UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant To Section 13 Or 15(D) Of The Securities Exchange
Act Of 1934; For The Fiscal Year Ended: June 30, 1998
or
[ ] Transition Report Pursuant To Section 13 Or 15(D) Of The Exchange Act Of
1934
Commission File Number: 000-25496
HYPERDYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 87-0400335
(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)
(713) 839-9300
(Registrant's telephone number, including area code)
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 (1) 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 (2) has been subject to such filing requirements for 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, 1998 were $820,535. The aggregate
market value of Common Stock held by non-affiliates of the registrant at
September 18, 1998, based upon the last reported sales prices on the OTCBB was
$2,826,981 . As of September 21, 1998, there were 12,208,321 Shares of Common
Stock outstanding.
<PAGE>
Table of Contents
Part I
<TABLE>
<S> <C>
Item 1 Business 3
Item 2 Properties 10
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a Vote of Security Holders 11
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 12
Item 6 Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 7 Financial Statements 15
Item 8 Changes in and Disagreements With Accountants in Accounting and
Financial Disclosure 15
Part III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of The Exchange Act 17
Item 10 Executive Compensation 19
Item 11 Security Ownership of Certain Beneficial Owners and Management 21
Item 12 Certain Relationships and Related Transactions 22
Item 13 Exhibits and Reports on Form 8-K 23
</TABLE>
<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
originally 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 was accounted for by the
purchase method of accounting in the fiscal year ended 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. ("MDS") 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.
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 MDS 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 MDS
In January, 1997, the Board of Directors of the Company agreed with the former
shareholders of MDS that in the event of a divestiture of HCCI that the Company
would issue to the former shareholders of MDS 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 MDS in the Reorganization Agreement entered into between
the Company and MDS in July, 1996 (the "MDS Reorganization Agreement"), which
formed the basis for the original transaction between the Company and MDS and
which resulted in MDS becoming a wholly owned subsidiary of the Company. In
consideration for the Board of Directors' action, the former shareholders of MDS
agreed to waive certain rescission rights which were contained in the MDS
Reorganization Agreement. Consequently, as a result of the divestiture of HCCI,
the Company issued to the former shareholders of MDS 700,000 shares of common
stock of the Company.
Initiation of Wired & Wireless Corporation
On October 17, 1997 Wired & Wireless Corporation was established as a wholly
owned subsidiary of the Company to plan, design and implement information
systems for customers using wireless technologies such as multipoint /
multichannel distribution systems (MMDS) and low-power multipoint / multichannel
distribution systems (LMDS).
Two industry veterans were hired in October of 1997. Ted W. Tarver, former
President of Wireless Cable Connection, Inc. was hired as President of the new
subsidiary. Assets purchased by the Company from Wireless Cable Connection, Inc.
include an interest in contingent contract receivables for consulting of
$144,000 based on wireless frequency licenses granted and to be granted by the
Federal Communications Commission (FCC) to be granted to third parties. The
acquisition of certain Wireless Cable Connection assets was negotiated and
finalized with the receipt of certain sellable inventory assets as reflected in
inventory at June 30, 1998. The purchase also included miscellaneous equipment
and software used for evaluating and building out wireless markets. The
acquisition was finalized on June 23, 1998 when the company paid 100,000 shares
of restricted common stock, then trading at $.51 per share. Additionally, on
October 21, 1997 the company hired Joseph R. Barris as the Vice President for
the newly established subsidiary. The company also purchased all rights to the
International customer sales list and to all future sales for wireless equipment
of Joseph Barris and Barris Communications, Inc. The company paid cash of
$40,000 in cash for these customers and the rights to the related sales
associated with each.
Addition to the MicroData Team
On June 23, 1998 the company hired Harry James Briers as the new "Director of
Integrated Information Systems". Mr. Briers also agreed with the company to
re-direct all of his consulting business, formally know as "Perfect Solutions"
in Houston, Texas. The agreement included that the Company obtains all of the
rights to all future sales for products and services to these customers. Mr.
Briers was issued 100,000 shares of restricted common stock in the transaction.
At the time of the agreement, the stock issued was trading at $.51 per share.
Mr. Briers carries an MBA from the University of Houston - at Clear Lake. His
focus on mission critical enterprise-wide software applications broadens the
scope of MicroData's capabilities. A major area of focus for Mr. Briers are
integrated enterprise level software applications like the Great Plains
client-server plus SQL mid-range accounting system. This enterprise level
accounting platform is targeted for progressive growth companies with $10
million to $500 million in revenues. To this goal Mr. Briers enhances the
primary mission focus of HyperDynamics target market for its integrated
information systems services.
Current Direction of Business Plan
The current focus of the HyperDynamics Business plan is to build core revenues
in two areas.
MicroData is focusing on complete information system services as defined below.
It has established standard services to give its customers the flexibility to
pick and choose what services they need, but the main thrust it to build a
complete design including all components of IS so as to provide a turn-key one
stop shop for a company's IS requirements. We believe that this strategy will
become increasingly successful as all the now separate components of information
systems become much more tightly integrated over time.
Wired & Wireless Corporations' primary short-term mission is to develop core
revenues in the international wireless cable TV market. Its growing customer
base provides promise of some considerable revenues as the company starts to
develop its end-to-end wireless solution sales.
The common ground that allows the two subsidiaries to co-exist within the
HyperDynamics Business plan is the area of wired versus wireless voice, video,
and data networking. With respect to the HyperDyanmics mission as an information
systems service company, the issue will arise on an increasing basis as to what
degree you design a customers IS environment using a standard fiber or copper
infrastructure compared to using wireless technology. This also illustrates one
of the main criteria for future technology company acquisitions: how a
particular candidate company fits with respect to its ability to strengthen the
core capabilities of HyperDynamics as an information system services company.
Mission Statement
HyperDynamics Corporation is an information system services company
that provides integrated, wired and wireless voice, video, and data
technology that maximizes our customers' return on their technology
investment
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 ultimately become the Company's core
product.
Most of the standards for the critical components of this "HYPERD" IS
environment have been adopted. These standards, bundling of products
and services, and economies of scale are expected to 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 managing
Information Systems - defined as:
Telecommunications, including wide-area voice, video and data
networking;
Local-area voice, video and data networking;
Server and workstation computer systems and operating systems; and
Integrated client-server-based software applications;
Collectively providing effective management and distribution of a
company's transactional and decision support data.
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 commitment
that it has made to the Great Plains CS+ SQL mid-range system is evidence of
substantial progress in this area. Based on this strategy, 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 MDS. This will allow the Company to help
its subsidiaries operate more efficiently as well and result in maximizing
profits for its shareholders.
To keep up with technology as it changes so rapidly, the Company will continue
to invest in technical certification and excellence. We believe that growing
technical expertise will open doors for an increasing opportunity to provide
total turnkey IS services. We expect the long-term results to be strong
recurring contract service revenue. This will continue to strengthen the
company's value and related stock price in years to come.
The Information System Services Industry (i.e. Information Technology)
In the United States there was reported vacancies of approximately 350,000
information technology (IT) related jobs in 1997. The Labor Department projects
the need for an additional 95,000 IT jobs annually between now and the year
2005. With only an estimated 25,000 new IT graduates coming out into the
workforce annually there could be a serious shortage of IT talent. This presents
a serious growth opportunity for HyperDynamics Corporation due to its
acquisition strategy to acquire information technology based companies with a
heavy emphasis on the talent and experience within each company. By obtaining
the talent, we believe that coupled with a reasonable marketing plan that we
will continue to substantially increase IS service revenues.
The "HYPERD" integrated information system that the company is continuing to
develop will wind up being the ultimate core product. This developing product is
positioned towards total IT outsourcing. One of the reasons that there is a
shortage of IT professionals is due to the lack of standards established across
all areas of a company's IS infrastructure. With a lack of standards, companies
create a complex maze of what we call "spaghetti warehouse" system designs. The
larger and more diverse the organization, generally the more diverse the system.
This is what has spawned the emergence of enterprise-wide application
technology. Larger companies invest large amounts of resources in the
implementation of these types of applications that allow the organization to
standardize the way it does business. The enterprise applications cross over
departmental boundaries, subsidiary lines, and even industry lines in the case
of conglomerates or modified conglomerates. Business managers are learning that
by standardizing the components used for each area of information systems that
the ultimate total cost of ownership and ongoing management will greatly reduce.
The hard dollar benefits are somewhat difficult to evaluate because some of the
real benefits are long-term in nature. The soft-dollar benefits, such as
increased organizational productivity are unfortunately not often considered
until a competitor is able to provide a product or service more efficiently and
you are fighting to stay in business. HyperDynamics is continuing to develop its
complete standards based IS design. The "HYPERD" system that the Company also
uses in-house may be completed in the second quarter of FYE June 30, 1999.
However, due to the advancing nature of technology, this "HYPERD" design will
constantly be updated. The marketing approach of this outsourcing concept will
be defined by the end of the second quarter of FYE 1999. This "HYPD" product
will provide a complete design from the integrated voice/data phone system to
the integrated enterprise-wide software applications which run geographically
independent across an organizations network infrastructure. One challenge will
be to make the product flexible enough to handle a wide-range of companies in
many different industries without compromising foundational standards. This is
the reason that partnership with companies like Great Plains Software is so
important.
As defined above by HyperDynamics Corporation, "information system" includes all
factors associated with the design implementation, and maintenance of a
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
enterprise-wide productivity based 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, the Company is sitting in the right place and at the right
time to obtain the required talents.
HyperDynamics Corporation has a plan for steady growth through hand picked
timely acquisitions of Technology based companies that maintain expertise in the
various defined areas of Information Systems Technology.
Subsidiary - MicroData Systems, Inc. (MDS)
The primary focus in fiscal year end 1998 was on the implementation of Wired &
Wireless Corporation. However, MDS was able to achieve some significant positive
accomplishments even with its limited resources.
As discussed in last year's report, the company discussed the implementation of
its new point of presence (POP) on the Internet. "HYD.NET" was implemented using
the infrastructure already in place with MDS. This POP has provided the
beginnings of a powerful presence on the Internet for high speed access, web
hosting, and e-commerce based services that MDS is providing on an increasing
scale for its information system (IS) service based customers.
Additionally, although MDS has successfully shifted its position in the market
to be increasingly more IS service oriented, it maintains the skills to provide
custom hardware solutions. One such example is its certification as an Intel
Systems Integrator. MDS's current strategy is to provide quality hardware to the
customer with an emphasis on the IS services. Although the company can provide
numerous name brand hardware systems to its customers, MDS can also provide the
best cost/benefit solution for integrated hardware by using Intel Only
components, including the processors, main system boards, network adapters and
other peripheral components. Its technical facility is suited for substantial
testing and configuration which allows it to deliver completely integrated
networked systems which have already been configured and tested far beyond what
is available from name brand manufacturers. This core ability over and above its
professional network and system administration capabilities truly gives it the
ability to be a turnkey outsource vendor for complete IS services. MicroData
will be used by its customers, on an increasing basis, as their complete IS
department.
With the addition of Harry Briers and the recent certification from Great Plains
Software as a client/server plus certified partner, MicroData has solidified its
core competency for marketing and selling one of the top enterprise wide
accounting platforms available in the world. By exclusively using the Great
Plains CS+ SQL software in-house, the infrastructure is complete with yet some
additional nominal investment for the company to implement e-commerce for its
higher volume and lower margin products. The heavy emphasis by Mr. Briers on
marketing enterprise wide applications will help to yield increasingly larger
and more lucrative IS service contracts.
Strategic Adjustments to Business
As discussed above the underlying strategy for MDS is to become the IS
department for small to medium sized businesses. With increasing ability to
provide complete intranet design, implementation, and maintenance, coupled with
an integrated high speed Internet strategy for access, hosting, and e-commerce
development MDS is expected to create an overwhelming demand for its services.
With the increasing success with some of its core IS service accounts, the
company has a growing need to invest extensively in developing its e-commerce
capability in FYE 1999. Part of its acquisition strategy will be focused on
company's that have the technical talent and core customer base to help it
fulfill this part of its mission.
As discussed in last years annual report, HYPD consolidated its payroll
processing at the corporate level. It has also initiated a cost allocation
mechanism so that the separate corporate entities, MicroData, Wired & Wireless
Corporation and HyperDynamics Corporation, the parent company, can each operate
independently while maintaining the efficiency of having to process only one
payroll for the organization.
By consolidating payroll the Company is able to minimize costs of benefits for
employees as well as cost of administrative overhead as we continue to grow.
This move to consolidate payroll has 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. This use what you sell concept
will allow the Company to acquire and assimilate acquisitions swiftly and
efficiently.
In order to provide for much tighter voice and data integration ability, the
company is looking at a tactical acquisition of a small but talented voice/data
company. Regardless of the outcome of the acquisition, the company expects to
implement this technology in-house which will be a further testimony to its IS
service customers and will be a core component to its "HYPERD" integrated
information system. This new integrated phone and voice/data system is not
expected to cost any additional investment since it expects to be able to sell
its current phone system for roughly the same cost.
<PAGE>
Employees and Independent Contractors
The Company has ten (10) 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 for itself, Wired & Wireless Coroporation, 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 including its Internet POP, and
central telephone room. The space is secured by a monitored alarm system. The
Company has plans to either expand its facilities at the current location or to
lease new facilities for a corporate office as it continues to grow. It is
anticipated also that Wired & Wireless will have some warehouse requirements
that will need to be addressed.
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.
<PAGE>
Item 4 Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1998, the company held its annual shareholder
meeting as disclosed in the proxy statement filed with the SEC on June 19, 1998.
The shareholder meeting was held on June 25, 1998 for shareholders of record at
May 1, 1998. There was 11,494,322 shares outstanding at May 1, 1998. All
nominated directors were unanimously elected, a preferred class of stock was
authorized by the shareholders for the directors to use as they see fit with
regard to capitalization. Hein + Associates LLP were ratified as the auditor for
the fiscal year end June 30, 1998. Subsequent to this meeting Hein + Associates
were not engaged and based on authority given by the shareholders to the board
of directors, the directors changed the auditor to John B. Evans, CPA. This
change was primarily due to the improved cost effectiveness and timeliness of
the audit.
The voting results including proxy's received were as follows:
<TABLE>
<CAPTION>
Directors Elected
# of shares FOR # of shares AGAINST # of shares ABSTAIN
<S> <C> <C> <C>
Kent Watts 7,600,333 0 0
Robert J. Hill 7,600,333 0 0
Ted W. Tarver 7,600,333 0 0
Preferred Stock Authorization
# of shares FOR # of shares AGAINST # of shares ABSTAIN
7,581,333 0 19,000
Ratify Hein + Associates LLP
# of shares FOR # of shares AGAINST # of shares ABSTAIN
7,600,333 0 0
Other Business - None Discussed
# of shares FOR # of shares AGAINST # of shares ABSTAIN
7,600,333 0 0
<PAGE>
Part II
</TABLE>
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.
<TABLE>
<CAPTION>
High Bid Low Bid
1997
<S> <C> <C>
First Quarter 3.2500 2.8750
Second Quarter 2.8125 1.0000
Third Quarter 3.5000 2.7500
Fourth Quarter 3.6250 2.2500
1998
First Quarter 2.1250 1.0000
Second Quarter 1.7500 0.5100
Third Quarter 1.3750 0.1560
Fourth Quarter 0.8750 0.2500
</TABLE>
On September 1, 1998, the last bid for the Common Stock as reported by the OTCBB
was $0.6250 per share. On September 1, 1998, there were approximately 140
stockholders of record of the Common 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.
On January 12, 1998 the Company sold 5,833,333 shares of restricted common stock
to Emerald Bay Interests, LTD. There were no underwriters. Due to Registrant's
inability to pay certain liabilities as they become due, Registrant's Board 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 could borrow up to $500,000 as extended by the Board of
Directors on October 20, 1997. Borrowed amounts were to bear interest at a rate
of 10% per annum and would be due and payable between August 31, 1997 and
November 15, 1997. In the event that any borrowed amounts were not paid by
November 15, 1997 as amended, EBI would be entitled, after a five-day notice to
Registrant, to convert the unpaid portion of the borrowed amount into
Registrant's common stock. Upon conversion, EBI would be entitled to receive one
share of Registrant's common stock for every $.03 of the unpaid balance.
The Registrant borrowed $350,000 pursuant to the Financing. As Registrant was
unable to repay these amounts on or before November 15, 1997 as amended, EBI was
entitled to receive approximately 11,666,667 shares of Registrant's common
stock. Since November 15, 1997, the Registrant has negotiated a lesser
conversion of $.06 per share. This is half of the originally agreed upon
conversion terms. On January 12, 1998, the Registrant entered into a Debt
Conversion Agreement whereby 100% of the outstanding debt of $350,000 plus
accrued interest would be converted to 5,833,333 shares of restricted common
stock. Under these circumstances, EBI effectively acquired control of Registrant
at the time.
The company relied on section 4 (2) of the securities act of 1933 for a
exemption of registration for this transaction. Emerald Bay Interests, LTD was
an accredited investor and knowledgeable about the Company's operation. EBI new
of the risks associated with accepting shares of the Company in this
transaction.
<PAGE>
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, 1997 and 1998.
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) in 1997. 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.
A limited strategy to implement its new subsidiary Wired and Wireless
Corporation was accomplished while $350,000 of bridge financing was obtained
from a loan from Emerald Bay Interest, LTD.
With its focus heavily on Wired & Wireless in FYE 1998 the Company has been
aggressively pursuing some promising core revenues from a significant customer
in Mexico, Central & South America. Unforeseen delays, in the culmination of
these core sales, have put an unexpected strain on the Company's continued
ability to grow in other areas and to capitalize itself with adequate working
capital and investment capital.
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.
Results of Operations
Revenues decreased to $820,535 for the twelve (12) months end June 30, 1998,
from $1,520,928 for the same period in FYE 1997. The 46% decrease was primarily
due to the major emphasis and focus on the Wired & Wireless sales which have
taken longer to develop than first expected. This focus of marketing and sales
effort away from the MicroData subsidiary coupled with the heavy administrative
burden placed on Kent Watts, President, CEO, and CFO has caused a significant
decline in MicroData's revenues in FYE 1998 as well. Mr. Kent Watts was not able
to work as much on sales and marketing as he has in the past.
Cost of Goods Sold decreased, correspondingly to the sales decrease, to $702,164
in the period, from $1,323,696 for the same period for FYE 1997.
Selling, General and Administrative expenses increased to $693,001 in the twelve
(12) month period, as compared to $675,458 for the same period in 1997.The
increase was primarily due to increased fixed overhead to implement and manage
the Wired & Wireless subsidiary.
Net Loss. The net loss of the Company was $(558,324) for the twelve (12) months
ended June 30, 1998, or ($0.07) per share. As stated above, this loss can be
primarily attributed to the increase in fixed overhead expenses associated with
the implementation of the Wired & Wireless subsidiary, the delays in the
expected Wireless revenues, and the continued 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.
On June 23, 1998 the Company acquired certain assets from Wireless Cable
connection, including inventory, fixed asset equipment, and goodwill totaling
$51,000 and an interest in contingent receivables from the federal communication
commission (FCC) for wireless frequency's to be granted. This contingent
receivable is estimated to be worth as much as $140,000 of which $5,000 has been
collected to date. Also on June 15, 1998 the Company purchased all the rights to
the customer list of Perfect Solutions, a small proprietorship owned by Mr.
Harry Briers who also has joined MDS as the Director of Integrated System Sales
and Service.
Liquidity and Capital Resources
The Company continues to have difficult cash flow and related working capital
problems. With a growth in sales volume of Wired & Wireless Corporation and
MicroData Systems, Inc. continuing in the first quarter of FYE 1999, the Company
is working hard to raise its necessary working capital to allow it to fulfill
the orders that it has worked so hard to develop.
A bridge loan was negotiated on July 15, 1997 with Emerald Bay Interests, LTD.
The total balance of the funding concluded at $350,000. The complete balance of
the loan plus accrued interest was converted into 5,833,333 shares of common
stock of the Company on January 12, 1998.
The Company is in the process of raising additional working capital to fund its
current growth in sales volume so as to give it the ability to gain its sales
and marketing momentum. Additional strategies to raise capital will be
implemented as the Company moves towards its more strategically based
acquisitions.
Prospective Information
In addition to an intense acquisition strategy that the Company intensely works
for, it is committed to developing operations from the core base provided by
MicroData Systems, Inc. and Wired & Wireless Corporation. With a change to a
basic profit center strategy, MDS has been off-loaded from overhead and
administrative burden and is currently ramping up operations to significantly
increase sales from fiscal year end 1998. These increased sales are expected to
start to show up in the first quarter of fiscal year 1999. Sales already booked
through September 15, 1998 were $389,500 with $627,000 of orders received.
MicroData will continue to concentrate on the increased IS services on a
recurring basis. 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 on a recurring basis.
In addition to continuing to develop the corporate IS infrastructure, HYPD will
focus on its capital fund raising and acquisition strategy for FYE 1999.
Ultimately, a separate marketing and sales strategy will emerge at the corporate
level for complete outsource IS services.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
The Company is including the following cautionary statement to make applicable
and take advantage of the safe harbor provision of the Private Securities
Litigation Reform Act of 1995 for any forward-looking statements made by, or on
behalf of, the Company. This Annual Report on Form 10-KSB contains
forward-looking statements. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, expectations, future events or
performance and underlying assumptions and other statements which are other than
statements of historical facts. Certain statements contained herein are
forward-looking statements and, accordingly, involve risks and uncertainties
which could cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements. The Company's expectations, beliefs
and projections are expressed in good faith and are believed by the Company to
have a reasonable basis, including without limitations, management's examination
of historical operating trends, data contained in the Company's records and
other data available from third parties, but there can be no assurance that
management's expectations, beliefs or projections will result or be achieved or
accomplished. In addition to other factors and matters discussed elsewhere
herein, the following are important factors that, in the view of the Company,
could cause actual results to differ materially from those discussed in the
forward-looking statements: the ability of the Company to respond to changes in
the information system environment, competition, the availability of financing,
and, if available, on terms and conditions acceptable to the Company, and the
availability of personnel in the future.
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
Not Applicable.
<PAGE>
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> <C>
Kent Watts Director, Chief Executive Officer, 39
and Chief Accounting Officer
Robert J. Hill Director, Vice President 42
Ted W. Tarver Director, President for 43
Wired & Wireless Corporation
Lewis Ball Secretary 67
</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 40, 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.
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. Starting in July of 1997 Mr. Hill became the Vice
President of the Company and has served as the Vice President and a Director of
the Company to date. 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.
Ted W. Tarver, age 43, was President of Wireless Cable Connection, Inc. (WCC)
until October of 1997 when he became President of Wired & Wireless Corporation
(Wholly owned subsidiary of HyperDynamics Corporation). Beginning in the
wireless industry in 1979 and while operating WCC, Mr. Tarver played major roles
in the development of over 50 wireless TV systems. Mr. Tarver has served as a
Director of the Company since February of 1998. He plans to use his wireless
technology experience to help the Wired & Wireless subsidiary establish itself
in the international wireless industry with a unique capability to provide
complete end to end wireless systems supporting voice, video, and data
applications over wireless infrastructures.
Certain Securities Filings
The Company believes that filings required under Section 16(a) of the Exchange
Act have been made in a timely manner except for Emerald Bay Interests which
failed to file a form 3.
<PAGE>
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, 1997 and 1998 of the chief
executive officer of the Company. No executive officer of the Company received
compensation that exceeded $100,000 during 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Name and Principal Awards Payouts
Position Year Salary Bonus Other Restricted Securities All
Stock Awards Underlying LTIP Other
$ Options SARs Payouts compensation
$ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
#
Kent Watts 1998 $84,000 $-0- $-0- $-0- -0- $-0- $-0-
Chief Executive
Officer 1997 60,000 -0- -0- -0- -0- -0-
Chief Financial -0-
Officer 1996 NA NA NA NA NA NA NA
</TABLE>
Director Compensation
The Company does not currently pay any cash directors' fees, but it pays the
expenses of its directors in attending board meetings. There have been no
director meeting expense reimbursements for 1998.
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 that it believes are competitive. The Company also
believes that equity ownership is an important factor in its ability to attract
and retain skilled personnel including consultants, and the Board of Directors
of the Company has adopted an employee stock option program.
Options to purchase 1,620,000 shares of registered common stock 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, 1998,
options to purchase 1,037,060 shares have been granted under this plan and
577,999 of these have been exercised. This leaves 582,940 shares yet to be
either granted or allocated to option agreements.
<PAGE>
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, consultants, 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 21, 1998, with
respect to the beneficial ownership of shares of Common Stock by (1) each person
who owns beneficially more than 5% of the outstanding shares of Common Stock,
(2) each director of the Company, (3) each executive officer of the Company and
(4) all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Shares Beneficially Owned
- ----------------------------------------
<S> <C> <C>
Number Percent
Kent Watts 1,180,000 9.67
2656 South Loop West, Suite 103
Houston, Texas 77054
Robert J. Hill 130,000 (1) 1.05
2656 South Loop West, Suite 103
Houston, Texas 77054
Ted W. Tarver 200,000 (2) 1.63
2656 South Loop West, Suite
103
Houston, Texas 77054
Emerald Bay Interests LTD 5,833,333 (4) 47.78
All directors and executive 1,510,000 12.14
officers as a group (3 persons)
Other Group which may be affiliated 1,540,000 (3) 27.00
</TABLE>
(1) This amount includes 3-year options to purchase
130,000 shares of the common stock of the company for
a strike price of $1.25 per share which was granted
on July 23, 1997.
(2) This amount includes 100,000 shares of restricted
common stock and 100,000 3-year warrants for
restricted common stock with a strike price of $.51
for each share.
<PAGE>
(3) On August 15, 1996 the Company went through a
reorganization which resulted in the issuance of
1,540,000 shares of common stock to shareholders
which represents 27% of total outstanding shares at
September 1, 1998, 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
------
Total 1,540,000
</TABLE>
(4) Due to Registrant's inability to pay certain
liabilities as they become due, Registrant's Board of
Directors approved on July 15, 1997 a bridge
financing arrangement (the "Financing") with Emerald
Bay Interests, LTD ("EBI"). The total debt of
$350,000 plus accrued interest was converted to
5,833,333 shares of the company's common stock as
reflected above.
<PAGE>
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. During the fiscal year the Company negotiated and signed a debt
conversion agreement to extinguish the debt at $.06 per share as opposed to the
$.03 per share reflected in the original bridge loan notes.
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 stock options. On June 15, 1997 the board of directors
extended the consulting services agreement through 12/31/97. On December 30,
1997 the board of directors amended and adjusted the original consulting
agreement to 375,000 options exercisable 1/3 at $.625, 1/3 at $1.00, and 1/3 at
$1.375 per share exercisable on or before June 30, 2000. 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
The following exhibits are filed with this Annual Report or are
incorporated herein by reference:
Exhibit Number Description
21.1 Subsidiaries of Registrant
27 Financial Data Schedule
(b) Reports on Form 8-K
On January 28, 1998, the Company filed a current report on Form
8-K regarding a change in control of the Company.
A report on Form 8-K was filed on August 5, 1997 which reported
other events.
<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 23th day of September, 1998.
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:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Kent Watts Chairman of the Board, September 23, 1998
--------------------- Chief Executive Officer and
Kent Watts Chief Accounting Officer
/s/ Robert Hill Director September 23, 1998
---------------------
Robert Hill
/s/ Ted W. Tarver Director September 23, 1998
---------------------
Ted W. Tarver
</TABLE>
<PAGE>
HYPERDYNAMICS CORPORATION
Audited Financial Statements
Index To Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditor's Report F-1
Balance Sheets as of June 30, 1998 and 1997 F-2
Statements of Income for the years ended June 30, 1998 and 1997 F-3
Statements of Changes in Stockholders' Equity for the years ended June 30, 1998 and 1997 F-4
Statements of Cash Flows for the years ended June 30, 1998 and 1997 F-5
Notes to Financial Statements F-6
</TABLE>
<PAGE>
Independent Auditor's Report
JOHN B. EVANS II
CERTIFIED PUBLIC ACCOUNTANT
Three Riverway, Suite 120
Houston, Texas 77056-1909
Voice (713) 623-2898
Fax (713)960-8128
September 19, 1998
To the Board of Directors
HyperDynamics Corporation
Houston, Texas
I have audited the accompanying consolidated balance sheets of HyperDynamics
Corporation (a Deleware corporation) and subsidiaries as of June 30, 1998 and
June 30, 1997, 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, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
auditing principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the company has suffered substantial recurring losses from
operations that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
JOHN B. EVANS, II
F-1
<PAGE>
HYPERDYNAMICS CORPORATION
Consolidated Balance Sheets
As of June 30, 1998 and 1997
<TABLE>
<CAPTION>
Assets
Current Assets 1998 1997
<S> <C> <C>
Cash $ 4,908 $ 30,068
Certificate of deposit (restricted) 94,000 70,000
Accounts receivable - trade 149,249 39,772
other 30,013
Due from officers 4,866
Inventory 65,508 26,737
Revenue interest - current portion 35,970 35,970
Pre-paid Expenses 40,000
Other 16,241
-------------------- --------------------
Total Current Assets 419,648 223,654
Property and Equipment 83,153 20,933
Other Assets
Revenue Interest net of current portion 104,458 141,030
Intangible assets - net 51,000
Other Assets - deposits 4,348 3,348
-------------------- --------------------
Total Other Assets 159,806 144,378
TOTAL ASSETS $ 662,607 $ 388,965
==================== ====================
Liabilities and Stockholders' Equity
Current Liabilities
Bank credit line 70,000
Accounts payable 271,212 191,662
Accrued expenses 525 30,962
Accrued taxes 12,353
Notes payable 37,500
-------------------- --------------------
Total Current Liabilities 284,090 330,124
-------------------- --------------------
Total Liabilities 284,090 330,124
Stockholders' Equity
Common stock, par value $0.001; 50,000,000 shares 12,208 5,597
authorized; 12,208,321, and 5,596,989 shares
issued and outstanding.
Additional paid-in capital 1,567,500 696,111
Retained (deficit) (1,201,191) (642,867)
-------------------- --------------------
Total Stockholders' Equity 378,517 58,841
-------------------- --------------------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 662,607 $ 388,965
==================== ====================
</TABLE>
See accompanying notes.
F-2
<PAGE>
HYPERDYNAMICS CORPORATION
Consolidated Statements of Income
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues $ 820,535 $ 1,520,928
Cost of Revenues 702,164 1,323,696
-------------------- --------------------
Gross Margin 118,371 197,232
Operating Expenses
Selling 39,988 60,602
General and Administrative 653,013 614,856
Research and development - internet 53,979
Write-off of intangibles 11,880
Depreciation and Amortization 14,293 26,947
-------------------- --------------------
Total Operating Expenses 707,294 768,264
Operating Loss (588,923) (571,032)
Other Income (Expense)
Other income 3,750
Gain on sale of securities 29,980
Loss on disposal of asset (3,838)
Interest income 297
Interest expense (3,428) (5,588)
-------------------- --------------------
Total other income (expense) 30,599 (9,426)
-------------------- --------------------
Loss from Continuing Operations (558,324) (580,458)
Loss from discontinued operations (53,351)
==================== ====================
Net Loss $ (558,324) $ (633,809)
==================== ====================
Loss per Common Share
Continuing operations (0.07) (0.13)
Discontinued operations N/A (0.01)
Net Loss per Common Share $ (0.07) $ (0.14)
Weighted average share outstanding 8,362,335 4,495,273
</TABLE>
See accompanying notes.
F-3
<PAGE>
HYPERDYNAMICS CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
For The Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock
Shares Amount Paid in Capital Retained Totals
(Deficit)
<S> <C> <C> <C> <C> <C>
Balances - June 30, 1996 804,000 $ $ 107,242 $ $ 98,988
804 (9,058)
Issuance of stock for merger with:
Houston Creative Connections, 2,102,000 2,102 (2,102) 216,487 216,487
Inc.
RAM-Z Enterprises, Inc. 480,175 480 (480)
Common stock issued for cash 295,000 295 259,705 260,000
Common share issued for services 3,140,814 3,141 153,521 156,662
Divestiture of Houston (2,102,000) (2,102) 2,102 (216,487) (216,487)
Creative Connections
Issuance of stock to former 700,000 700 (700)
owners of MicroData Systems, Inc
Common shares issued to purchase 177,000 177 176,823 177,000
Sierra-Net Revenue Interest
Net (loss) (633,809) (633,809)
----------------- ----------------- ---------------- ----------------- --------------
Balances - June 30,1997 5,596,989 $ $ 696,111 $ (642,867) $ 58,841
5,597
Common stock issued for cash 6,411,332 6,411 769,589 776,000
Common stock issued to purchase 100,000 100 50,900 51,000
certain assets of Wireless cable
connection
Common stock issued to purchase 100,000 100 50,900 51,000
interest in customer list of
Perfect Solutions, Inc.
Net (loss) (558,324) (558,324)
================= ================= ================ ================= ==============
Balances - June 30, 1998 12,208,321 $ 12,208 $1,567,500 $(1,201,191) $ 378,517
================= ================= ================ ================= ==============
</TABLE>
See accompanying notes.
F-4
<PAGE>
HYPERDYNAMICS CORPORATION
Consolidated Statements of Cash Flows
For The Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net (loss) $ (558,324) $ (633,809)
Adjustments to reconcile net income to cash provided
from operating activities
Depreciation and amortization 14,293 26,947
Loss on disposal of equipment 3,838
Gain on sale of securities (29,980)
Stock issued for services 156,662
Changes in:
Certificates of deposit (24,000) (70,000)
Accounts receivable - Trade (105,349) 200,123
Other (29,275)
Advances to officers (4,866)
Inventory (38,771) (26,737)
Prepaid expenses (23,759) 15,841
Revenue sharing 36,572
Deposits and other (1,000) 7,923
Net increase (decrease) accruals / payables
Accounts payable - trade 79,550 (97,098)
Accrued expenses (30,437) 28,594
Accrued taxes 12,353
Other 1 1
------------------ ----------------------
Net cash provided (used) from operating activities (698,126) (392,581)
Cash flows from investing activities
Purchases of property and equipment (25,514)
(15,224)
Proceeds on sale of securities 29,980
------------------ ----------------------
Net cash used by investing activities 4,466 (15,224)
Cash flows from financing activities
Net increase (decrease) in bank line of credit (70,000) 70,000
Short-term convertible notes (37,500) 37,500
Reduction in notes payable (32,534)
Sales of common stock 776,000 260,000
------------------ ----------------------
Net cash provided (used) from financing activities 668,500 334,966
Net increase (decrease)in cash (25,160) (72,839)
Cash at beginning of period 30,068 102,907
================== ======================
Cash at end of period $ 4,908 $ 30,068
================== ======================
Supplemental Information
Interest paid 3,428 5,588
</TABLE>
See accompanying notes.
F-5
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business. Hyperdynamics Corporation (the "Company"), was a Texas corporation
formed in March 1996 to acquire and operate information systems service
companies. In August, 1996, the Company completed a "reverse merger" with Ram-Z
Enterprises, Inc., a Delaware corporation and a publicly-traded shell, whereby
the Company's shareholders acquired the Delaware corporation shell, which was
renamed Hyperdynamics Corporation, in exchange for stock. A business acquired in
May 1996 was MicroData Corporation ("MicroData").
During the past year, the Company began operations through a wholly-owned
subsidiary, Wired and Wireless Corporation ("Wireless"). MicroData is a complete
information systems service company including its legacy as a computer hardware
reseller. Wireless plans, designs and implements wireless information systems.
The fiscal year-end is June 30.
Basis of Presentation. The consolidated financial statements include the
accounts of MicroData and Wireless. Significant inter-company accounts and
transactions have been eliminated.
Use of Estimates. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses. Actual results could differ from those
estimates.
Cash includes demand deposit bank accounts. Company policy includes any highly
liquid investments with original maturities of three months or less.
Restricted cash is cash on deposit at a bank to back an international letter of
credit for ongoing foreign purchases of computer components.
Receivables are written down, where appropriate, to the estimated collectible
amount in the opinion of management.
Depreciation is calculated using the straight-line method over the useful lives
of property and equipment. A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
- - Year Ended - -
_1998_ _1997_
<S> <C> <C> <C>
Computer equipment 3 years $149,689 $ 82,340
Other 5 years 18,755 9,590
---------- ----------
Total cost 168,444 91,930
Less: accumulated depreciation ( 85,291) ( 70,997)
-------- --------
Net carrying value $ 83,153 $ 20,933
======== ========
</TABLE>
F-6
<PAGE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (Loss) Per Share calculations are presented in accordance with
Financial Accounting Standards Statement 128, and are calculated on the basis of
the weighted average number of common shares outstanding during the year. They
include the dilutive effect of common stock equivalents, principally stock
options, in years with net income.
Supplemental Cash Flow Information is as follows:
- - Year Ended - -
1998 1997_
Customer list acquired with common stock $ 51,000
Fixed assets and inventory acquired with common stock 51,000
$102,000
Income taxes are not due since the Company has had substantial losses since
inception.
Reclassifications of certain prior year amounts were made to conform with the
current year presentation.
NOTE 2 - GOING CONCERN
Since inception, the Company has incurred substantial recurring operating losses
resulting in cash flow problems.
The Company has in the past relied almost entirely upon cash proceeds from stock
sales for working capital requirements. There can be no assurance that present
or future conditions will be conducive to funding current working capital needs
from proceeds from stock sales. Absent stock sales, the Company is uncertain how
it is going to fund working capital requirements. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE 3 - REVENUE SHARING INTEREST
In May 1997, the Company purchased a revenue interest in the Sierra-Net
subsidiary of Internet Finance & Equipment, Inc. by issuing 177,000 shares of
stock. Sierra-Net is an internet service provider in Nevada. The Company valued
this transaction at $177,000. Collections have been averaging $3,000 per month
since. The interest is 4% of gross revenue and 19% of gross sale proceeds if any
significant assets or stock of Sierra-Net are sold.
<PAGE>
NOTE 3 - REVENUE SHARING INTEREST (continued)
The current portion of this interest represents management's estimate of cash
receipts over the next 12 months.
NOTE 4 - MERGERS AND DIVESTITURE
The Company was formed May 1996 as a Texas corporation. In May 1996, the Company
merged with MicroData Corporation and Houston Creative Services, Inc. ("Houston
Creative"). Houston Creative was a placement services company, specializing in
Information Services personnel. In February 1997, the former shareholders of
Houston Creative negotiated a divestiture of the assets and business originating
with Houston Creative because of management policy and vision conflicts. The
divestiture exchanged all prior assets and business of Houston Creative held by
the company in exchange for all Company stock originally issued to the prior
Houston Creative owners.
In connection with this divestiture, the Company agreed to issue an additional
700,000 shares to the former owners of MicroData as a value correction of the
Company because of the Houston Creative divestiture.
In October 1997, the Company formed a new subsidiary, Wired and Wireless
Corporation, to plan, design and implement wireless information systems. The
Company purchased the equipment and inventory and hired the sole stockholder of
Wireless Cable Connection, Inc. in exchange for 100,000 shares of stock to the
stockholder.
In June 1998, the Company purchased the customer list and hired the sole owner
of Perfect Solutions in exchange for 100,000 shares of stock to the stockholder.
The equipment, inventory, and customer lists were valued at their fair market
values which approximated the fair market value of the stock at those times. All
of the assets were capitalized and valued at $102,000.
In October 1997, purchased the customer list and accounts receivable and hired
the sole stockholder of Barris Communications, Inc. for $40,000 cash. The
payment was charged to operations.
Employment agreements were signed with all three key persons involved, with
expiration dates ranging from June 1998 to May 1999.
F-7
<PAGE>
NOTE 5 - STOCK OPTIONS AND WARRANTS
Beginning with fiscal 1997, the Company adopted the disclosure requirements of
FASB Statement 123, Accounting for Stock Based Compensation Plans. The Company's
Stock Option Plan provides for the grant of non-qualified options to directors,
employees and consultants of the Company, and opportunities for directors,
officers, employees and consultants of the Company to make purchases of stock in
the Company. In addition, the Company issues stock warrants from time to time to
employees, consultants, stockholders and creditors as additional financial
incentives. The plans and warrants issuances are administered by the Board of
Directors of the Company, who have substantial discretion to determine which
persons, amounts, time, price, exercise terms, and restrictions, if any. Options
differ from warrants in that the options awards are immediately exercisable and
are assignable. In contrast, warrants have employment termination restrictions,
vesting periods and are non-transferable.
The Company uses the intrinsic value method of calculating compensation expense,
as described and recommended by APB Opinion 25, and allowed by FASB Statement
123. During the years ended June 30, 1998 and 1997, no compensation expense was
recognized for the issuance of these options and warrants, because no option
prices were below market prices at the date of grant. In addition, 200,000 and
577,999 options were exercised in 1997 and 1998 respectively. As of June 30,
1998, almost all outstanding warrants are payments for consulting and
professional services. Summary information on each are as follows:
<TABLE>
<CAPTION>
Weighted Weighted
average average
Options Share Price Warrants Share Price
<S> <C> <C> <C> <C>
Year ended June 30, 1997:
Outstanding at
June 30, 1996 0 0
Granted 910,660 $0.99 605,000 $ 1.25
Exercised (200,000) ($0.87) 0
--------- ------ -------------
Outstanding at
June 30, 1997 710,660 1.02 605,000 1.25
Granted 711,000 1.26 70,850 1.00
Exercised (577,999) (.96)
Canceled (375,000) (1.25) (600,000) 1.25
-------- ------- -------- -------
Outstanding at
June 30, 1998 468,661 $ 1.27 75,850 $ 1.02
======== ====== ======= ======
</TABLE>
F-8
<PAGE>
NOTE 5 - STOCK OPTIONS AND WARRANTS (Continued)
Additional disclosures as of June 30, 1998 are:
<TABLE>
<CAPTION>
Options
$1-$1.375
<S> <C>
Total options
Number of shares 468,661
Weighted average exercise price $1.27
Remaining life 2-4 years
All are currently exercisable options.
</TABLE>
<TABLE>
<CAPTION>
Warrants Warrants
$1.00 $1.25
------- ------
<S> <C> <C>
Total warrants
Number of shares 70,850 5,000
Weighted average exercise price $ 1.00 $1.25
Remaining life 2 years 2 years
All are currently exercisable warrants.
</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 those
plans 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 amount indicated below:
1998 1997__
Net loss -As reported $( 558,324) $( 633,809)
-Pro forma (1,105,031) (1,150,609)
Net loss per share -As reported $( 0.07) $( 0.14)
-Pro forma ( 0.13) ( 0.26)
Variables used in the Black-Scholes option-pricing model include (1) 6.0%
risk-free interest rate, (2) expected option life is the actual remaining life
of the options as of each year end, (3) expected volatility is the actual
historical stock price fluctuation volatility and (4) zero expected dividends.
F-9
<PAGE>
NOTE 6 - BANK CREDIT FACILITIES, SHAREHOLDER NOTES PAYABLE, AND OTHER FINANCING
As of June 1996, the Company owed $70,000 on a commercial bank credit line and
$37,500 to two individual shareholders. During the current fiscal year, all
amounts were paid. In May of FYE 1998 the Company issued a letter of credit from
Frost National Bank to secure a vendor purchase for wireless equipment purchased
from Hexawave, Inc. The LOC was secured by a $94,000 Certificate of Deposit. The
CD was released and the vendor was paid on August 24, 1998.
During 1998, the company received $350,000 from Emerald Bay, LTD (EBLTD)an
offshore investor for a convertible note at 10% that had matured on November 15,
1997. The Company attempted to find additional investors to pay the loan off,
but was not able to do so in the time frame required. EBLTD converted its note
plus accrued interest to 5,833,333 shares on January 12, 1998 after a negotiated
reduction to the conversion rights from 3 cents per share to 6 cents per share.
NOTE 7 - MAJOR CUSTOMERS AND VENDORS
A summary of significant customers and vendors for the years ended June 30, 1998
and 1997, together with their respective size as a percent of total sales and
purchases for the years then ended is as follows:
<TABLE>
<CAPTION>
Percent of - - Year Ended - -
Totals 1998 _1997__
<S> <C> <C> <C>
Sales
Comband, S.A. de C.V. (Mexico) 42% $345,000
Novo Industries 24 $369,000
Lockheed Space Operations 14 215,000
Purchases
Hexawave, Inc. 50% 314,000
Arrow Electronics 24 314,000
Tech Data 10 137,000
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is liable on an office lease for $2,573 per month on a
month-to-month lease.
The predecessor shell company, RAM-Z Enterprises, has an order restricting
certain exemptions on sales of securities by it in the State of Utah, based on
actions of former owners in the mid-1980's.
The Company has no lawsuits pending or threatened against it.
F-10
HYPERDYNAMICS CORPORATION
MICRODATA SYSTEMS, INC.
WIRED & WIRELESS COOORPORATION
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data schedule contains summary information extracted from Part I
of Form 10-KSB for the year ended June 30, 1998 and is 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-30-1998
<PERIOD-START> JUL-1-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 4908
<SECURITIES> 94000
<RECEIVABLES> 179262
<ALLOWANCES> 0
<INVENTORY> 65508
<CURRENT-ASSETS> 419648
<PP&E> 83153
<DEPRECIATION> 0
<TOTAL-ASSETS> 662607
<CURRENT-LIABILITIES> 284090
<BONDS> 0
0
0
<COMMON> 12208
<OTHER-SE> 366309
<TOTAL-LIABILITY-AND-EQUITY> 662607
<SALES> 820535
<TOTAL-REVENUES> 820535
<CGS> 702164
<TOTAL-COSTS> 702164
<OTHER-EXPENSES> 707294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3428
<INCOME-PRETAX> (558324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (558324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (558324)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
