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: September 30, 2000
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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 Identification No.)
of incorporation or organization)
2656 South Loop West, Suite 103
Houston, Texas 77054
(Address of principal executive offices, including zip code)
1. 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
2. As of November 14, 2000 13,636,506 shares of common stock, $0.001 par
value, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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Table of Contents
PART I FINANCIAL INFORMATION
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ITEM 1 Financial Statements 3
Consolidated Balance Sheet at
September 30, 2000 (unaudited) 3
Consolidated Statements of Income for the three
months ended September 30, 2000
and 1999 (both unaudited) 4
Consolidated Statements of Cash Flows for the three
months ended September 30, 2000 and 1999
(both unaudited) 5
Notes to Consolidated Financial Statements 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 9
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURES 9
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Part 1 Financial Information
ITEM 1 FINANCIAL STATEMENTS
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HYPERDYNAMICS CORPORATION
Balance Sheet
September 30, 2000
ASSETS
Current Assets
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Cash $ 892,706
Certificate of deposit 436,300
Accounts receivable, net of allowance for doubtful
accounts of $18,068 175,303
Inventory 233,962
Revenue interest 32,365
Prepaid expenses 49,457
Note receivable 400,000
Other current assets 21,406
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TOTAL CURRENT ASSETS 2,241,499
Property and Equipment, net of accumulated
depreciation of $60,706 47,170
Other Assets
Construction in progress 47,685
Intangible assets - net 27,200
Deposits and other 20,632
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Total other assets 95,517
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TOTAL ASSETS $ 2,384,186
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable - Trade $ 262,748
Accrued expenses 51,443
Dividends payable 60,323
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TOTAL CURRENT LIABILITIES 374,514
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Stockholders' Equity
Preferred stock, par value $0.001; 20,000,000 shares
authorized; 2,120 shares issued and outstanding. 2
Common stock, par value $0.001; 50,000,000 shares
authorized;13,542,505 shares issued and outstanding. 13,543
Additional paid-in capital 4,391,643
Stock subscription receivable (5,000)
Retained (deficit) (2,390,516)
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Total Stockholders' equity 2,009,672
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Total Liabilities and Stockholders' Equity $ 2,384,186
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See notes to financial statements
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HYPERDYNAMICS CORPORATION
Consolidated Income Statements
3 Months Ended September 30, 2000 and 1999
2000 1999
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Revenues $ 130,789 $ 233,389
Cost of Revenues 241,686 155,381
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GROSS MARGIN (110,897) 78,008
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Operating Expenses
Selling 53,038 14,343
General and Administrative 252,541 54,029
Depreciation 8,340 6,250
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TOTAL OPERATING EXPENSES 313,920 74,622
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OPERATING INCOME (LOSS) (424,816) 3,386
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Other Income (Expense)
Gain on sale of Revenue Sharing Agreement 3,500
Interest income 32,534 0
Interest expense
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Income /(Loss) From Continuing Operations (388,732) 3,386
Gain/(Loss) from Discontinued Operations, net of 0 (568)
income tax benefit of $0 and $0, respectively
Gain / (Loss) on Sale of Discontinued Operations, net 0 127,633
of income tax benefit of $0 and $0 , respectively
NET INCOME (LOSS) BIT (388,732) 130,450
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Income Tax (Benefit) 0 0
NET INCOME (LOSS (388,732) $ 130,450
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Income (Loss) per Common Share
NET INCOME (LOSS) PER C/S SHARE $ (0.03) $ 0.01
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Weighted average share outstanding 13,263,803 12,411,676
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See notes to financial statements
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HYPERDYNAMICS CORPORATION
Consolidated Statements of Cash Flows
3 Months Ended ,September 30, 2000 and 1999
2000 1999
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Cash flows from operating activities
Net Income (loss) $ (388,731) 130,450
Adjustments to reconcile net income to cash provided
from operating activities
Depreciation and amortization 8,340 6,250
Gain on sale of revenue sharing agreement (3,500)
Sale of Discontinued Operations (127,065)
Loss from Discontinued Operations 568
Changes in:
Accounts receivable - Trade 361,889 (25,177)
- Other 2,000
Inventory (8,314) (29,700)
Other assets 26,784 (37,696)
Prepaid expenses (8,750) (41,014)
Collection of revenue interest 1,263
Accounts payable (111,275) 57,073
Accrued expenses 6,988 1,257
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NET CASH USED FOR OPERATING ACTIVITIES (108,569) (61,791)
Cash flows from investing activities
Construction in progress (47,685)
Purchase of fixed assets (692)
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NET CASH USED FOR INVESTING ACTIVITIES (48,377)
Cash flows from financing activities
Purchases of common stock (2,602)
Sale of common stock, net of subscription receivable of 18,819 10,000
$5,000 ----------- --------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 16,217 10,000
Net increase (decrease) in cash (140,729) (51,791)
CASH AT BEGINNING OF PERIOD 1,033,435 56,200
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CASH AT END OF PERIOD 892,706 4,409
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Supplemental Information
Interest paid
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See notes to financial statements
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HYPERDYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The unaudited consolidated financial statements of Hyperdynamics
Corporation have been prepared in accordance with generally accepted
accounting principles and the rules of the Securities and Exchange
Commission ("SEC"), and should be read in conjunction with the audited
financial statements and notes thereto contained in the Company's latest
Annual Report filed with the SEC on Form 10-KSB. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the disclosures
contained in the audited financial statements for the most recent fiscal
year 2000 as reported in the Form 10-KSB, have been omitted.
2. During the quarter 47,638 options for free trading shares each were
exercised for $23,819 and 8,000 free trading shares were issued to
professionals for compensation valued at $8,000.
3. Preferred Stock. During the quarter $440,000 dollars worth or 440 shares of
Series A Preferred stock was converted at 80% of the previous 5 day average
trading days upon the conversion date. The Company issued 456,370 shares
upon these conversions and additional 3,169 shares to pay for accrued
dividends on converted preferred stock.
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 10QSB 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General Discussion
During the quarter, we reached an agreement with AT&T to build a Dedicated
Entrance Facility to our new Integrated Technology Center. This accomplishment
insured the redundancy, quality and scalability of our Internet backbone and
will serve as a key infrastructure for rapid growth in our recurring revenue
based HypersourceSM services. The primary focus for the quarter was centered
around issues related to actually getting the construction started for our first
Integrated technology center. As of May of this year, the Company had originally
planned to have its new ITC online by August. It became apparent in July that
the Westwood Technology Center was not going to be in a position to deliver the
space to us in the expected time frame so our expected start date was pushed
back several months. Other factors including city building permits,
architectural and engineering issues, and long lead time components delayed the
implementation of the construction project even more. Now the construction is
over 50% completed and is moving along at a much more rapid pace. We expect
construction to be completed by the first week in December. This is also the
time frame that the first leg of our dual entrance diverse routed fiber is
expected to be installed and ready to be lit up.
As a result of this major project and all related aspects necessary for its
success, our sales and marketing has been centered around the new ITC coming
online and we decided that it would be difficult to take on new conventional IT
business while transitioning to the new facility. Due largely to the delays, our
revenues dropped sharply this quarter and are expected to remain sub-par through
the end of the 2nd quarter.
Operationally, we expect to maintain three primary revenue sources. We provide
conventional IT services, migration services to help our clients develop
end-to-end eBusiness systems, and we are rapidly preparing to fully launch our
new bundled service offerings for complete IT hosting. This quarter and next as
we begin to implement our IT hosting strategies we will be establishing a
seriously focused marketing and sales plan, especially for our HypersourceSM
services. As we move closer to become on-line in the Month of December with the
Houston based Integrated Technology Center (ITC), we are working to fill our
initial ITC to capacity. While accomplishing this task by singing up long-term
recurring revenue based contracts, we will also be preparing to raise additional
capital and looking for the next opportunities to expand nationally.
Results of Operations
Sales decreased to $130,789 for the three (3) months ended September 30, 2000.
This compared to $233,389 for the same period in 1999. The decrease in revenue
is a result of the discontinuation of large projects started in 1999 and the
marketing and sales focus heavily on the new ITC that has been delayed.
Cost of Revenues increased to $241,686 for the three (3) months ended September
30, 2000. This compared to $155,381 for the same periods in 1999. We staffed up
with cross-trained IT professionals necessary to fill up and service the
business expected for the new ITC. These operational employees salaries of
$78,652 have been charged to Cost of Revenues. Also, in an effort to prepare for
our move to our new facility, we have revalued our inventory and determined that
we had approximately $30,000 in obsolete inventory and another $20,000 in
shrinkage. We made a total adjustment of $50,277 against Cost of Revenues as a
result. We hired a transaction processing and inventory control manager to
increase our control on inventory for future periods.
For the three (3) month period ended September 30, 2000, gross margin decreased
to a (85)% compared to 33% for the same period in 1999. The decrease and
negative amount was due to the allocation of operational employees salaries and
inventory adjustments mentioned above in combination with the overall drop in
service revenues in preparation for the new facility coming online.
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Selling, General and Administrative expenses increased to $ 313,920 in the three
(3) month period ending September 30, 2000, as compared to $ 74,622 for the same
period in 1999. The increase was primarily due to significant increases in
employee related costs and legal fees from a year ago.
Net Loss. Our net loss was ($388,732) for the three (3) month period ended
September 30, 2000. This compares to a gain of $130,450 for the same period in
1999. As discussed above the negative results are due primarily to the decrease
in revenues as a result of delays in building out and bringing online its new
ITC while focusing its resources for sales and marketing on the new
infrastructure.
Liquidity and Capital Resources
At September 30, 2000. our current ratio of current assets to current
liabilities was 5.99. This compares to 2.62 for 1999. We do not have any
long-term debt nor do we plan to have any.
In the process of increasing its marketing and sales activities in preparation
for bringing the new IT hosting facility on-line, we are evaluating whether to
raise additional capital for data center expansion of the new facility as the
initial space comes online.
We may obtain additional capital upon the exercise of previously-issued warrants
and outstanding options for common stock.
Prospective Information
We are undergoing a significant transition and realizing a major milestone in
its road to becoming the premier integrated technology service provider (ITSP).
With the new ITC coming online in the second quarter, and with a significant
demand in Houston for tier-1 data center facilities as well as integrated
technology services, we expect to be able to quickly fill up the initial data
center space with recurring revenue based contracts over the next few months.
While we are reaching this milestone, we expect to quickly cash flow the
operation in the third quarter and become profitable.
Based on our five year plan, and during this process of contractually filling up
its initial space, we plan to raise additional capital for expansion of our
facility at its first ITC and to initiate ITCs number 2 and 3 in a different
parts of the country. While these facilities are coming online, cash flowing,
and becoming profitable, we will be looking to contract with the appropriate
underwriter to put together a major secondary offering to expand our business
model nationally and internationally.
Part II Other Information
ITEM 2. CHANGES IN SECURITIES
During the quarter ended September 30, 2000, we effected the following
transactions in reliance upon exemptions from registration under the Securities
Act of 1933 as amended (the "Act") as provided in Section 4(2) thereof. Each
certificate issued for 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. No
underwriter participated in, nor did we pay any commissions or fees to any
underwriter in connection with any of these transactions. None of the
transactions involved a public offering. We believe that each person had
knowledge and experience in financial and business matters which allowed them to
evaluate the merits and risks of our securities. We believes that each person
was knowledgeable about our operations and financial condition.
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In August 2000, we issued 100,000 Consultant Warrants to purchase restricted
common stock at an exercise price of $1.50 to Carla Lattinelli as payment in
kind for services related to assisting with investor relation functions for the
Company. The warrants expire in August of 2001. This was a private placement
that was exempt from registration pursuant to Section 4(2) of the Act.
In August 2000, we issued 75,000 Warrants to purchase restricted common stock at
an exercise price of $1.50 per share to Darren-Anthony Lumar for partial
compensation for his services as our Director of Investor Relations. The
warrants expire in August of 2003. This was a private placement that was exempt
from registration pursuant to Section 4(2) of the Act.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed with this Quarterly Report or are
Incorporated herein by reference:
Exhibit Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
On January 26, 2000 the Company filed Form 8K reporting the
completion of its $3,000,000 financing.
On April 18, 2000 the Company filed Form 8K reporting on the
change in its certifying accountant.
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
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Kent Watts, Chairman of the Board,
Chief Executive Officer,
and Chief Accounting Officer
Dated: November 20, 2000
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