* AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 2000
REGISTRATION NO. 333-31180
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
HYPERDYNAMICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7373 87-0400335
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
2656 SOUTH LOOP WEST, SUITE 103
HOUSTON, TEXAS 77054
VOICE: (713) 660-9771 FAX: (713) 660-9775
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES PRINCIPAL PLACE OF
BUSINESS)
KENT WATTS
C/O HYPERDYNAMICS CORPORATION
2656 SOUTH LOOP WEST, SUITE 103
HOUSTON, TEXAS 77054
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)
WITH COPY TO:
ROBERT D. AXELROD, ESQ.
AXELROD, SMITH & KIRSHBAUM
5300 MEMORIAL DRIVE, SUITE 700
HOUSTON, TEXAS 77007
VOICE: (713) 861-1996 FAX (713) 552-0202
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(B) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE
SECURITIES ACT REGISTRATION STATEMENT NUMBER OF EARLIER EFFECTIVE REGISTRATION
STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Amount maximum maximum
to be offering aggregate Exercise Proceeds
Title of each class of registered price offering price to the Amount of
securities to be registered per share(*) price (*) per share Company registration fee
-------------------------------- ---------- ------------ ------------- --------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock, par value
0.001 underlying Series A
Preferred Stock 1,728,113 $ 5.22 $9,020,750.00 -- -- $ 2,382.00
-------------------------------- ---------- ------------ ------------- --------- ----------------- ----------------
Common Stock, par value $0.001
underlying Investor Warrants
300,000 -- -- $ 5.9125 $ 1,773,750.00 $ 469.00
-------------------------------- ---------- ------------ ------------- --------- ----------------- ----------------
Common Stock, par value $0.001
underlying Placement Warrants
and Consultant Warrants 300,000 -- -- $ 7.095 $ 2,128,500.00 $ 562.00
-------------------------------- ---------- ------------ ------------- --------- ----------------- ----------------
Total $ 3,413.00
-------------------------------- ---------- ------------ ------------- --------- ----------------- ----------------
</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
Calculated pursuant to Rule 457(g) and based on the average of the high
and low bid on our common stock on February 24, 2000.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effectiveness date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
The information in this prospectus in not complete and may be changed. The
selling security holders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Subject to completion, dated October 31, 2000
HYPERDYNAMICS CORPORATION
2,328,113 SHARES OF COMMON STOCK
This prospectus relates to the resale of our common stock by selling
stockholders listed on page 40.
Our common stock trades on the Over-the Counter Bulletin Board, also called
the OTCBB, under the trading symbol "HYPD". On October 20, 2000, the closing
bid for our common stock as reported on the OTCBB was $1.00 per share.
RISK FACTORS. OUR COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH DEGREE
---------------------------------------------------------------------------
OF RISK. YOU SHOULD CAREFULLY READ AND CONSIDER OUR RISK FACTORS SECTION ON
--------------------------------------------------------------------------------
PAGE 4 BEFORE MAKING AN INVESTMENT DECISION.
--------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of the prospectus. Any representation to the contrary is a
criminal offense.
THE DATE OF THIS PROSPECTUS IS _________ ______, 2000
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling security holders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of common stock.
TABLE OF CONTENTS
Summary of Information in the Prospectus. . . . . . . . . . . . 1
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 13
Price Range of Common Stock . . . . . . . . . . . . . . . . . . 13
Our Dividend Policy . . . . . . . . . . . . . . . . . . . . . . 14
Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . 14
Our Business. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Executive Compensation. . . . . . . . . . . . . . . . . . . . . 33
Certain Relationships and Related Transactions. . . . . . . . . 35
Principal Stockholders. . . . . . . . . . . . . . . . . . . . . 36
Description of Securities . . . . . . . . . . . . . . . . . . . 37
Selling Stockholders. . . . . . . . . . . . . . . . . . . . . . 40
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . 41
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 42
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . 43
Other Available Information . . . . . . . . . . . . . . . . . . 43
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 44
Financial Statements. . . . . . . . . . . . . . . . . . . . . . 44
<PAGE>
SUMMARY OF INFORMATION IN THE PROSPECTUS
This prospectus summary highlights selected information contained in this
prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors beginning on page 4 and the
financial statements beginning on page F-1. Unless otherwise indicated, this
prospectus assumes that none of our outstanding options or warrants are
exercised into shares of our common stock, nor any shares of our Series A
Preferred Stock are converted into shares of our common stock.
HYPERDYNAMICS CORPORATION
We are an Information Technology Service Provider ("ITSP"). The services we
provide are ITHosting services, conventional information technology services and
e-Business services. We provide our customers with fully-hosted information
technology hosting solutions which we can scale to meet the customer's needs. We
provide these information technology hosting solutions at our location on our
servers with our staff of information technology experts. The customer uses our
solutions and facilities instead of the customer's own computer system and
staff. From the customer's location, the customer accesses its information from
us via the Internet. We began our information technology hosting business in
1999. We have also been in the conventional information technology solutions
business since 1988, and we have also been in the e-Business solutions business
since 1996.
We have the capability to host all or a portion of a customer's information
technology requirements. Our solutions allow the customer to use our information
technology skills and computer systems, instead of the customer purchasing more
computer hardware and software and hiring more computer staff.
Our mission is to be a premier ITSP. The information technology ("IT")
industry is one of the most dynamic and rapidly growing industries. Through our
initial roll up strategy, HyperDynamics will build our core IT knowledge base to
position us as a leader in the e-Business economy of the future.
In August, 1996, we acquired MicroData Systems, Inc., which changed its
name to ITHost.net Corporation in 1999. We obtained our core business plan from
MicroData. Since 1988, MicroData has provided conventional IT services to help
our clients plan, design, implement, and manage their IT infrastructures. The
acquisition of MicroData set the stage for our initial goal of acquiring
technically competent IT service companies in roll up transactions.
Our strategy targets technically competent IT service companies with
specialties in all areas of IT. We look for debt free IT service companies with
substantial technical expertise and key people with an entrepreneurial spirit.
IThost.net Corporation is a full service IT services company. We provide
three categories of IT services:
- We have been in the conventional information technology solutions business
since 1988.
- We have been in the e-Business solutions business since 1996. - We began
our information technology hosting business in 1999.
1
<PAGE>
CONVENTIONAL IT SERVICES
Conventional IT Services are provided to help companies with existing IT
infrastructures to plan, design, implement, and manage their own
telecommunications, wide area networking, server and workstation systems,
operating systems, and integrated software applications. Our clients decide the
extent of our involvement in any or all of these areas of IT.
E-BUSINESS SERVICES
e-Business Services are provided to specifically address the evolution of
our clients' IT systems to support the new ways of doing business such as
business to business and business to consumer e-Business and Internet marketing.
ITHOSTING SERVICES
IThosting Services are provided to handle a client's complete IT
requirements and we literally become our clients IT department by contract. We
are continuing to develop our IThost.net infrastructure to allow us to
professionally manage our clients centralized servers in a true data center
environment.
We maintain a flexible service model as more clients are brought on-line.
We have the capability to host all or a portion of a customer's information
technology requirements. Our solutions allow the customer to use our information
technology skills and computer systems, instead of the customer purchasing more
computer hardware and software and hiring more computer staff.
We provide our customers with:
- A complete off-site information technology resource for real time business
operations solutions, e-Business transactional solutions and business data
solutions.
- Application software and e-Business transaction software which resides on
our servers. In providing this service, we are sometimes referred to as
being an Applications Service Provider ("ASP"). However, the scope of our
service is much greater than typical ASP's. Therefore we call ourselves an
ITSP.
- Broad bandwidth, high speed Internet service.
- Data access, manipulation, mining, warehousing and storage.
2
<PAGE>
Our Information technology hosting solutions enhance a customer's:
- Internet strategies
- E-Business solutions
- Enterprise asset and operational functionality and control
- Marketing Management
- General Business Operations
- Data Base Management
We provide our customers with:
- Our state-of-the-art computer servers, facilities and staff.
- Our 24/7 customer service.
- Integration of our hosting solutions with the customer's existing computer
system.
- Training.
We also provide conventional information technology solutions for a
customer's own computer network. We also enable a customers' e-Business web
presence by migrating the customer's conventional business methods to the
e-Business model through web site design, maintenance and hosting.
Our information technology hosting solutions, conventional information
technology solutions and e-Business solutions are provided through our
wholly-owned subsidiary, ITHost.net Corporation.
Our web site is www.hyd.net, however, the information contained on our web
site is not part of this prospectus. Our principal executive offices are located
at HyperDynamics Corporation, 2656 South Loop West, Suite 103, Houston, Texas
77054, tel. (713) 660-9771.
In January, 2000, we sold 3,000 shares of our new issue Series A Preferred
Stock for a total of $3,000,000 in cash to three accredited investors. As part
of this transaction, we also issued to the three investors a total of 300,000
Investor Warrants to purchase shares of our common stock at a price of $5.9125
per share which are immediately exercisable and expire on January 6, 2005. The
Investor Warrant provides that in no event shall the holder exercise the Warrant
if upon exercise of the Warrant, the holder would beneficially own more than
4.9% of our outstanding common stock. As part of this transaction, we issued
180,000 Placement Warrants to the placement agent to purchase shares of our
common stock at a price of $7.095 per share which are immediately exercisable
and expire on January 6, 2005 and 120,000 Consultant Warrants to one individual
to purchase shares of our common stock at a price of $7.095 per share which are
immediately exercisable and expire on January 6, 2005. This was a private
placement offering of securities.
In September, 1999, we sold our formerly wholly-owned subsidiary, Wired and
Wireless Corporation because it no longer fit into our business plan.
3
<PAGE>
THE OFFERING
Common stock outstanding as of October 27, 2000:
......13,805,497 shares of common stock
Common stock to be
offered by our
selling
stockholders. . . .2,328,113 shares, which includes 1,728,113 shares underlying
Series A Preferred Stock and 600,000 shares underlying
Investor Warrants, Placement Warrants and Consultant
Warrants.
Market for our
common stock. . . .Our common stock trades on the Over-the Counter Bulletin
Board, also called the OTCBB, under the trading symbol
"HYPD". The market for our common stock is highly volatile.
We can provide no assurance that there will be a market in
the future for our common stock.
RISK FACTORS
Any investment in shares of our common stock involves a high degree of
risk. You should carefully consider the following information about these risks,
together with the other information contained in this prospectus, before you
decide to buy our common stock. If any of the following risks actually occur,
our business would likely suffer. In these circumstances, the market price of
our common stock could decline, and you may lose all or part of the money you
paid to buy our common stock.
4
<PAGE>
OUR INFORMATION TECHNOLOGY HOSTING BUSINESS IS NEW AND SUBJECT TO THE RISKS OF A
NEW BUSINESS
We began our information technology hosting business in 1999 and we have
one information technology hosting customer at this time, although we have
several customers for our conventional information technology business and our
e-Business solutions business. We only have just begun to market our information
technology hosting business. This business is extremely competitive and we may
not be able to increase our customer base at a sufficient rate to fund
operations.
WE HAVE HAD AND COULD HAVE LOSSES, DEFICITS, AND DEFICIENCIES IN LIQUIDITY WHICH
COULD IMPAIR OUR ABILITY TO GROW
Our ability to achieve profitability depends on our ability to successfully
develop and market our information technology hosting solutions. There is no
assurance that we will be able to accomplish this in a profitable manner. We are
subject to all of the risks inherent in a growing venture, including the need to
develop marketing expertise and produce significant revenue. We may incur
losses, deficits and deficiencies in liquidity for the foreseeable future due to
the significant costs associated with providing our customers with information
technology hosting solutions.
For fiscal 2000, we had a net loss of $666,132, a deficit of $2,001,785 and
positive stockholders' equity of $2,389,683. For fiscal 1999, we had a net loss
of $(184,546), a deficit of $1,385,737 and positive stockholders' equity of
$336,597.
WE WILL NEED MORE FINANCING FOR GROWTH
We have limited financial resources. Until our operating results improve,
we must obtain outside financing to fund the expansion of our business and to
meet our obligations as they become due. Any additional debt or equity financing
may be dilutive to our shareholders. Financing must be provided from our
operations, or from the sale of equity securities, borrowing, or other sources
of third party financing. The sale of equity securities could dilute our
existing stockholders' interest, and borrowings from third parties could result
in our assets being pledged as collateral and loan terms which would increase
our debt service requirements and could restrict our operations. There is no
assurance that capital will be available from any of these sources, or, if
available, upon terms and conditions acceptable to us.
5
<PAGE>
YOU HAVE A RISK OF DILUTION. THE ISSUANCE OF THESE SHARES WILL HAVE A DILUTIVE
EFFECT ON OUR COMMON STOCK AND MAY LOWER OUR STOCK PRICE. WE HAVE RESERVED A
SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK FOR ISSUANCE UPON THE
CONVERSION OF SERIES A PREFERRED STOCK, AND THE EXERCISE OF OUR WARRANTS AND
OPTIONS.
As of October 27, 2000, we had outstanding 2,120 shares of our Series A
Preferred Stock that can be converted into shares of our common stock. The
number of shares we will issue upon the conversion of our Series A Preferred
Stock fluctuates with our common stock market price, cannot be determined until
the day of conversion and is calculated by a formula set forth in the
designation certificate of the Series A Preferred Stock. There is no limit on
the number of shares of our common stock that may be issued upon the conversion
of Series A Preferred Stock. The Series A Preferred Stock could have conversion
prices that are below our current market price. If conversions of the Series A
Preferred Stock option occur, shareholders may be subject to an immediate
dilution in the per share net tangible book value. The Series A Preferred Stock
may be converted into common stock at any time prior to January 30, 2002, when
it automatically converts into common stock.
As of October 27, 2000, we had outstanding a total of 2,069,515 options and
warrants to purchase our common stock at exercise prices ranging from $.50 to
$7.095 per share, which are near or below market prices. Of these, 1,394,505
options and warrants expire at various times through the year 2002, and 75,000
warrants expire in August 2003, and 600,000 warrants expire in January, 2005. If
the exercise of warrants or options occur at below market prices, shareholders
will be subject to an immediate dilution in the per share net tangible book
value.
We have reserved a large number of shares to be issued on the conversion of
Series A Preferred Stock, and upon the exercise of all outstanding options and
warrants. The issuance of these shares will dilute our common stock per share
net tangible book value and may hurt our stock price. As of October 27, 2000 we
have reserved:
- 2,000,000 shares of our authorized and unissued common stock in connection
with the future conversion our Series A Preferred Stock and the future
exercise of the Investor Warrants, Placement Warrants and Consultant
Warrants. The Series A Preferred Stock may be converted into common stock
at any time prior to January 30, 2002, when it automatically converts into
common stock; and
- 1,658,648 shares of our authorized and unissued common stock in connection
with the future exercise of other outstanding options and warrants.
6
<PAGE>
These reserve amounts are our good faith estimate of the number of shares
that we believe we need to reserve. Of the total of 2,328,113 shares of our
common stock that we are registering in this offering, 1,728,113 shares are in
connection with the future conversion of Series A Preferred Stock. We can
provide no assurance as to how many shares we will ultimately need to issue upon
the conversion of Series A Preferred Stock. If we are required to issue
additional shares we will be required to file an additional registration
statement for those shares, a process which will be costly and time consuming.
THE SALE OF OUTSTANDING SHARES COULD RESULT IN A LOW MARKET PRICE FOR YOUR
COMMON STOCK. THERE IS A LIMITED PUBLIC FLOAT FOR OUR COMMON STOCK AND YOU MAY
NOT BE ABLE TO SELL YOUR SHARES AT THE PRICE OR IN THE VOLUME YOU DESIRE
As of October 27, 2000, we had outstanding 13,805,497 shares of common
stock, out of which approximately 7,376,295 shares are restricted securities.
Approximately 7,276,295 shares of our restricted common stock has been held by
our shareholders for more than two years, of which 327,962 could be sold into
the market immediately without volume limits pursuant to Rule 144 because they
are held by non-affiliates. The balance, 6,948,333 shares, are held by
affiliates and could be sold into the market immediately subject to volume
limits pursuant to Rule 144.
Approximately 200,000 shares of our restricted common stock has been held
by our shareholders for more than one year and less than two years and could be
sold into the market immediately with volume limits pursuant to Rule 144. By
January, 2001, substantially all of our restricted shares of common stock will
be freely tradable subject to Rule 144. As the restrictions on resale end and
these shares are sold into the market, the price of our common stock could drop
significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them.
The possibility that a substantial amount of the shares registered in this
offering may be sold in the public market could have an adverse impact on the
market price of our common stock. There is no assurance that stockholders will
be able to sell the shares for any particular price. No prediction can be made
as to the effect that sales of shares of our common stock or even the mere
availability of such shares for sale, will have on the market prices. The
possibility that substantial amounts of common stock may be sold in the public
market by the holders of these shares, or the perception by the market of an
intention by the holders to sell these shares, would likely have an adverse
effect on prevailing market prices for the common stock and could impair our
ability to raise capital through the sale of our equity securities.
7
<PAGE>
WE ARE DEPENDENT ON OUR PRESENT MANAGERS AND OUR ABILITY TO GROW COULD BE
IMPAIRED IF WE LOST THEIR SERVICES
Our success is substantially dependent upon the time, talent, and
experience of Kent Watts, our President and Chief Executive Officer. We have an
employment agreement with Mr. Watts. However, we have no key man insurance on
Mr. Watts. The loss of the services of Mr. Watts would have a material
adverse impact on us. No assurance can be given that a replacement for Mr.
Watts could be located in the event of his unavailability. In order for us to
expand, we must continue to improve and expand the level of expertise of our
personnel and we must attract, train and manage qualified managers and employees
to oversee and manage the expanded operations. Demand for computer industry
personnel is high. There is no assurance that we will be in a position to offer
competitive compensation to attract or retain such personnel. You should not
invest unless you are willing to entrust all aspects of our management to our
directors and officers.
WE MAY NOT BE ABLE TO MANAGE GROWTH AND THIS COULD RESULT IN A WEAKENING OF OUR
FINANCIAL AND COMPETITIVE POSITION
Our intention is to expand business operations by acquiring companies and
starting new businesses. This expansion will subject us to a variety of risks
associated with rapidly growing companies. In particular, our plans may place a
significant strain on our day-to-day operations. There can be no assurance that
our systems, controls or personnel will be sufficient to meet these demands.
Inadequacies in these areas could have a material adverse effect on our
business, financial condition and results of operations.
OUR CUSTOMER CONTRACTS REQUIRE US TO MEET SPECIFIED PERFORMANCE LEVELS AND WE
MAY MISJUDGE THE LEVEL OF PERFORMANCE THAT WE ARE ABLE TO PROVIDE
If we misjudge the time or the constraints in which we provide solutions or
are unable to maintain any agreed upon performance levels for customers, our
customers may become dissatisfied. We do not know if we can consistently
achieve the service levels we agree on with our customers.
WE HAVE NEVER PAID A CASH DIVIDEND AND IT IS LIKELY THAT THE ONLY WAY YOU WILL
REALIZE A RETURN ON YOUR INVESTMENT IS BY SELLING YOUR SHARES
We have never paid cash dividends on any of our securities. Our Board of
Directors does not anticipate paying cash dividends in the foreseeable future.
We currently intend to retain future earnings to finance our growth. As a
result, your return on an investment in our stock will likely depend on your
ability to sell our stock at a profit.
THERE IS LIMITED MARKET LIQUIDITY FOR OUR SECURITIES AND THERE ARE PENNY STOCK
SECURITIES LAW CONSIDERATIONS THAT COULD LIMIT YOUR ABILITY TO SELL YOUR SHARES
At October 27, 2000, the closing price of our stock was near or above $1.00 per
share. If our closing stock price is below $5.00 per share, our stock would be
considered "penny stock", and the sale of our stock would be subject to the
"penny stock rules" of the Securities and Exchange Commission. The penny stock
rules require broker-dealers to take steps before making any penny stock trades
in customer accounts. The penny stock rules require a broker-dealer to:
8
<PAGE>
- Advise a customer of the lowest offer and highest bid for our stock
- Advise a customer of the broker dealer's compensation
- Make a special written suitability determination for the customer and
receive the customer's prior written agreement
If we were to become subject to the penny stock rules, there could be delays in
the trading of our stock. The market liquidity of our stock could be adversely
affected.
THE MARKET PRICE OF YOUR SHARES WILL BE VOLATILE
The stock market price of technology companies like us has been volatile.
Securities markets may experience price and volume volatility. The market price
of our stock may experience wide fluctuations as it has in the recent past which
could be unrelated to our financial and operating results.
WE COULD ISSUE PREFERRED STOCK AND THIS COULD HARM YOUR INTERESTS
We presently have authorized 20,000,000 shares of preferred stock, par value
$.001 per share, from which 5,000 shares have been designated as Series A
Preferred Stock, of which 2,120 shares of Series A Preferred Stock are presently
outstanding. Other shares of preferred stock, if issued, would be entitled to
preferences over the common stock. The shares of preferred stock, when and if
issued, could adversely affect the rights of the holders of common stock, and
could prevent holders of common stock from receiving a premium for their common
stock. An issuance of preferred stock could result in a class of securities
outstanding that would have preferences with respect to voting rights and
dividends and in liquidation over the common stock, and could (upon conversion
or otherwise) enjoy all of the rights of holders of common stock. The Board's
authority to issue preferred stock could discourage potential takeover attempts
and could delay or prevent a change in control of us through merger, tender
offer, proxy contest or otherwise by making such attempts more difficult to
achieve or more costly.
WE MAY SEEK BUSINESS COMBINATIONS WITH OTHER FIRMS AND ISSUE MORE
SECURITIES WHICH COULD DILUTE YOUR INTERESTS AND PUT MORE OF OUR SHARES INTO THE
MARKET
We may enter into business combinations with other firms by exchanging
stock. This would enable us to acquire additional assets without spending cash.
However, it may result in dilution in per share net tangible book value to
existing shareholders, and put more of our shares into the market.
WE MAY NOT BE ABLE TO COMPETE FOR BUSINESS AND THIS WOULD SUBSTANTIALLY IMPAIR
OUR GROWTH
There are other companies which are engaged in the same business as us.
Many of our competitors are more established companies with substantially
greater capital resources and substantially greater marketing capabilities. No
assurances can be given that we will be able to successfully compete with such
companies. We anticipate that the number of competitors will increase in the
future.
IF WE WERE UNSUCCESSFUL IN PREVENTING OTHERS FROM USING OUR INTELLECTUAL
PROPERTY, WE WOULD LOSE A COMPETITIVE ADVANTAGE
9
<PAGE>
We have common law rights to the service marks "HyperDynamics", "ITHost"
and ITHost.net" based upon our substantial and continuous use of these
trademarks in interstate commerce. However, we have not registered these service
marks. There can be no assurance that the steps we have taken to protect our
service marks will be adequate to deter misappropriation. Any attempts by us
that we make to defend our intellectual property would be expensive and time
consuming.
WE DEPEND ON THIRD PARTY TELECOMMUNICATIONS VENDORS OVER WHOM WE HAVE NO CONTROL
AND THIS COULD IMPAIR OUR REVENUES
Our information technology hosting business and our e-Business solutions
business is dependent upon other companies to supply telecommunications services
and computer equipment which we use to provide our information technology
hosting solutions. Any failure to obtain needed services in a timely fashion and
at an acceptable cost could have a material adverse effect on our business.
Moreover, a disruption in telecommunications capacity, which is provided by
third parties, could prevent us from providing our services. Although we have
not been affected by a network outage, major network outages have occurred in
the past. Were such an outage to affect us, we may not be able to deliver an
adequate level of service to our customers.
WE DEPEND ON THIRD PARTY SOFTWARE VENDORS OVER WHOM WE HAVE NO CONTROL AND THIS
COULD IMPAIR OUR REVENUES
We depend on other companies to supply the software which we use to provide
our information technology hosting solutions. Any failure to obtain needed
software or services in a timely fashion and at an acceptable cost could have a
material adverse effect on our business. Our ability to provide cost efficient
and reliable information technology hosting solutions to our clients is key to
our business strategy. We will derive revenues from projects in which we
customize, implement, or host applications developed by a variety of software
vendors. We have software license agreements with these software vendors. All
the agreements may be terminated upon a breach of the agreement. We cannot be
sure that any of our agreements with software vendors will be renewed in the
future. If any of these agreements are terminated, not renewed, or we cannot
continue to use the software for any reason, we may have to discontinue services
or delay their introduction unless we can find, license, and package comparable
software. In addition, we can provide no assurance that if we were able to
obtain similar software products, that the terms of the licensing agreement
would be favorable, or that our clients would accept comparable software
products as substitutes.
Not only is our success dependent upon the continued popularity of the
product offerings of our current vendors, it is also dependent on our ability to
establish relationships with new vendors in the future. As new software
applications are released, if we are unable to enter into agreements with these
software vendors, we may be unable to compete.
WE FACE SECURITY RISKS IN CONNECTION WITH OUR ABILITY TO PROTECT OUR HARDWARE
FROM DAMAGE, COMPUTER HACKERS OR COMPUTER VIRUSES
Our success largely depends on the efficient and uninterrupted operation of
our computer and communications hardware systems. All of our computer and
communications hardware is currently located at a leased facility in Houston,
Texas. Our hardware is vulnerable to:
- computer viruses
- physical or electronic break-ins
- physical vulnerability to damage
- interruption from fire, flood, long-term power loss, and
telecommunications failures
These events could lead to delays, loss of data, or interruptions in
service which could subject us to liability and harm our reputation. We believe
that we have sufficient internal disaster recovery resources to implement and
establish a full and rapid recovery from disasters of these types. We currently
do not carry any business interruption insurance to compensate us for losses
that may occur. We currently do not have any business liability insurance to
compensate for any losses or claims that may arise from our business operations,
such as claims by our customers.
A significant barrier to online business and communications is the secure
transmission of confidential information over public networks. We rely on
technology to provide the security to secure the transmission of confidential
information. However, we can provide no assurance that advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments will not result in a compromise or breach of the methods used to
protect customer data. If any compromise of our security were to occur, our
reputation and business would suffer. A party who is able to circumvent our
security measures could misappropriate proprietary information or cause
interruptions in our operations or the operations of our customers. We may be
required to expend significant capital and other resources to protect against
security breaches or to alleviate problems caused by security breaches.
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IN THE FUTURE, OUR INABILITY TO MEET CUSTOMER NEEDS FOR ERROR-FREE HOSTING
SERVICES COULD RESULT IN LOSSES AND SUBSTANTIAL LIABILITY
The hosting solutions we provide our clients are critical to their
businesses. Any defects or errors in our services or any failure to meet
clients' expectations could result in:
- delayed or lost revenues due to adverse client reaction
- requirements to provide additional services to a client at no charge
- claims for substantial damages against us, regardless of our responsibility
for such failure, which may not be limited by the contractual terms of our
engagement
We currently do not have any business liability insurance to compensate for
any losses or claims that may arise from our business operations.
WE ARE DEPENDENT ON THE GROWTH IN DEMAND FOR INFORMATION TECHNOLOGY HOSTING
SOLUTIONS
Our ability to increase revenues and achieve profitability depends, in
part, on the growth in demand for and the acceptance of information technology
hosting solutions by small and medium-sized businesses. The market for these
solutions has only begun to develop and is evolving rapidly. We believe that
many potential clients are not currently aware of the advantages of outsourcing
information technology solutions. However, it is possible that these solutions
may never achieve market acceptance. If the market for our solutions does not
grow, or grows less rapidly than we currently anticipate, our revenues will
suffer.
OUR BUSINESS IS DEPENDENT ON THE INTERNET, WHICH WE DO NOT CONTROL
Our success will depend, in large part, upon the maintenance of the
Internet infrastructure, as a reliable network backbone with the necessary
speed, data capacity, and security. To the extent that the Internet continues
to experience increased numbers of users and increased requirements of users, we
can provide no assurance that the Internet infrastructure will continue to be
able to support the demands placed on it or that the performance or reliability
of the Internet will not be adversely affected. Furthermore, the Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and these outages and delays could hinder our
ability to provide solutions.
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WE INDEMNIFY OUR DIRECTORS AND OFFICERS AND THIS REDUCES THE LIKELIHOOD OF
SHAREHOLDER LITIGATION
Delaware General Corporation Law permits a corporation organized under
Delaware law to indemnify directors and officers with respect to any matter in
which the director or officer acted in good faith and in a manner he reasonably
believed to be not opposed to our best interests, and, with respect to any
criminal action, had reasonable cause to believe his conduct was lawful.
Our Bylaws provide that our directors and officers are indemnified by us if
that person is a party to a matter by reason of being a director or officer.
These provisions may discourage stockholders from bringing suit against a
director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by our stockholders on our behalf against a
director.
WE ARE SUBJECT TO THE DELAWARE ANTI-TAKEOVER LAW AND THIS COULD PREVENT A
TAKEOVER AND ANY POSSIBLE PREMIUM PRICE FOR YOUR SHARES
We are subject to the General Corporation Law of the State of Delaware,
including the anti-takeover law. The law restricts the ability of a public
Delaware corporation from engaging in a business combination with an interested
stockholder for a three year period that begins on the date of the transaction
in which the person became an interested stockholder. As a result, persons who
may desire to acquire us may find it difficult to effect an acquisition with us.
This could deprive our shareholders of certain opportunities to sell or
otherwise dispose of their stock at above-market prices pursuant to such
transactions.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements about our future.
Forward-looking statements include statements about our:
- plans
- objectives
- goals
- strategies
- expectations for the future
- future performance and events
- underlying assumptions for all of the above
- other statements which are not statements of historical facts
These forward-looking statements involve risks and uncertainties which
could cause our actual results to materially differ from our forward-looking
statements. We make these forward-looking statements based on our analysis of
internal and external historical trends, but there can be no assurance that we
will achieve the results set forth in these forward-looking statements. Our
forward-looking statements are expressed in good faith and we believe that there
is a reasonable basis for us to make them.
In addition to other factors discussed in this prospectus, the following
are important factors that could cause our actual results to materially differ
from our forward-looking statements:
- our ability to respond to changes in the information technology marketplace
- competitive factors
- the availability of financing on terms and conditions acceptable to us
- the availability of personnel with information technology skills
We have no obligation to update or revise these forward looking statements to
reflect future events.
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USE OF PROCEEDS
We will not receive any proceeds upon the sale of the common stock issuable
upon the conversion of our Series A Preferred Stock by the selling stockholders.
If all the warrants in this offering are exercised, the net proceeds to us from
the exercise of the warrants, after the deduction of offering expenses, will be
approximately $3,833,200. We intend to use the net proceeds for working capital
and general corporate purposes. We will pay for the cost of registering the
shares of common stock in this offering.
PRICE RANGE OF COMMON STOCK
Our common stock trades on the Over-the Counter Bulletin Board, also called
the OTCBB, under the trading symbol "HYPD". This table states the quarterly
high and low bid prices per share for our common stock. The bid prices reflect
inter-dealer prices, without retail markup, markdown, or commission and may not
represent actual transactions.
(Our fiscal year ends on June 30)
High Bid Low Bid
Fiscal 1999
First Quarter 1.2500 0.25000
Second Quarter 2.2500 0.78125
Third Quarter 3.5000 0.28125
Fourth Quarter 1.3750 0.46875
Fiscal 2000
First Quarter 1.1250 0.6800
Second Quarter 5.0625 0.5000
Third Quarter 7.7500 3.6250
Fourth Quarter 4.7500 1.1875
On October 20, 2000, the closing bid on our common stock as reported on the
OTCBB was $1.00 per share. On October 1, 2000, we had approximately 2,285
record stockholders and approximately 3,000 beneficial stockholders of our
common stock. On October 1, 2000, we had 13,805,497 shares of our common stock
outstanding.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Fidelity Transfer
Company, 1800 South West Temple, Suite 301, Salt Lake City, Utah 84115,
tel.(801) 484-7222.
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OUR DIVIDEND POLICY
We have not paid and do not intend to pay cash dividends on our common
stock in the foreseeable future. Our current dividend policy is to retain all
earnings, if any, to provide funds for operation and expansion of our business.
Our declaration of dividends, if any, will be subject to the discretion of our
Board of Directors, who may consider such factors as our results of operations,
financial condition, capital needs, acquisition strategy, among others. We
cannot pay dividends on our common stock until all dividends due on our Series A
Preferred Stock have been paid.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 Form SB-2 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. The Company has no obligations to update or revise
these forward looking statements to reflect future events.
The following discussion should be read in conjunction with the financial
statements and notes thereto for the fiscal years ended June 30, 2000 and 1999.
General
With its focus heavily on The Mattress Firm Project in FYE 2000 the Company
recognized some promising core revenues. Having limited capital resources for
the first half of the year and with its intense focus on this project, the
ability for the Company to close substantial follow-on business was curtailed.
The Company's priorities were clearly to make this project run as smooth as
possible and to focus its sites on establishing its new Integrated Technology
Center (ITC) at the Westwood Technology Center in Houston, Texas. The Company
has been able this year to move forward with its IT hosting business plan by
leasing its new facilities at the Westwood Technology Center and contracting
with AT&T for its fiber based backbone. AT&T is providing redundant physical
path fiber to be co-located at the new ITC and is also working with
HyperDynamics with respect to co-marketing and business development through
their "Hypergrowth" program. The Company has also been able to implement new and
improved business development strategies associated with the new ITC with help
from Interneed as a consulting partner in Houston that has helped to define our
complete marketing and sales strategy. However, with all of this progress
towards the new IT hosting plan, the slowing down of Phase I of The Mattress
Firm Project and cost overruns in the fourth quarter curtailed revenues and
gross profit percentages. Regardless of its operational difficulties, the
Company is now on a fast track to its new Integrated Technology Center (ITC) and
is expected to go on-line in late November or early December 2000. Management is
expecting increasing revenues in the second quarter of 2001. Based on current
activity for increasing demand and quotation for end-to-end Hypersource services
to be provided at its new ITC; additional potential business with The Mattress
Firm for phase II of their requirements; and other mid-range systems projects
expected to be closed, management expects major revenue and gross profit
increases by the third quarter of FYE 2001.
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With the focus of the Company to be the Premier Integrated Technology Service
Provider (ITSPTM) the Company is in a transition to a heavier mix of higher
contribution margin business as an IT service company. The acquisition strategy
of the Company has not yet been implemented. It has been delayed thus far
because of difficulties to negotiate acceptable capital structures and a
technology market that has seriously retracted in recent months.
Results of Operations
Revenues increased to $2,137,998 for the year ended 2000, from $938,306 as
restated for 1999. The 128% increase was due to the major emphasis and focus on
the major e-Business project with The Mattress Firm and information technology
services and e-Business related sales. The Mattress Firm was 71% of current
year business and was the reason for the increase. We continue to service their
needs for hardware and follow-on project requirements as their system continues
to be rolled out to their retail sites.
Cost of revenues increased to $1,962,150 (91.78% of revenue) for the year ended
2000, from $747,046 (79.6% of revenue) as restated for 1999. The reason for the
significant increase cost of sales is related directly to the increase in
related revenues, however the increase in the percentage of cost of sales to
revenue needs further explanation. During the year the Company made some
substantial decisions to position itself for its new IT hosting business model.
At least for the first 1/2 of the fiscal year we were not in a position to move
forward with the new IT hosting business model. With respect to its largest core
project regarding the Mattress Firm, management decided not to hire the
necessary programming consulting group that would add substantially to its fixed
overhead. Instead we contracted with Great Plains Consulting to perform a
substantial portion of the custom development performed on this project during
the year. This was done in an effort to minimize fixed overhead during a period
of time that we expected to be in a major transitional state. Towards the end of
the third quarter we were already heavily focused on the major transition to the
new business model being implemented with the Westwood Technology Center. By the
end of the fourth quarter it became apparent that the Mattress Firm contract had
incurred cost overruns to the extent that our billings were immediately cut
short. In an effort to maintain a higher level of customer satisfaction and be
positioned properly for significant future business, management was compelled to
give approximately $80,000 in credits, which in effect reduce our revenues and
worsened our gross profit percentages because we had committed a certain amount
already to our sub-contractors. Management expects cost of sales as a percentage
to improve significantly in the future.
Selling, General and Administrative expenses increased to $669,485 (31.31% of
revenue) for the year ended 2000, as compared to $259,324 (33.86% of revenue) as
restated for 1999. The increase was partly due to increased selling expenses
which increased to $196,595 as a result of substantial sales commissions paid
for the year ended 2000 compared to $58,393 as restated for 1999. Legal and
accounting expenses increased by approximately $36,000. The remaining increase
was due to an increased level of overall increase in salaries (both cash and
value of options), travel, general office, rent, utilities, and etc. across the
board. Management has considered this necessary to get prepared for the expected
increase in activity resulting from its new Integrated Technology Center.
Management expects selling, general, and administrative expenses to decrease
significantly on a percentage of revenue basis as activity levels increase.
Net Loss. The net loss of the Company was $(616,048) for the year ended 2000, or
($0.04) per share, compared to $(184,546) or ($0.01) per share as restated for
1999. The net loss available to shareholders was $(666,132). This amount
includes the deduction for preferred stock dividends.
The negative results is due to Phase I of the Company's core eBusiness project
with The Mattress Firm coming to a close at the same time that it began its
transition to its new business model. Also Selling, General, and Administrative
expenses have continued to increase partly in preparation for its new revenue
model associated with its first Integrated Technology Center currently being
built in Houston at the Westwood Technology Center. Management expects revenues
and margins to dramatically increase in the coming periods as a result of its
key agreements with AT&T and by putting in this key infrastructure and its full
blown marketing plan to fill it to capacity.
Liquidity and Capital Resources
At June 30, 2000 the Company's current ratio of current assets to current
liabilities was 6.16. This compares to 2.52 for 1999. The Company has
dramatically improved its current ratio primarily through obtaining additional
capital financing through its Regulation D private placement completed during
the third quarter of the year. The Company does not have any long-term debt. In
the process of increasing its marketing and sales activities in preparation for
bringing the new IT hosting facility on-line, the Company is evaluating the
opportunities for strategic partners that could provide financing for up to an
additional $10,000,000 equity financing to be used for implementing additional
IT hosting centers 2 & 3 in strategic locations around the country and for key
acquisitions of technically talented IT consulting and integration firms. Thus,
the Company is talking with several potential business partners that could
potentially provide capital to implement Integrated Technology Centers 2, 3, and
4.
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The Company is in a position to obtain additional capital upon the exercise of
previously issued warrants and outstanding options for common stock.
The Company is continuing its plans to raise necessary capital to qualify it to
be listed on an exchange such as the NASDAQ or American Stock Exchange. The
Company is in negotiation with various private investors to structure a private
transaction that could potentially help to qualify the Company for listing on a
stock exchange. Additional strategies to raise capital will be implemented as
the Company moves towards its more strategically based acquisitions. Upon
qualifying for listing on an exchange, the Company intends to prepare an
underwriting package to attract the right team for a new securities registration
to be used to raise substantially more capital to support its IT Hosting
business plan. This new registration would include plans to acquire
entrepreneurial based and technically talented companies to enhance the
Company's e-Business and IT Hosting capabilities. No assurance can be given that
the Company will qualify for or become listed on the American or Nasdaq stock
exchanges or that it will be successful in raising additional capital through
the sale of its securities.
In an effort to enhance shareholder value, on August 31, 2000 the Company's
Board of Directors approved an exchange offering for a minimum of 50% to a
maximum of 90% of the company's common stock. Under the terms of the exchange,
shareholders will exchange 100 shares of the company's common stock for a unit.
Each unit consists of one share of 9% series B redeemable preferred stock
(stated value $200), 100 redeemable class A warrants, 100 redeemable class B
warrants and 100 redeemable class C warrants.
It is currently planned that the preferred stock (stated value $200) will pay a
9% dividend on a quarterly basis in arrears. As long as the units trade as
originally issued, the dividend will be credited automatically as a reduction of
the exercise price of the class A warrant until fully paid, then to the exercise
price of the class B warrant until fully paid, and then to the exercise price of
the class C warrant until fully paid. Thereafter, or in the event that all of
the unit components are detached, the dividends shall be paid in cash or shares
of common stock, at the discretion of the company. The preferred stock is to be
redeemable at its stated value plus accrued dividends. The preferred stock is
not convertible into common stock.
At this time it is anticipated that each class A, B, and C warrant will have an
exercise of price of $1.35 and will expire after 7 1/2, 15 and 22 1/2 years,
respectively. Beginning no sooner than one year and one day after the
completion of the exchange, and only after the daily closing bid price on the
common stock is over $5 for a period of 20 consecutive trading days, the company
may, at its discretion, call for redemption the class A, B, or C warrants. In
the event that the class A, B or C warrants are not detached from the unit, then
the dividend payments from the preferred stock will fully pay for the exercise
price of the class A, B and C warrants in 7 1/2, 15 and 22 1/2 years,
respectively, at which time the warrants will be automatically exercised into
shares of common stock.
Shareholders will be urged to read carefully the exchange offer and related
materials that the company will be sending out within a reasonable time after
the filing of this annual report because they contain important information,
including various risks, terms and conditions to the exchange offer.
Shareholders will be able to obtain the exchange offer and related materials
free at the SEC's Web site at www.sec.gov or from the Company's to-be-announced
-----------
information agent. The Company makes absolutely no assurances that the minimum
number of shares of common stock (50%) will be exchanged.
The board of directors of HyperDynamics has approved the exchange offer.
However, neither the company nor its board of directors will make any
recommendation to shareholders as to whether to exchange or refrain from
exchanging their shares. Shareholders will be required to make their own
decision as to whether to exchange some or all of their shares. Announcement as
to the exchange agent for the exchange offer is still pending.
Factors affecting future results
This year the Company gained significant experience with large custom eBusiness
projects and it succeeded in raising its necessary core capital.
The degree that the Company is successful in designing, building, and
implementing its first new Integrated Technology Center (ITC) and the degree and
speed that it is also able to begin to sell out its capacity will go a long way
to determining the positive future results of operations.
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The implementation of the Company's new ITC Marketing plan co-developed with the
help of Interneed, a business development firm in Houston, is expected to steer
HyperDynamics to success.
Once in its new ITC, the Company must continue to increase its recurring revenue
base, continue to close project oriented eBusiness contracts, raise additional
capital to start building ITC 2, 3, and 4, and to start making some core
acquisitions of successful IT services companies to combine with its ITC
strategy. These are the goals established by management for the fiscal year to
end June 2001.
Management is very pleased with the results of FYE 2000 results and is more
excited than ever about the Company's future and ability to grow steadily and on
a profitable basis.
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OUR 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. 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.
Investment in Revenue Sharing Agreement
On May 1, 1997, HyperDynamics entered into a revenue sharing agreement with
Internet Finance and Equipment, Inc. (A Florida Corporation referred to as
"IF&E") and Sierra-Net, Inc. (A Nevada Corporation referred to as "Sierra-Net").
This agreement was pursuant to a "Stock Purchase Agreement" dated April 1, 1997
between Net Telecommunications, Inc., ISP.NET, Inc. and HyperDynamics, as
amended on April 25, 1997 whereby HyperDynamics facilitated the acquisition of
Sierra-Net through the issuance of 177,000 shares of the Company's restricted
common stock. HyperDynamics received a 4% interest in the gross revenues of
Sierra-Net, Inc. (A Nevada based Internet Service Provider) as well as the right
to 19% of the proceeds pursuant to any partial or complete sale of SierraNet,
Inc. The monthly payments were received consistently up until the time
SierraNet, Inc. was acquired by M&A West, Inc. (OTC/BB: MAWI). The Company
received its portion of cash proceeds as disclosed in the financial statements
and maintains a 19% interest in 153,846 shares of MAWI or 29,230 shares. On
October 1, 2000 the MAWI stock was trading at approximately $5 per share. Based
on the acquisition agreement it appears that there is a possibility for the
acquisition to be unwound and thus HyperDynamics Management, based on
conservative accounting principles, is waiting for complete resolution to
determine the value of its 19% interest.
Initiation and Sale 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.
On September 30, 1999, management decided that the Wired & Wireless business was
not conducive to its business plan to become the premier Integrated Technology
Service Provider (ITSPTM). Thus it sold the subsidiary to Joseph Barris and Ted
Tarver, In the transaction Wired & Wireless took all of its assets and
liabilities and the Company received a revenue sharing agreement. Cash flows
received to date have totaled $4,515. In November the President of Wired &
Wireless was in a serious hunting accident and on a long road to recovery. Any
future revenue is contingent on the recovery of the President and the rebuilding
of their business.
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Addition of key management
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 known 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 the Company's capabilities. A major area of focus for Mr. Briers has
been 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. The addition of Mr. Briers enhanced the
primary mission focus of the Company's target market for its integrated IT
services.
The Company's first Enterprise Wide Mid-range System Project
On June 3, 1999 the Company announced a significant Enterprise Wide Mid-range
System Project. MicroData Systems, Inc., (its wholly owned subsidiary)
initiated an e-commerce development project with The Mattress Venture, LP of
Houston, Texas. The Mattress Venture, LP at the time supported eighteen (18)
Franchisee's representing approximately one hundred thirty (130) stores across
the country. According to Furniture/Today magazine, The Mattress Firm is
currently the 46th largest furniture sales organization and fastest growing
bedding specialty retailer in the United States with projected annual sales in
excess of one hundred million dollars ($100,000,000). The initial project
revenue was budgeted at $800,000 and could increase depending upon the startup
or acquisition of additional stores. Revenues to date have totaled $1,503,634
as of June 30, 2000. The Company has completed the planning, design, and
development phase I together with its key partner Great Plains software. In
phase I a custom point-of-sale application has been developed and is currently
being rolled out to the Mattress Firm stores nation-wide. This is a custom
web-based application that integrates via Microsoft Site Server and Great Plains
eEnterprise accounting software to run at the point-of-sale workstation without
any additional software than a standard web browser. HyperDynamics designed the
system to use the Internet as the primary connectivity thereby bypassing the
need for much more costly private wide area networking. These facts coupled
with the utilization of Microsoft SQL server on the back-end makes this retail
point-of-sale system one of the most feature rich, integrated, scalable and cost
effective system available today. Based on the success of this project and a
growing number of opportunities in our pipeline, the Company has a growing
confidence in its ability to obtain more and more enterprise level system
projects. Additionally, the Mattress Firm has indicated the possibility of
significant follow-on business with respect to Phase II of this project which is
expected to address more customization in inventory control including bar-coding
among other things. These projects are perfect lead -ins for our new Integrated
Technology Centers, the first of which is being built in Houston, Texas at the
Westwood Technology Center.
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Current Direction of Business Plan
Mission Statement
To be the premier integrated technology service provider (ITSPTM)
that maximizes our clients' return on their technology investment
HyperDynamics has a mission to be a premier integrated technology services
provider (ITSPTM). The information technology (IT) industry is the most dynamic
and rapidly growing industry in the history of free commerce. Through its
initial strategies, HyperDynamics will build its core IT knowledge base and
infrastructure capability to position it to be a leader in the e-Business
economy of the future. Its primary goal is to position itself to capture its
share of what we perceive to be the largest potential recurring revenue base in
history.
HyperDynamics has refined and continues to develop the best cost/beneficial IT
services. To maintain flexibility the Company has grouped its approach to IT
services into three groupings.
CONVENTIONAL IT SERVICES are provided on a highly flexible basis to
help companies with existing IT infrastructures to plan, design,
implement, and manage their own telecommunications, wide area
networking, server and workstation systems, operating systems, and
integrated software applications. Our clients dictate to which degree
we get involved in any one or all of these defined areas of IT.
EBUSINESS MIGRATION SERVICES are provided to specifically address the
evolution of our clients IT systems to support the new ways of doing
business such as business to business and business to consumer
e-Commerce and Internet marketing. HyperDynamics Corporation designs
and implement transaction based, mission critical eCommerce systems
for its clients.
ITHOSTING SERVICES are provided to handle a company's complete
end-to-end IT requirements and literally become our clients IT
department by contract. The Company is continuing to develop its IT
hosting infrastructure to allow it to professionally manage our
clients centralized servers in a true data center environment.
20
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Over the last five years, the technology industry has proven out and tested all
manner of service delivery models. During that time, the client has assumed
varying levels of risk, responsibility, and management of the IT processes.
Three models have risen to the top as the most cost-effective, performance
enhancing, and results-focused:
- The outsource IT services organization,
- The Internet Service Provider (ISP)
- And the Application Service Provider (ASP).
HyperDynamics combines all three delivery models into a single,
customer-directed delivery model - the Integrated Technology Service Provider or
ITSP as it has come to be known. By bringing together the power of the ITSP
to the emerging growth and mid-market clients, HyperDynamics allows its
customers yet another avenue of competitive advantage in their unique market
places.
In years past larger companies have had the luxury of having extensive resources
to implement and manage their information technology budgets. They have learned
that the more efficiently they balance their information technology (IT)
investment with benefits, the more they can earn as a result of lowered expenses
and increased productivity. As a rule, the smaller an organization becomes the
less likely it is to be able to take cost effective advantage of the latest and
best technology. Company's like ours, using the newest system management
technology help remove the gap between small and large organizations. By
acquiring technology-based companies in the primary defined areas of information
technology, we provide a total cost effective and competent service acting as
the IT department. As a result our customers derive the benefits from highly
trained professionals in the IT field and only pay for the actual amount they
need.
Our Central Message to Customers
HyperDynamics enables you for tomorrow today. We do this through comprehensive
IT services and applications hosting that maximize your returns. We deliver
best of breed technology and rapid deployment methodologies to empower your
business. At HyperDynamics, we're focused on today so you can focus on
tomorrow.
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<PAGE>
The phenomenal information technology (IT) industry
You cannot talk about information technology (IT) without having a major focus
on the Internet and e-Business. The Internet and all of its parts has
now become a primary component of any company's IT infrastructure.
Deciding how exactly to integrate with the Internet and achieving the
optimum integration requires significant technical expertise. HyperDynamics
provides the design, implementation, and management services to support
complete IT Hosting of a clients IT Department with a emphasis on
e-Business (e-commerce is a subset of e-Business). The growth of the Internet
and rapid movement of conventional business to e-Business puts HyperDynamics in
the in the right place at the right time.
The Emerging Digital Economy II, published by the US Department of commerce
discloses the following statistics and estimates in June 1999:
A. THE EXPANSION OF THE INTERNET
1. Total people across the globe with Internet access has grown to 171
million worldwide
2. From 1998 to 1999 web users increased 55%, Internet hosts rose by 46%,
web servers increased by 128%, and new web addresses rose 137%
3. IDC Corporation (IDC) was said to report that between 1998 and 1999
revenues of U.S. Internet service providers (ISPs) will rise by 41%.
IDC projects that these ISP revenues will continue growing at a
compound annual rate of 28% through 2003.
4. As of June 8, 1999 Canada and the US make up 56.6% of total people
with Internet access. This equates to 37% of US citizens and 36% of
Canadians with Internet access at home or work.
5. Concerning electronic commerce in the digital economy:
"The newest innovations, which we label information technologies, have
begun to alter the manner in which we do business and create value, often
in ways not readily foreseeable even five years ago."
22
<PAGE>
Alan Greenspan
Chairman, Federal Reserve Board
May 6, 1999
- In the Emerging Digital Economy II, Patricia Buckley wrote
"Two facets of the digital economy, electronic commerce
(i.e. business processes which shift transactions to the
Internet or some other non-proprietary, Web-based system)
and the information technology (IT) industries that make
e-commerce possible, are growing and changing at
breathtaking speed".
B. THE RISE IN E-COMMERCE
The 1998 "Emerging Digital Economy Report" sited last year that,
"In early 1998, forecasters were suggesting that
business-to-business e-commerce might rise to $300 billion by
2002." Most forecasters now expect that to be a very low
projection. "U.S. Online Business trade will Soar to $1.3
Trillion by 2003", According to Forrester Research's press
release, December 17, 1998. (http://www.forrester.com).
------------------------
"Early 1998 estimates suggested that Internet retailing might
reach $7 billion by 2000. In all probability, this level was
exceeded last year (1998), current private estimates of 1998
online retail trade range between $7.0 billion and $15 billion.
Forecasters now project online retail sales in the range of $40
billion to $80 billion by 2002. And even these increased
forecasts of both business-to-business and business-to-consumer
e-commerce may prove to be low if a recent study financed by
Cisco Systems, which estimates that 1998 total e-commerce (both
business-to-business and business-to-consumer) was $102 billion,
is a more accurate estimate."
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<PAGE>
C. INCREASING GLOBAL MARKETS
The Department of Commerce reports that the U.S. and Canadian share of
world Internet users has declined from 62 percent in 1997 to 57% in
May 1999. The report basically says that the rest of the world is
catching up and the most important aspect for the world to come online
is the development of the critical infrastructure in developing
countries. U.S. companies will continuously have opportunities for
e-commerce in foreign countries and they will also have increasing
competition in a reciprocal manner.
D. NEW WAYS OF DOING BUSINESS
HyperDynamics facilitates its client's e-Business integration by
defining new business models, new processes, and dramatically changing
the way they do business. The explosion of e-Business is having an
effect that goes way beyond the tangible dollar value of the sales on
the Internet. Companies that implement effective e-Business models
will have substantial competitive advantages by providing timely and
useful information through the web, expanding personal choices,
providing enriched services, and increasing productivity through
efficiency inherent with their newly integrated capabilities.
24
<PAGE>
In "The ASP Industry News", August/September 1999 edition, an article
entitled "It's Time to Get Out of the IT Business", Mr. Brad Bishop,
CEO for AVCOM Technologies writes about how Scott McNealy, CEO for Sun
Microsystems is advising businesses to stop buying computer hardware
and software. Mr. Bishop makes a case for "one of the hottest new
trends in the computer industry: application service provisioning
(ASP). He writes "With application service provisioning, you don't
have to invest in the hardware, software and staff needed to support
mission-critical business applications." He further writes, "Finding
an ASP with experience in sophisticated enterprise applications is the
key to success. Application service provisioning demands highly
secure, high-speed data hosting and a wealth of expertise. Neither
traditional ISP's or system integrators have all the necessary skills.
It takes a special breed".
HyperDynamics exists to be that special breed. With our positioning as
an integrated technology service provider (ITSPTM), application
service provisioning is a primary subset of the business plan we
implemented over two years ago. With our strategy for our cost/benefit
designed IT hosting centers, we will provide the best end-to-end
services for our clients at the best possible cost. This will allow
our clients to focus on what makes them money.
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<PAGE>
IT HOSTING AND EXSOURCING
In the December 1999 Forrester research report, "The exSourcing
Imperative", the research writers identify a "new breed of
outsourcer", the "exSourcer". In the report Forrester defines the
exSourcer as:
"A help provider that manages multi-company processes and
technologies across the Internet."
In the report, Forrester graphically depicts the difference between
the traditional IT outsourcing model from the new exSourcing strategy.
In traditional IT outsourcing, the Company is the centerpiece
surrounded by its PC, Data Center, and Network outsourcers with custom
integration requirements for each of its Customers, Partners, and
Suppliers having diverse systems needing to access its system
processes. With the exSourcing model, the exSourcer becomes the
centerpiece by extending its clients integrated multi-company process
services such as ordering, account status, and inventory management to
its customers, vendors, and partners. The exSourcer primarily utilizes
the Internet as the connection point between the transacting parties
and must manage the relationships between them.
HyperDynamics' business plan for IT hosting has significant
similarities and cross over with Forrester's exSourcing concept. While
maintaining its flexibility to provide conventional IT services and
moving towards the IT hosting model, the Company will naturally be
developing and performing more and more business process services.
HyperDynamics is positioned to become the premier ITSPTM providing
complete end-to-end IT hosting services on an outsourced and
ultimately exSourced basis.
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<PAGE>
E. THE SHORTAGE OF IT WORKERS AND RELATED STRATEGY
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 is a serious
shortage of IT talent. According to the Emerging Digital Economy II,
published by the US Department of Commerce in June of 1999,
"Organizations, both public and private, continue to experience real
difficulty in recruiting and retaining employees with specialized IT
skills." This presents a serious growth opportunity for HyperDynamics
Corporation because of 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 IT service revenues.
In addition to its acquisition strategy, the IT hosting strategy to
intensely cross train our IT professionals and build our virtual IT
department will increasingly attract top technical talent. This
integrated service 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 IT
infrastructure. With a lack of standards, companies create a maze of
complex system designs. The larger and more diverse the organization,
generally the more complex 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 possibly 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 will be
greatly reduced. 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 your
company is fighting to stay in business. HyperDynamics' IT
professionals have developed a complete standards based information
system design and is providing a one-stop IT Hosting option for its
clients.
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<PAGE>
Ultimately, IT hosting will provide a complete design from the
integrated voice and data phone system to the integrated
enterprise-wide software applications which run geographically
independent across an organizations network infrastructure. Network
based video applications will be integrated in a like manner. One
challenge will be to make the services 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.
An integrated information technology environment includes all factors
associated with the design, implementation, and maintenance of an
organization's Intranet and Internet related communications.
Technologies such as ATM (Asynchronous Transfer Mode) allow the real
world convergence 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.
28
<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 commitment that it has made to the Great Plains
eEnterprise 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
expanding IT hosting infrastructure. This will allow the Company to
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 IT 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.
Employees and Independent Contractors
The Company has sixteen (16) full time employees. The Company uses independent
contractors to minimize fixed overhead prior to its initiation of its first
Integrated Technology Center (ITC), expected to come on-line in late November
2000. While utilization of independent contractors reduces the Company's gross
profits in the interim, management believes that it ultimately minimizes its
risk during its transition to the new IT hosting business model. Direct
employment is expected to increase dramatically with the opening of its ITC. No
employees are represented by a union and the Company believes that its labor
relations are good.
Key Vendors and Technical Certifications
In the past two years HyperDynamics has positioned itself to successfully shift
its primary revenue base more clearly to IT services while maintaining technical
expertise to continue selling hardware and software components on a convention
basis, especially to its larger customers. To support this goal the Company has
enhanced or maintained certifications with Microsoft as a Microsoft Solution
Provider, Great Plains Software and Seibel sales management as eEnterprise
reseller, Intel Product Dealer and now Intel Premier Partner, Citrix Systems
Certified reseller, 3Com Network Systems Integrator, Xerox Peripherals reseller,
Extreme Networks Premier VAR, and CCC Networks authorized reseller just to name
a few. With its relationship with Intel, the Company has the capability to
provide custom hardware solutions along with its IT hosting services. This
capability provides a tighter integration for its services.
29
<PAGE>
In conjunction for its plans to establish its first ITC at the Westwood
Technology Center as discussed below, the Company negotiated with major
International Exchange Carriers to decide on its key Internet backbone partner
for its redundant and scalable bandwidth requirements. Based on the ability to
deliver a redundant fiber based On-Net solution and their co-marketing plan
presented as the "HyperGrowth" plan, AT&T has become that partner. Other
carriers considered either did not have a strong co-marketing plan or could not
deliver the requirements in the time specified. Management feels that this
accomplishment is another milestone that has positioned the Company for true
"HyperGrowth", as AT&T puts it.
Stock Buyback Program. On April 25, 2000 we announced a stock buy back program
for up to 500,000 shares of our common stock. We have purchased 71,000 shares to
date in the open market. Our last open market purchase occurred on July 24,
2000, of which 2,500 shares were purchased subsequent to June 30, 2000. We do
not intend to make any more purchases of our stock under this program.
Exchange Offer. In August 2000, we announced an exchange offer. We anticipate
delivering the exchange offer disclosure materials to our shareholders in the
near future. Our Board of Directors approved an Exchange Offering for a minimum
of 6,620,676 shares up to a maximum of 11,917,216 shares of our common stock.
Under the terms of the exchange, shareholders will exchange 100 shares of the
company's common stock for a Unit. Each Unit consists of one share of 9% series
B redeemable preferred stock (stated value $200), 100 redeemable Class A
warrants, 100 redeemable Class B warrants and 100 redeemable Class C warrants.
30
<PAGE>
ABOUT THE PREFERRED: The preferred stock (stated value $200) will pay a 9%
dividend on a quarterly basis in arrears. As long as the units trade as
originally issued, the dividend will be credited automatically as a reduction of
the exercise price of the Class A warrant until fully paid, then to the exercise
price of the Class B warrant until fully paid, and then to the exercise price of
the Class C warrant until fully paid. Thereafter, or in the event that all of
the Unit's component securities are detached, the dividends will be paid in cash
or shares of common stock, at our discretion. The preferred stock is redeemable
at its stated value plus accrued dividends. The preferred stock is not
convertible into common stock.
ABOUT THE WARRANTS: Each Class A, B, and C warrant will have an exercise of
price of $1.35 per share and will expire after 7-1/2, 15 and 22-1/2 years,
respectively. Beginning no sooner than one year and one day after the
completion of the exchange, and only after the daily closing bid price on the
common stock is over $5 for a period of 20 consecutive trading days, we may, at
our discretion, call for redemption the Class A, B, or C warrants at a
redemption price of $.01 per warrant. In the event that the Class A, B or C
warrants are not detached from the unit, then the dividend payments from the
preferred stock will fully pay for the exercise price of the Class A, B and C
warrants in 7-1/2, 15 and 22-1/2 years, respectively, at which time the warrants
will be automatically exercised into shares of common stock.
Our shareholders should carefully read the Exchange Offer and related materials
that we will be sending out within a reasonable time because they contain
important information, including various risks, terms and conditions to the
Exchange Offer. Shareholders can obtain the Exchange Offer and related
materials free at the SEC's Web site at www.sec.gov or from the information
agent or exchange agent. Shareholders are urged to carefully read these
materials prior to making any decision with respect to the Exchange Offer.
There is no assurance that the minimum number of shares will be exchanged.
The board of directors of HyperDynamics has approved the Exchange Offer.
However, neither we nor our board of directors make any recommendation to
shareholders as to whether to exchange or refrain from exchanging their shares.
Shareholders must make their own decision as to whether to exchange some or all
of their shares.
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<PAGE>
MANAGEMENT
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.
Name Position Age
Kent Watts Director, Chief Executive Officer, 42
and Chief Accounting Officer
Robert J. Hill Director, Executive Vice President 46
Harry J. Briers Director, Vice President - Operations 37
Chief Operating Officer
Bobby P. Lewis Director 59
Christopher
St. Laurent Director 33
Lewis Ball Secretary 69
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 42, became Chairman of the Board of Directors and was named
the Company's President and Chief Executive Officer on June 4, 1997. 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 and has been MicroData's CEO until he became President and
Chief Executive Officer of HyperDynamics Corporation. He has extensive
experience working with management information systems. Mr. Watts has been
involved in the design, implementation and management of heterogeneous,
multiprotocol 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 46, 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. In July, 1997, Mr. Hill was appointed
vice-president of the Company. 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.
Harry James Briers, age 37, has been a Director since March 2, 2000. Mr.
Briers was also elected as Vice President of Operations for HyperDynamics
Corporation and named the Chief Operating Officer. From 1988 until May of 1998,
Mr. Briers owned and operated Perfect Solutions, a software consulting firm in
Houston, Texas. He was named President of Ithost.net Corporation (wholly owned
subsidiary) in May of 1999. He served as the Director of Integrated Information
Systems when he joined the company in May of 1998. Prior to that, he founded
and operated Perfect Solutions, an office automation systems provider, for over
ten years. He has extensive experience in the selling and implementation of
mission critical software applications. Prior work experience included
consulting for Ernst and Young in their Entrepreneurial Services Group. Harry
has BS in Accounting and a MBA from the University of Houston - Clear Lake.
Bobby P. Lewis, age 59, has been a Director since March 2, 2000. From
1995 through 1998, Mr. Lewis was chairman of BPL Investments, Inc. Since 1998
Mr. Lewis, has been an independent investor and associate with Prudential
Allied Realtors in Pearland, Texas. Mr. Lewis specializes in commercial Real
Estate and is expected to be instrumental with regard to the Company's
strategies pertaining to integration of Technology and Real Estate. Mr. Lewis
has also been a past Director of Total World Telecom, a publicly traded long
distance carrier in the early 1990's. Mr. Lewis has a B.S. degree in
Mathematics from University of Memphis and MS in Systems Management from
University of Southern California.
Christopher D. St. Laurent, age 33, has been a Director since March 13,
2000. From 1992 through 1994, Mr. St. Laurent was an Investment Analyst with
Central United Life Insurance Co. From 1994 through 1997, Mr. St. Laurent was
Chief Operating Officer / Financial Analyst with Paul L. Comstock Co. Mr. St.
Laurent is the Managing Partner for Vista Analytics, LLC of Sugar Land Texas.
Vista Analytics provides financial services and back-office support for
Financial Advisors by assisting them in everything from capital market research
and asset allocation modeling to the ongoing monitoring of client portfolios,
and everything in between. Mr. St. Laurent's strong financial management
background is expected to provide valuable insight for management. He has a
Finance degree from the University of Houston and carries NASD licenses Series 2
and 63.
Lewis E. Ball, age 69, has served as the secretary of the Company since
1997 and as the Chief Financial Officer from June 1996 to January 1997. Mr.
Lewis has been a financial consultant to a number of companies since 1993. Mr.
Ball has served as a director of JVWeb, Inc. since 1997 and as secretary and
treasurer of JVWeb, Inc. since 1998. Mr. Ball has many years of industry
experience as a Chief Financial Officer with Stevenson Services, Inc. and
Richmond Tank Car Company (from 1983 to 1993). Mr. Ball is a Certified Public
Accountant and a Certified Management Accountant. Mr. Ball has a B.B.A. in
Finance from the University of Texas, and he did post-graduate work in
accounting at the University of Houston.
Certain Securities Filings
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company believes that Kent Watts, Bob Hill, Harry Briers, Bob Lewis,
Christopher St. Laurent and Lewis Ball have filed reports required under
section 16(A).
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EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to the
Company for the fiscal years ended June 30, 1998, 1999 and 2000 of the executive
officers of the Company. No executive officer of the Company received
compensation that exceeded $100,000 during 2000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS PAYOUTS
SECURITIES
OTHER UNDERLYING ALL
ANNUAL RESTRICTED OPTIONS OTHER
COMPE- STOCK SARS LTIP COMPEN-
NAME AND PRINCIPLE SALARY BONUS NSATION AWARDS PAYOUTS SATION
POSITION YEAR $ $ $ $ # $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Kent Watts (1)
Chief Executive 2000 100,000 $ -0- $ -0- -0- 15,000 $ -0- -0-
Officer 1999 84,000 -0- -0- -0- -0- -0- -0-
Chief Financial 1998 84,000 -0- -0- -0- -0- -0- -0-
Officer
</TABLE>
Chief Executive Officer Compensation
On July 21, 1999, the Board of Directors of HyperDynamics Corp. unanimously
agreed to the terms of a "Executive Employment Agreement" for Kent Watts. The
Agreement was duly executed on July 21, 1999 which establishes Mr. Watts as the
Company's President, Chief Executive Officer (CEO), and Chief Financial Officer
(CFO). In the agreement it is noted that the Company intends to hire a new CFO
at the time the board deems it to be beneficial to the Company. At that time,
Mr. Watts will continue his responsibilities as President and CEO while
relinquishing his duty as CFO.
The contract allows for a base salary of $100,000 annually with a performance
based incentive salary based on 5% of adjusted net income, up to an additional
$100,000 in salary. Therefore, maximum salary under the Agreement is $200,000
annually. Additionally, Mr. Watts will receive 7,000 options with a strike price
of $1.00 per share for unrestricted common stock for each $1,000,000 of revenue
generated in fiscal year end June 30, 2000, by the Company, in excess of the
revenues reported for the fiscal year end June 30, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OF
OPTIONAL/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH) DATE
Kent P. Watts
CEO 15,000 1.5% $ 2.00 11/30/01
Director Compensation
The Company does not currently pay any cash directors' fees, but it pays the
expenses of its directors in attending board meetings. The board of directors
received 10,000, 2-year stock options each for a total of 50,000 for all 5
directors with a strike price of $5.9125 for their work on the FYE 2000 board.
On July 22, 2000, the strike price of these options was reduced to $3.000. There
have been no director meeting expense reimbursements for 2000 and 1999.
Employee Stock Option Plan
33
<PAGE>
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 21, 2000,
options to purchase 1,574,560 shares have been granted under this plan and
1,088,407 of these have been exercised. This leaves 486,153 shares granted under
employment or consulting agreements but not yet to be exercised and 45,440
shares left to be granted pursuant to employment or consulting agreements. This
is a total of 531,593 shares available under the plan not yet issued.
The Company also had 5,000 remaining shares available to issue pursuant to the
S-8 filing on August 13, 1996 and 64,212 shares available pursuant to the S-8
filing on December 31, 1996.
The purpose of the 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.
As of October 27, 2000, we had outstanding 502,015 unexercised options granted
under other employment or consulting agreements. As of October 27, 2000, we had
45,440 shares of common stock that we could issue pursuant to other employment
or consulting agreements. As of October 27, 2000, there were 69,212 shares of
common stock that we previously registered on Form S-8 in connection with
compensation agreements, but have not yet issued.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Board of Directors has adopted a policy that all of our affairs will be
conducted by standards applicable to publicly-held corporations and that we will
not enter into any transactions or loans between us and our officers, directors
and 5% shareholders, unless the terms are no less favorable than we could obtain
from independent, third parties, and that these types of transactions must be
approved by our disinterested directors.
Michael Watts, the brother of Kent Watts, was retained by us in April 1996 as a
consultant for acquisition strategy. We granted 275,000 stock options to Michael
Watts. Our Board of Directors renewed the consulting agreement with Michael
Watts through March 2000. In December 1997, we amended the original consulting
agreement to include a total of 375,000 currently exercisable options which are
exercisable as follows: 1/3 of which are exercisable at a strike price of $.625
per share; 1/3 of which are exercisable at a strike price of $1.00 per share;
and 1/3 of which are exercisable at a strike price of $1.375 per share. All of
these options expire on June 30, 2000. In April 1999, we granted Michael Watts
an additional 350,000 options exercisable at a strike price of $.50 per share
that expire in March 2001, pursuant to the consulting agreement. Of these,
Michael Watts has previously exercised 487,362 options, and currently holds
237,638 options exercisable at a strike price of $.50 per share.
During 1997, we sold a convertible promissory note to Emerald Bay Interests LTD
for $350,000. The interest rate on the note was 10% and had a maturity date in
November 1997. At that time we were unable to pay off the note. In January 1998,
Emerald Bay Interests LTD agreed to convert the note into 5,833,333 shares of
our common stock. This resulted in Emerald Bay Interests LTD becoming a control
person of us.
In December 1998, Kent Watts purchased a convertible promissory note of ours
from a note holder. This note in the original principal amount of $25,000 had an
interest rate of 9% per annum and matured in May 1998. We had not made any
payments of principal or interest on the note. In May 1999, we paid off this
promissory note to Kent Watts at a 50% discount to the principal balance
remaining without any accrued interest, or $12,500. This transaction
extinguished our debt under this promissory note.
In September 1999, we sold 100% of the equity of our then wholly-owned
subsidiary, Wired and Wireless Corporation, to Ted W. Tarver, one of our
then-directors who resigned as our director in connection with the sale of Wired
& Wireless to him. We had concluded that Wired & Wireless no longer fit into our
business strategy. The consideration we received for this transaction was a
revenue sharing agreement that provides that we will receive, after the
effective date of the sale, 7% of the gross revenues of Wired & Wireless for the
first $714,286 of its revenue, 5% of its next $1,000,000 in revenue, and 3% of
its revenues thereafter. The revenue sharing agreement further provides that in
the event a third party acquires or merges with Wired and Wireless we will
receive 10% of the proceeds from such a transaction. The Wired and Wireless
subsidiary's asset value represented approximately 17.9% of the consolidated
assets at September 30, 1999. We had a loss of $184,546 for fiscal year end June
30, 1999 of which approximately 15%, or $27,625, was attributable Wired and
Wireless. The terms of the sale of Wired and Wireless Corporation to Mr. Tarver
were the result of negotiations between the parties, however no appraisal was
done. All of the disinterested directors voted in favor of the sale.
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following describes as of October 27, 2000, the beneficial ownership
of our outstanding common stock of :
- each person known to us who beneficially owns more than 5% of the common
stock
- each of our Directors
- each of our executive officers
- all of our executive officers and directors as a group
Each of these principal stockholders has sole voting and investment power
for the shares each owns.
NAME AND ADDRESS OF BENEFICIAL SHARES BENEFICIALLY OWNED
OWNER
Number Percent
KENT WATTS 1,040,000 (1) 7.550%
2656 SOUTH LOOP WEST,
SUITE 103
HOUSTON, TEXAS 77054
ROBERT J. HILL 115,055 (2) 0.835%
2656 SOUTH LOOP WEST,
SUITE 103
HOUSTON, TEXAS 77054
HARRY JAMES BRIERS 120,000 (3) 0.871%
2656 SOUTH LOOP WEST,
SUITE 103
HOUSTON, TEXAS 77054
BOBBY P. LEWIS 10,700 (4) 0.077%
2905 COUNTRY CLUB DRIVE
PEARLAND, TEXAS 77478
CHRISTOPHER D. ST. LAURENT 10,000 (5) 0.073%
ONE SUGAR CREEK CENTER,
SUITE 1045
HOUSTON, TEXAS 77478
LEWIS E. BALL 62,560 (6) 0.454%
2656 SOUTH LOOP WEST
SUITE 103
HOUSTON, TEXAS 77054
EMERALD BAY INTERESTS LTD 5,833,333 (7) 42.348%
ALL DIRECTORS AND EXECUTIVE 1,565,330 11.364%
OFFICERS AS A GROUP (6
PERSONS)
(1) This amount includes options to purchase 15,000 shares at $2.00 per share
and options to purchase 10,000 shares at $3.00 per share.
(2) This amount includes 3-year options to purchase 87,455 shares of the common
stock of the company for a strike price of $1.25 per share which was
granted 130,000 on July 23, 1997 and 9,600 on August 10, 1996.
(3) This amount includes currently exercisable options to purchase 10,000
shares of common stock of the Company at an exercise price of $2.00 per
share, and 10,000 options to purchase commons stock at $3.00 per share.
(4) This amount includes options to purchase up to 10,000 shares of our common
stock at an exercise price of $3.00 per share.
(5) This amount includes options to purchase up to 10,000 shares of our common
stock at an exercise price of $3.00 per share.
(6) This amount includes currently exercisable options to purchase up to 8,760
shares of common stock of the Company at an exercise price of $.75 per
share, currently exercisable options to purchase up to 33,300 shares of
common stock of the Company at an exercise price of $1.25 per share, and
currently exercisable warrants to purchase up to 12,500 shares of common
stock of the Company at an exercise price of $.51 price share.
(7) 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.
36
<PAGE>
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of:
- 50,000,000 shares of common stock, par value $.001 per share
- 20,000,000 share of preferred stock, par value $.001 per share.
As of October 27, 2000, we had outstanding:
- 13,805,497 shares of common stock
- 2,120 shares of Series A Preferred Stock
COMMON STOCK
The holders of our common stock are entitled to one vote per share with
respect to all matters required by law to be submitted to our stockholders for
approval. The holders of common stock have the sole right to vote, except as
otherwise provided by law or by our Articles of Incorporation, including
provisions governing our preferred stock. Our common stock does not have any
cumulative voting, preemptive, subscription or conversion rights. Election of
directors and other general stockholder action requires the affirmative vote of
a majority of shares of our common stock represented at a meeting in which a
quorum is represented. The outstanding shares of common stock are validly
issued, fully paid and non-assessable. Upon the conversion of our Series A
Preferred Stock or the exercise of our warrants, the shares of common stock that
are being offered in this prospectus will be validly issued, fully paid and
non-assessable.
Subject to the rights of any outstanding shares of preferred stock, the
holders of our common stock are entitled to receive dividends when, as and if
declared by our Board of Directors out of funds legally available for dividends.
Dividends may not be paid on our common stock until all dividends due on our
Series A Preferred Stock have been paid. In the event of our liquidation,
dissolution or winding up of the affairs, the holders of our common stock are
entitled to share ratably in all or our assets remaining available for
distribution to them after payment or provision for all liabilities and any
preferential liquidation rights of any preferred stock.
PREFERRED STOCK
Our board of directors has the authority, without action by our
stockholders, to designate and issue preferred stock in one or more series. Our
board of directors may also designate the rights, preferences, and privileges of
each series of preferred stock, any or all of which may be greater than the
rights of the common stock. It is not possible to state the actual effect of
the issuance of any shares of preferred stock on the rights of holders of the
common stock until the board of directors determines the specific rights of the
holders of the preferred stock. However, these effects might include:
- restricting dividends on the common stock
- diluting the voting power of the common stock
- impairing the liquidation rights of the common stock
- delaying or preventing a change in control of us without further action by
the stockholders.
37
<PAGE>
SERIES A PREFERRED STOCK
Our Series A Preferred Stock is convertible into our common stock upon the
earlier of the effective date of a registration statement covering the shares of
common stock underlying Series A Preferred Stock, or the ninetieth day after the
issuance of each such share of Series A Preferred Stock. Each share of Series A
Preferred Stock outstanding on January 30, 2002 is converted automatically into
common stock.
The Series A Preferred Stock is convertible into our common stock in
accordance with the conversion formula which is:
$1,000.00 divided by the conversion price, where
- The conversion price is the lessor of (i) $5.9125 or (ii) the "average
price at conversion".
- The average price at conversion is defined to equal 80% of the five 5 day
average closing bid price for the our common stock immediately before the
conversion date.
There is no limit on the number of shares issuable upon conversion of the
Series A Preferred Stock. The conversion of Series A Preferred Stock may have a
severe dilutive effect.
The following table sets forth the approximate number of shares of common
stock that the 2,120 shares of Series A Preferred Stock may be converted into,
if the average price at conversion is:
- $7.3906 or more per share, resulting in a conversion price of $5.9125 per
share of common stock (which is a conversion price equal to the lessor of
$5.9125 or 80% of the "average price at conversion").
- $5.9125 per share, resulting in a conversion price of $4.73 per share of
common stock.
- 25% below $5.9125, or $4.4343 per share, resulting in a conversion price
of $3.5474 per share of common stock.
- 50% below $5.9125, or $2.9562 per share, resulting in a conversion price
of $2.3649 per share of common stock.
- 75% below $5.9125, or $1.4781 per share, resulting in a conversion price
of $1.1824 per share of common stock.
38
<PAGE>
Percentage of Our Shares
Outstanding At
Number of Shares October 27, 2000
Conversion Price Issuable on Conversion Issuable on Conversion
------------------------- ---------------------- -----------------------
5.9125 358,562 2.5%
4.73 448,203 3.2%
3.5474 597,621 4.2%
2.3649 896,444 6.4%
1.1824 1,792,963 12.8%
If the shares issued upon the conversion of the Series A Preferred Stock
are sold, the price of our common stock may decrease due to these additional
shares being sold into the market. If the price of our common stock decreases,
the holders of the Series A Preferred Stock will receive a greater number of
shares upon the conversion of their Series A Preferred Stock. In addition, if
our stock price decreases, it could encourage short sales by the holders of the
Series A Preferred Stock. or others, which could cause our stock price to
further decrease.
Each share of Series A Preferred Stock has a stated value of $1,000.00.
Series A Preferred Stock is entitled to receive dividends at the rate of 4% per
annum of the stated value. Dividends are payable at the time these shares are
converted. The dividends may be paid in cash or in shares of common stock as
determined by us. The number of shares issued as a payment-in-kind for
dividends is determined by the market value of a share of common stock as of the
last day of the period for such stock dividend. Dividends are cumulative. Any
accumulations of dividends do not bear interest. In the event of our
liquidation, dissolution or winding-up, the holders of shares of the Series A
Preferred Stock are entitled to be paid out of our assets that are available for
distribution before any payment is made to the holders of common stock. Shares
of Series A Preferred Stock do not vote. The Series A Preferred Stock may be
converted into common stock at any time prior to January 30, 2002, when it
automatically converts into common stock.
WARRANTS AND OPTIONS
As of October 27, 2000, we had outstanding a total of 2,258,648 options and
warrants to purchase our common stock at exercise prices ranging from $.50 to
$7.095 per share, which are near or below market prices. Of these, 1,658,648
options and warrants expire at various times through the year 2002, and 600,000
warrants expire in January, 2005.
In January, 2000, we issued a total of 300,000 Investor Warrants to
purchase shares of our common stock at a price of $5.9125 per share which are
immediately exercisable and expire on January 6, 2005. The Investor Warrant
provides that in no event shall the holder exercise the Warrant if upon exercise
of the Warrant, the holder would benefically own more than 4.9% of our
outstanding common stock. We also issued 180,000 Placement Warrants to the
placement agent to purchase shares of our common stock at a price of $7.095 per
share which are immediately exercisable and expire on January 6, 2005 and
120,000 Consultant Warrants to one individual to purchase shares of our common
stock at a price of $7.095 per share which are immediately exercisable and
expire on January 6, 2005.
39
<PAGE>
SELLING STOCKHOLDERS
This prospectus relates to the resale of our common stock issuable upon
conversion of our Series A Preferred Stock and the exercise of Investor
Warrants, Placement Warrants and Consultant Warrants.
This prospectus relates to the resale of up to 2,328,113 shares of common
stock by the selling stockholders. The number of shares of common stock that
will be issuable upon the conversion of the Series A Preferred Stock is based
upon fluctuations in the market price of our common stock, cannot be determined
until the day of conversion, and is calculated by a formula in the designation
certificate of the Series A Preferred Stock. There is no limit on the number of
shares issuable upon conversion of the Series A Preferred Stock. The actual
number of shares of our common stock that will be issuable and beneficially
owned upon conversion of the Series A Preferred Stock cannot be determined at
this time. The number of shares of our common stock underlying our Series A
Preferred Stock that we are registering in this offering is based upon two and
one-half (2.5) times the lessor of a common stock price of $5.9125 or the
average closing bid price on our common stock for the five days preceding the
filing of this registration statement. The actual number of shares issuable
upon conversion of the Series A Preferred Stock could be much greater.
The table below sets forth information concerning the resale of shares of
common stock by the selling stockholders. The table reflects: (i) the number of
shares issuable upon the conversion of all Series A Perferred Stock calculated
as if the conversion took place on February 24, 2000 and (ii) the number of
shares issuable upon exercise of all of the Investor, Placement and Consultant
Warrants. We will not receive any proceeds from the resale of common stock by
the selling stockholders. We will receive proceeds from the exercise of the
Investor Warrants, Placement Warrants and Consultant Warrants. Assuming all of
the shares registered below are sold by the selling stockholders, none of the
selling stockholders will continue to own any shares of our common stock.
<TABLE>
<CAPTION>
Shares Shares Shares Owned Percentage
Owned Offered After Offering Owned after
Selling Before For If All Offered Offering If All
Stockholder (1) Offering (2) Sale (3) Shares Are Sold (3) Shares Sold (3)
--------------------------- ------------ -------- ------------------- ---------------
<S> <C> <C> <C> <C>
Cache Capital 315,418 315,418 -0- 0%
USA, L.P.
Carpe Diem, Ltd. 16,600 16,600 -0- 0%
Wellington, LLC. 664,038 664,038 -0- 0%
J. P. Carey 180,000 180,000 -0- 0%
Securities, Inc.
Andrew Baum 120,000 120,000 -0- 0%
<FN>
__________________________
(1) No selling stockholder has held any position or office, or has had any
material relationship with us or any of our affiliates within the past
three years.
(2) Assumes that all Investor Warrants, Placement Warrants and Consultant
Warrants have been exercised and all Series A Preferred Stock has been
converted into common stock.
(3) Assumes no sales are effected by the Selling Stockholders during the
offering period other than pursuant to this offering.
</TABLE>
40
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees, and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market, or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. There is no assurance that the selling stockholders will
sell any or all of the common stock in this offering. The selling stockholders
may use any one or more of the following methods when selling shares:
- Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers
- Block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction
- Purchases by a broker-dealer as principal and resale by the broker-dealer
for its own account
- An exchange distribution following the rules of the applicable exchange
- Privately negotiated transactions
- Short sales or sales of shares not previously owned by the seller
- Broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share
- A combination of any such methods of sale
- Any other lawful method
The selling stockholders may also engage in:
- Short selling against the box, which is making a short sale when the
seller already owns the shares
- Buying puts, which is a contract whereby the person buying the contract
may sell shares at a specified price by a specified date
- Selling calls, which is a contract giving the person buying the contract
the right to buy shares at a specified price by a specified date
- Selling under Rule 144 under the Securities Act, if available, rather than
under this prospectus
- Other transactions in our securities or in derivatives of our securities
and the subsequent sale or delivery of shares by the stock holder
- Pledging shares to their brokers under the margin provisions of customer
agreements. If a selling stockholder defaults on a margin loan, the broker
may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders in amounts to be negotiated. If any
broker-dealer acts as agent for the purchaser of shares, the broker-dealer may
receive commission from the purchaser in amounts to be negotiated. The selling
stockholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are involved
in selling the shares may be considered to be "underwriters" within the meaning
of the Securities Act for such sales. An underwriter is a person who has
purchased shares from an issuer with a view towards distributing the shares to
the public. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
considered to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares in this offering. However, we will not pay any commissions or any
other fees in connection with the resale of the common stock in this offering.
We have agreed to indemnify the selling shareholders and their officers,
directors, employees and agents, and each person who controls any selling
shareholder, in certain circumstances against certain liabilities, including
liabilities arising under the Securities Act. Each selling shareholder has
agreed to indemnify the Company and its directors and officers in certain
circumstances against certain liabilities, including liabilities arising under
the Securities Act.
If we are notified by a selling stockholder that they have a material that
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholder and the broker-dealer.
41
<PAGE>
LEGAL PROCEEDINGS
Arbitration has commenced between Charterbridge Financial Group, Inc. (the
claimant) and us (the respondent). Charterbridge is claiming that it was
entitled to receive warrants to purchase up to 100,000 shares of our common
stock, exercisable at $0.75 per share in connection with an investor relations
contract with us. This arbitration was filed in June 2000. We believe that
Charterbridge breached the contract and is owed nothing. The parties are
presently in settlement negotiations.
We were named as a defendant in litigation in which the plaintiff, Cherie Dunn,
is claiming that she was entitled to receive options to purchase up to 55,000
shares of our common stock, exercisable at $1.00 per share in connection with an
employment agreement with us. The case is styled Cherie Dunn v. HyperDynamics
Corporation, No. 2000-27220, 80th Judicial District Court, Harris County, Texas.
This suit was filed in June 2000. We dispute the plaintiff's allegations.
Initial discovery has recently commenced in this matter.
In 1984, we failed to file financial statements as required by Utah law within
thirteen months after our 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 issued
an Order by which an offering exemptions which would be otherwise applicable and
available to us by reason of Section 61-1-14 of the Utah Code were revoked by
the Utah Order until such time as we filed financial statements as required by
Rule 10.2-1(b)(7) of the Division. The State of Utah vacated this order in July
2000.
42
<PAGE>
EXPERTS
Our annual financial statements in the prospectus of this Post-Effective
Amendment No. 1 to Form SB-2 registration statement have been audited by Malone
& Bailey, PLLC, and by John B. Evans II, Certified Public Accountant, our
independent auditor, as disclosed in their reports appearing elsewhere in this
registration statement and are included in reliance on the report given on the
authority of Malone & Bailey PLLC, and John B. Evans II, Certified Public
Accountant, as an expert in accounting and auditing.
LEGAL MATTERS
Legal matters concerning the issuance of shares of common stock offered in
this registration statement will be passed upon by Axelrod, Smith & Kirshbaum.
Robert D. Axelrod beneficially own 4,000 shares of our common stock.
OTHER AVAILABLE INFORMATION
We are subject to the reporting requirements of the Securities and Exchange
Commission (the "Commission"). We file periodic reports, proxy statements and
other information with the Commission under the Securities Exchange Act of 1934.
We will provide without charge to each person who receives a copy of this
prospectus, upon written or oral request, a copy of any information that is
incorporated by reference in this prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Requests should be directed to
HyperDynamics Corporation, Attn. Kent Watts, 2656 South Loop West, Suite 103,
Houston, Texas 77054, Voice: (713) 660-9771, Fax: (713) 660-9775. Our Internet
address is www.hyd.net
We have filed a Registration Statement on Form Post-Effective Amendment No.
1 to SB-2 under the Securities Act of 1993 Act with the Commission in connection
with the securities offered by this prospectus. This prospectus does not contain
all of the information that is in the registration statement. For further
information with respect to us and the registration statement, you may inspect
without charge, and copy our filings, at the public reference room maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of this
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Information about the public reference room is available from the
Commission by calling 1-800-SEC-0330.
The Commission maintains a web site on the Internet that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission. The address of the site is
www.sec.gov. Visitors to the site may access such information by searching the
EDGAR archives on this web site.
43
<PAGE>
INDEMNIFICATION
Delaware General Corporation Law permits a corporation organized under
Delaware law to indemnify directors and officers with respect to any matter in
which the director or officer acted in good faith and in a manner he reasonably
believed to be not opposed to our best interests, and, with respect to any
criminal action, had reasonable cause to believe his conduct was lawful.
Our Bylaws provide that our directors and officers are indemnified by us if
that person is a party to a matter by reason of being a director or officer.
These provisions may discourage stockholders from bringing suit against a
director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by our stockholders on our behalf against a
director.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
FINANCIAL STATEMENTS
Our financial statements begin on page F-1.
44
<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, 2000 F-4
Consolidated Statements of Income for the years ended June 30, 2000 and 1999 F-5
Statements of Changes in Stockholders' Equity for the years ended June 30, 2000 and 1999 F-6
Statements of Cash Flows for the years ended June 30, 2000 and 1999 F-8
Notes to Financial Statements F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
September 12, 2000
To the Board of Directors and Stockholders
HyperDynamics Corporation
Houston, Texas
We have audited the accompanying consolidated balance sheet of HyperDynamics
Corporation (a Delaware corporation) and subsidiaries as of June 30, 2000, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HyperDynamics
Corporation as of June 30, 2000, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
/s/ MALONE AND BAILEY, PLLC
Houston, Texas
F-2
<PAGE>
JOHN B. EVANS II
CERTIFIED PUBLIC ACCOUNTANT
Three Riverway, Suite 120
Houston, Texas 77056-1909
Voice (713) 623-2898
Fax (713)960-8128
September 24, 1999
To the Board of Directors
HyperDynamics Corporation
Houston, Texas
I have audited the accompanying consolidated balance sheet of HyperDynamics
Corporation (a Delaware corporation) and subsidiaries as of June 30, 1999, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit 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 audit provides a reasonable basis for my 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, 1999, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
/s/ JOHN B. EVANS II
F-3
<PAGE>
HYPERDYNAMICS CORPORATION
CONSOLIDATED BALANCE SHEET
June 30, 2000
ASSETS
Current Assets
Cash $ 1,033,435
Restricted certificate of deposit 436,300
Accounts receivable, net of allowance for
doubtful accounts of $6,884 537,193
Inventory 225,647
Revenue interest 28,865
Prepaid expenses 40,707
Note receivable 400,000
Other current assets 48,190
------------
Total Current Assets 2,750,337
Property and Equipment, net of accumulated
depreciation of $54,916 52,268
Other Assets
Intangible assets, net of accumulated
amortization of $21,250 29,750
Deposits 20,632
------------
TOTAL ASSETS 2,852,987
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 418,478
Dividends payable 44,826
------------
Total Current Liabilities 463,304
------------
TOTAL LIABILITIES 463,304
------------
Stockholders' Equity
Preferred stock, par value $.001; stated value
$1,000; 20,000,000 authorized; 2,560 shares
issued and outstanding 3
Common Stock, par value $.001; 50,000,000 shares
authorized; 13,021,821 shares issued and outstanding 13,022
Additional paid in capital 4,378,443
Retained (deficit) (2,001,785)
------------
Total Stockholders' Equity 2,389,683
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,852,987
============
See accompanying summary of accounting policies
and notes to financial statements
F-4
<PAGE>
HYPERDYNAMICS CORPORATION
CONSOLIDATED INCOME STATEMENTS
For the Years Ended June 30, 2000 and 1999
(Restated)
2000 1999
------------ ------------
Revenues $ 2,137,998 $ 938,306
Cost of Revenues 1,962,150 747,046
------------ ------------
GROSS MARGIN 175,848 191,260
Operating Expenses
Selling 196,595 58,393
General and administration 472,890 259,324
Startup costs for ITHost.net 170,284
Depreciation and amortization 47,221 19,761
------------ ------------
Total Operating Expenses 886,990 337,478
------------ ------------
OPERATING (LOSS) (711,142) (146,218)
Other Income (Expense)
Revenue sharing income 18,162
(Loss) on disposal of assets (12,316) (7,972)
Gain on sale of revenue sharing
agreement 21,000
Impairment loss on revenue interest
received from sale of Wired and Wireless (104,998)
Interest (expense) (4,703)
Interest income 46,749 1,461
Other income 512
------------ ------------
Total Other Income (Expense) (31,403) (10,702)
------------ ------------
LOSS FROM CONTINUING OPERATIONS (742,545) (156,920)
(Loss) from discontinued operations,
net of income tax benefit of $0 and
$0, respectively (568) (27,626)
Gain on sale of discontinued operations,
Net of income tax benefit of $0 and
$0, respectively 127,065
------------ ------------
NET INCOME (LOSS) (616,048) (184,546)
Preferred dividends (50,084)
------------ ------------
NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS $ (666,132) $ (184,546)
============ ============
Income (loss) per common share
Continuing operations $ (.05) $ (.01)
Discontinued operations $ .01
Weighted average shares outstanding 12,609,770 12,264,945
See accompanying summary of accounting policies
and notes to financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended June 30, 2000 and 1999
AS RESTATED
PREFERRED COMMON PREFERRED COMMON
SHARES SHARES AMOUNT AMOUNT
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
BALANCES, June 30, 1998 12,208,321 $ 12,208
Common stock issued
for cash 201,182 201
Net (loss)
------------ ---------
BALANCES, June 30, 1999 12,409,503 12,409
Common stock issued
for cash 428,000 428
cashless exercise of
options 27,600 28
Issuance of stock options
and warrants
Repurchase and cancellation
of common stock purchased
on the open market (68,500) (69)
Sale of convertible Preferred
Stock Series A, net 3,000 $ 3.00
Preferred stock dividends
Conversion of preferred stock
to common stock (440) 222,541 $ (.44) 223
Payment of preferred
stock dividends in
common shares 2,676 3
Net (loss)
------------ ------------ ----------- ---------
BALANCES, June 30, 2000 2,560 13,021,820 $ 2.56 $ 13,022
============ ============ =========== =========
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements
F-6
<PAGE>
HYPERDYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended June 30, 2000 and 1999
(Continued)
AS RESTATED
ADDITIONAL
PAID-IN RETAINED
CAPITAL (DEFICIT) TOTALS
------------- ------------- ------------
BALANCES, June 30, 1998 $ 1,567,500 $ (1,201,191) $ 378,517
Common stock issued
for cash 142,424 142,625
Net (loss) (184,546) (184,546)
------------- ------------- ------------
BALANCES, June 30, 1999 1,709,924 (1,385,737) 336,596
Common stock issued
for cash 228,070 228,498
cashless exercise of
options (28)
Issuance of stock options
and warrants 25,106 25,106
Repurchase and cancellation
of common stock purchased
on the open market (143,764) (143,833)
Sale of convertible Preferred
Stock Series A, net 2,604,187 2,604,190
Preferred stock dividends (50,084) (50,084)
Conversion of preferred stock
to common stock (223)
Payment of preferred
stock dividends in
common shares 5,255 5,258
Net (loss) (616,048) (616,048)
------------- ------------- ------------
BALANCES, June 30, 2000 $ 4,378,443 $ (2,001,785) $ 2,389,683
============= ============= ============
See accompanying summary of accounting policies
and notes to financial statements
F-7
<PAGE>
HYPERDYNAMICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2000 and 1999
(Restated)
2000 1999
------------- ------------
Cash flows from operating activities
Net (loss) $ (616,048) $ (184,546)
Adjustments to reconcile net (loss) to cash
provided from operating activities
Depreciation and amortization 47,221 25,761
Loss on disposition of assets 12,315 7,972
(Gain) on sale of revenue sharing agreement (21,000)
(Gain) on sale of discontinued operations (127,065)
Impairment loss on assets received from
from sale of subsidiary 104,998
Writedown of capitalized intangible asset 6,755
Intrinsic value of options issued for services 25,106
Loss from discontinued operations 568 26,726
Changes in:
Accounts receivable, net (852,506) (44,526)
Accounts receivable - other 25,012
Inventory (173,687) (12,452)
Collection of revenue interest 1,263 45,800
Prepaid expenses (37,359)
Other current assets (48,190)
Accounts payable and accrued expenses 353,343 18,947
------------- ------------
NET CASH (USED) BY OPERATING ACTIVITIES (1,324,286) (91,306)
Cash flows from investing activities
Purchases of property and intangibles (9,336) (72,509)
Cash investment in discontinued operations (6,566) (28,192)
Proceeds from sale of revenue interest 85,500
Security deposit paid (20,632)
(Increase) decrease in restricted cash (436,300) 94,000
------------- ------------
NET CASH (USED) BY INVESTING ACTIVITIES (387,334) (6,701)
Cash flows from financing activities
Proceeds from sale of common stock 228,498 142,625
Proceeds from sale of preferred stock 2,604,190
Purchases of common stock (143,833)
------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,688,855 142,625
------------- ------------
Net increase in cash 977,235 44,618
CASH AT BEGINNING OF PERIOD 56,200 11,582
------------- ------------
CASH AT END OF PERIOD $ 1,033,435 $ 56,200
============= ============
SUPPLEMENTAL DISCLOSURES
Interest paid in cash $ 4,703
See accompanying summary of accounting policies
and notes to financial statements
F-8
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Nature of business. HyperDynamics Corporation ("Company"), was a Texas
corporation formed in March 1996. The Company sells and supports computer
hardware and software.
During the fiscal year ended June 30, 1998, the Company began operations through
a wholly-owned subsidiary, Wired and Wireless Corporation ("Wireless").
Wireless was sold in September 1999. Another wholly-owned subsidiary,
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 of the Company. Significant inter-company accounts
and transactions have been eliminated. The Company's financial statements have
been restated to reflect the divestiture of Wireless.
Estimates and assumptions. Preparing financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses at the balance sheet date and for the period then ended. Actual
results could differ from these estimates.
Restricted cash is a certificate of deposit at a bank to back a letter of credit
for construction of the Company's new facility. The CD matures on May 9, 2001
and accrues interest at 6.6% annually.
Revenue and cost recognition. Revenue from consulting is recognized when
services are rendered. Revenue from hardware and software sales are recognized
when goods are shipped. Advertising costs are expensed as incurred.
Accounts receivable are written down to the estimated collectible amount in the
opinion of management. The allowance for bad debts as of June 30, 2000 was
$6,884.
PREPAID EXPENSES CONSISTS OF $14,584 PREPAID ON A PUBLIC RELATIONS CONTRACT THAT
EXPIRES IN JANUARY 2001, $21,123 PREPAID RENT, AND A $5,000 ADVANCE TO A
DIRECTOR USED DURING SEPTEMBER 2000.
Inventory is stated at the lower of cost or market using the first-in first-out
basis (FIFO).
Other current assets includes a $43,988 return merchandise authorization from a
vendor, which was collected in July 2000, and $4,202 accrued interest income on
the restricted CD, which is expected to be received in May 2001.
F-9
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and Equipment. The Company calculates depreciation for financial
reporting using the straight-line method over the useful lives of the assets.
A summary of property and equipment is as follows:
Software 3 years $ 35,069
Office equipment and furniture 5 years 31,940
Leasehold improvements 5 years 40,175
---------
Total cost 107,184
Less: accumulated depreciation (54,916)
---------
Net carrying value $ 52,268
=========
Intangible Property consists of a customer list purchased in May 1998 for
$51,000, net of accumulated amortization of $21,250. Amortization is calculated
on a straight-line basis over 5 years.
The Company follows Statement of Financial Accounting Standards No. 121,
Impairment of Long-Lived Assets, by reviewing such assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
Accounts payable and accrued expenses:
Accounts payable $ 374,023
Accrued payroll and payroll tax 4,398
State sales tax payable 40,057
---------
$ 418,478
=========
Income taxes are computed using the tax liability method of accounting, whereby
deferred income taxes are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates that will be in effect when the differences reverse.
Startup costs for ITHost.net consist of training costs for the new information
technology center that will open in fiscal 2001. The IT center will operate as
a information services provider to businesses who wish to outsource their
technology needs.
Stock options are accounted for by following Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations,
and by following Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation, which established a fair-value-based method of
accounting for stock-based compensation plans.
Loss per share is reported under Statement No. 128 of the Financial Accounting
Standards Board (FAS 128"), which requires the calculation of basic and
F-10
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
diluted earnings per share. Basic earnings per share exclude any dilutive
effects of options, warrants, and convertible securities.
Diluted earnings per share are not shown here because such effect would be
anti-dilutive.
Cash and cash equivalents include all highly liquid investments purchased with
original maturities of three months or less.
Non-cash transactions include the conversion of $400,000 in accounts receivable
to a note receivable.
Reclassifications of certain prior year amounts were made to conform with the
current year presentation.
NOTE 2 - CONCENTRATION OF CREDIT RISK
The Company maintains significant deposits at one bank located in Houston,
Texas. As of June 30, 2000, the Company had $494,128 on deposit, before
deducting outstanding checks, and only $100,000 is insured under federal law.
Additionally, the Company owns shares in various money market funds at brokerage
firm, and money market funds are not insured under federal law. As of June 30,
2000, the value of these funds totaled $1,029,168.
NOTE 3 - NOTE RECEIVABLE
On September 27, 2000, the major customer of the Company, Malachi Mattress
America, Inc., ("Malachi") converted $432,439 of then-outstanding invoices into
a note receivable in the amount of $400,000. These invoices were all for
services performed and recognized by the Company as of June 30, 2000. The note
receivable accrues interest at 10% annually. Interest is payable quarterly and
the unpaid principal and interest is due on March 27, 2001. Accordingly, the
Company recognized the $32,439 discount given to Malachi as a bad debt in the
year ended June 30, 2000 and has recorded the note as a current asset.
NOTE 4 - SALE OF REVENUE INTEREST
In May 1997, the Company purchased a 4% revenue interest in the Sierra-Net
subsidiary of Internet Finance & Equipment, Inc. by issuing 177,000 shares of
stock valued at $177,000. Since that time, the Company has been receiving
expected cash flows and amortizing its carrying value appropriately. On March
6, 2000, substantially all assets of Sierra-Net were purchased by M&A West, Inc.
(stock trading symbol "MAWI"), for cash and MAWI stock. Sierra-Net may only sell
1/6 of the shares per month during the first six months after the MAWI shares
are registered (the "lock-up period"). As of September 12, 2000, these shares
had not been registered.
F-11
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTE 4 - SALE OF REVENUE INTEREST (Continued)
This sale includes a "put" provision whereby Sierra-Net can demand repurchase of
its MAWI stock for $16.25 per share. The provision expires at the end of the
lock-up period. If Sierra-Net exercises this provision, MAWI may refuse to
repurchase the stock and Sierra-Net can then elect to rescind the entire
transaction and return the MAWI shares and all of the cash received up front. As
of September 12, 2000, these shares were trading at around $6 per share.
According to the May 1997 agreement, the Company's share of any Sierra-Net asset
sales is 19%, and accordingly, the Company received $85,500 as its share of the
cash received by Sierra-Net. $73,500 of this cash is shown as a reduction of the
remaining $93,365 carrying value of the Sierra-Net Revenue Interest and the
remaining $12,000 was recognized during the fiscal year ended June 30, 2000.
Profit will be recognized on this transaction commensurate with the previous
monthly revenue stream until the "put" provision expires. Accordingly, an
additional $9,000 of gain was recognized during the year ended June 30, 2000.
This corresponds to $21,000, or $3,500 per month over six months.
NOTE 5 - SALE OF WIRED AND WIRELESS
In September 1999, the Company sold its Wireless subsidiary to the Wireless
founder in exchange for a 5% net revenue interest. This asset was valued at
$100,000 and Wireless' net book value at that time was a deficit $27,065,
resulting in a recorded gain on sale of $127,065. Cash flows received since
that date total $4,515, and the principal balance of $100,000 was amortized by
$669. In November 1999, a hunting accident severely injured the founder and key
employee of Wireless. The balance of the revenue interest and a minor
receivable of $5,667 have been written off as of June 30, 2000, because there
have been no revenues since the accident, and the asset is contingent upon the
recovery of the founder and successful rebuilding of the business.
NOTE 6 - LETTER OF CREDIT
On May 10, 2000, the Company entered into a letter of credit for $436,300 with
Frost Bank expiring on May 10, 2001. The purpose of the letter of credit is to
guarantee the funding of construction draws for the buildout of the Company's
new office space. The letter of credit is guaranteed by security interest in a
certificate with deposit with Frost Bank that may not be redeemed until the
letter of credit expires. There were no draws against this letter of credit as
of June 30, 2000 nor as of September 12, 2000, the date of our report. See note
12.
NOTE 7 - INCOME TAXES
Income taxes are not due since the Company has had losses since inception. The
Company has net operating losses of $610,000 and $180,000 in tax in the years
ended June 30, 2000 and 1999, respectively. As of June 30, 2000, the Company
had approximately $1,910,000 in unused net operating loss carryforwards which
expire $640,000 in 2012, $550,000 in 2013, $110,000 in
F-12
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTE 7 - INCOME TAXES (Continued)
2014, and $610,000 in 2015. Internal Revenue Section 382 restricts the ability
to use these carryforwards whenever an ownership change as defined occurs. The
Company incurred such an ownership change on January 14, 1998, when $350,000 of
debt was converted to 5,833,333 shares of stock, which then represented 50.7% of
total outstanding shares. As a result of this ownership change, the Company's
Net Operating loss as of January 14, 1998 of $940,000 is restricted to $151,000
per year. Losses occurring after that date are not restricted.
NOTE 8 - PREFERRED STOCK
In January 2000, 3,000 shares of Series A preferred stock was sold to investors
for $3,000,000. Expenses of the offering totaled $395,810, resulting in net
proceeds of $2,604,190. The preferred stock is convertible into the Company's
common stock at a price of the lower of the trading price when purchased at
$5.25 or 80% of the current 5 day trading average. All or portions of the 3,000
shares outstanding may be converted at any time, and all shares outstanding as
of January 30, 2002 will be automatically converted. 300,000 warrants with an
exercise price of $5.9125 (reduced to $3 per share effective July 21, 2000) were
issued to the investors in connection with this offering and warrants for
300,000 shares with an exercise price of $7.095 were issued to promoters.
The preferred stock is non-voting and pays dividends of 4%, payable at
conversion in either cash or shares of common stock. As of June 30, 2000,
$50,084 in dividends were earned, of which $5,255 were paid with the issuance of
2,677 shares of common stock in conjunction with the conversion of 440 shares of
the preferred stock to 222,541 shares of common stock during April, May, and
June 2000. The remaining dividends earned, $44,826, have been accrued.
Additional conversions occurred in July and August 2000: 130 shares of preferred
were cancelled and 376,253 shares of common stock were issued.
NOTE 9 - COMMON STOCK
Common stock was issued pursuant to the exercise of options during the year
ended June 30, 2000. $228,502 was collected for the issuance of 432,000 shares
of common stock. Additionally, an officer of the company elected to exercise an
option to purchase 40,145 shares at an exercise price of $1.25 per share or
$50,181 total purchase price. The Company repurchased 12,545 of his previously
owned shares at $4 per share, the then market price. This offset the entire
amount due from the officer, in effect resulting in a cashless exercise by the
officer of 27,600 net shares issued.
On April 18,2000, the Board authorized the repurchase of up to 500,000 shares of
Company stock on the open market at a price not to exceed $2.50 per share.
Between that date and June 30, 2000, 68,500 shares had been repurchased at
prices ranging from $2.50 to $1.50 per share, for a total cost of $143,833.
These shares have been deemed cancelled as of June 30, 2000.
F-13
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTE 10 - 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 issuance 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 year ended June 30, 2000, $25,106 in compensation expense was
recognized for the issuance of 177,015 options and warrants ranging in exercise
price from $.75 to $1.25 per share, because these option prices were below
market prices at the date of grant. During the year ended June 30, 1999, no
compensation expense was recognized for the issuance of options and warrants,
because no option prices were below market prices at the date of grant. Options
and warrants to purchase 1,107,500 shares of common stock that had no intrinsic
value were issued during the year ended June 30, 2000. In addition, 459,600 and
78,182 options were exercised and 219,560 and 0 shares expired in 2000 and 1999
respectively As of June 30, 2000, 300,000 outstanding warrants are
noncompensatory. The balance of the outstanding warrants and options are
payments for consulting and professional services. Summary information regarding
options and warrants is as follows:
Weighted Weighted
average average
Options Share Price Warrants Share Price
---------- ----------- ----------- -----------
Year ended June 30, 1999:
Granted and outstanding 948,661 $ .88 425,850 $ .59
Exercised (78,182) .70
---------- ----------- -----------
Outstanding at
June 30, 1999 870,479 .90 425,850 .59
Year ended June 30, 2000:
Granted 267,015 1.18 1,017,500 3.43
Exercised (372,145) .68 (100,000) .50
Expired (134,515) 1.21 (72,500) 1.02
---------- ----------- ----------- -----------
Outstanding at
June 30, 2000 630,834 $ 1.47 1,270,850 $ 3.57
========== =========== =========== ===========
F-14
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
Options outstanding and exercisable as of June 30, 2000:
- - Outstanding - - Exercisable
Number Remaining Number
Exercise Price of Shares life of Shares
---------- --------- -----------
$ .50 308,819 1 years 308,819
.50 50,000 2 years 50,000
.75 8,760 1 years 8,760
1.00 5,000 1 years 5,000
1.25 120,755 1 years 120,755
1.25 6,000 2 years 6,000
2.00 51,500 2 years 16,500
5.91 50,000 2 years 50,000
5.91 30,000 3 years 30,000
-------- -------
630,834 595,834
======== =======
Warrants outstanding and exercisable as of June 30, 2000:
- - Outstanding - - Exercisable
Number Remaining Number
Exercise Price of Shares life of Shares
---------- --------- -----------
$ .50 308,819 1 years 308,819
.50 50,000 2 years 50,000
.75 8,760 1 years 8,760
1.00 5,000 1 years 5,000
1.25 120,755 1 years 120,755
1.25 6,000 2 years 6,000
2.00 51,500 2 years 16,500
5.91 50,000 2 years 50,000
5.91 30,000 3 years 30,000
---------- -----------
630,834 595,834
========== ===========
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:
(in thousands) 2000 1999
------------ ----------
Net loss available for common
shareholders -As reported $ (666,132) $(184,546)
-Pro forma (2,516,212) (640,323)
Net loss per share -As reported $ (0.05) $ (0.02)
-Pro forma (0.20) (0.05)
F-15
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
Variables used in the Black-Scholes option-pricing model include (1) 5.0%
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.
NOTE 11 - MAJOR CUSTOMERS AND VENDORS
A summary of significant customers and vendors for the year ended June 30, 2000
together with their respective size as a percent of total sales and purchases
follows:
2000 Volume % of Total
----------- ----------
Sales
Mattress Mattress America, Inc. $ 1,503,634 71%
Purchases
Great Plains Software $ 939,215 57%
Ingram Micro 351,280 21%
Arrow Electronics 242,358 11%
NOTE 12- COMMITMENTS AND CONTINGENCIES
The Company is liable on its current office lease for $3,065 per month on a
month-to-month lease. Lease expense for the years ended June 30, 2000 and 1999,
respectively, totaled $36,678 and $34,321.
The Company signed a lease for additional space for its new Information
Technology ("IT") center during May 2000. The lease term is ten years and there
are two five-year renewal options. The base rent is $0 for months 1-6, $17,775
for months 7-54, and $20,632 for months 55-120. Additional Common Area
Maintenance charge will be assessed. The commencement date for rent is November
1, 2000. At June 30, 2000, future minimum payments are $35,550 in 2001,
$213,304 per year in years 2002-2005, $236,156 in year 2006, $247,585 per year
in years 2007-2010, and 185,688 in 2011.
On August 31, 2000, the Company engaged a general contractor to perform the
buildout of the IT center. The total price of the buildout, including design
fees, is expected to be $827,011, of which the landlord will pay $334,720 and
the Company will pay $492,291. The new facility is expected to be ready as of
November 1, 2000. No costs associated with the buildout had been incurred as of
June 30, 2000.
The Company entered into an employment contract in July 1999 with its CEO/ CFO.
Under this contract, the Company will pay $100,000 per year in salary. The
contract expires on June 30, 2001.
F-16
<PAGE>
HYPERDYNAMICS CORPORATION
NOTES CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTE 13 - SUBSEQUENT EVENTS
The Company announced its plans to make an exchange offering to its common
shareholders on August 31, 2000. 100 common shares may be exchanged for one
unit consisting of one share of 9% series B redeemable preferred stock (stated
value $200), 100 redeemable Class A warrants with exercise price of $1.35 per
share expiring 7.2 years from the date of issue, 100 redeemable Class B warrants
with exercise price of $1.35 per share expiring 15 years from the date of issue,
and 100 redeemable Class C warrants with exercise price of $1.35 per share
expiring 22.2 years from the date of issue.
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law permits a corporation organized under
Delaware law to indemnify directors and officers with respect to any matter in
which the director or officer acted in good faith and in a manner he reasonably
believed to be not opposed to our best interests, and, with respect to any
criminal action, had reasonable cause to believe his conduct was lawful.
Our Bylaws provide that our directors and officers are indemnified by us if
that person is a party to a matter by reason of being a director or officer.
These provisions may discourage stockholders from bringing suit against a
director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by our stockholders on our behalf against a
director.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Registrant.
SEC Registration Fee $ 2,050.00
Printing and Engraving Expenses $ 2,000.00
Legal Fees and Expenses $50,000.00
Accounting Fees and Expenses $ 5,000.00
Transfer Agent Fees $ 2,000.00
Blue Sky Fees $ 3,000.00
__________________ *
__________________ *
Miscellaneous $ 5,000.00
__________
Total $69,050.00
==========
* To be provided by amendment.
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES
During the past three years, the following transactions were effected by us
in reliance upon exemptions from registration under the Securities Act of 1933
as amended (the "Act").
Unless stated otherwise, we believe that:
- Each of the persons who received these unregistered securities had
knowledge and experience in financial and business matters which allowed
them to evaluate the merits and risk of the receipt of these securities,
and that they were knowledgeable about our operations and financial
condition.
- No underwriter participated in, nor did we pay any commissions or fees to
any underwriter in connection with the transactions.
- This transactions did not involve a public offerings
- Each certificate issued for these unregistered securities contained a
legend stating that the securities have not been registered under the Act
and setting forth the restrictions on the transferability and the sale of
the securities.
1. In February, 1997, we issued 20,000 shares of common stock to our legal
counsel as payment in kind for legal services rendered. This was a private
placement made in reliance on Section 4(2) of the Act. The value we set for
this transaction was $36,000.
2. In February, 1997, we issued a total of 30,000 shares of common stock to
two investors for a total of $37,500 in cash. This was a private placement made
in reliance on Section 4(2) of the Act.
3. In March, 1997, we issued 700,000 shares of common stock to Kent Watts as
a price adjustment to a 1996 transaction whereby Mr. Watts sold us all of the
equity in ITHost.net Corporation (formerly, MicroData Systems, Inc.). The 1996
transaction and the March 1997 price adjustment were reported in our annual
report on Form 10-KSB for the fiscal year ended June 30, 1997. This was a
private placement made in reliance on Section 4(2) of the Act.
4. In March, 1997, we issued a total of 5,000 options to purchase shares of
common stock to one employee as payment in kind for employment. These options
were immediately exercisable at an exercise price of $1.25 per share. The
expiration date of these options is March, 2000. This was a private placement
made in reliance on Section 4(2) of the Act.
5. In April, 1997, we issued 20,000 shares of common stock to one investor
for $25,000 in cash. This was a private placement made in reliance on Section
4(2) of the Act.
6. In May, 1997, we issued a total of 177,000 shares of common stock to
three persons as payment for our acquisition of a revenue sharing agreement
related to SierraNet, Inc. We valued this transaction at $177,000. This was a
private placement made in reliance on Section 4(2) of the Act.
7. In June, 1997, we issued a total of 326,060 options to purchase shares of
common stock to four vendors and employees as payment in kind for employment,
accounting and business services rendered. These options were immediately
exercisable at exercise prices of $.001 per share for services rendered prior to
June 30, 1997 (125,000 of these options), to $.75 to $1.25 per share for then
current services rendered (201,060 of these options). The expiration date of
275,000 of these options was June, 1998, and the expiration date of the
remaining 51,060 was June, 2000. This was a private placement made in reliance
on Section 4(2) of the Act. The value we set for this transaction was $4,380.
8. In June, 1997, we issued a total of 300,000 options to purchase shares of
common stock to one vendor as payment in kind for business services rendered.
These options were immediately exercisable at exercises prices ranging from $.62
to $1.37 per share. The expiration dates of these options was December, 1998.
This was a private placement made in reliance on Section 4(2) of the Act.
9. In July, 1997, we issued a total of 200,000 options to purchase shares of
common stock to one employee as payment in kind for business services rendered.
These options were immediately exercisable at exercises prices ranging from $.50
to $1.25 per share. These options expire in July, 2002. This was a private
placement made in reliance on Section 4(2) of the Act.
10. In July, 1997, we issued a total of 21,431 shares of common stock to
three persons as payment in kind for business, marketing, accounting and legal
services rendered. This was a private placement made in reliance on Section
4(2) of the Act. The value we set for this transaction was $37,707.
11. In July, 1997, we issued a total of 136,000 options to purchase shares
of common stock to three vendors and employees as payment in kind for employment
and business services rendered. These options were immediately exercisable at
an exercise price of $1.25 per share. The expiration dates of these options is
July, 2000 (6,000 of these options) or July, 2002 (130,000 of these options).
This was a private placement made in reliance on Section 4(2) of the Act.
12. In December, 1997, we issued 5,000 shares of common stock to one vendor
as payment in kind for financing services rendered. This was a private
placement made in reliance on Section 4(2) of the Act. The value we set for
this transaction was $5,000.
13. In December, 1997, we issued a total of 3,350 warrants to purchase
shares of common stock to one consultant as payment in kind for business
acquisition services rendered. These warrants were immediately exercisable at
an exercise price of $1.00 per share. The expiration date of these warrants is
December, 2000. This was a private placement made in reliance on Section 4(2)
of the Act.
14. In January, 1998, we issued 5,833,333 shares of common stock to one
creditor upon conversion of $350,000 of our debt. We believe that this creditor
was knowledgeable about our operations and financial condition. This was a
private placement made in reliance on Section 4(2) of the Act.
15. In June, 1998, we issued a total of 200,000 shares of common stock to
two persons in exchange for businesses they each owned. This was a private
placement made in reliance on Section 4(2) of the Act. The value we set for
this transaction was $200,000.
16. In June, 1998, we issued a total of 67,500 warrants to purchase shares
of common stock to three employees as compensation (bonuses). These warrants
were immediately exercisable at an exercise price of $1.00 per share. The
expiration date of these warrants is June, 2000. This was a private placement
made in reliance on Section 4(2) of the Act.
17. In March, 1999, we issued 123,000 shares of common stock to one investor
for $50,000 in cash. This was a private placement made in reliance on Section
4(2) of the Act.
18. In April, 1999, we issued a total of 480,000 options to purchase shares
of common stock to three employees and vendors as payment in kind for business
services rendered. These options were immediately exercisable at an exercise
price of $.50 per share. The expiration date of these options is March, 2001.
This was a private placement made in reliance on Section 4(2) of the Act.
19. In April, 1999, we issued a total of 350,000 warrants to purchase shares
of common stock to two vendors as payment in kind for services rendered. These
warrants were immediately exercisable at an exercise price of $0.50 per share.
The expiration date of these warrants is March, 2002. This was a private
placement made in reliance on Section 4(2) of the Act.
20. In June, 1999 we issued a total of 100,000 warrants to purchase shares
of common stock to one employee as compensation (bonus). These warrants were
immediately exercisable at an exercise price of $0.51 per share. The expiration
date of these warrants is June, 2001. This was a private placement made in
reliance on Section 4(2) of the Act.
21. In October, 1999 we issued a total of 275,000 warrants to purchase
shares of common stock to one vendor as payment in kind for business and
financing services rendered. These warrants are immediately exercisable at an
exercise price of $1.50 per share. The expiration date of these warrants is
September, 2002. This was a private placement made in reliance on Section 4(2)
of the Act.
22. In December, 1999, we issued a total of 57,500 options to purchase
shares of common stock to 18 employees as payment in kind for employment
(bonuses and incentive compensation). These options are immediately exercisable
at an exercise price of $2.00 per share. The expiration date of these options
is November, 2001. This was a private placement made in reliance on Section
4(2) of the Act.
23.
(A) In January, 2000, we sold 3,000 shares of our new issue Series A
Preferred Stock for a total of $3,000,000 in cash to three accredited
investors. As part of this transaction, we also issued to the three
investors a total of 300,000 warrants to purchase shares of our common
stock at an exercise price of $5.9125 per share which are immediately
exercisable and expire in January , 2005. This was a private placement
that was exempt from registration pursuant to Section 4(2) of the Act
and Rule 506 of Regulation D of the Act.
(B) J. P. Carey Securities, Inc. was our placement agent for the
transactions in paragraph 23(A) above. We paid J. P. Carey $180,000 in
commissions, $30,000 in expense allocation and 180,000 Placement
Warrants that have an exercise price of $ 7.095 per share that expire
in January, 2005. The Placement Warrants issued to J. P Carey was a
private placement that was exempt from registration pursuant to
Section 4(2) of the Act .
24. In January, 2000 we issued 120,000 Consultant Warrants to purchase
common stock at an exercise price of $7.095 to one individual as payment in
kind for business financing services rendered. These warrants expire in January
, 2005. This was a private placement that was exempt from registration pursuant
to Section 4(2) of the Act.
25. In March 2000, we issued 100,000 shares of section 144 restricted
common stock pursuant to the exercise and payment of $50,000 or $.50 per share
of outstanding Consultant Warrants with Mr. Randy Massey.
ITEM 27. EXHIBITS
3.1.1 * Articles of Incorporation
3.1.2 * Amendment Number 1 to Articles of Incorporation
3.1.3 * Amendment Number 2 to Articles of Incorporation
3.2 * Bylaws
4.1 * Form of Common Stock Certificate
4.2 * Form of Preferred Stock Certificate
4.3 * Certificate of Designation of Series A Preferred Stock
4.4 * Form of Investor Warrant Agreement with Form of Warrant
Certificate
4.5 * Form of Placement/Consultant Warrant Agreement with Form of
Warrant Certificate
5.1 ** Opinion re: Legality
10.1 * Employment Agreement with Kent Watts
10.2 * Form of Registration Rights Agreement
21.1 * Subsidiaries
23.1 ** Consent of Counsel, Axelrod, Smith & Kirshbaum, is contained in
their opinion filed as Exhibit 5.1 to this Registration
Statement.
23.2. ** Consent of Independent Auditor
23.3 ** Consent of Independent Auditor
27.1 *** Financial Data Schedule for the fiscal year ended June 30, 1999
which is incorporated by reference to our Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1999.
27.2 *** Financial Data Schedule for the fiscal year ended June 30,
2000 which is incorporated by reference to our Annual Report on
Form 10-KSB for the fiscal year ended June 30, 2000.
_______________________
* Previously provided
** Provided herewith
*** Incorporated by reference as indicated
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes that it will:
Undertaking (a)
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth
in the registration statement; and arising after the effective date of
the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) ('230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii)Include any additional or changed material information on the plan of
distribution
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Undertaking (e)
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Post-Effective Amendment No. 1 to Form SB-2
and authorized this registration statement to be signed on its behalf by the
undersigned, in the City of Houston, County of Harris, State of Texas, on
October 30, 2000.
HYPERDYNAMICS CORPORATION
By: /s/ Kent Watts
Kent Watts
Director, Chief Executive Officer,
President and Chief Accounting Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated:
/s/ Kent Watts Chairman of the Board, October 30, 2000
--------------------- Chief Executive Officer and
Kent Watts Chief Accounting Officer
/s/ Robert Hill Director October 30, 2000
---------------------
Robert Hill
/s/ Harry J. Briers Director October 30, 2000
---------------------
Harry J. Briers
/s/ Christopher St. Laurent Director October 30, 2000
----------------------------
Christopher St. Laurent
/s/ Bobby P. Lewis Director October 30, 2000
---------------------
Bobby P. Lewis
EXHIBITS INDEX
3.1.1 * Articles of Incorporation
3.1.2 * Amendment Number 1 to Articles of Incorporation
3.1.3 * Amendment Number 2 to Articles of Incorporation
3.2 * Bylaws
4.1 * Form of Common Stock Certificate
4.2 * Form of Preferred Stock Certificate
4.3 * Certificate of Designation of Series A Preferred Stock
4.4 * Form of Investor Warrant Agreement with Form of Warrant
Certificate
4.5 * Form of Placement/Consultant Warrant Agreement with Form of
Warrant Certificate
5.1 ** Opinion re: Legality
10.1 * Employment Agreement with Kent Watts
10.2 * Form of Registration Rights Agreement
21.1 * Subsidiaries
23.1 ** Consent of Counsel, Axelrod, Smith & Kirshbaum, is contained in
their opinion filed as Exhibit 5.1 to this Registration
Statement.
23.2. ** Consent of Independent Auditor
23.3 ** Consent of Independent Auditor
27.1 *** Financial Data Schedule for the fiscal year ended June 30, 1999
which is incorporated by reference to our Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1999.
27.2 *** Financial Data Schedule for the fiscal year ended June 30,
2000 which is incorporated by reference to our Annual Report on
Form 10-KSB for the fiscal year ended June 30, 2000.
_______________________
* Previously provided
** Provided herewith
*** Incorporated by reference as indicated
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