UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934: For the quarterly period ended: December 31, 1999
-----------------
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934: For the transition period from _______ to ________
Commission file number: 000-25496
HYPERDYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 87-0400335
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2656 South Loop West, Suite 103
Houston, Texas 77054
(Address of principal executive offices, including zip code)
713-660-9771
(Issuer's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
As of February 7, 2000, 12,726,503 shares of common stock, $0.001 par value,
were outstanding. Transitional Small Business Disclosure Format
(check one): Yes [ ] No [X]
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements 3
Consolidated Balance Sheet
at December 31, 1999 (unaudited) 3
Consolidated Statements of Income for the three
and six months ended December 31, 1999
and 1998 (both unaudited) 4
Consolidated Statements of Stockholders' Equity
for the six months December 31, 1999
and 1998 (both unaudited) 5
Consolidated Statements of Cash Flows for the six
months ended December 31, 1998
and 1998 (both unaudited) 6
Notes to Consolidated Financial Statements 7
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 10
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURES 10
2
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1999
ASSETS
Current Assets
<S> <C>
Cash - Operating $ 3,583
Other 2,351
Accounts Receivable - trade 306,239
other 28,001
Inventory 88,148
Revenue interest current portion 85,970
Prepaid expenses 65,212
----------
TOTAL CURRENT ASSETS 579,504
PROPERTY AND EQUIPMENT
Computers, communication & IS infrastructure 159,359
Office furniture and equipment 10,152
Leasehold improvements 11,188
----------
Total property and equipment 180,699
Accumulated depreciation (111,231)
----------
TOTAL NET PROPERTY AND EQUIPMENT 69,468
OTHER ASSETS
Investment in revenue sharing - long term 106,827
Intangible assets - net (PS customer list) 45,900
Other 101,598
----------
TOTAL OTHER ASSETS 254,325
----------
TOTAL ASSETS $ 903,297
==========
</TABLE>
See notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C>
Accounts payable - trade $168,576
Accrued payroll taxes 2,459
Sales taxes payable 21,255
------------
TOTAL CURRENT LIABILITIES 192,290
OTHER LIABILITIES AND DEFERRED INCOME
Deferred Revenue 65,000
------------
TOTAL LIABILITIES AND DEFERRED INCOME 65,000
STOCKHOLDERS' EQUITY
Common stock, par value $0.001; 12,564
50,000,000 shares authorized; 12,564,503
shares issued and outstanding.
Additional paid-in capital 1,787,270
Retained (deficit) (1,153,827)
------------
TOTAL STOCKHOLDERS' EQUITY 646,007
------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $903,297
============
</TABLE>
See notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
AND SUBSIDIARIES
Consolidated Income Statements
3 Months and 6 Months Ended December 31, 1999 and 1998
3 MONTHS ENDED DECEMBER 31 6 MONTHS ENDED DECEMBER 31
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 712,422 $ 177,265 $ 955,811 $ 334,168
Cost of Revenues 444,294 91,878 542,547 202,055
------------ ------------ ------------ ------------
GROSS MARGIN 268,128 85,387 413,264 132,113
Operating Expenses
Selling 36,901 2,298 41,215 7,969
General and Administrative 122,978 147,748 254,164 261,576
Interest 0 3,277 0 3,277
Depreciation 6,250 8,340 12,500 15,149
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 166,129 161,663 307,879 287,971
------------ ------------ ------------ ------------
OPERATING INCOME/(LOSS) 101,999 (76,276) 105,385 (155,858)
Other Income (Expense)
Gain on Sale of Discontinued Operations (568) 0 127,065 0
Loss from Discontinued Operations 0 654 (568) 0
Other 29 (9,397) 28 (7,972)
------------ ------------ ------------ ------------
NET INCOME/(LOSS) BEFORE INCOME TAXES 101,460 (85,019) 231,910 (163,830)
------------ ------------ ------------ ------------
Income Tax (Benefit) 0 0 0 0
NET INCOME/(LOSS) $ 101,460 ($85,019) $ 231,910 ($163,830)
NET INCOME/(LOSS) PER COMMON SHARE $ .01 $ (.01) $ .02 $ (.02)
Weighted average share outstanding 12,437,329 12,208,321 12,437,329 12,208,321
</TABLE>
See notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
HYPERDYNAMICS CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
6 Months Ended December 31, 1999 and 1998
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net Income/(Loss) 105,414 $(163,830)
Adjustments to reconcile net income to cash provided from operating activities
Depreciation and amortization 12,500 15,149
Sale of Discontinued Operations 127,633 0
Loss from Discontinued Operations (568) 0
Note conversion 0 7,972
Decrease in equipment from discontinued operations 26,468 0
Net (increase) decrease receivables and other
Certificate of deposit - restricted 0 94,000
Accounts receivable - trade (219,853) (44,912)
Other (23,000) 30,000
Due from officers 0 0
Inventory (16,664) (33,946)
Prepaid expenses (60,164) 0
Revenue sharing (50,000) 20,037
Deposits and Other assets (111,169) 0
Net increase (decrease) accruals / payables
Accounts payable - trade 7,659 60,754
Accrued expenses (10,120) 9,436
Accrued taxes 19,015 (5,890)
Other 53,800 (5,950)
---------- ----------
NET CASH (USED) BY OPERATING ACTIVITIES (139,049) (17,180)
Cash flows from investing activities
Purchase of property and equipment 0 (13,911)
---------- ----------
NET CASH PROVIDED (USED) FOR INVESTING ACTIVITIES 0 (13,911)
Cash flows from financing activities
Sale of common stock - related party 50,000 0
Sale of common stock 27,500 0
Increase in short-term convertible notes 0 27,680
---------- ----------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 77,500 27,680
---------- ----------
NET DECREASE IN CASH (61,549) (3,411)
CASH AT BEGINNING OF PERIOD 67,483 4,908
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $5,934 $1,549
Supplemental Information
Interest paid $0 $0
</TABLE>
See notes to financial statements.
6
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
HYPERDYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. The financial statements contained herein
should be read in conjunction with the audited financial statements
of the Company. Accordingly, footnote disclosures which would
substantially duplicate the disclosure in those statements has been
omitted.
Certain reclassifications were made to financials as of December 31,
1998 in order to conform to the current presentation.
2. During the quarter and six months ended December 31, 1999, warrants for
275,000 unregistered common stock with a strike price of $2.00 per share
were granted to Robert Gleckman pursuant to a consulting agreement.
During the same period 57,500 options with a strike price of $2.00 per
share for registered common stock under S-8 registration were granted
to employees.
3. During the second quarter ending December 31, 1999,100,000 options were
exercised at $.50 per share by Michael E. Watts, brother of Kent
Watts, President for the Company and 100,000 shares were issued as a
result. During the same period 55,000 options were exercised at $.50
per share by others and the 55,000 shares were issued. This is a total of
155,000 options exercised for the period ended December 31, 1999 for
a total of $77,500.
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 Quarterly Report on Form 10-QSB contains
forward-looking statements. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, expectations, future events or
performance and underlying assumptions and other statements which are other than
statements of historical facts. Certain statements contained herein are
forward-looking statements and, accordingly, involve risks and uncertainties
which could cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements. The Company's expectations,
beliefs and projections are expressed in good faith and are believed by the
Company to have a reasonable basis, including without limitations, management's
examination of historical operating trends, data contained in the Company's
records and other data available from third parties, but there can be no
assurance that management's expectations, beliefs or projections will result or
be achieved or accomplished. In addition to other factors and matters discussed
elsewhere herein, the following are important factors that, in the view of the
Company, could cause actual results to differ materially from those discussed in
the forward-looking statements: the ability of the Company to respond to changes
in the information system environment, competition, the availability of
financing, and, if available, on terms and conditions acceptable to the Company,
and the availability of personnel in the future.
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Discussion
HyperDynamics Corporation is an information technology service provider (ITSP)
that maximizes it's clients return on their technology investment. The Company
7
<PAGE>
provides conventional IT services, migration services from conventional ways of
doing business to eBusiness, and complete IThosting services whereby it becomes
the IT department for its clients. The Hyperdynamics's strategy provides
flexible solutions for its customers to transition to a fully hosted eBusiness
model.
Recent Events
In January, 2000 the Company raised three million dollars ($3,000,000) cash
through the sale of 3,000 shares of its Series A Preferred Stock.
Continued Conventional IT services
During 1999 IThost.net Corporation (formerly Microdata Systems, Inc.) continued
to provide networks, systems, servers, and software to the client based it has
established since 1988. The Company will provide such services as requested to
be flexible while it educates its clients on new ways of providing these
services through eBusiness systems and its complete IThosting service that it
continues to develop. Approximately one fourth of the Company's revenues
continue to come from these network and system integration jobs.
Major eBusiness
The Company started a major project with The Mattress Venture, LP to supply a
complete new point-of-sale system for its over 130 "Mattress Firm" retail stores
across the country. Working as an eEnterprise partner for Great Plains Software,
a custom retail point-of-sale software application has been developed and is in
the process of being rolled out over the next few months. During the quarter the
Great Plains financial system was implemented and is now being used by the
Mattress Firm for accounting and financial reporting. To date the Company has
realized approximately one million dollars ($1,000,000) in revenue from this
project since April of 1999. It is expected that this project could grow
substantially and there is a possibility to obtain a long-term IT hosting
agreement.
In August of 1999 the Company started a project with Drydiaper.com, IncThe
Company is developing a complete eCommerce web-site. It is developing the site,
Drybabies.com which is scheduled for release launch in the current quarter to
end March 31, 2000. This project is expected to become a full-blown integration
project with respect to manufacturing as well as retail store point-of-sale as
well. The Web-site will ultimately allow orders to be taken off the web-site and
to be shipped without human intervention until the shipping carrier picks up the
order. Being tied into inventory control on the back end will help control and
maintain the manufacturing process on an efficient basis as well.
The Company has several other projects of similar nature that it is forecasting
and expecting to announce.
Vendor Relationships
Great Plains Software
In fiscal 1999 the Company added to its eEnterprise and Dynamics
certifications with Great Plains Software. The additional authorizations
and certifications are as follows:
International Partner Authorization
Service Management Series
Great Plains Siebel Front Office
Project Accounting Series
Enterprise Reporting
8
<PAGE>
The Company is currently on target to be in the top 10% of Great Plains
Partners. The Company plans to continue to enhance this key relationship
in every way possible including an application to become a designated
ASP.
Citrix Systems, Inc.
During the fiscal year 1999, the Company highest level Citrix Gold
authorization and certification This qualifies the Company to administer
systems including Citrix's software for high end application servers. Next
to the advancement of web based software technology and the increasing
bandwidth at decreasing prices, Microsoft NT Terminal Serer addition
(Originally developed by Citrix) and Citrix Metaframe technology are
significant pieces that enable the Company's IThosting strategy.
Intel
In fiscal year 1999, the Company has made substantial progress towards
a certification as an Intel ASP. (Authorized Service Provider). This is
Intel's highest level certification. The Company embraces the idea of
providing the best cost/benefit solution for high-end rack-mounted servers
that are Intel only and second to none in processing power and
scalability. The Company has several other strategic vendor relationships
that it is developing and plans to announce in the current year in
connection with its IThosting capability.
IT hosting strategy
Since around May of 1999, the Company has planned to enhance its capabilities to
role out and establish its new IThosting services. Over two years ago,
Hyperdynamics established its position as a premier information technology
service provider (ITSP). Months later, the concept of the Application Service
Provider (ASP) was coined. Hyperdynamics Corporation plans to announce specific
strategies and relationships with true tier 1 Internet providers to substantiate
and accentuate its position as the "premier ITSP". In the process it plans to
establish "ITHOST.NET" in the coming months. Based its new strategy, the Company
expects to increase its IThosting revenues dramatically starting in the final
quarter of FYE 2000.
Results of Operations
Sales increased to $712,422 and $955,811 for the three (3) months and six (6)
months ended December 31, 1999, respectively. This compared to $177,265 and
$334,168 for the same periods in 1998, respectively. The increase in revenue is
a result of the continuation of large projects started in 1999 while
successfully closing new business in addition to these projects.
9
<PAGE>
Cost of Revenues increased correspondingly to $444,294 and $542,547 for the
three (3) months and six (6) months ended December 31, 1999, respectively. This
compared to $91,878 and $202,055 for the same periods in 1998, respectively.
For the three (3) month period ended December 31, 1999, gross margin decreased
to 37.70% compared to 48.2% for the same period in 1998. The decrease was due to
a portion of the Company's service revenue that was contracted to a third party,
thereby reducing its gross margin percentage for the quarter. For the six (6)
months period ended December 31, 1999, gross margin increased to 43.24% compared
to 39.5% for the same period in 1998. The increase overall for the six months is
due to increasing efficiencies overall within the organization to provide more
cost effective services.
Selling, General and Administrative expenses increased to $159,879 and $295,379
in the three (3)month and six (6) month periods ending December 31, 1999, as
compared to $150,046 and $269,545 for the same periods in 1998, respectively.
The increase was primarily due to the addition to sales staff.
Net Income. The net income of the Company was $101,460 and $231,910 for the
three (3) month and six (6) month periods ended December 31, 1999. This compares
to losses of $(85,019) and $(163,830) for the same periods in 1998,
respectively. The positive results are due to the continuing policy to control
overhead while maintaining a flexible approach to providing its information
technology services while closing an increasing number of longer term more
lucrative eBusiness based contracts. Additionally, the people that it has added
have either directly added to sales force or allowed others in the organization
to focus more heavily on developing the Company's revenues.
Liquidity and Capital Resources
At December 31, 1999 the Company's current ratio of current assets to current
liabilities was 3.01. This compares to .92 for 1998. The Company has
dramatically improved its current ratio through positive results of operations.
Additionally, to fuel its growth both through operations and acquisition, the
Company filed form 8K on January 26, 2000 disclosing that it has raised an
additional three million dollars ($3,000,000) of new capital through a Reg D
private placement. The Company does not have any long-term debt nor does it
plan for any.
In addition to the above, the Company is in a position to obtain additional
capital upon the exercise of previously-issued warrants and outstanding options
for common stock.
Prospective Information
The Company is now realizing increased sales and growth in profits. The success
of the Company to date has been accomplished with limited capital resources.
Now and for future periods, it has obtained the working capital necessary to
meet its short-term business plan goals and to continue to grow with profits.
Management is now evaluating its opportunity to apply for a National Market
System (NMS) listing on the NASDAQ stock exchange.
Management will continue to update the Company's ITSP business plan and will
look to start its next phase of capitalization to coincide with increasingly
larger profit based acquisition targets while its unique IThosting service
strategy continues to grow its recurring revenue base.
10
<PAGE>
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(A) EXHIBITS
Exhibit Number Description
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
On January 26, 2000, the Company filed a current report on
Form 8-K reporting item 5, Other Events regarding the three million
dollars ($3,000,000) of additional financing we have received.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly
HyperDynamics Corporation
(Registrant)
By: /s/ Kent Watts
----------------------------------
Kent Watts, Chairman of the Board,
Chief Executive Officer,
and Chief Accounting Officer
Dated: February 7, 2000
11
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5934
<SECURITIES> 0
<RECEIVABLES> 334240
<ALLOWANCES> 0
<INVENTORY> 88148
<CURRENT-ASSETS> 579504
<PP&E> 180699
<DEPRECIATION> 111231
<TOTAL-ASSETS> 903297
<CURRENT-LIABILITIES> 192290
<BONDS> 0
0
0
<COMMON> 12564
<OTHER-SE> 633443
<TOTAL-LIABILITY-AND-EQUITY> 903297
<SALES> 955811
<TOTAL-REVENUES> 955811
<CGS> 542547
<TOTAL-COSTS> 307879
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 231910
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<INCOME-CONTINUING> 105385
<DISCONTINUED> 127065
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<NET-INCOME> 231910
<EPS-BASIC> .02
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