had 50,000,000
shares of voting common stock issued and outstanding. As a condition to the
Plan, which was an exchange agreement between the Company and the HyperDynamics
Stockholders, the stockholders approved and the Company effected a share
consolidation or reverse split in the ratio of one post-consolidation share for
every 44.428648 preconsolidation shares held by a stockholder, provided,
however, that no single stockholder's share ownership was reduced to fewer than
100 post-consolidation shares.
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<PAGE>
The consideration used by the HyperDynamics Stockholders to acquire
their respective interests in the Company was 4,577,000 shares of $0.001 par
value common voting stock of HyperDynamics, amounting to one hundred percent
(100%) of the outstanding voting securities of HyperDynamics, for 4,577,000
post-consolidation shares of $0.001 par value common voting stock of the Company
in addition to issuing an additional 355,000 shares to financial advisors.
HCCI and MDSI had the opportunity, under certain circumstances, to
rescind their portions of the merger transaction on or before June 30, 1997.
Divestiture of Houston Creative Connections, Inc. ("HCCI") -- On
February 6, 1997, the Company, through its subsidiary, HyperDynamics
Corporation, a Texas corporation ("HyperDynamics"), divested its subsidiary,
HCCI. HyperDynamics acquired HCCI in July 1996 and HCCI operated as a wholly
owned subsidiary of HyperDynamics pursuant to the terms of a share exchange and
acquisition agreement called the HCCI Reorganization Agreement (the "HCCI
Reorganization Agreement"). HyperDynamics entered into an Agreement and Plan of
Reorganization with the Company in August 1996. In February, 1997, the former
shareholders of HCCI and the Company (the "Parties") agreed that the original
business objectives envisioned at the time of the HCCI Reorganization Agreement
had not been achieved, and that each of the Parties had unique management
styles. The Parties agreed that the business objectives and goals of the Company
and HCCI were not compatible and that it would be in the best interests of the
Parties to pursue their goals and objectives independent of one another. The
Parties further agreed that certain other conditions as contemplated by the HCCI
Reorganization Agreement had not been satisfied as of that time. Accordingly, on
February 7, 1997, the Parties entered into a Divestiture Agreement (the
"Divestiture Agreement") pursuant to which the former shareholders of HCCI
agreed to deliver 2,102,000 shares of the Company's common stock to the Company,
and the Company agreed to deliver 1,000 shares of HCCI common stock to the
former shareholders of HCCI. This represented a complete unwinding of the
consideration of the Parties under the HCCI Reorganization Agreement. The
2,102,000 shares of the Company's common stock were canceled. A significant
portion of the Company's assets were divested in connection with the Divestiture
Agreement.
Adjustment and correction of valuation of MDSI -- In January, 1997, the
Board of Directors of the Company agreed with the former shareholders of MDSI
that in the event of a divestiture of HCCI that the Company would issue to the
former shareholders of MDSI 700,000 shares of common stock of the Company. The
Board agreed to issue the additional 700,000 shares as recognition of the need
to adjust and correct the valuation received by the former shareholders of MDSI
in the Reorganization Agreement entered into between the Company and MDSI in
July, 1996 (the "MDSI Reorganization Agreement"), which formed the basis for the
original transaction between the Company and MDSI and which resulted in MDSI
becoming a wholly owned subsidiary of the Company. In consideration for the
Board of Directors' action, the former shareholders of MDSI agreed to waive
certain rescission rights which were contained in the MDSI Reorganization
Agreement. Consequently, as a result of the divestiture of HCCI, the Company
issued to the former shareholders of MDSI 700,000 shares of common stock of the
Company.
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<PAGE>
Direction of Business Plan
HyperDynamics Corporation is a public acquisition vehicle for
technology based companies that maintain Internet and Intranet related business
experience. Whereas the local area network of the 1970's and 1980's has evolved
into a full blown communications network now being referred to as a companies
private Intranet, and it is fast becoming a necessity for companies to have
secured access to the world via the Internet, the Company has initially acquired
MicroData Systems, Inc. Through MicroData the Company has acquired significant
experience in value added resale and systems integration while obtaining a well
designed Information Systems Infrastructure to be able to support the internal
development and growth of the Company. Additionally, the core capability
delivered by MicroData will help the Company build several profit centers for
High Performance Internet Access and Services, Computer Hardware and Software
Resale, Technical Employee Out-source Contracting, and complete Systems
Integration Projects. Future targeted acquisitions will soon strengthen the
companies capabilities as a complete Information Systems Services Company.
Mission Statement
To help our customers obtain and maintain the optimum level of
operating efficiency and productivity by providing integrated
management information systems and services that maximizes a companies
return on investment in IS (Information Systems) infrastructure and
minimizes ongoing information system expenses.
Vision Statement
HyperDynamics Corporation is in business to provide completely planned,
designed, implemented and maintained IS (Information Systems)
environments for business. With this directive the Company has
developed and will develop on a continuing basis it's own "HYPERD"
integrated IS environment to include ultimately, commercial Real Estate
integration. Standards for the critical components of this IS
environment have been adopted. These standards, bundling of products
and services, and economies of scale provide the best cost/benefit to a
broad base majority of companies for their Information System needs.
HyperDynamics Corporations definition of "Information
Systems":
The functions of planning, designing, implementing,
and maintaining:
1. Telecommunications including wide area voice, video,
and data networking
2. Server and workstation computer systems and operating
systems
3. Integrated client-server based software applications,
as this all relates to a companies decision support and
transaction processing data.
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<PAGE>
The Company maintains a strong strategy to continue to develop and
leverage it's own Information Systems Infrastructure and will continue to invest
in the automation of the administratively based public company overhead. The
Company will benefit from an ever increasing cost/benefit through economies of
scale as it reaches it's critical mass through acquisition as well as building
on it's initial infrastructure obtained through MDSI. This will allow the
Company to help it's subsidiaries operate more efficiently as well and result in
maximizing profits for it's shareholders.
Long term the Company will continue to strive for technical excellence
and always be looking to build it's own product offerings as well as a strong
recurring contract service revenue base. This will continue to strengthen the
companies value and related stock price in years to come.
The Information Systems Service Industry
As defined by HYPD information systems includes all factors associated
with the design implementation, and maintenance of an organizations Intranet and
Internet related communications. Technologies such as ATM (Asynchronous Transfer
Mode) allow simultaneous communication of voice, video, and data across a single
fiber and/or copper cable plant. With this technology a computer workstation can
now be transformed into a complete communication device that through standards
based applications will allow a single cable connection to seamlessly support
integrated applications such as video conferencing, telephone, voice mail and
email, and many other integrated database applications. Additionally, wireless
communication technologies and market potentials are being evaluated seriously
in the areas of wireless microwave based television and simultaneous Internet
data transmission. The recent technology leaps in these areas are being closely
monitored.
To be a viable IS services company it will be imperative to obtain and
maintain expertise in these significant technical areas of Information Systems.
With a trend in the industry for talented integration companies to be acquired
by larger companies, HYPD is sitting in the right place and at the right time to
obtain the required talents.
HyperDynamics Corporation has a plan of rapid growth through hand
picked timely acquisitions of Technology based companies that maintain expertise
in the various defined areas of Information Systems Integration.
Subsidiary - MicroData Systems, Inc. (MDSI)
MDSI was established in 1988 and evolved from a typical networking
value-added reseller to a
<PAGE>
systems integrator of integrated information systems. Since inception the
Company developed reseller relationships with companies such as 3Com
Corporation, Digital Equipment Corporation, IBM, Sunsoft, Microsoft, Great
Plains Software, and Seattle Software Labs to name a few. These relationships
have helped MDSI exploit its strong network engineering and systems integration
expertise. Among MDSI's impressive list of customers are Lockheed Martin Space
Operations, State of Texas Department of Information Resources, Novo Industries,
and Harris County Hospital District.
MDSI established an Internet infrastructure in 1995 with the MicroData
Internet. The Company maintains a T-1 high bandwidth connection for providing
high speed access for it's corporate customers and to continually develop
Internet related services such as WWW hosting, web-site design, and electronic
commerce for selling some of it's computer hardware and software components.
MDSI has developed the current IS infrastructure being utilized and adopted by
HYPD.
Strategic Adjustments to Business
As a strategic and organizational decision, in the first quarter of FYE
1998, HYPD will purchase the primary components of the IS infrastructure from
MDSI including the Internet related parts. MDSI will become a focused profit
center by rejuvenating and ramping up revenues based on hardware and software
sales, network design and implementation, and complete systems integration
projects. HYPD will use the Internet infrastructure to implement the "HYD.NET"
access and Internet services network. HYPD will also be re-designing it's
Internet web-site and providing hosting and other services already being
provided by MDSI. Be looking for the new site at "http://www.hyd.net" in the
October 1997 time frame. By moving the IS Corporate Infrastructure to the parent
level, a standard role-out for new subsidiaries can be developed to allow the
organization to quickly and efficiently assimilate the administration
requirements for the new acquisitions.
At the beginning of the calendar year 1998, the Company plans to move
it's payroll operations over completely to be processed at the corporate level.
HYPD currently has a contract with Lockheed Martin Space Operations to provide
technical employees on a contract basis. The Company will move to expand this as
a profit center managed by the IS infrastructure obtained from MDSI. HYPD will
develop a standard method of allocating personnel based overhead to the various
underlying subsidiaries so that there will be no need for multiple payroll
departments within the consolidated group and the related subsidiaries can be
operated as profit centers, focusing on revenue producing activity. By
consolidating payroll the Company will be able to minimize costs of benefits for
employees as well as cost of administrative overhead. This move to consolidate
payroll will lead the step to standardize the organization on the Great Plains
integrated client/server based accounting platform. Coupled with a smartly
designed wide area network, the complete organization will be intra-networked
regardless of geographic location with high speed secured access to the Internet
via HYD.NET.
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<PAGE>
Employees and Independent Contractors
The Company has eight (8) full time employees. The Company uses
independent contractors to minimize fixed overhead. No employees are represented
by a union and the Company believes that its labor relations are good.
Item 2. PROPERTIES
The office of the Company is located at 2656 South Loop West, Suite
103, Houston, Texas 77054 where the Company leases approximately 3,000 sq. ft.
of commercial office space on a annual basis for both itself and MicroData
Systems, Inc. The Company pays $2,573 per month. In the center of the space the
Company has developed it's communications and computer room which serves as the
network server center, wide area network hub, and central telephone room. The
space is secured by a monitored alarm system.
Item 3. LEGAL PROCEEDINGS
In 1984, the Company failed to file financial statements as required by
Utah law within thirteen months after its public offering in 1983. On June 17,
1987 the Division of Securities of the Department of Commerce (formerly known as
the Securities Division of the Department of Business Regulation) of the State
of Utah (the "Division") issued an Order (the "Utah Order") by which Utah Order
any offering exemptions which would be otherwise applicable and available to the
Company by reason of Section 61-1- 14 of the Utah Code were revoked by the Utah
Order until such time as the Company filed financial statements as required by
Rule 10.2-1(b)(7) of the Division. Therefore, the Company may not offer
unregistered securities in Utah, except that under the federal National
Securities Markets Improvement Act of 1996 the Company may offer for sale
unregistered securities in Utah if such offerings comply with Rule 506 of
Regulation D of the Securities Act of 1933 as amended. Rule 506 offerings are
exempt from state regulation other than state notice and fee requirements. In
the future, the Company may seek to vacate the Utah Order. However, the Company
has thus far been unsuccessful in locating records related to the financial
information that the Company failed to file in 1983 and 1984, and the Company
has been unsuccessful in locating the individuals who founded the Company in
1983. Thus, the Company's corporate memory on this matter is unavailable at this
time. The Company believes that earlier attempts to vacate the Utah Order were
unsuccessful because the Company was a shell company at the time the attempts to
vacate the Utah Order occurred. The Company believes that since the Company is
now an operating Company with assets and revenues related to operations, as
opposed to assets and revenues related only to fund raising, the Company may be
in a better position to petition Utah to vacate the Utah Order.
The Company is not a party to any other material pending litigation.
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<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, there were no matters submitted to a
vote of the Security Holders, through solicitation of proxies or otherwise.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the OTCBB under the symbol
"HYPD." The following table sets forth the quarterly high and low bid prices per
share for the Common Stock, as reported by the OTCBB.
High Bid Low Bid
1996
First Quarter $ (*) $ (*)
Second Quarter $ (*) $ (*)
Third Quarter $ (*) $ (*)
Fourth Quarter $ (*) $ (*)
1997
Third Quarter $ 3 1/2 $ 2 3/4
Fourth Quarter $ 3 5/8 $ 2 1/4
First Quarter $ 3 1/4 $ 2 7/8
Second Quarter $ 2 13/16 $ 1
* The Company believes that there were no bids on the Company's common shares
during this period.
On September 1, 1997, the last bid for the Common Stock as reported by
the OTCBB was $1.00 per share. On September 1, 1997, there were approximately
139 stockholders of record of the Common.
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<PAGE>
Stock.
The Company has not paid, and the Company does not currently intend to
pay cash dividends on its common stock in the foreseeable future. The current
policy of the Company's Board of Directors is to retain all earnings, if any, to
provide funds for operation and expansion of the Company's business. The
declaration of dividends, if any, will be subject to the discretion of the Board
of Directors, which may consider such factors as the Company's results of
operations, financial condition, capital needs and acquisition strategy, among
others.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto for the fiscal years ended June 30, 1996
and 1997.
General
The company's original plans to acquire and merge several technology
based companies early in it's first year of operations were delayed when the
financial condition and results of operations were determined for the first
quarter of 1997. Additionally, significant time, money, and energy was expended
on the divestiture of Houston Creative Connections (HCC). The divestiture was
necessary to get the Company positioned for it's original goals of effecting
viable acquisitions that meet the technology related goals of the business plan.
Since the divestiture of HCC, the Company has struggled to get access
to the planned core capital necessary to achieve it's acquisition business plan.
Based on the problems of initial reverse merger, and the necessary divestiture
of one of the two initial acquisitions, the Company has effectively been
operating MDSI (Previously a small private company) as a public company for the
first year of operations. Initially, MDSI was intended to be one of several
acquisitions and not it's sole acquisition.
The primary reason for the delay to effect additional acquisitions thus
far has been the inability to obtain more than a fraction of the originally
planned for capital. To make matters more difficult, fixed overhead was
increased to manage organizational operations that had yet to emerge or evolve.
What little capital obtained was used up with legal fees for attempting
acquisitions and for fixed overhead at the corporate level.
Results of Operations
Revenues increased to $ 1,520,928 for the twelve (12) months end June
30, 1997, from $943,141 for the same period in FYE 1996. The 61% increase was
primarily due to stronger hardware sales for the first three quarters.
Cost of Goods Sold increased, correspondingly to the sales increase, to
$1,323,696 in the period, from $742,597 for the same period for FYE 1996.
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<PAGE>
Selling, General and Administrative expenses increased to $675,458
in the twelve (12) month period, as compared to $181,131 for the same period
in 1996.The increase was primarily due to legal and financial expenses
associated with the building of corporate infrastructure and the transition to
a public company.
Net Loss. The net loss of the Company was $(663,809) for the twelve
(12) months ended June 30, 1997, or ($0.14) per share. As stated above, this
loss can be primarily attributed to the increase in fixed overhead expenses
associated with the transition to becoming a public company.
On April 25, 1997, the Company acquired a contract interest in revenues
from SierraNet, Inc., a Nevada Internet Service Provider. The third-party
purchaser of SierraNet, Internet Finance and Equipment, Inc. of Florida, agreed
to this contract right in return for our participation in financing their
acquisition of SierraNet through issuance of 177,000 shares of the Company's
restricted stock to the sellers. This contract right provides the Company with
4% of monthly gross revenue of SierraNet, and 19% of sale proceeds should
SierraNet be sold.
Liquidity and Capital Resources
The Company had difficult cash problems in the fourth quarter.
Significant current liabilities in the amount of $42,107 were negotiated out
of, in return for the companies common stock.
Bridge loan financing has been obtained as a subsequent event to June
30, 1997 in the form of Convertible debt disclosed in an 8-K filing done on
August 5, 1997. As of September 1, 1997 the Company has been in negotiation with
Emerald Bay Interests, LTD to provide core private funding of at least two
acquisitions it has been working on as well as provide necessary funding to ramp
up MDSI.
Prospective Information
In addition to an intense acquisition strategy, the Company is
committed to developing operations from the core base provided by MicroData
Systems, Inc. With a change to a basic profit center strategy, MDSI has been
off-loaded from overhead and administrative burden and is currently ramping up
operations to significantly increase sales from fiscal year end 1997. These
increased sales are expected to start to show up in the second quarter of fiscal
year 1998.
MDSI will focus on value added hardware sales and integration sales as
before, but will add it's own line of high performance desk top and server side
computers. These systems will be optimized for business use with Microsoft's NT
operating system environment. This strategy will help the Company to yield
higher average profit margins, pick up more volume, and allow it to provide
completely integrated product offerings.
In addition to continuing to develop the corporate IS infrastructure,
HYPD will focus on enhancing two profit centers at the corporate level during
FYE 1998. The profit center for technical employee outsourcing will be expanded
and the Internet services profit center obtained from MDSI is planned for
substantial enhancement. These profit centers will provide corporate wide human
resources to all subsidiaries and leveraged Internet connectivity as well.
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<PAGE>
Item 7. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set
forth in the "Index to Financial Statements on page F-1.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Jones, Jensen & Company, certified public accountants of Utah, audited
the financial statements of the Company for the year ended December 31, 1995.
Jones, Jensen & Company was dismissed as of August 26, 1996 at which time Jack
Evans, CPA, certified public accountant of Houston, Texas was engaged as the
Company's accountants. There were no disagreements between the Company and
Jones, Jensen & Company, CPA, on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which,
if not resolved, would have caused them to make reference to the subject matter
of the disagreement in connection with their report.
The report of Jones, Jensen & Company for the year ended December 31,
1995 did not contain any adverse opinion or disclaimer of opinion, excepting a
going concern qualification, and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
The decision to change principal accountants was approved by the Board
of Directors because the offices of Jack Evans, CPA were located near the new
principal executive offices of the Company.
Also, during the Company's two most recent fiscal years, and since then,
Jones, Jensen & Company has not advised the Company that any of the following
exist or are applicable:
(1) That the internal controls necessary for the Company to
develop reliable financial statements do not exist, that
information has come to their attention that has lead them to
no longer be able to rely on management's representations, or
that has made them unwilling to be associated with the
financial statements prepared by management;
(2) That the Company needs to expand significantly the scope of
its audit, or that information has come to their attention
that if further investigated may materially impact the
fairness or reliability of a previously issued audit report or
the underlying financial statements or any other financial
presentation, or cause him to be unwilling to rely on
management's representations or be associated with the
Company's financial statements for the foregoing reasons or
any other reason; or
(3) That they have advised the Company that information has come
to their attention that they have concluded materially impacts
the fairness or reliability of either a previously issued
audit report or the underlying financial statements for the
foregoing reasons or any other reason.
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<PAGE>
The Company has provided Jones, Jensen & Company with a copy of the
disclosure provided herein. Jones, Jensen & Company has advised the Company that
it agrees with the disclosures made herein and the Company has been provided
with a letter to the Commission by Jones, Jensen & Company confirming such
agreement.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Executive Officers and Directors
The following table sets forth the names and positions of each of the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
Name Position Age
<S> <C> <C>
Kent Watts Director, Chief Executive Officer, 39
and Chief Accounting Officer
Robert J. Hill Director 42
</TABLE>
Directors are elected annually and hold office until the next annual
meeting of the stockholders of the Company or until their successors are elected
and qualified. Officers are elected annually and serve at the discretion of the
Board of Directors. There is no family relationship between or among any of the
directors and executive officers of the Company. Board vacancies are filled by a
majority vote of the Board.
Kent Watts, age 39, became Chairman of the Board of Directors and was
named the companies President and Chief Executive Officer on June 4, 1997
simultaneously with the resignation of Greg J. Micek. He has served as a
Director, Chief Financial Officer, and Chief Information Officer of the Company
since January 17, 1997. Mr. Watts has been a certified public accountant in
Texas since 1985 and a licensed Real Estate broker since 1979. He received a
Bachelor of Business Administration Degree from the University of Houston in
1983. Mr. Watts founded MicroData Systems, Inc., a subsidiary of the Company, in
1988. He has extensive experience working with management information systems.
Mr. Watts has been involved in the design, implementation and management of
heterogeneous, multi-protocol networks. He has substantial technical experience
with a variety of operating systems, relational databases, and client-server
based software applications. He brings to the Company an interesting blend of
business and technical experience.
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<PAGE>
Robert J. Hill, age 42, has served as the Chief Operating Officer of
the Company since June 1996 and as Chief Operating Officer and a Director of the
Company since August 26, 1996. Before joining the Company, Mr. Hill served for
two years as vice president of Hudson-Trinity Incorporated, a privately-held
Internet service provider and network engineering company that also contracted
senior network engineers to Loral Space Systems, Inc., the principal civilian
contractor for the design, development and installation of NASA's new manned
space flight control center. Previously, Mr. Hill served for three years as
Acquisition Manager for Loral Space Systems, Inc. Mr. Hill has earned an MBA
degree from South Eastern Institute of Technology and a BA degree from the State
University of New York at Potsdam.
Certain Securities Filings
The Company believes that filings required under Section 16(a) of the
Exchange Act have been made in a timely manner.
Item 10. EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to
the Company for the fiscal years ended June 30, 1996 and 1997 of the chief
executive officer of the Company. No executive officer (other than the chief
executive officer) of the Company received compensation which exceeded $100,000
during 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation All
Restricted Stock Other
FYE Stock Options Compen-
Name & Principal Position 6/30 Salary Bonus Other Awards (Shares) sation
<S> <C> <C> <C> <C> <C> <C> <C>
Kent Watts (1) 1997 $60,000 -0- -0- -0- -0- -0-
Chief Executive Officer 1996 $ -0- -0- -0- -0- -0- -0-
Gregory Micek (2) 1997 $22,100 -0- -0- 420,000 -0- -0-
Former Chief Executive 1996 $ -0- -0- -0- -0- -0- -0-
Officer 1995 $ -0- -0- -0- -0- -0- -0-
Gregory Aurre 1997 $ -0- -0- -0- -0- -0- -0-
Former Chief Executive 1996 $ -0- -0- -0- -0- -0- -0-
Officer 1995 $ -0- -0- -0- -0- -0- -0-
</TABLE>
(1) Mr. Watts received a $60,000 salary from MicroData Systems, Inc, in
fiscal year end 6/30/97. He will receive $84,000 annually starting July
1, 1997 and will be increased to $100,000 per year once the Company
realizes it's first quarterly profit.
(2) Mr.Micek received 420,000 restricted shares of common stock of the
Company as payment for his salary through June, 1996. The estimated
fair market value of the Common Stock was $0.03 per share.
-13-
<PAGE>
Director Compensation
The Company does not currently pay any cash directors' fees, but it pays the
expenses of its directors in attending board meetings.
Employee Stock Option Plan
The Company has been successful in attracting and retaining qualified personnel,
the Company believes that its future success will depend in part on its
continued ability to attract and retain highly qualified personnel. The Company
pays wages and salaries which it believes are competitive. The Company also
believes that equity ownership is an important factor in its ability to attract
and retain skilled personnel, and the Board of Directors of the Company has
adopted an employee stock option program.
Options to purchase 1,620,000 shares have been approved under the Plan. Such
options will vest over a five year or other negotiated period and will have a
strike at a price set at the time of grant and based on the then current market
value of the stock. The President of the Company has the authority as given by
the Board of Directors to negotiate stock option agreements with corporate
consultants as well. As of September 1, 1997, options to purchase 962,060 shares
have been granted under this plan.
The purpose of the executive stock option program will be to further the
interest of the Company, its subsidiaries and its stockholders by providing
incentives in the form of stock options to key employees and directors who
contribute materially to the success and profitability of the Company. The
grants will recognize and reward outstanding individual performances and
contributions and will give such persons a proprietary interest in the Company,
thus enhancing their personal interest in the Company's continued success and
progress. This program will also assist the Company and its subsidiaries in
attracting and retaining key employees and directors.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information at September 1, 1997, with
respect to the beneficial ownership of shares of Common Stock by (i) each person
who owns beneficially more than 5% of the outstanding shares of Common Stock,
(ii) each director of the Company, (iii) each executive officer of the Company
and (iv) all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned
Name and Address of Beneficial Owner Number Percent
<S> <C> <C>
Kent Watts
2656 South Loop West, Suite 103
-14-
<PAGE>
Houston, Texas 77054 . . . . . . . . . . . . . . 1,180,000 21.10%
Robert J. Hill
2656 South Loop West, Suite 103
Houston, Texas 77054 . . . . . . . . . . . . . . 390,000 6.97%
Gregory Micek
5444 Westheimer, Suite 2080
Houston, Texas 77056 . . . . . . . . . . . . . . 574,500 10.27%
Other Affiliated Group (1)
All directors and executive officers as
a group (2 persons) . . . . . . . . . . . . . . . . 1,570,000 28.07%
</TABLE>
---------------
On August 15, 1996 the Company went through a reorganization which resulted
partly in the issuance of 1,540,000 shares of common stock to
shareholders which represents 27% of total outstanding shares at
September 1, 1997, that the Company believes may be a group acting in
concert with regard to control of the Company. The Company's stock
issuance records show the following list:
<TABLE>
<CAPTION>
Name # of Shares
<S> <C> <C>
Peterson 25,000
Thompson 102,150
Klausmeyer 237,250
Strawn 339,300
Cicero Cinzano 50,000
Fairweather Sec 51,300
Glory Place 10,000
HuggerMugger 102,200
McKenna 26,400
Segal/Alex Trust 45,000
FYJIGIM 45,000
Michelsen/cf Chelsey 5,750
Michelsen/cf Allyse 5,750
Nationsbank/Thompson family trust 45,000
Flicker 70,000
Q-Marq 115,000
Eurotrade 160,000
Tobem 100,000
Silvey 10,000
Serafino 20,000
--------
1,540,000
</TABLE>
Due to Registrant's inability to pay certain liabilities as they
become due, Registrant's Board
-15-
<PAGE>
of Directors approved on July 15, 1997 a bridge financing arrangement (the
"Financing") with Emerald Bay Interests, LTD ("EBI"). Under the terms of the
Financing, Registrant can borrow up to $250,000. Borrowed amounts bear interest
at a rate of 10% per annum and were due and payable on or before August 31,
1997. The total balance at September 25, 1997 is $195,000. At the option of EBI
the notes are convertible to the restricted common stock of the Company at a
rate of three cents ($.03) per share. The borrowed amounts have not been repaid
as of September 25, 1997. This represents a potential change of control.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board of Directors of the Company has adopted a policy that
Company affairs will be conducted in all respects by standards applicable to
publicly-held corporations and that the Company will not enter into any
future transactions and/or loans between the Company and its officers,
directors and 5% shareholders unless the terms are no less favorable than
could be obtained from independent, third parties and will be approved by a
majority of the independent, disinterested directors of the Company.
During the fourth quarter of 1997 it was determined that the
Company had difficult cash problems to overcome. The Company has obtained
financing from Emerald Bay Interests, LTD as a partial solution to this
problem. Michael Watts is the brother of Kent Watts, the President and Chief
Executive Officer for the Company. Michael Watts conducts certain brokerage
business with Emerald Bay Interests, LTD.
Michael Watts was retained by the Company in April, 1996 with a
consulting agreement related to several pending acquisitions. Under that
agreement the Company granted 275,000 S-8 stock options. On June 15, 1997
the board of directors extended the consulting services agreement through
12/31/97. This extension came with additional compensation of 300,000 S-8
options and additional services in the area of corporate restructuring. The
board believes that these services will enhance the companies ability to
effect future acquisitions.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Identification of Exhibit
<S> <C>
10.1 Promissory Notes dated July 17, 25, August 29, and
September 22, 1997
21.1 Subsidiaries of Registrant
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
A report on Form 8-K was filed on June 3, 1997 which reported other
events regarding the
-16-
<PAGE>
resignation of Greg Micek as President and CEO and the election of Kent Watts as
his successor.
A report on Form 8-K was filed on August 5, 1997 which reported
other events regarding bridge loan financing .
<PAGE>
HYPERDYNAMICS CORPORATION
AUDITED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditor's Report F-2
Balance Sheets as of June 30, 1997 and 1996 F-3
Statements of Income for the
years ended June 30, 1997 and 1996 F-4
Statements of Changes in Stockholders' Equity for
the years ended June 30, 1997 and 1996 F-5
Statements of Cash Flows for the years ended
June 30, 1997 and 1996 F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
JACK EVANS
CERTIFIED PUBLIC ACCOUNTANT
Three Riverway, Suite 120
Houston, Texas 77056-1909
Voice (713) 623-2898
Fax (713)960-8128
September 19, 1997
To the Board of Directors
HyperDynamics Corporation
Houston, Texas
I have audited the accompanying consolidated balance sheets of
HyperDynamics Corporation as of June 30, 1997 and June 30, 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements and financial statement schedule
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audits provide a reasonable basis for our
opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HyperDynamics
Corporation as of June 30, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
auditing principles.
JACK EVANS
F-2
<PAGE>
HYPERDYNAMICS CORPORATION
Balance Sheets
June 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
------------- ------------
CURRENT ASSETS
Cash $ 30,068 $ 102,907
Certificate of deposit (restricted) 70,000
Accounts receivable 39,772 239,895
Due from officers 4,866
Revenue interest current portion 35,970
Other 42,978 32,082
------------- -----------
TOTAL CURRENT ASSETS 223,654 374,884
------------- -----------
PROPERTY AND EQUIPMENT 20,933 51,758
REVENUE INTEREST 141,030
OTHER ASSETS - deposits 3,348 11,271
------------ -----------
$ 388,965 $ 437,913
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 14,171
Bank credit line $ 70,000
Accounts payable 191,662 288,760
Accrued expenses 30,962 2,368
Notes payable 37,500
----------- -----------
TOTAL CURRENT LIABILITIES 330,124 305,299
LONG-TERM DEBT 33,626
------------ -----------
TOTAL LIABILITIES 330,124 338,925
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, par value $0.001; 50,000,000 shares
authorized; 5,596,989, and 2,000,000 shares
issued and outstanding 5,597 2,000
Additional paid-in capital 696,111 106,046
Retained (deficit) ( 642,867) ( 9,058)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 58,841 98,988
------------ -----------
$ 388,965 $ 437,913
============ ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
HYPERDYNAMICS CORPORATION
Statements of Income
For the Year Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------------- -----------
<S> <C> <C>
REVENUES $ 1,520,928 $ 943,141
COST OF REVENUES 1,323,696 742,597
------------- --------------
GROSS MARGIN 197,232 200,544
------------- --------------
OPERATING EXPENSES
Selling 60,602 8,965
General and administrative 614,856 172,166
Research & development - internet 53,979
Write-off of intangibles 11,880
Depreciation and amortization 26,947 20,779
------------- --------------
Total operating expenses 768,264 201,910
------------- --------------
OPERATING LOSS ( 571,032) ( 1,366)
OTHER INCOME (EXPENSE)
Interest ( 5,588) ( 3,766)
Loss on disposal of asset ( 3,838)
--------------- --------------
LOSS FROM CONTINUING OPERATIONS ( 580,458) ( 5,132)
LOSS FROM DISCONTINUED OPERATIONS ( 53,351)
--------------- --------------
NET LOSS $( 633,809) $( 5,132)
============== ===============
LOSS PER COMMON SHARE
Continuing operations $( 0.13)
Discontinued operations ( 0.01)
--------
NET LOSS PER COMMON SHARE $( 0.14) - n/a -
=======
Weighted average shares outstanding 4,495,273 - n/a -
</TABLE>
See accompanying notes.
F-4
<PAGE>
HYPERDYNAMICS CORPORATION
Statement of Changes in Stockholders' Equity
Year Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
- -Common Stock - - Paid-in Retained
Shares Amount Capital (Deficit) Totals
<S> <C> <C> <C> <C> <C>
Balances - June 30, 1995
MicroData Systems, Inc. 75,000 $ 7,500 $ 546 $( 3,926) $ 4,120
Merger with MicroData
Systems, Inc. 529,000 ( 6,896) 6,896
----------- ----------- ------------ --------- ----------
AS RESTATED
Balances - June 30, 1995 604,000 604 7,442 ( 3,926) 4,120
Common shares issued for cash 200,000 200 99,800 100,000
Net (loss) ( 5,132) ( 5,132)
-------------- ----------- ------------ ---------- -----------
Balances - June 30, 1996 804,000 804 107,242 ( 9,058) 98,988
Issuance of stock for merger with:
Houston Creative
Connections, Inc. 2,102,000 2,102 ( 2,102) 216,487 216,487
RAM-Z Enterprises, Inc. 480,175 480 ( 480)
Common stock issued for cash 295,000 295 259,705 260,000
Common shares issued for services 3,140,814 3,141 153,521 156,662
Divestiture of Houston Creative
Connections, Inc. (2,102,000) (2,102) 2,102 (216,487) (216,487)
Issuance of stock to former owners
of MicroData Systems, Inc. 700,000 700 (700)
Common shares issued to purchase
Sierra-Net Revenue Interest 177,000 177 176,823 177,000
Net (loss) (633,809) (633,809)
--------------- ----------- ----------- ----------- ---------
Balances - June 30, 1997 5,596,989 $ 5,597 $ 696,111 $( 642,867) $ 58,841
=============== ========== ========= ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
HYPERDYNAMICS CORPORATION
Statements of Cash Flows
Year Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) ( 633,809) ( 5,132)
Adjustments to reconcile net income to cash
provided from operating activities
Depreciation and amortization 26,948 20,779
Loss on disposal of auto 3,838
Stock issued for services 156,662
Changes in:
Certificates of deposit ( 70,000)
Accounts receivable 200,123 ( 214,964)
Employee advances ( 4,866)
Inventory ( 26,737) 37,588
Prepaid expenses 15,841 ( 19,555)
Deposits 7,923 ( 3,114)
Accounts payable ( 97,098) 190,220
Customer deposits ( 34,450)
Accrued expenses 28,594 ( 1,461)
----------- -------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES ( 392,581) ( 30,089)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment ( 15,224) ( 29,969)
----------- ------------
NET CASH PROVIDED FROM INVESTING ACTIVITIES ( 15,224) ( 29,969)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in banking line of credit 70,000
Increase in short-term convertible notes 37,500
Reduction in notes payable ( 32,534) ( 8,947)
Sales of common stock 260,000 100,000
---------- -----------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 334,966 91,053
---------- ------------
NET INCREASE (DECREASE) IN CASH ( 72,839) 30,995
CASH AT BEGINNING OF PERIOD 102,907 71,912
---------- -----------
CASH AT END OF PERIOD $ 30,068 $ 102,907
========== =========
SUPPLEMENTAL INFORMATION
Interest paid $ 4,182 $ 3,766
</TABLE>
See accompanying notes.
F-6
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Principles of consolidation. The consolidated financial statements include the
accounts of MicroData Systems, Inc., a computer hardware reseller, and wholly
owned subsidiary of the Company. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Nature of business. HyperDynamics Corporation ("Company") was formed on March 7,
1996 as a Texas corporation, and reorganized, through a reverse merger with
Ram-Z Enterprises, Inc. as a Delaware corporation as of August 26, 1996. The
Company was formed primarily for the purposes of acquiring privately-held
companies and merging with, Ram-Z Enterprises, Inc., a registered 12(g) company
under the Securities Act of 1934, as amended, with no recent ongoing operations
to date.
Cash and cash equivalents. The Company considers cash in operating bank accounts
as cash and cash equivalents.
Revenue and cost recognition. Revenues from computer consulting and sales of
computer hardware are recognized when services or installations are performed.
In 1996, the Company's revenues were reported net of an allowance for
uncollectibles of $15,000. In 1997 the Company's allowance for uncollectibles
was zero resulting in bad debt recovery of $12,100.
Inventory. Inventory is stated at the lower of cost or market and consists of
computer components available for sale. Inventory cost is determined using the
cost method.
Property and equipment. The Company calculates depreciation for financial
reporting using the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<CAPTION>
1997 1996
------------- ---------
<S> <C> <C> <C>
Computer equipment 3 years $ 82,340 $ 68,916
Furniture & fixtures 5 years 9,590 7,790
Auto 5 years 19,101
------------ ----------
Total cost - property & equipment 91,930 95,807
Less: accumulated depreciation ( 70,997) ( 44,049)
---------- ----------
Net book value $ 20,933 $ 51,758
========== ==========
</TABLE>
Equipment maintenance is charged to administrative overhead as incurred.
Income taxes. Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to depreciation differences. To date there has
been no taxable income
F-7
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)
recorded.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
NOTE 2 - OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
1997 1996
------------- ----------
<S> <C> <C>
Prepaid expenses $ 16,241 $ 32,082
Inventory 26,737
------------ ----------
$ 42,978 $ 32,082
=========== ==========
</TABLE>
NOTE 3 - REVENUE SHARING INTEREST
In May 1997, the Company purchased a revenue interest in the Sierra-Net
subsidiary of Internet Finance & Equipment, Inc. (IF&E) by issuing 177,000
shares of stock. SierraNet is an internet service provider in Nevada. The
Company valued this transaction at $177,000. The collections averaged $3,000 per
month for July and August 1997. This interest includes 4% of gross revenue and
19% of gross sale proceeds if any significant assets or stock of Sierra-Net are
sold.
The current portion of this interest represents management's estimate of cash
receipts over the next 12 months.
NOTE 4 - MERGERS AND DIVESTITURE
Prior to August 26, 1996, the Company was an inactive public shell named RAM-Z
Enterprises, Inc. On August 26, 1996, the Company completed a "reverse
acquisition" of a holding company, HyperDynamics Corporation, and its two
newly-acquired operating subsidiaries: Houston Creative Connections, Inc. (HCC)
and MicroData Systems, Inc. (MDS). HCC is an outsourcing agency placing creative
design and computer programming professionals. MDS is a reseller of computer
networking software and hardware.
This reverse acquisition by RAM-Z was accounted for by the purchase method of
accounting and the prior acquisitions of HCC and MDS by the Company were
accounted for using the pooling of interests method.
F-8
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - MERGERS AND DIVESTITURE (continued)
On February 6, 1997, the Company agreed with the original shareholders of HCC to
transfer 100% of ownership of this subsidiary back to such original shareholders
in exchange for their entire holdings of Company stock, or 2,102,000 shares.
In connection with this divestiture, the Company agreed to issue 700,000 shares
to the original shareholders of MDS for cancellation of their recission rights.
The loss on this transaction is reflected as loss from discontinued operations
on the consolidated financial statements.
NOTE 5 - BANK CREDIT LINE ARRANGEMENT
The Company has a revolving line of credit at Frost National Bank for $70,000
payable in full on January 23, 1998. Interest accrues at the lenders prime rate,
currently 8.25%. The line of credit is secured by the $70,000 certificate of
deposit.
NOTE 6 - NOTES PAYABLE
The Company borrowed $37,500 from two stockholders. Both of the loans accrue
interest at 9% annually and mature in January 1998, at which time the balance is
due in full or the loans may be converted into 25,000 common shares at $1, and
5,000 common shares at $2.50.
NOTE 7 - STOCK OPTIONS
The Company has granted options pursuant to its stock option plan. Grants are
made at management's discretion, and are generally granted as compensation for
services. Options granted in 1997 resulted in compensation expense of $20,000
based on management's estimate of the options fair value at date of grant.
Options that have been granted and are outstanding generally expire in 1 - 5
years from date of grant, and are 100% exercisable at date of grant. At June 30,
1997 a total of 1,315,660 options were outstanding and exercisable with the
following exercise prices:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1,172,900 at $ 1.250
17,760 at 0.750 -1.000
125,000 at 0.001
</TABLE>
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for awards under the plan
consistent with the Black-Scholes option-pricing model suggested by FASB
Statement 123, the Company's net losses and loss per share would have been
increased to the pro forma amounts indicated below:
F-9
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - STOCK OPTIONS (continued)
<TABLE>
<CAPTION>
1997 1996
---------------- -----------
<S> <C> <C>
Net loss - as reported $( 633,809) $( 5,132)
- pro forma $(1,150,609) $( 5,132)
Net loss per share - as reported $( 0.14) - n/a -
- pro forma $( 0.26) - n/a -
</TABLE>
Variables used in the Black-Scholes option-pricing model include (1) a 6%
risk-free interest rate, (2) expected option life is the actual remaining life
of the options as of June 30, 1997, (3) expected volatility is one-half of the
actual calculated historical stock price fluctuation volatility, (4) zero
expected dividends, and (5) one-half of the actual stock prices was used to
offset the unusual price changes from the thin but developing actual trading
volume.
During 1997, 200,000 options were exercised, 100,000 at $1.00 and 100,000 at
$0.75.
NOTE 8 - WRITE-OFF OF INTANGIBLES
Organizational costs and internal use software totaling $11,880 capitalized in
the prior year were expensed in the current year.
NOTE 9 - MAJOR CUSTOMERS AND VENDORS
Major customers during 1997 and 1997 earned revenues from them were:
Novo Industries, Inc. $ 369,038 or 24.3% of total revenues
Lockheed Space Operations 215,412 or 14.2% of total revenues
Major vendors during 1997 and 1997 purchases from them were:
Arrow Electronics $ 313,899 or 23.7% of total costs
Tech Data 136,662 or 10.3% of total costs
No other customers or vendors accounted for greater than 10% of the respective
totals.
F-10
<PAGE>
NOTE 10 - CONTINGENCIES - GOING CONCERN
As shown in the accompanying financial statements, the Company incurred net
operating losses of $633,809 for the year ended June 30, 1997, and $5,132 for
the year ended June 30, 1996. As of June 30, 1997, current liabilities exceed
current assets by $106,470. Those factors, as well as management's ability to
increase acquisitions and long-term financing, create an uncertainty about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE 11 - SUBSEQUENT EVENTS
Subsequent to June 30, 1997, the Company received $175,000 from Emerald Bay
Investments, Ltd. as convertible debt. Interest accrues daily at a 10% annual
rate. The debt matures August 31, 1998 and may be converted into 5,833,334
shares of common stock at $0.03 per share. In the event of conversion, Emerald
Bay Investments, Ltd. would become the majority shareholder, and obtain control
of the Company.
F-11
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 of 15(d) of the
Exchange Act, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 3rd day of
October, 1997.
HyperDynamics Corporation
By: /s/ Kent Watts
------------------------
Kent Watts, Chairman of the
Board, Chief Executive Officer, and
Chief Accounting Officer
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons in the capacities and on the dates
indicated:
Signature Title Date
/s/ Kent Watts Chairman of the Board, October 3, 1997
--------------------- Chief Executive Officer
Kent Watts and Chief Accounting Officer
/s/ Robert Hill Director October 3, 1997
---------------------
Robert Hill
<PAGE>
EXHIBITS INDEX
Exhibit
No. Identification of Exhibit
10.1 Promissory Notes dated July 17, 25, August 29, and September 22, 1997
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule
PROMISSORY NOTE
NOTE# BRIDGE001
July 17, 1997
FOR VALUE RECEIVED hereby specified to be a fifty thousand dollar ($50,000)
Bridge Loan deposited into the account of HyperDynamics Corporation at Frost
Bank; as one step in the currently ongoing process of capital restructure
necessary to give the company an opportunity to be a viable economic entity and
effect it's business plan;
the undersigned ("Maker"), promises to pay to the order of Emerald Bay
Investments, LTD (A Caymen Islands Company) or it's representatives, heirs,
beneficiaries, successors or assigns ("Payee"), at such address as Payee may
designate, in the legal and lawful money of the United States of America, on or
before August 31, 1997, the principal sum of Fifty Thousand Dollars ($50,000)
plus accrued interest accrued daily at a 10% annual interest rate;
Should the payment not be made by the August 31, 1997 due date, the Payee is
hereby granted an option to receive the restricted common stock of the Maker in
full payment of debt still owed to Payee; which at Payee's sole discretion may
exercise by written notice to exercise it's option after August 31, 1997. Upon
receipt of Payee's written notice to exercise it's option, Maker will have five
working days to either make full cash payment of amounts due or the appropriate
officer of the Maker will be obligated to cause it's restricted common stock to
be issued in full payment of remaining unpaid debt as follows:
The number of restricted common stock shares of Maker to be issued to Payee will
be calculated as: The remaining unpaid balance on this note divided by three
cents (.03) per share.
THIS NOTE IS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED
BY, THE LAWS OF THE STATE OF TEXAS.
/s/ Kent Watts , Kent Watts, President for
HyperDynamics Corporation (Maker)
<PAGE>
PROMISSORY NOTE
NOTE# BRIDGE002
July 25, 1997
FOR VALUE RECEIVED hereby specified to be a fifty thousand dollar ($50,000)
Bridge Loan deposited into the account of HyperDynamics Corporation at Frost
Bank; as one step in the currently ongoing process of capital restructure
necessary to give the company an opportunity to be a viable economic entity and
effect it's business plan;
the undersigned ("Maker"), promises to pay to the order of Emerald Bay
Investments, LTD (A Caymen Islands Company) or it's representatives, heirs,
beneficiaries, successors or assigns ("Payee"), at such address as Payee may
designate, in the legal and lawful money of the United States of America, on or
before August 31, 1997, the principal sum of Fifty Thousand Dollars ($50,000)
plus accrued interest accrued daily at a 10% annual interest rate;
Should the payment not be made by the August 31, 1997 due date, the Payee is
hereby granted an option to receive the restricted common stock of the Maker in
full payment of debt still owed to Payee; which at Payee's sole discretion may
exercise by written notice to exercise it's option after August 31, 1997. Upon
receipt of Payee's written notice to exercise it's option, Maker will have five
working days to either make full cash payment of amounts due or the appropriate
officer of the Maker will be obligated to cause it's restricted common stock to
be issued in full payment of remaining unpaid debt as follows:
The number of restricted common stock shares of Maker to be issued to Payee will
be calculated as: The remaining unpaid balance on this note divided by three
cents (.03) per share.
THIS NOTE IS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED
BY, THE LAWS OF THE STATE OF TEXAS.
/s/ Kent Watts ,Kent Watts, President for
HyperDynamics Corporation (Maker)
<PAGE>
PROMISSORY NOTE
NOTE# BRIDGE003
August 29, 1997
FOR VALUE RECEIVED hereby specified to be a Seventy Five Thousand Dollar
($75,000) Bridge Loan deposited into the account of HyperDynamics Corporation at
Frost Bank; as one step in the currently ongoing process of capital restructure
necessary to give the company an opportunity to be a viable economic entity and
effect it=s business plan;
the undersigned (AMaker@), promises to pay to the order of Emerald Bay
Investments, LTD (A Caymen Islands Company) or it=s representatives, heirs,
beneficiaries, successors or assigns (APayee@), at such address as Payee may
designate, in the legal and lawful money of the United States of America, on or
before August 31, 1997, the principal sum of Seventy Five Thousand Dollars
($75,000) plus accrued interest accrued daily at a 10% annual interest rate;
Should the payment not be made by the August 31, 1997 due date, the Payee is
hereby granted an option to receive the restricted common stock of the Maker in
full payment of debt still owed to Payee; which at Payee=s sole descretion may
excercise by written notice to excercise it=s option after August 31, 1997. Upon
receipt of Payee=s written notice to excercise it=s option, Maker will have five
working days to either make full cash payment of amounts due or the appropriate
officer of the Maker will be obligated to cause it=s restricted common stock to
be issued in full payment of remaining unpaid debt as follows:
The number of restricted common stock shares of Maker to be issued to Payee
will be calculated as: The remaining unpaid balance on this note
devided by three cents (.03) per share.
THIS NOTE IS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED
BY, THE LAWS OF THE STATE OF TEXAS.
/s/ Kent Watts Kent Watts, President for
HyperDynamics Corporation (Maker)
<PAGE>
1
PROMISSORY NOTE
NOTE# BRIDGE004
September 22, 1997
FOR VALUE RECEIVED hereby specified to be a Twenty Thousand Dollar ($20,000)
Bridge Loan deposited into the account of HyperDynamics Corporation at Frost
Bank; as one step in the currently ongoing process of capital restructure
necessary to give the company an opportunity to be a viable economic entity and
effect it's business plan;
the undersigned ("Maker"), promises to pay to the order of Emerald Bay
Investments, LTD (A Caymen Islands Company) or it's representatives, heirs,
beneficiaries, successors or assigns ("Payee"), at such address as Payee may
designate, in the legal and lawful money of the United States of America, on or
before September 29,1997 the principal sum of Twenty Thousand Dollars ($20,000)
plus accrued interest accrued daily at a 10% annual interest rate;
Should the payment not be made by the September 29, 1997 due date, the Payee is
hereby granted an option to receive the restricted common stock of the Maker in
full payment of debt still owed to Payee; which at Payee's sole option may
exercise by written notice to exercise it's option after September 29, 1997.
Upon receipt of Payee's written notice to exercise it's option, Maker will have
five working days to either make full cash payment of amounts due or the
appropriate officer of the Maker will be obligated to cause it's restricted
common stock to be issued in full payment of remaining unpaid debt as follows:
The number of restricted common stock shares of Maker to be issued to Payee will
be calculated as: The remaining unpaid balance on this note divided by three
cents (.03) per share.
THIS NOTE IS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED
BY, THE LAWS OF THE STATE OF TEXAS.
/s/ Kent Watts , Kent Watts, President for
HyperDynamics Corporation (Maker)
EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT
The following are subsidiaries of the Registrant:
MicroData Systems, Inc., A Texas corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED
FROM ITEM 7 OF FORM 10-KSB FOR THE YEAR ENDED JUNE 30, 1997 AND QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000937136
<NAME> HYPERDYNAMICS CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 30068
<SECURITIES> 70000
<RECEIVABLES> 39772
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 223654
<PP&E> 91930
<DEPRECIATION> 70997
<TOTAL-ASSETS> 388965
<CURRENT-LIABILITIES> 330124
<BONDS> 0
0
0
<COMMON> 5597
<OTHER-SE> 53244
<TOTAL-LIABILITY-AND-EQUITY> 388965
<SALES> 1520928
<TOTAL-REVENUES> 1520928
<CGS> 1323696
<TOTAL-COSTS> 1323696
<OTHER-EXPENSES> 798264
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5588
<INCOME-PRETAX> (580458)
<INCOME-TAX> 0
<INCOME-CONTINUING> (580458)
<DISCONTINUED> (53351)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (633809)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
