UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-K
 
 x  ANNUAL REPORT
UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the
fiscal year ended June 30, 2010
 or
 o  TRANSITION REPORT
UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the
transition period from ___________   to ____________________
 
 Commission
File Number 001-32490
 
 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 Number)
 
 12012
Wickchester Lane, #475
 Houston,
Texas 77079
 (Address
of principal executive offices, including zip code)
 
 (713)
353-9400
 (Issuer’s
telephone number, including area code)
 
 Securities
registered under Section 12(b) of the Exchange Act:
 
 Title
      of Each Class
                    
                    Name
      of Each Exchange on Which RegisteredCommon
      Stock, $0.001 par value
                    
                    NYSE
      Amex
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act
  ̈
    Yes
              x
  No
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act
  ̈
    Yes
              x
  No
 
 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 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.
 x
    Yes
               ̈
        No
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
   ̈Yes
               ̈
  No
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained in herein, and will not be contained, to the
best of the registrant’s knowledge , in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting
company.
 
 Large
      accelerated filer    ̈
                Accelerated
      filer    ̈
                Non-accelerated
      filer    ̈
                Smaller
      reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12-b-2 of the Exchange Act)
  ̈
    Yes
              x
  No
 
 As of
December 31, 2009, the aggregate market value of the registrant’s common
stock held by non-affiliates of the registrant was $66,180,054 based on the
closing sale price as reported on the NYSE Amex.  We had 104,227,199
shares of common stock outstanding on September 28, 2010.
  
 
 TABLE OF
CONTENTS
  Part
      I
                    1Item
      1. Business
                    1Item
      IA. Risk Factors
                    7Item
      1B. Unresolved Staff Comments
                    14Item
      2. Properties
                    14Item
      3. Legal Proceedings
                    15Item
      4. Submission of Matters to a Vote of Securities Holders
                    15Part
      II
                    16Item
      5. Market for Registrant's Common Equity, Related Shareholder Matters and
      Issuer Purchases of Equity Securities
                    16Item
      6. Selected Financial Data
                    17Item
      7. Management's Discussion and Analysis of Financial Condition and
      Results of Operations
                    18Item
      7A. Quantitative and  Qualitative Disclosures About Market
      Risk
                    23Item
      8. Financial Statements and Supplementary Data
                    23Item
      9. Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosures
                    24Item
      9A. Controls and Procedures
                    24Item
      9A(T). Controls and Procedures
                    24Item
      9B. Other Information
                    25PART
      III
                    25Item
      10. Directors, Executive Officers and Corporate Governance
                    25Item
      11.  Executive Compensation
                    29Item
      12. Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
                    39Item
      13. Certain Relationships and Related Transactions, and Director
      Independence
                    41Item
      14. Principal Accounting Fees and Services
                    42PART
      IVItem
      15.Exhibits, Financial Statement Schedules
                    43SIGNATURES
                    45
  
  PART
I
 
 CAUTIONARY
STATEMENT ON FORWARD-LOOKING INFORMATION
 
 Hyperdynamics
Corporation 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, Hyperdynamics.  This Annual Report on Form 10-K 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.  Our expectations, beliefs and projections are expressed
in good faith and are believed by us to have a reasonable basis, including
without limitations, management's examination of historical operating trends,
data contained in our 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 and the risks discussed below in
Item 1A.  Risk
Factors, the following are important factors that, in the view of
Hyperdynamics, could cause actual results to differ materially from those
discussed in the forward-looking statements: geopolitical instability where we
operate: the availability of additional financing and, if available, on terms
and conditions acceptable to us; our ability to meet our substantial capital
needs; our ability to raise sufficient capital and/or enter into one or more
strategic relationships with one or more industry partners to execute our
business plan; the ability of the government of Guinea to renegotiate the
agreements that govern our oil and gas exploration rights off the coast of
Guinea; our ability and success in finding, developing and acquiring oil and gas
reserves: our ability to respond to changes in the oil exploration and
production environment, competition, and the availability of personnel in the
future to support our activities.
 
 As used
herein, references to “Hyperdynamics,” “Company,” “we,” “us,” and “our” refer to
Hyperdynamics Corporation and our wholly-owned subsidiaries.
 
 Item
1.   Business
 
 We are an
emerging independent oil and gas exploration company that was incorporated in
1996 as a Delaware corporation. As described below, through our
wholly-owned subsidiary, SCS Corporation, (“SCS”), we possess certain contract
rights for and engage in the exploration and exploitation of oil and gas in an
approximately 9,650 square mile concession off the coast of the Republic of
Guinea (“Guinea”) in West Africa.  As discussed below, our rights in
Guinea derive from a Hydrocarbon Production Sharing Contract (“PSC”) that we
entered into in 2006 with Guinea, as amended.  Certain terms of the
PSC have been modified in part by Amendment No.1 to the PSC that we entered into
with the government of Guinea during March 2010 (the “PSC Amendment”), as
discussed below. The PSC, as amended, was approved by the Government of Guinea
through the issuance of a Presidential Decree in May 2010.
 
 In April
2009, we entered into a transaction to sell our only oil and gas operations
located in the United States, which consisted of working interests in several
oil and gas properties in Northeast Louisiana.  This sale was
finalized in August 2009.
 
 As of
September 28, 2010, our direct and indirect wholly-owned operating subsidiaries
consisted of: (i) SCS which is engaged in oil and gas exploration
activities located off the coast of Guinea, and (ii) SCS Corporation Guinea SARL
(“ SCSG”), which was formed to manage the business associated with the PSC
including public relations programs in Guinea.  We own 100% of
SCS.  “SCS” is also the name of our business segment that is composed
of our oil and gas exploration activity in Guinea.  SCSG, a Guinea
limited liability company located in Conakry, Guinea, is owned 100% by SCS and
is part of our SCS business segment operating in Guinea.
 
 OPERATIONS
IN THE REPUBLIC OF GUINEA
 
 Production
Sharing Contract
 
 We have
been conducting exploration work related to the area off the coast of Guinea
since 2002.  On September 22, 2006, we, acting through SCS, entered
into the PSC with Guinea.  Under that agreement, we were granted
certain exclusive contractual rights by Guinea to explore and exploit offshore
oil and gas reserves, if any, off the coast of Guinea.  We refer to
the rights granted to us by Guinea as the “Concession” and to the offshore area
subject to the Concession as the “Contract Area.”   We are conducting
our current work in Guinea under the PSC, as amended.  The PSC was
filed as an exhibit to our Current Report on Form 8-K that was filed with the
Securities and Exchange Commission (the “SEC”) on September 28,
2006.
 
 2009
Memorandum of Understanding
 
 On
September 11, 2009, we entered into a Memorandum of Understanding (MOU) with
Guinea in which we agreed with the government to resolve certain issues related
to the PSC.  The MOU required negotiation between the parties
concerning the terms and conditions of the provisions in the PSC to ensure that
such terms were consistent with the Guinea Petroleum Code and usually applicable
international standards and practices.
  1
 
 Amendment
No.1 to PSC
 
 On March
25, 2010, we entered into the PSC Amendment with Guinea.  The PSC
Amendment was signed by the Guinean Minister of Mines and Geology, Mahmoud
Thiam; the Guinean Minister of Finances and Economy, Kerfala Yansane, and Ray
Leonard, President and Chief Executive Officer of Hyperdynamics and
SCS.  The PSC Amendment was entered into pursuant to the
MOU.  The PSC Amendment provides that the parties to the MOU have
fully complied with the terms of the MOU.
 
 The PSC
Amendment clarified that we retained a Contract Area of approximately 9,650
square miles, which is approximately equivalent to 30% of the original Contract
Area under the PSC, following a December 31, 2009 relinquishment of
approximately 70% of the original Contract Area.  The PSC Amendment
requires that we relinquish an additional 25% of the retained Contract Area by
September 30, 2013.  Under the terms of the PSC Amendment, the first
exploration period will end and the Company will enter into the second
exploration period on September 21, 2010.  The second exploration
period runs until September 2013, may be renewed to September 2016 and may be
extended for one (1) additional year to allow the completion of a well in
process and for two (2) additional years to allow the completion of the
appraisal of any discovery made. Under the PSC Amendment, we are required
to drill an exploration well, which is to be commenced by the year-end 2011, to
a minimum depth of 2,500 meters below seabed and to drill an additional
exploration well, which is to be commenced by the end of September 2016, to a
minimum depth of 2,500 meters below seabed.  The PSC Amendment
requires the expenditure of $15 million on each of the exploration wells ($30
million in the aggregate).  We are also required to acquire a minimum
of 2,000 square kilometers of 3D seismic by September 2013 with a minimum
expenditure of $12 million. Fulfillment of work obligations exempts us from
expenditure obligations and exploration work in excess of minimum work
obligations for each exploration period may be carried forward to the following
exploration period.
 
 Under the
PSC Amendment, Guinea may participate in development of any discovery at a
participating interest of up to 15% of costs being carried for its share. The
cost of that carry is to be recovered out of 62.5% of Guinea's share of cost and
profit oil.  The PSC Amendment removed the right of first refusal held
by us covering the relinquished acreage under the original PSC. The PSC
Amendment clarified that only those eligible expenditures, which were made
following the date the PSC was signed, on September 22, 2006, are eligible for
cost recovery.  We are required to establish an annual training budget
of $200,000 for the benefit of Guinea’s oil industry personnel, and we are also
obliged to pay an annual surface tax of $2.00 per square kilometer on our
retained Concession acreage.  The PSC Amendment also provides that
should the Guinea government note material differences between provisions of the
PSC Amendment and international standards or the Petroleum Code, the parties
will renegotiate the relevant articles.
 
 Presidential
Decree
 
 In May
2010, the government of Guinea issued a Presidential Decree approving the PSC,
as amended.
 
 Assignment
of Participating Interest
 
 On
December 4, 2009, we entered into a Sale and Purchase Agreement (“SPA”) with
Dana Petroleum (E&P) Limited (“Dana”) for Dana to acquire a 23%
participating interest in the PSC.  On January 28, 2010, the Company
closed on the transaction with Dana assigning it a minority interest in our
Concession offshore Guinea.  In connection with the closing of the
transaction, we entered into an Assignment of Participating Interest (the
“Assignment”) with Dana, a Deed of Assignment and Joint Operating Agreement
(“JOA”).  Pursuant to the Assignment, we assigned to Dana an undivided
23% of our participating interest in the contractual interests, rights,
obligations and duties under the PSC.  As required by the PSC, the
Deed of Assignment was delivered as the necessary notice of the Assignment to be
given to the Ministry of Mines, Energy and Hydraulics of Guinea.
 
 As part
of the obligation to bear the proportionate share of costs, the SPA required
Dana to make a cash payment to us upon closing the assignment of the 23%
participating interest to Dana in the amount of $ 1.7 million for Dana’s
pro-rata portion of accrued expenditures associated with our marine 2D seismic
data acquisition program within the Contract Area.  The $1.7 million
payment was received by us on February 4, 2010 and was recorded as a reduction
in the carrying value of our Concession.
 
 The
Operating Agreement appoints us as the operator for purposes of conducting oil
and gas exploration and production activities within the retained Contract
Area.  We share operating costs of joint operations with Dana in
proportion to the parties’ respective participating interests (Hyperdynamics,
77% and Dana, 23%). An operating committee and voting procedures are established
in the JOA whereby managerial and technical representatives of the Company and
Dana make decisions regarding joint operations, exploration and appraisal of
commercial discoveries, and the disposition of commercial
production.  The JOA places restrictions upon the transfer of the
parties’ respective participating interests in the form of a right of first
purchase that is triggered by a proposed transfer or certain changes in control
of us or Dana.
 
 In May
2010, we received an administrative order from the Ministry of Mines and Geology
of Guinea, referred to as an arrêté, confirming the Guinea government’s approval
of the assignment of a 23% participating interest in the PSC, as amended, to
Dana.  On May 20, 2010, we received a payment of $19.6 million in cash
from Dana as payment for the assigned 23% participating interest in the
contractual interests, rights, obligations and duties under the PSC, as
amended.
  2
 
 Repsol
Letter of Intent
 
 On
January 29, 2010, we entered into an Amendment to the Agreement for Exclusive
Dealing and Letter of Intent (“Amended LOI”) with Repsol Exploracion, S.A.,
(“Repsol”). This Amended LOI extended the term of the Agreement for
Exclusive Dealing and Letter of Intent (“Original LOI”) that was entered into
between the parties on November 26, 2009, from January 31, 2010 until March 11,
2010, which date has not been further extended.  The Original LOI
contemplated the prospective acquisition by Repsol of an undivided 37%
participation interest in our Concession off the coast of Guinea.
 
 Under the
provisions of the Original LOI, Repsol committed to make certain seismic
acquisition payments to us upon the closing of the assignment of a 37%
participating interest in the Concession.  Under and for the
consideration of the Amended LOI, Repsol paid $2.7 million to us, representing
Repsol’s pro-rata share of work preformed to date under the Marine 2D Seismic
Data Acquisition Services Agreement with Bergen Oilfield Services (“BOS
Agreement”).  The $2.7 million payment was received by us on February
11, 2010. In addition, following our delivery of an invoice to Repsol for
subsequent work performed under the BOS Agreement, Repsol paid its pro-rata
share of such invoice, which was approximately $1.0 million.  These
payments totaling $3.7 million which also represented consideration paid by
Repsol for extending the LOI to March 11, 2010, were recorded as a reduction in
the carrying value of our Guinea concession. Under the LOI we were not required
to reimburse any payments to Repsol upon the LOI expiry on March 11, 2010 and
Repsol has no continuing rights to acquire a participation
interest.
 
 PGS
Geophysical AS, Norway
 
 On June
11, 2010, we entered into an Agreement for the Supply of Marine Seismic Data
(“3D Seismic Contract”) with PGS Geophysical AS, Norway
(“PGS”).  Under the terms of the 3D Seismic Contract PGS agreed to
conduct the acquisition phase of a 3,635 square kilometer 3D seismic survey of
the area that is subject to our rights, or concession, to explore and exploit
offshore oil and gas reserves off the coast of Guinea.  The intended
purpose of the 3D seismic survey is to obtain detailed imaging of the multiple
prospects which were identified from our prior 2D seismic data of the
concession.
 
 Under the
terms of the 3D Seismic Contract, PGS has agreed to carry out the survey in two
separate portions that commenced in August 2010.  The cost of the
survey under the 3D Seismic Contract is estimated to be $21.0 million,
including mobilization and demobilization expenses.
 
 In
addition, we have contracted with PGS to process the data from the 3D seismic
survey.  The seismic data processing is expected to cost about $2.5
million and to be completed by the end of the first Quarter of
2011.
 
 Exploration
Strategies and Work to Date
 
 Our
business plan incorporates a multi-channel approach to exploring and developing
our Contract Area under the PSC, as amended.  We will continue
independently to develop and evaluate drilling targets and ultimately to
implement a drilling program on one or more of our
targets.  Simultaneously, we intend to seek additional exploration
participants to work with us on all or parts of the Concession, including
conducting exploratory drilling and production in the Contract Area. We expect
that entering into these joint operating relationships would entail transferring
a portion of our interest in the Concession to such participant.
 
 From the
inception of our involvement in Guinea beginning in 2002, we, in conjunction
with certain key vendors, have accomplished critical exploration work
including:
 
 ·
              a
      1,000 kilometer 2D seismic data shoot, the processing of the seismic data
      acquired, and the evaluation of that data and data that had been acquired
      in the past;
 
 ·
              a
      4,000 kilometer 2D seismic data shoot, the processing of the seismic data
      acquired, and the evaluation of that data and data that had been acquired
      in the past;
 
 ·
              acquisition
      and geochemical analysis of core samples from the Contract Area and a
      satellite seeps study;
 
 ·
              third
      party interpretation and analysis of our seismic data, performed by
      Petroleum Geo Services (PGS);
 
 ·
              reconnaissance
      within Guinea to evaluate drilling infrastructure, support services, and
      the operating environment;
 
 ·
              a
      2,800 kilometer 2D seismic data shoot, the processing of the seismic data
      acquired, and the evaluation of that data and data that had been acquired
      in the past;
 
 ·
              an
      oil seep study performed by TDI Brooks;
and
 
 ·
              a
      10,400 kilometer 2D seismic data shoot, the processing of the seismic data
      acquired, and the evaluation of that
data.
  3
 
 In 2009,
we sold our oil and gas operations located in the United States.  We
account for this as a discontinued operation.
 
 We have
no source of operating revenue and there is no assurance when we will, if
ever.  We have limited cash and require substantial additional funds
to fulfill our business plans.  Our operating plan within the next 12
months includes the following:
 
 ·  Obtaining
funds and completing technical work and planning with Dana and our prospective
participants in the Concession to drill offshore Guinea in late
2011.
  ·  Acquiring,
processing and interpreting a 3D seismic survey to allow identification of one
or more proposed drilling locations.
  ·  Adding
one or more additional PSC participants to operate and help fund our search for
oil and gas deposits on our Guinea concession.  We expect that adding
a PSC participant will include the assignment of a portion of our interest in
the Concession to such participant.
 
 Political
Climate and Social Responsibility in Guinea
 
 Our
wholly-owned subsidiary SCSG was established in 2005.  SCSG’s results
are included in the SCS operating segment.  SCSG maintains a visible
in-country presence and conducts public relations programs to educate the Guinea
people and its government about the importance of their petroleum resources and
our role in helping Guinea realize the benefits from exploiting these
resources.  As part of the public relations program, SCSG makes
donations to projects which improve conditions in villages, to non-governmental
organizations, to schools, and to religious organizations in order to support
these efforts as well as to cultivate positive public sentiment towards
Hyperdynamics in Guinea.  Guinea is an emerging democracy, and it has
unique social, political, and economic challenges.  Public opinion
strongly influences the political decision-making process.  Therefore,
our public relations and social programs support a strategy to maintain a
corporate image for us in Guinea.
 
 There are
significant risks associated with operating in Guinea.  See Item 1A.  Risk
Factors.
 
 DESCRIPTION
OF OIL AND GAS PROPERTIES
 
 The
Contract Area for the Concession is represented on the below map and, as
indicated above, consists of an area of approximately 9,650 square
miles.
  4
 
 
 
 Sale
of Oil and Gas Properties
 
 In April
2009, we entered into a transaction to sell our oil and gas operations located
in the United States, which consisted of working interests in several oil and
gas properties in Northeast Louisiana.  Due to the structure of the
agreement, the transaction was accounted for as three separate sales.  The
first two sales were completed in May 2009, and included the sale of all of our
working interests associated with proved reserves.  The third sale was
completed in August 2009.  As a result of the sale of our oil and gas
operations in the United States, at June 30, 2010, we did not have, nor do we
currently have, any proved reserves or producing properties.
 
 Reserves
Reported To Other Agencies
 
 We have
not reported any estimates of proved or probable net oil or gas reserves to any
federal authority or agency since July 1, 2008.
 
 Production
 
 The
following table shows our annual sales volume, average sales prices per barrel
of oil, and average production costs per barrel of oil for our last three fiscal
years.  Production costs are costs incurred to operate and maintain
our wells and related equipment.  Production costs include cost of
labor, well service and repair, location maintenance, power and fuel, property
taxes, and severance taxes.  Certain amounts from prior years have
been reclassified to conform to the current presentation.
 
 As a
result of the April 2009 sale of our oil and gas operations located in the
United States, we currently have no producing properties.
 
 2010
                          
                          
                          2009
                          
                          
                          2008United StatesBarrels
      of oil soldGross
                          
                          
                          -
                          
                          
                          
                          55,446
                          
                          
                          
                          43,457Net
                          
                          
                          -
                          
                          
                          
                          34,770
                          
                          
                          
                          28,197Sales
      price per barrel
                          
                          $
                          -
                          
                          
                          $
                          68.94
                          
                          
                          $
                          101.72Production
      cost per barrel
                          
                          $
                          -
                          
                          
                          $
                          38.28
                          
                          
                          $
                          92.35
  5
 
 Delivery
Commitments
 
 We
currently have no existing contracts or agreements obligating us to provide a
fixed or determinable quantity of oil or gas in the future
 
 Employees
and Independent Contractors
 
 As of
September 3, 2010, we have 20 full time employees based in the United States and
approximately 20 independent contractors in Guinea. Additionally, we use
independent contractors in the United States to help manage fixed overhead
expenses.  No employees are represented by a union.
 
 Competition
 
 Many
companies and individuals engage in drilling for gas and oil and there is
competition for the most desirable prospects. We expect to encounter intense
competition from other companies and other entities in the sale of our oil and
gas. We could be competing with numerous oil and gas companies which may have
financial resources significantly greater than ours.
 
 Productive
Wells and Acreage; Undeveloped Acreage
 
 We
currently do not have any productive oil or gas wells, and do not have any
developed acres (i.e.
acres spaced or assignable to productive wells).  The following table
sets forth undeveloped acreage that we held as of June 30, 2010:
  Undeveloped Acreage(1)(2)Gross
      Acres
                      
                      
                      Net
      AcresForeignOffshore
      Guinea
                      
                      
                      6,176,000
                      
                      
                      
                      4,755,520Total
                      
                      
                      6,176,000
                      
                      
                      
                      4,755,520
 
 (1)
              A
      gross acre is an acre in which a working interest is owned. A net acre
      is deemed to exist when the sum of fractional ownership working or
      participation interests in gross acres equals one. The number of net acres
      is the sum of the fractional working interests owned in gross acres
      expressed as whole numbers and fractions thereof. Undeveloped acreage is
      considered to be those leased acres on which wells have not been drilled
      or completed to a point that would permit the production of commercial
      quantities of crude oil and natural gas regardless of whether or not such
      acreage contains proved reserves.
 (2)
              One
      square mile equals 640 acres. Our Contract Area is approximately 9,650
      square miles. We have a 77% working interest in this contract
      area.
 
 Drilling
Activity
 
 The
following table sets forth, for each of the years ended June 30, 2010, 2009, and
2008, the number of net exploratory and development wells we
drilled.  An exploratory well is a well drilled to find and produce
crude oil or natural gas in an unproved area, to find a new reservoir in a field
previously found to be productive of crude oil or natural gas in another
reservoir, or to extend a known reservoir.  A development well, for
purposes of the following table, is a well drilled within the proved area of a
crude oil or natural gas reservoir to the depth of a stratigraphic horizon known
to be productive.  The number of wells drilled refers to the number of
wells completed at any time during the relevant fiscal year, regardless of when
drilling was initiated.  Completion refers to the installation of
permanent equipment for the production of crude oil or natural gas, or in the
case of a dry hole, to the reporting of abandonment to the appropriate
agency.
  Net Exploratory Wells
                        
                        
                        Net Development WellsProductive(1)
                        
                        
                        Dry(2)
                        
                        
                        Productive(1)
                        
                        
                        Dry(2)US
                        
                        
                        Int'l
                        
                        
                        US
                        
                        
                        Int'l
                        
                        
                        US
                        
                        
                        Int'l
                        
                        
                        US
                        
                        
                        Int'lJune
      30, 2010
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -June
      30, 2009
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -June
      30, 2008
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2
                        
                        
                        
                        -
                        
                        
                        
                        1
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
 
 (1)
              A productive well is an
      exploratory or development well that is not a dry
    hole.
  6
  A dry
hole is an exploratory or development well determined to be incapable of
producing either crude oil or natural gas in sufficient quantities to justify
completion as an oil or gas well.
 
 Geographical
Information
 
 The
following table sets out certain geographical information about our operations
in Guinea:
 
 June
      30,
                      
                      
                      June
      30,2010
                      
                      
                      2009Revenues
                      
                      
                      -
                      
                      
                      
                      -Long-lived
      assets related to Guinea
                      
                      $
                      339,000
                      
                      
                      $
                      7,764,000
 
 Long-lived
assets include our investment in the Concession offshore Guinea as well as fixed
assets.  The seismic data we have collected and our geological and
geophysical work product are maintained in our offices in the United
States.  During the 2010 period, we sold a 23% interest in the
Concession to Dana Petroleum. This sale was recognized in May 2010 and the $19.6
million proceeds received exceeded the amount of our investment in Guinea as of
that date, resulting in the investment being reduced to zero, with a $2,955,000
gain being recognized. Investment in the Concession of $92,000 was incurred in
June 2010 after the investment was reduced to zero in May 2010.
 
 Cost
of Compliance with Environmental Laws
 
 Environmental
laws have not materially hindered nor adversely affected our business. Capital
expenditures relating to environmental control facilities have not been
prohibitive to our operations.  We believe we are in compliance with
all applicable environmental laws.
 
 Available
Information
 
 We are
currently subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”).  We file periodic reports,
proxy materials and other information with the SEC.  In addition, we
expect to furnish stockholders with annual reports containing audited financial
statements certified by our independent registered public accounting firm and
interim reports containing unaudited financial information as may be
necessary or desirable.  We will provide without charge to each person
who receives a copy of this report, upon written or oral request, a copy of any
information that is incorporated by reference in this report (not including
exhibits to the information that is incorporated by reference unless the
exhibits are themselves specifically incorporated by reference).  Such
request should be directed to: Jason Davis, Hyperdynamics Corporation, 12012
Wickchester Lane, #475, Houston, Texas 77079, voice: (713) 353-9400, fax: (713)
353-9421. Our website Internet address is www.hyperdynamics.com.
 
 We
provide free of charge on our website our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act as soon as reasonably practicable.
 
 Members
of the public may read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 100 F Street, NE, and Washington, DC
20549.  Members of the public may obtain information on the operation
of the Public Reference Room by calling the SEC at
1–800–SEC–0330.  The Internet address of the Commission is
www.sec.gov.  That website contains reports, proxy and information
statements and other information regarding issuers, like Hyperdynamics, that
file electronically with the Commission.  Visitors to the Commission’s
website may access such information by searching the EDGAR
database.
 
 Item
1A.  Risk Factors
 
 You
should carefully consider the following risk factors in evaluating our company.
The risks and uncertainties described below are not the only ones we face. There
may be additional risks and uncertainties that are not known to us or that we do
not consider to be material at this time. If the events described in these risks
occur, our business, financial condition and results of operations would likely
suffer. This annual report contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ significantly from the
results discussed in the forward-looking statements. This section discusses the
risk factors that might cause those differences.
 
 Geopolitical
instability where we operate subjects us to political, economic and other
uncertainties.
 
 We
conduct business in Guinea, which is in a region of the world where there have
been recent civil wars, revolutions, coup d’états and internecine
conflicts.  In July 2010, a democratic election was held that
identified two main candidates for a run-off election that is expected to be
held on October 10, 2010. External or internal political forces in Guinea could
potentially create a political or military climate that might cause a change in
political leadership, the outbreak of hostilities, or civil
unrest.  Such uncertainties could result in our having to cease our
Guinea operations and result in the loss or delay of our rights under the PSC,
as amended.
  7
 
 Further,
we face political and economic risks and other uncertainties with respect to our
operations, which may include, among other things:
  ·
              loss of property and equipment as
      a result of hazards such as expropriation, war, acts of terrorism,
      insurrection and other political
risks;
 
 ·
              increases in taxes and
      governmental royalties;
 
 ·
              unilateral renegotiation of
      contracts by governmental
entities;
 
 ·
              difficulties enforcing our rights
      against a governmental agency because of the doctrine of sovereign
      immunity and foreign sovereignty over international
      operations;
 
 ·
              changes in laws and policies
      governing operations of foreign-based companies;
  and
 
 ·
              currency restrictions and
      exchange rate fluctuations.
 
 Our
operations in Guinea may also be adversely affected by laws and policies of the
United States affecting foreign trade and taxation.  Realization of
any of these factors could materially and adversely affect our business plan,
financial position, results of operations and future cash flows.
 
 We
have a history of losses and negative cash flow that we expect to continue in
the near term.  We will require substantial additional funding in the
near term which may not be available to us on acceptable terms or at all; if we
cannot obtain additional financing, we may have to curtail operations and may
ultimately cease to exist.
 
 Our
financial statements reflect recurring, ongoing and substantial yearly net
losses, and negative cash flows from operations. We need additional funding or
alternative sources of capital to meet our working capital needs.  We
have previously raised capital by selling common stock and warrants, issuing
convertible debentures and using a previously available equity line of credit
which expired in February 2009.  Our management does not believe that
existing cash resources will be sufficient to enable us to execute our business
plan over the next twelve months and that we will need to raise substantial
additional capital or obtain funding through a strategic relationship in the
near term in order to do so.  However, future financing or strategic
alliances may not be available in amounts or on terms acceptable to us, if at
all. If we cannot raise funds on acceptable terms, we will not be able to
execute our business plan, and we may be forced to curtail operations and may
ultimately cease to exist.
 
 We
may not be able to meet our substantial capital requirements to conduct our
operations and achieve our business plan.
 
 Our
business is capital intensive.  We must invest a significant amount in
development and exploration activities.  We are currently making and
intend to continue to make substantial capital expenditures to find, develop and
produce natural gas and oil reserves.  We currently have no operating
revenue.  If we do not obtain capital resources, we may not be able to
meet the obligations under the PSC, as amended – thus surrendering the Contract
Area.  The Contract Area is our single most important asset and its
loss would result in a substantial decrease in our ability to eventually become
a revenue-generating company.  Even if we acquire sufficient financing
to meet the obligations under the PSC, as amended, we may not be able to raise
or expend the capital necessary to undertake or complete future drilling
programs or acquisition opportunities unless we raise additional funds through
debt or equity financings, which may not be available on acceptable terms to us
or at all.  We may not be able to obtain debt or equity financing or
enter into and complete one or more strategic relationships with an industry
partner to meet our capital requirements on acceptable terms, if at
all.  Moreover, our future cash flow from operations may not be
sufficient for continued exploration, development or acquisition activities, and
we may not be able to obtain the necessary funds from other
sources.
 
 With the
completion of the sale of our domestic oil and gas properties in August 2009, we
are strictly in the exploration phase, and we have no petroleum
reserves.  We expect to continue to incur significant expenses over
the next several years with our operations, including further 3D seismic studies
and exploratory drilling.  Based on the exploration results to date,
we anticipate that the cost per commercial well, if further results justify
attempts at commercial drilling, would range from US$30 million each (shallow
water prospects) to approximately US$100 million each (deepwater
prospects).
 
 The
PSC, as amended is subject to renegotiation under certain conditions, which may
have an adverse impact upon our operations and profitability.
 
 The PSC
Amendment provides that should the government of Guinea note material
differences between provisions of the PSC Amendment and international standards
or the Guinea Petroleum Code, the parties will renegotiate the relevant
articles.  If the government of Guinea identifies materials
differences between the PSC Amendment’s provisions and international standards
or the Guinea Petroleum Code, there is no assurance that we will be able to
negotiate an acceptable modification to the PSC Amendment.  If the
parties are not successful in renegotiating the relevant articles of the PSC
Amendment, the parties may be required to submit the matter to international
arbitration.  There is no assurance that any arbitration would be
successful or otherwise lead to articles that are more favorable to us than the
present articles.  Therefore, the results of such negotiations or
arbitration could be unfavorable to us and, as a result, could have a material
adverse effect on our business plan, financial position, results of operations
and future cash flows.
  8
 
 Our
Concession or obligations under the PSC, as amended, could be adversely affected
by Guinea’s political uncertainties.
 
 Guinea
has faced and continues to face political, economic and social uncertainties
which are beyond our control.  Maintaining a good working relationship
with the Guinean government is important because the Concession is granted under
the terms of the PSC, as amended, with the Guinean government.  A
presidential election was conducted in Guinea in July 2010 and a run-off
election is scheduled for October 10, 2010.  While we intend to
maintain a positive working relationship with the Guinean government, we cannot
predict whether the run-off election will occur as scheduled, or the impact that
the run-off election will have on our relationship.  A change in
leadership could result in political instability or substantial changes in
government policies which could have a material adverse effect on our business
plan, financial position, results of operations and future cash
flows.
 
 We
operate in Guinea, a country where corrupt behavior exists that could impair our
ability to do business in the future or result in significant fines or
penalties.
 
 We
operate in Guinea, a country where governmental corruption has been known to
exist. There is a risk of violating either the U.S. Foreign Corrupt Practices
Act or laws or legislation promulgated pursuant to the 1997 OECD Convention on
Combating Bribery of Foreign Public Officials in International Business
Transactions or other applicable anti-corruption regulations that generally
prohibit the making of improper payments to foreign officials for the purpose of
obtaining or keeping business.   In addition, the future success of
our Guinea operations may be adversely affected by risks associated with
international activities, including economic and labor conditions, political
instability, risk of war, expropriation, terrorism, renegotiation or
modification of existing contracts, tax laws and changes in exchange
rates.
 
 Our
past losses raise doubt about our ability to continue as a going
concern.
 
 The
Consolidated Financial Statements contained in our report on Form 10-K for the
year ended June 30, 2010 have been prepared assuming we will continue as a going
concern.  We have incurred losses since inception, resulting in
cumulative losses of $75,624,000 through June 30, 2010.   We have
historically been able to raise capital from debt, equity or industry sources to
finance our activities, but there is no assurance we will be able to do so in
the future, or that any capital raises will be on terms favorable to
us.  There is substantial doubt about our ability to continue as a
going concern, as discussed in Note # 2 to the Consolidated Financial Statements
of this Annual Report on Form 10-K, for the fiscal year ended June 30,
2010.  The Consolidated Financial Statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 Our
ability to continue as a going concernis dependent on our ability to raise
capital.
 
 Our
growth is dependent on our raising capital through the sale of equity or debt or
our ability to attract a joint operating or financial participant for the
Concession.  There is no assurance that we will be able to raise any
equity or debt financing or that we will be able to attract a joint operating or
financial participant to invest in our Guinea Concession.  We expect
that entering into these relationships would entail transferring a portion of
our interest in the Concession to such partner.  Future events may
make it difficult for us to raise capital.  To raise capital, we may
sell equity or debt securities or obtain financing through a bank or other
entity.  There is no limit as to the amount of debt we may
incur.  Such financing may not be available to us or may not be
available on terms acceptable to us.  If we raise funds through the
issuance of equity, there may be a significant dilution in the value of our
currently outstanding common stock.
 
 We do not have
reserve reports for the Concession and our expectations as to oil and gas
reserves are uncertain and may vary substantially from any actual
production.
 
 We do not
have any reserve reports for the Concession.  A reserve report is the
estimated quantities of oil and gas based on reports prepared by third party
reserve engineers.  Reserve reporting is a subjective process of
estimating underground accumulations of oil and natural gas that cannot be
measured in an exact manner.  Because we do not have any reserve
reports for the Concession, our expectations as to oil and gas reserves are
uncertain and may vary substantially from any actual production.
 
 We
have no ability to control the prices that we may receive for oil and
gas.  Oil and gas prices are volatile and a substantial or extended
decline in prices could adversely affect our financial condition, liquidity,
ability to obtain financing and future operating results.
 
 We have
no source of revenue at this time.  Our financial condition is based
solely on our ability to sell equity or debt securities to investors or enter
into a joint operating or similar strategic relationship with an industry
participant, sell interests related to the Concession or borrow
funds.  We expect that entering into these joint operating or similar
relationships would entail transferring a portion of our interest in the
Concession to such partner.  Such investors would consider the price
of oil in making an investment decision.  Declines in oil and gas
prices may adversely affect our financial condition, liquidity, ability to
obtain financing and operating results. Low oil and gas prices also may reduce
the amount of oil and gas that we could produce economically. Low oil and gas
prices in the future could have a negative effect on our future financial
results.  Historically, oil and gas prices and markets have been
volatile, with prices fluctuating widely, and they are likely to continue to be
volatile. Prices for oil and gas are subject to wide fluctuations in response to
relatively minor changes in supply and demand, market uncertainty and a variety
of additional factors that are beyond our control.  These factors
include:
  9
 
 ·
              the level of domestic and foreign
      supplies of oil;
 
 ·
              the level of consumer product
      demand;
 
 ·
              weather
      conditions;
 
 ·
              political conditions in oil
      producing regions throughout the
world;
 
 ·
              the ability of the members of the
      Organization of Petroleum Exporting Countries to agree to and maintain oil
      production;
 
 ·
              price and production
      controls;
 
 ·
              the price of foreign oil
      imports;
 
 ·
              actions of
      governments;
 
 ·
              domestic and foreign governmental
      regulations;
 
 ·
              the price, availability and
      acceptance of alternative
fuels;
 
 ·
              overall economic conditions;
      and
 
 ·
              value of the U.S.
      dollar.
 
 These
factors and the volatile nature of the energy markets make it impossible to
predict oil and gas prices. Our inability to respond appropriately to changes in
these factors could have a material adverse effect on our business plan,
financial position, results of operations and future cash flows.
 
 Investment
in the oil and gas business is risky, and there is no assurance we will be
successful in discovering oil and gas.
 
 Oil and
gas exploration and development are inherently speculative
activities.  There is no certain method to determine whether a given
lease or concession will produce oil or gas or yield oil or gas in sufficient
quantities and quality to result in commercial production.  The
development of a lease or concession may result in dry holes or in the discovery
of oil or gas that is not commercially feasible to produce.  There is
no guarantee that we may find oil or gas in commercial
quantities.  There is no guarantee that a producing asset will
continue to produce. Because of the high degree of risk involved, there can be
no assurance that we will recover any portion of our investment or that our
investment in leases will be profitable.
 
 Drilling
activities are subject to numerous risks, including the significant risk that we
do not reach our target reservoir or that no commercially productive reserve is
encountered.  The cost of drilling, completing and operating wells and
of installing production facilities and pipelines is often
uncertain.  Drilling costs could be significantly higher if we
encounter difficulty in drilling offshore.
 
 There
are drilling and operational hazards associated with the oil and gas industry
which could result in substantial losses.
 
 The oil
and gas industry involves a variety of operating risks, including:
  ·
              blowouts, cratering and
      explosions;
 
 ·
              mechanical and equipment
      problems;
 
 ·
              uncontrolled flows of oil and gas
      or well fluids;
 
 ·
              fires;
 
 ·
              marine hazards with respect to
      offshore operations;
 
 ·
              formations with abnormal
      pressures;
 
 ·
              pollution and other environmental
      risks; and
  10
 
 ·
              natural
      disasters.
 
 Offshore
operations are subject to a variety of operating risks peculiar to the marine
environment, such as capsizing and collisions.  Also, offshore
operations are subject to damage or loss from adverse weather
conditions.
 
 Any of
these events could result in loss of human life, significant damage to property,
environmental pollution, impairment of our operations and substantial losses.
Locating pipelines near populated areas, including residential areas, commercial
business centers and industrial sites, could increase these risks. The
occurrence of any of these events could have a material adverse effect on our
business plan, financial position, results of operations and future cash
flows.
 
 We
are subject to governmental regulations of which the cost of compliance may have
an adverse effect on our financial condition, results of operations and future
cash flow.
 
 Oil and
gas operations in Guinea may be subject to extensive government regulation and
to interruption or termination by governmental authorities on account of
ecological and other considerations.  It is impossible to predict
future government proposals that might be enacted into law and the effect they
might have on us.  Restrictions on oil and gas activities, such as
production restrictions, price controls, tax increases and pollution and
environmental controls may have material adverse effect on our financial
condition, results of operations and future cash flows.
 
 The
oil and gas industry is subject to hazards related to pollution and
environmental issues which may create substantial liabilities to third
parties.
 
 Hazards
in the drilling and/or the operation of gas and oil properties, such as
accidental leakage or spillage, are sometimes encountered. Such hazards may
cause substantial liabilities to third parties or governmental entities, the
payment of which could adversely affect our liquidity or result in the loss of
our leases. We may be subject to liability for pollution and other damages due
to environmental events.  Environmental regulatory matters also could
increase substantially the cost of doing business, may cause delays in producing
oil and gas or require the modification of operations in certain
areas.
 
 Our
operations may be  subject to numerous stringent and complex laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. Failure to comply with these
laws and regulations may result in the assessment of administrative, civil and
criminal penalties, the imposition of remedial requirements, and the imposition
of injunctions to force future compliance.
 
 Government
regulations may require permits for drilling operations, drilling bonds and
reports concerning operations. In addition, there may be statutes, rules and
regulations governing conservation matters, including the unitization or pooling
of oil and gas properties, establishment of maximum rates of production from oil
and gas wells and the spacing, plugging and abandonment of such wells. Such
statutes and regulations may limit the rate at which oil and gas could otherwise
be produced from our properties and may restrict the number of wells that may be
drilled on a particular lease or in a particular field.
 
 The
unavailability or high cost of drilling rigs, equipment, supplies, personnel and
oilfield services could adversely impact us.
 
 Drilling
activity offshore Guinea will require that we have access to an offshore
drilling rig. Unavailability, shortages or increases in the cost of drilling
rigs, equipment, supplies or personnel could delay or adversely affect our
Guinea operations. There can be no assurance that we will be able to obtain the
necessary equipment or that services will be available at economical
prices.
 
 Expansion
of our exploration program will require capital from outside
sources.
 
 We do not
currently have the financial resources to drill offshore
Guinea.  Absent raising additional capital or completing further
assignments of a participating interest in our Concession or entering into a
joint operating or similar arrangement, we will not be able to conduct drilling
operations offshore Guinea.  There is no assurance that capital will
be available in the future to us or that capital will be available under terms
acceptable to us.  We will need to raise additional money, either
through the sale of equity securities (which could dilute the existing
stockholders' interest), through the entering of joint operating or similar
agreements (which, while limiting our risk, could reduce our ownership interest
in the Concession), or from borrowings from third parties (which could result in
our assets being pledged as collateral and which would add debt service
requirements).
 
 Additional
capital could be obtained from a combination of funding sources, many of which
could have a material adverse effect on our business, results of operations and
financial condition. These potential funding sources and the potential adverse
effects attributable thereto, include:
  ·
              additional offerings of equity
      securities, which will dilute the percentage ownership interest of our
      stockholders;
 
 ·
              sales or assignments of interests
      in the Concession and exploration program, which would reduce any future
      revenues from that program;
  11
 
 ·
              borrowings from financial
      institutions, which may subject us to certain restrictive covenants,
      including covenants restricting our ability to raise additional capital or
      pay dividends;
 
 ·
              debt offerings, which would
      increase our leverage and add to our need for cash to service such debt
      (which could result in additional assets being pledged as collateral and
      which could increase our debt service requirements);
      and
 
 ·
              sales of interests in other
      projects, which could reduce any future
  revenues.
 
 It is
difficult to quantify the amount of financing we may need to fund our business
plan.  The amount of funding we may need in the future depends on various
factors such as:
 
 ·
              our financial
      position;
 
 ·
              the prevailing market price of
      natural gas and oil;
 
 ·
              the lead time required to bring
      any discoveries to production;
and
 
 ·
              the cost of additional
      exploration and drilling.
 
 Our
ability to raise additional capital will depend on the results of operations and
the status of various capital and industry markets at the time such additional
capital is sought. Capital may not become available to us from any particular
source or at all. Even if additional capital becomes available, it may not be on
terms acceptable to us. Failure to obtain additional financing on acceptable
terms may have a material adverse effect on our business plan, financial
position, results of operations and future cash flows.
 
 Pending
and future claims and litigation may adversely affect our financial condition
and results of operations.
 
 We are
currently involved in various lawsuits, including claims involving breaches of
fiduciary duties and environmental cleanup costs as described in Item 3 of this
Annual Report on this Form 10-K for the fiscal year ended June 30, 2010. 
The outcome of litigation is difficult to assess or quantify, and we cannot
predict how it will impact us; however the costs related to litigation could
subject us to substantial legal expenses.
 
 Drilling
new wells could result in new liabilities, which could endanger our interests in
our properties and assets.
 
 There are
risks associated with the drilling of oil and natural gas wells which could
significantly reduce our revenues or cause substantial losses, impairing our
future operating results. We may become subject to liability for pollution,
blow-outs or other hazards. We intend to obtain insurance with respect to these
hazards, but such insurance has limitations on liability that may not be
sufficient to cover the full extent of such liabilities. The payment of such
liabilities could reduce the funds available to us or could, in an extreme case,
result in a total loss of our properties and assets. Moreover, we may not be
able to maintain adequate insurance in the future at rates that are considered
reasonable. Oil and natural gas production operations are also subject to all
the risks typically associated with such operations, including premature decline
of reservoirs and the invasion of water into producing formations.
 
 We
have competition from other companies that have larger financial and other
resources than we do, which puts us at a competitive disadvantage.
 
 A large
number of companies and individuals engage in drilling for gas and oil, and
there is competition for the most desirable prospects. We will encounter intense
competition from other companies and other entities in the sale of our oil and
gas production. We could be competing with numerous oil and gas companies which
may have financial resources significantly greater than ours. The quantities of
gas and oil to be delivered by us may be affected by factors beyond our control,
such as the inability of the wells to deliver at the necessary quality and
pressure, premature exhaustion of reserves, changes in governmental regulations
affecting allowable production and priority allocations, and price limitations
imposed by Federal and state regulatory agencies, as well as foreign
governments.
 
 We
are highly dependent on our management team and consultants and any failure to
retain the services of such parties could adversely affect our ability to
effectively manage our operations or successfully execute our business
plan.
 
 The
successful implementation of our business strategy is highly dependent on our
management team and certain key geoscientists, geologists, engineers and other
professionals engaged by us.  The loss of key members of our management
team or other highly qualified technical professionals could adversely affect
our ability to effectively manage our overall operations or successfully execute
current or future business strategies which may have a material adverse effect
on our business, financial condition and operating results.
  12
  We
depend on oil and gas industry vendors and may not be able to obtain adequate
services.
 
 We are
dependent on industry vendors for the success of our oil and gas exploration
projects. We could be harmed if we fail to attract quality industry vendors to
participate in our exploration and production activities.
 
 We
may experience potential fluctuations in results of operations.
 
 Our
future revenues, if any, may be affected by a variety of factors, many of which
are outside our control, including (a) the success of project results; (b)
swings in availability of drilling services needed to implement projects and the
pricing of such services; (c) a volatile oil and gas pricing market which may
make certain projects that we undertake uneconomical; (d) our ability to attract
qualified employees and consultants; and (e) the amount and timing of operating
costs and capital expenditures relating to conducting our business operations
and infrastructure. As a result of our limited operating history and the
emerging nature of our business plan, it is difficult to forecast revenues or
earnings accurately, which may fluctuate significantly from quarter to
quarter.
 
 In
the event we become a penny stock company, FINRA sales practice requirements
limit a stockholders' ability to buy and sell our stock.
 
 In the
event we become subject to the penny stock rules, there are certain rules that
have been adopted by the Financial Industry Regulatory Authority, Inc. (FINRA)
to which our common stock will be subject.  FINRA rules require that in
recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. 
Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer’s financial status, tax status, investment
objectives, and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which has the effect of reducing the level of trading activity and
liquidity of our common stock.  Further, many brokers charge higher
transactional fees for penny stock transactions. As a result, fewer
broker-dealers would be willing to make a market in our common stock, reducing a
stockholders' ability to resell shares of our common stock.
 
 Shareholders
could incur negative impact due to the expiration of a lock-up on a significant
percentage of our outstanding shares of common stock, or the exercise of options
and warrants.
 
 Approximately
13,400,000 shares of our common stock and warrants to purchase 3,980,000 shares
of our common stock are subject to a contractual prohibition, or “lock-up,”
preventing the sale of such shares that expires on April 21, 2011. Upon the
expiration of the “lock-up”, the shares may become eligible for immediate
resale.  In the event that a substantial number of these shares are offered
for sale in the market, the market price of our common stock could be adversely
affected.
 
 Our
management controls a significant percentage of our current outstanding common
stock; their interests may conflict with those of our shareholders.
 
 Our
Directors and Executive Officers and their affiliates collectively and
beneficially own or control approximately 6% of our voting power (including
stock, warrants and options).  This concentration of voting control gives
our Directors and Executive Officers and their respective affiliates substantial
influence over any matters which require a shareholder vote, including, without
limitation, the election of Directors, even if their interests may conflict with
those of other shareholders. It could also have the effect of delaying or
preventing a change in control of or otherwise discouraging a potential acquirer
from attempting to obtain control of us.  This could have a material
adverse effect on the market price of our common stock or prevent our
shareholders from realizing a premium over the then prevailing market prices for
their shares of common stock.
 
 Our
stock price is highly volatile, and you may lose some or all of your
investment.
 
 Trading
prices of our common stock may fluctuate in response to a number of events and
factors, such as:
  ·
              general economic
      conditions;
 
 ·
              availability of
      credit;
 
 ·
              changes in interest
      rates;
 
 ·
              conditions or trends in the oil
      and gas business;
 
 ·
              fluctuations in the stock market
      in general and market prices for oil and gas companies in
      particular;
 
 ·
              quarterly variations in our
      operating results;
  13
 
 ·
              new products, services,
      innovations, and strategic developments by our competitors or us, or
      business;
 
 ·
              combinations and investments by
      our competitors or us;
 
 ·
              changes in environmental
      regulation;
 
 ·
              changes in our capital structure,
      including issuance of additional debt or equity to the
      public;
 
 ·
              additions or departures of our
      key personnel;
 
 ·
              corporate restructurings,
      including layoffs or closures of
  facilities;
 
 ·
              stock market analyst reports,
      news and speculation;
 
 ·
              political turmoil in Guinea;
      and
 
 ·
              natural disasters such as
      hurricane, flooding, earthquake, acts of
  God.
 
 Since
we have not paid any dividends on our common stock and do not intend to do so in
the future, a purchaser of our common stock will only realize a gain on their
investment if the market price of our common stock increases.
 
 We have
never paid, and do not intend to pay, any cash dividends on our common stock for
the foreseeable future. The payment of cash dividends in the future, if any,
will be at the discretion of our board of directors and will depend upon such
factors as restrictions contained in future financing facilities, earnings
levels, capital requirements, our overall financial condition, and any other
factors deemed relevant by our board of directors. A purchaser of our common
stock, in all likelihood, will only realize a profit on their investment if the
market price of our common stock increases in value.
 
 Sales
of substantial amounts of our common stock in the public market could harm the
market price of our common stock.
 
 The sale
of substantial amounts of our shares (including shares issuable upon exercise of
outstanding options and warrants to purchase our common stock) may cause
substantial fluctuations in the price of our common stock.  Because
investors may be more reluctant to purchase shares of our common or preferred
stock following substantial sales or issuances, the sale of shares in an
offering could impair our ability to raise capital in the near
term.
 
 Your
percentage ownership in us may be diluted by future issuances of capital stock,
which could reduce your influence over matters on which stockholders
vote.
 
 Our board
of directors has the authority, without action or vote of our stockholders, to
issue all or any part of our authorized but unissued shares of common stock,
including shares issuable upon the exercise of options or under equity based
incentive plans, or shares of our authorized but unissued preferred stock.
Issuances of common stock or voting preferred stock would reduce your influence
over matters on which our stockholders vote, and, in the case of issuances of
preferred stock, likely would result in your interest in us being subject to the
prior rights of holders of that preferred stock.
 
 Item
1B.  Unresolved Staff Comments
 
 None.
 
 Item
2. Properties
 
 Information
on Oil and Gas Properties is included in Item 1. Business above in
this Annual Report on Form 10-K.
 
 In March
2010, our executive and administrative offices moved from One Sugar Creek
Center Blvd., #125, Sugar Land, Texas, 77478 to our current location
at 12012 Wickchester Lane, Suite 475, Houston, Texas 77079 where
we lease 11,648 square feet of space pursuant to a lease agreement with a
60 month term.
 
 The new
lease agreement is for 60 months beginning on March 1, 2010, the date the
Company took possession of the property.  We are obligated to make the
following base rental payments: (i) $0.00 per month during months 1 – 9; (ii)
$17,472 per month during months 10 – 12; (iii) $17,957 per month during months
13 – 24; (iv) $19,413 per month during months 25 – 36; (v) $21,354 per month
during months 37 – 48; and (vi) $24,266 per month during months 49 –
60.
  14
 
 In
addition to the base rent, we are also responsible for the pro-rata share
(10.664%) of excess operating expenses in connection with the property. We also
paid a security deposit of $50,000 at the time of execution of the new lease
agreement of which $35,000 is expected to be refunded at the end of February
2012, subject to certain conditions.
 
 Item 3. Legal
Proceedings
 
 Wellington,
LLC.
 
 On April
9, 2001, we were named as a defendant in a lawsuit styled Wellington, LLC vs.
Hyperdynamics Corporation et al. Civil Action# 18811-NC, The Court of Chancery
of Delaware.
 
 The
Plaintiff claims that we did not carry out conversion of Series A preferred
stock to common stock. On August 9, 2002 Plaintiff, Defendant, and their
respective counsels executed an “Agreement for Transfer of Claims in Delaware
Action to Georgia.” Subsequently, the lawsuit was moved in its entirety to
Atlanta, Georgia to be litigated under the lawsuit discussed below. Under the
agreement, the Plaintiff in the Delaware action, Wellington, LLC. would become
the Defendant in Atlanta. During the fiscal year ended June 30, 2004, the Court
of Chancery of Delaware dismissed the Delaware case.
 
 On
November 5, 2001, we filed a lawsuit styled Hyperdynamics Corporation,
Plaintiff, v. J.P. Carey Securities, Inc., J.P. Carey Asset Management LLC,
Joseph C. Canouse, John C. Canouse, James P. Canouse, Jeffrey Canouse,
Southridge Capital Management LLC, Stephen Hicks a/k/a Steve Hicks, Thomson
Kernaghan & Co., Limited, Mark Valentine, Talya Davies, Cache Capital
(United States), L.P., Carpe Diem, Carpe Diem LTD., Wellington, LLC, Minglewood
Capital, LLC, Falcon Securities, LTD, Navigator Management LTD., David Sims, and
Citco Trustees (Cayman) Limited, Defendants; and Wellington LLC,
Counterclaim/Third-Party Plaintiff, v. Hyperdynamics Corporation, a Delaware
corporation, Kent Watts, Michael Watts, Robert Hill, Harry J. Briers, DJX, Ltd.,
a Belize corporation, and Does 1-10, Counterclaim/Third-Party Defendants, Civil
Action File No. 2001CV44988, In The Superior Court of Fulton County, State of
Georgia.
 
 We filed
our First Amended Complaint against Defendants on September 12, 2002 in which we
presented thirteen counts for Causes of Action against defendants including
“Violations of Georgia Racketeer Influenced and Corrupt Organizations” (RICO)
Act (O.C.G.A. SS 16-14-1, ET SEO).
 
 We
believe that more than one of the Defendants worked together to create the
appearance of providing initial long term financing ($3,000,000) and additional
financing commitments (up to additional $5,000,000), all from reputable sources,
while the Defendants' real plan was to manipulate our stock through
contractually prohibited short selling and multiple breaches of the
contractually agreed to selling covenants.
 
 We are
subject to counterclaims in this Georgia litigation. The counterclaimants allege
that Hyperdynamics and its Officers and Directors breached their fiduciary
duties to shareholders and committed other tortuous acts. We intend to continue
to vigorously pursue damages and defend all counterclaims. Discovery is being
primarily focused on jurisdictional issues at this time. During the litigation
we have made numerous claims of discovery abuse resulting in certain defendants
and defense attorneys involved being sanctioned by the court. They have filed
for sanctions against us as well. The court dismissed all non-Georgia
defendants. We have filed a notice of appeal of that ruling.
 
 The
Georgia Court of Appeals rejected our appeal of the trial court’s order
dismissing the non-Georgia defendants because it was not a “final order,” though
it was in effect as to the dismissed defendants. The Court of Appeals’ action
returned the case to the trial court where a Motion for Reconsideration was
filed due to a dramatic change in the law of personal jurisdiction in Georgia.
(See Innovative Clinical & Consulting v. First National Bank of Ames, 279
Ga. 672 (2005).) The Georgia Court of Appeals reversed the trial court in July,
2010 and held that jurisdiction existed. The defendants affected by this ruling
have sought review by the Georgia Supreme Court.  We have determined
that the possibility of loss is remote and has not recorded a potential
liability.
 
 Raymond Thomas et al v.
Ashley Investment et al and Wilburn L. Atkins and Malcolm L. Mason Jr. vs. BP
America Production et al
 
 Trendsetter
Production Company was named in two separate lawsuits, Raymond Thomas et al v.
Ashley Investment et al and Wilburn L. Atkins and Malcolm L. Mason Jr. vs. BP
America Production et al, Nos. 38,839 and 41,913-B, respectively, “C”,
5th  Judicial District Court, Parish of Richland, State of Louisiana.
These cases are environmental cleanup cases involving wells operated by
Trendsetter prior to our acquisition of the company. These cases are in the
early discovery stage and our attorneys are developing strategies to defend the
suits. We believe losses from these cases are possible; however, the loss or
range of loss cannot be reasonably estimated.
 
 Item
4. Submission of Matters to a Vote of Securities Holders
 
 None.
  15
 
 PART
II
 
 Item 5. Market for Registrant’s
Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
 
 Price
Range of Common Stock
 
 Our
common stock is traded on the NYSE Amex (formerly known as the American Stock
Exchange) under the trading symbol “HDY.” The following table sets forth the
quarterly high and low sales prices per share for our common stock, as reported
by the NYSE Amex.
 
 High
                        
                        
                        LowFiscal
      2010Fourth
      Quarter
                        
                        $
                        1.65
                        
                        
                        $
                        0.92Third
      Quarter
                        
                        
                        1.42
                        
                        
                        
                        0.65Second
      Quarter
                        
                        
                        1.85
                        
                        
                        
                        0.79First
      Quarter
                        
                        
                        1.92
                        
                        
                        
                        0.38Fiscal
      2009Fourth
      Quarter
                        
                        $
                        0.71
                        
                        
                        $
                        0.23Third
      Quarter
                        
                        
                        0.75
                        
                        
                        
                        0.27Second
      Quarter
                        
                        
                        1.25
                        
                        
                        
                        0.40First
      Quarter
                        
                        
                        1.95
                        
                        
                        
                        1.13
 
 September
23, 2010, the last price for our common stock as reported by the NYSE Amex was
$1.94 per share. On September 23, 2010, there were approximately 222
stockholders of record of the common stock.
 
 Agreement
with Certain Stockholders
 
 On July
21, 2010, we entered into two agreements (the “Letter Agreements”) with certain
holders of our Common Stock in which an aggregate of 13,400,000 shares of Common
Stock and Warrants to purchase an aggregate of 3,980,000 shares of Common Stock
that are owned by the holders (the shares of Common Stock and shares of Common
Stock underlying the Warrants are collectively referred to as the “Securities”)
will be subject to certain lock-up restrictions.  The holders have
agreed that, during the period beginning on July 21, 2010, and ending nine
months later on April 21, 2011 (the “Restriction Period”), except under certain
circumstances discussed below and identified in the Letter Agreements, without
our written consent, they will not (i) sell, offer to sell, contract to agree to
sell, hypothecate, hedge, pledge, grant any option to purchase, make any short
sale or otherwise dispose of or agree to dispose of, directly or indirectly, any
of the 13,400,000 shares of Common Stock held by them or the 3,980,000 shares
that may be acquired pursuant to exercise of the Warrants, or any of the
3,980,000 Warrants or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of any of these Securities, whether any such transaction is to be
settled by delivery of such Securities, in cash or otherwise.  During
the Restriction Period (i) 15 percent of the locked-up shares will be released
from the lock-up if the stock price reaches $3 a share for five consecutive
trading days, (ii) 50 percent will be released if the price reaches $5 a share
for five days, and (iii) 100 percent will be released if the stock price reaches
$9 a share for the same period.  Under the terms of the Letter
Agreements, the holders also agreed to donate an aggregate of 2,000,000 shares
of Common Stock and Warrants to purchase an aggregate of 1,000,000 shares of
Common Stock to the American Friends of Guinea, a charitable organization with
which the Company is working to provide support to the people of
Guinea.  The agreement entered into between the Company and the
holders dated September 29, 2009 is terminated under the terms of the Letter
Agreements.
 
 Dividends
 
 We have
not paid, and we do not currently intend to pay in the foreseeable future, cash
dividends on our common stock. The current policy of our Board of Directors is
to retain all earnings, if any, to provide funds for operation and expansion of
our business. The declaration of dividends, if any, will be subject to the
discretion of the Board of Directors, which may consider such factors as our
results of operations, financial condition, capital needs and acquisition
strategy, among others.
  16
 
 Equity
Compensation Plan Information
 
 The
following table gives aggregate information under all equity compensation plans
of Hyperdynamics as of June 30, 2010.
 
 Equity Compensation Plan InformationPlan Category
                        
                        Number of Securities
                          to be Issued Upon
                          Exercise of
                          Outstanding Options,
                          Warrants, and Rights
                        
                        
                        Weighted-Average
                          Exercise Price of
                          Outstanding Options,
                          Warrants and Rights
                        
                        
                        Number of Securities
                          Remaining Available
                          for Future Issuance
                          Under Equity
                          Compensation Plans
                          (Excluding Securities
                          Reflected in Column
                          (A)A
                        
                        
                        B
                        
                        
                        CEquity
      compensation plans approved by security holders
                        
                        
                        7,948,760
                        
                        
                        $
                        0.91
                        
                        
                        
                        3,851,000Equity
      compensation plans not approved by security holders
                        
                        
                        N/A
                        
                        
                        
                        N/A
                        
                        
                        
                        N/ATotal
                        
                        
                        7,948,760
                        
                        
                        $
                        0.91
                        
                        
                        
                        3,851,000
 
 The Stock
and Stock Option Plan (the “1997 Plan”) of Hyperdynamics was adopted May 7, 1997
and amended on December 3, 2001, on January 21, 2005, and on February 20,
2008.  The total number of shares authorized under the Plan, as
amended, was 14,000,000. The Board terminated the 1997 Plan effective upon
approval of the 2010 Plan by our stockholders as discussed below.
 
 Our 2008
Restricted Stock Award Plan (the “2008 Plan”) was adopted on February 20,
2008.  The total number of shares authorized under the 2008 Plan was
3,000,000.  The Board terminated the 2008 Plan effective upon approval of
the 2010 Plan by our stockholders as discussed below.
 
 On
February 18, 2010, at our annual meeting of stockholders, we adopted the 2010
Equity Incentive Plan (the “2010 Plan”). In conjunction with the approval of the
2010 Plan at the annual meeting, the 1997 Plan and 2008 Plan were terminated as
of February 18, 2010. The 2010 Plan provides for the grants of shares of common
stock or incentive stock options and/or nonqualified stock options to purchase
our common stock or restricted stock to selected employees, directors, officers,
agents, consultants, attorneys, vendors and advisors of ours’ or of any parent
or subsidiary thereof. Shares of common stock, options, or restricted stock can
only be granted under this plan within 10 years from the effective date of
February 18, 2010. A maximum of 5,000,000 shares are issuable under the 2010
Plan.
 
 The 2010
Plan provides a means to attract and retain the services of participants and
also to provide added incentive to such persons by encouraging stock ownership
in the Company. Plan grants are administered by the Compensation Committee,
which has substantial discretion to determine which recipients, amounts, time,
price, exercise terms and restrictions, if any.
 
 The
following table provides a reconciliation of the securities remaining available
for issuance as of June 30, 2010 under the Plans.
 
 1997 Plan
                  
                  
                  2008 Plan
                  
                  
                  2010 Plan
                  
                  
                  All PlansShares
      available for issuance, June 30, 2009
                  
                  
                  11,568,870
                  
                  
                  
                  3,000,000
                  
                  
                  
                  -
                  
                  
                  
                  14,568,870Increase
      in shares issuable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,000,000
                  
                  
                  
                  5,000,000Shares
      issued
                  
                  
                  (6,365,000
                  )
                  
                  
                  -
                  
                  
                  
                  (1,149,000
                  )
                  
                  
                  (7,514,000
                  )Previously
      issued shares cancelled or expired
                  
                  
                  1,564,947
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,564,947Plan
      termination of remaining unissued shares
                  
                  
                  (6,768,817
                  )
                  
                  
                  (3,000,000
                  )
                  
                  
                  -
                  
                  
                  
                  (9,768,817
                  )Shares
      available for issuance, June 30, 2010
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,851,000
                  
                  
                  
                  3,851,000
 
 The
purpose of the Plans are to further our interest, and the interest of our
subsidiaries and our stockholders by providing incentives in the form of stock
or stock options to key employees, consultants, directors, and vendors who
contribute materially to our success and profitability. We believe that our
future success will depend in part on our continued ability to attract and
retain highly qualified personnel as employees, independent consultants,
and directors. The issuance of stock and grants of options and warrants
will recognize and reward outstanding individual performances and contributions
and will give such persons a proprietary interest in us, thus enhancing their
personal interest in our continued success and progress. We pay wages, salaries,
and consulting rates that we believe are competitive. We use the 2010 Plan to
augment our compensation packages.
 
 Item
6 Selected Financial Data
 
 Not
applicable.
  17
 
 Item
7 Management’s Discussion and Analysis of Financial Condition and Results of
Operations
 
 CAUTIONARY
STATEMENT ON FORWARD-LOOKING INFORMATION
 
 We are
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 us, or on our
behalf.  This Annual Report on Form 10-K 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.  Our expectations,
beliefs and projections are expressed in good faith and are believed by us to
have a reasonable basis, including without limitations, management's examination
of historical operating trends, data contained in our 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 and the risks discussed in Item 1A.  Risk
Factors, the following are important factors that, in our view, could
cause actual results to differ materially from those discussed in the
forward-looking statements: geopolitical instability where we operate; the
availability of additional financing and, if available, on terms and conditions
acceptable to us; our ability to meet our substantial capital needs; our ability
to raise sufficient capital and/or enter into one or more strategic
relationships with one or more industry partners to execute our business plan;
the ability of the government of Guinea to renegotiate the agreements that
govern our oil and gas exploration rights off the coast of Guinea; our ability
and success in finding, developing and acquiring oil and gas reserves; our
ability to respond to changes in the oil exploration and production environment,
competition, and the availability of personnel in the future to support our
activities.
 
 Overview
 
 Our
corporate mission is to provide energy for the future by exploring for,
developing new, and re-establishing pre-existing sources of energy
worldwide.  We are currently exploring for oil and gas offshore
Guinea, West Africa.
 
 We devote
a substantial portion of our efforts to obtaining additional PSC participants to
help fund our exploration and development of sub-surface hydrocarbons in
commercial quantities offshore Guinea.   We intend to continue
acquiring, exploring and developing oil and gas properties on a global
basis.  At this time we have no source of operating revenue and there
is no assurance when we will, if ever.  We have limited cash and
require substantial additional funds to fulfill our business plans.
 
 Our
operating plan within the next 12 months includes the following:
  ·  Obtaining
funds and completing technical work and planning with Dana and prospective
participants in our concession to drill offshore Guinea in late
2011.
  ·  Acquiring,
processing and interpreting the 3D seismic survey which began in August 2010.
This will allow for identification of one or more proposed drilling
locations.
  ·  Adding
one or more additional PSC participants to operate and help fund our search for
oil and gas deposits on our Guinea Concession. We expect that adding a PSC
participant will include the assignment of a portion of our interest in the
Concession to such participant.
  Assignment
of Participating Interest
 
 On
December 4, 2009, we entered into a Sale and Purchase Agreement (“SPA”) with
Dana Petroleum (E&P) Limited (“Dana”) for Dana to acquire a 23%
participation interest in the PSC.  On January 28, 2010, the Company
closed on the transaction with Dana assigning it a minority interest in our
Concession offshore Guinea.  In connection with the closing of the
transaction, we entered into an Assignment of Participating Interest (the
“Assignment”) with Dana, a Deed of Assignment and Joint Operating Agreement
(JOA).  Pursuant to the Assignment, we assigned to Dana an undivided
23% of our participating interest in the contractual interests, rights,
obligations and duties under the PSC.  As required by the PSC, the
Deed of Assignment was delivered as the necessary notice of the Assignment to be
given to the Ministry of Mines, Energy and Hydraulics of Guinea.
 
 As part
of the obligation to bear the proportionate share of costs, the SPA required
Dana to make a cash payment to us upon closing the assignment of the 23%
participating interest to Dana in the amount of $ 1.7 million for Dana’s
pro-rata portion of accrued expenditures associated with our marine 2D seismic
data acquisition program within the Contract Area.  The $1.7 million
payment was received by us on February 4, 2010 and was recorded as a reduction
in the carrying value of our Concession.
 
 The
Operating Agreement appoints us as the operator for purposes of conducting oil
and gas exploration and production activities within the retained Contract
Area.  We share operating costs of joint operations with Dana in
proportion to the parties’ respective participating interests (Hyperdynamics,
77%; Dana, 23%). An operating committee and voting procedures are established in
the JOA whereby managerial and technical representatives of the Company and Dana
make decisions regarding joint operations, exploration and appraisal of
commercial discoveries, and the disposition of commercial
production.  The JOA places restrictions upon the transfer of the
parties’ respective participating interests in the form of a right of first
purchase that is triggered by a proposed transfer or certain changes in control
of us or Dana.
  18
 
 In May
2010, we received an administrative order from the Ministry of Mines and Geology
of Guinea, referred to as an arrêté, confirming the Guinea government’s approval
of the assignment of a 23% participating interest in the PSC, as amended, to
Dana.  On May 20, 2010, we received a payment of $19.6 million in cash
from Dana, which was recorded as a reduction in the carrying value of our Guinea
Concession, as payment for the assigned 23% participating interest in the
contractual interests, rights, obligations and duties under the PSC, as
amended.
 
 Repsol
Letter of Intent
 
 On
January 29, 2010, we entered into an Amendment to the Agreement for Exclusive
Dealing and Letter of Intent (“Amended LOI”) with Repsol Exploracion, S.A.,
(“Repsol”).  This Amended LOI extended the term of the Agreement for
Exclusive Dealing and Letter of Intent (“Original LOI”) that was entered into
between the parties on November 26, 2009, from January 31, 2010 until March 11,
2010, which date has not been further extended.  The Original LOI
contemplated the prospective acquisition by Repsol of an undivided 37%
participation interest in our concession off the coast of Guinea.
 
 Under the
provisions of the Original LOI, Repsol committed to make certain seismic
acquisition payments to us upon the closing of the assignment of a 37%
participation interest in the Concession.  Under and for the
consideration of the Amended LOI, Repsol paid $2.7 million to us, representing
Repsol’s pro-rata share of work preformed to date under the Marine 2D Seismic
Data Acquisition Services Agreement with Bergen Oilfield Services (“BOS
Agreement”).  The $2.7 million payment was received by us on February
11, 2010. In addition, following our delivery of an invoice to Repsol for
subsequent work performed under the BOS Agreement, Repsol paid its pro-rata
share of such invoice, which was approximately $1.0 million.  These
payments totaling $3.0 million, which also represented the consideration paid by
Repsol for extending the LOI to March 11, 2010, were recorded as a reduction in
the carrying value of our Guinea concession. Under the LOI we were not required
to reimburse any payments to Repsol upon the LOI expiry on March 11, 2010 and
Repsol has no continuing rights to acquire a participation
interest.
 
 Sources
of financing during the year ended June 30, 2010
 
 On
November 12, 2009, we entered into a Shares Purchase Agreement with Enable
Growth Partners, L.P. (“Enable”), which then held certain securities that were
previously issued by us.  Pursuant to the Shares Purchase Agreement,
we issued to Enable 1,578,948 shares of our common stock.  The
aggregate net proceeds from the offering, after deducting offering expenses
payable by us, were approximately $1.5 million.  The offering closed
on November 17, 2009.
 
 On
December 3, 2009, we entered into a Securities Purchase Agreement pursuant to
which we sold an aggregate of 7,222,223 shares of our common stock, together
with warrants to purchase a total of 3.3 million shares of common stock to
institutional investors for gross proceeds of approximately $6.5 million.
 The net proceeds to us from the offering, after deducting placement agent
fees and our offering expenses, were approximately $6.0 million.  The
offering closed on December 7, 2009.
 
 On April
20, 2010, we entered into a Securities Purchase Agreement pursuant to which we
agreed to sell an aggregate of 8,076,925 shares of its common stock,
together with warrants to purchase a total of 2,826,923 shares of common
stock to institutional investors for gross proceeds of approximately $10.5
million. The net proceeds to us from the offering, after deducting placement
agent fees and our offering expenses, were approximately $9.7 million.  The
offering closed on April 23, 2010.
  Upon
obtaining the Republic of Guinea Presidential decree for the PSC Amendment and
an arrête in May 2010 that officially allowed Dana Petroleum to participate in
the PSC, Dana paid us an additional purchase price of $19.6 million in cash and
assumed its 23% share of costs for all operations. Dana paid their 23% share of
the completed Bergen Oilfield Services 2D Seismic program.
  On
January 29, 2010, we extended the terms of the LOI with Repsol until March 11,
2010. As consideration for extending the LOI, Repsol paid us $3.7 million for
their pro rata share of work performed to date and planned work on our 2D
seismic program.
  In
February and March 2010, Enable exercised 4,646,465 warrants at $0.95 per
warrant, resulting in proceeds to us of approximately $4.4 million.
  Analysis
of changes in financial position
 
 Our
current assets increased by $24,838,000, from $1,557,000 on June 30, 2009 to
$26,395,000 on June 30, 2010.  The most significant factor in the
increase is our cash account, which increased from $1,360,000 at June 30, 2009,
to $26,040,000 at June 30, 2010, due to the sources of financing as described
above.
  19
  Our
long-term assets decreased 90%, or $7,058,000, from $7,883,000 on June 30, 2009,
to $825,000 on June 30, 2010.  This decrease was primarily the result
of a reduction in the carrying value of our unevaluated oil and gas properties
in Guinea resulting from the assignment of a 23% participation interest to Dana.
Upon receipt of the $19.6 million from Dana in May 2010, we reduced our
investment in unevaluated oil and gas properties in Guinea to zero, with the
remainder of the proceeds being recorded as a gain on the sale of this
participation interest. Therefore our investment in unevaluated oil and gas
properties in Guinea as of June 30, 2010 was $92,000 which represents
capitalized costs incurred in June 2010.  On May 20, 2010, SCS the
wholly-owned subsidiary of the Company, entered into a Release and Settlement
Agreement and Amendment to Contract (the “Settlement Agreement”) with
Geophysical Service Inc. (“GSI”).  Pursuant to the Settlement
Agreement we paid GSI $3,000,000 in cash on May 24, 2010.  In
settlement of a dispute between the parties that arose from the 2008 Master
Geophysical Data Acquisition Agreement between SCS and GSI (“MGDA
Agreement”).  Pursuant to the Settlement Agreement, the parties
terminated the MGDA Agreement and also granted mutual releases to one another
concerning further payments and disputes arising from or related to the services
provided by GSI to SCS under the MGDA Agreement.
 
 Our
current liabilities increased 46%, or $1,590,000, from $3,451,000 on June 30,
2009 to $5,041,000 on June 30, 2010.  The main factor in the increase
is accounts payable and accrued expenses, which increased from $803,000 at June
30, 2009, to $3,859,000 at June 30, 2010.  Accounts payable at June
30, 2010, included amounts payable related primarily to our investments in our
Guinea Concession, increased corporate activities and accrued employee bonus
expense.  The increases in accounts payable were partially offset by a
decrease in the variable share issuance obligation and dividends payable as
these two liabilities totaling $987,000 were settled in 2010.
 
 Our
long-term liabilities decreased 62%, from $1,735,000 as of June 30, 2009, to
$653,000 as of June 30, 2010, due primarily to the $1,661,000 of long-term debt
that was on the balance sheet as of June 30, 2009 being paid or converted into
common shares during 2010. This debt related to the sale of $5,000,000 in
convertible debentures in September 2008.
 
 Results of
Operations
 
 Based on
the factors discussed below for our international segment, discontinued
operations and for corporate overhead, the net loss attributable to common
shareholders for the year ended June 30, 2010, decreased $874,000, or 10%, to a
net loss of $8,009,000, or $0.09 per share in the 2010 period from a net loss of
$8,883,000, or $0.15 per share in the 2009 period.  The net loss is
comprised of the net loss from operations for our corporate office of
$8,270,000, the net loss of SCS of $504,000 and income from discontinued
operations of $765,000.  The net loss attributable to common
shareholders includes a provision for preferred stock dividends of $97,000 in
2009.
 
 Reportable
segments
 
 We have
one reportable segment: our international operations in Guinea conducted
through our subsidiary SCS. SCS is engaged in oil and gas exploration activities
pertaining to offshore Guinea. During the year ended June 30, 2009, our
domestic operations were discontinued, and as of August 2009, all the assets
associated with HYD, which was our domestic subsidiary that held certain
properties located in Louisiana, have been sold.
 
 Results of
Operations
 
 Comparison
for Fiscal Year 2010 and 2009
 
 Revenues.  There
were no revenues for the years ended June 30, 2010 and 2009.   We
have focused on the acquisition and interpretation of seismic data for our
concession in Guinea.
 
 Depreciation.  Depreciation
increased 16%, or $22,000 due to additional depreciation associated with assets
placed in service in 2010. Depreciation expense was $156,000 and $134,000 in the
years ended June 30, 2010 and 2009, respectively.
 
 Selling, General and
Administrative Expenses. Our selling, general and administrative
expenses were $10,847,000 and $5,949,000 for the years ended June 30, 2010 and
2009, respectively. This represents an increase of 82%, or $4,898,000. The
increase was primarily employee related costs, which include salaries, bonuses
and stock based compensation related to options granted to new employees and
others.
 
 Other income
(expense).  Other income (expense) totaled $2,229,000 and
($3,109,000) for the years ended June 30, 2010 and 2009,
respectively.  During the 2010 period, the Company recognized a
$2,955,000 gain on sale of a participation interest in unevaluated oil and gas
properties resulting from the 23% participation interest in our Guinea
concession being assigned to Dana Petroleum. This gain was recognized in May
2010 and represented the excess of the $19.6 million proceeds received over the
amount of our investment in Guinea as of that date. Also in 2010, the Company
recognized a non-cash gain on the derivative liability related to the YA Global
warrants of $279,000, $327,000 of which was unrealized gain on the change in
fair value of the liability and $48,000 loss which was related to the exercise
of warrants classified as derivative liabilities. No such gains were recognized
in the 2009 period.  Interest expense was ($707,000) for the 2010
period, versus ($2,530,000) for the 2009 period.  The higher interest
expense in the 2009 was primarily attributable to the early conversion of
convertible debentures outstanding during the period and the expensing of the
associated debt discount.  During the 2010 period, the Company
recognized a loss on extinguishment of the remaining convertible debenture
balance of ($298,000), primarily attributable to the expensing of the remaining
discount associated with these debentures, versus a loss of ($579,000) in the
2009 period, primarily attributable to the early extinguishment of the YA Global
debenture that resulted in a loss of ($635,000), partially offset by a gain on
settlement of a debt obligation for less than the accrued
amount.
  20
 
 Loss from Continuing
Operations.  Based on the items discussed above, our loss from
continuing operations decreased by 5%, or $418,000, from $9,192,000 in the year
ended June 30, 2009 to $8,774,000 for the year ended June 30, 2010.
 
 Discontinued Operations.Discontinued operations generated income of $765,000 for the 2010 period
and income of $406,000 for the 2009 period.
 
 Liquidity
and Capital Resources
 
 Going
Concern Considerations
 
 The
report of our independent registered public accounting firm on the consolidated
financial statements for the year ended June 30, 2010 includes an explanatory
paragraph relating to our ability to continue as a going concern.  We
have incurred a cumulative net loss of $75.6 million for the period from
inception to June 30, 2010.  As of June 30, 2010, we had cash on hand
of $26.0 million, short term debt of $0.2 million and we have working capital of
approximately $21.4 million.  Most of our cash on hand is secured by a
$21.0 million letter of credit that will be used to fund the PGS 3D seismic
acquisition and processing that is currently in progress.  We require
significant additional funding to sustain our current operations and further our
business plan.  Our ability to continue as a going concern is
dependent upon our ability to obtain additional funding in order to finance our
planned operations.  We have historically been able to raise capital
from the sale of a minority interest in the Concession, and the issuance of
debt or equity to finance our activities.  Capital may not be
available on the terms and conditions acceptable to us or at all.
 
 Our plan
to resolve the uncertainty about our ability to continue as a going concern
includes monetization of our oil and gas exploration assets by attracting
additional participants in the exploration of the Concession.  We
expect that entering into additional partnering relationships would entail
transferring a portion of our interest in the Concession to such
participant.  If we are unable to timely conclude a transaction
involving the Concession, we may seek equity or debt financing.
 
 Liquidity
 
 On June
30, 2010, we had $26,040,000 in cash and $5,694,000 in liabilities. The
liabilities include current liabilities of $5,041,000 and long-term liabilities
of $653,000.  Net cash used in operating activities for continuing
operations for the year ended June 30, 2010 was $6,888,000 compared to
$5,108,000 for the year ended June 30, 2009. Cash provided by investing
activities for continuing operations for the year ended June 30, 2010 was
$10,309,000 compared to $200,000 used by investing activities in the year ended
June 30, 2009.  There was net cash provided by financing activities
for the year ended June 30, 2010 of $20,454,000 while net cash of $2,282,000 was
provided by financing activities during the year ended June 30,
2009.
 
 Liquidity
Effects of Discontinued Operations
 
 On April
1, 2009, we executed a contract to sell all of our working interests in our U.S.
domestic oil and gas properties for $2,670,000.  The third and final
installment under the agreement was completed in August 2009.  The
cash flows from discontinued operations are separately reported in the audited
Consolidated Statements of Cash Flows for all periods
presented.  While this transaction improved our short term liquidity,
it also eliminated our sole revenue source.  Accordingly, the
liquidity implication of the discontinued operations is that we will require
additional funding from debt or equity sources or from an additional participant
in the Guinea concession in order to continue operations.
 
 CRITICAL
ACCOUNTING POLICIES
 
 We
account for oil and natural gas producing activities using the full cost method
of accounting as prescribed by the United States Securities and Exchange
Commission (SEC). Accordingly, all costs incurred in the acquisition,
exploration, and development of proved oil and natural gas properties, including
the costs of abandoned properties, dry holes, geophysical costs, and annual
lease rentals are capitalized. All general and administrative corporate
costs unrelated to drilling activities are expensed as incurred. Sales or
other dispositions of oil and natural gas properties are accounted for as
adjustments to capitalized costs, with no gain or loss recorded unless the ratio
of cost to proved reserves would significantly change, or to the extent that the
sale proceeds exceed our capitalized costs. Depletion of evaluated oil and
natural gas properties is computed on the units of production method based on
proved reserves. The net capitalized costs of proved oil and natural gas
properties are subject to a full cost ceiling limitation in which the costs are
not allowed to exceed their related estimated future net revenues discounted at
10%, net of tax considerations. In accordance with SEC release 33-8995, prices
based on the preceding 12-months’ average price based on closing prices on the
first day of each month, or prices defined by existing contractual arrangements,
are used in deriving future net revenues discounted at 10%, net of tax. The
application of the full cost method of accounting for oil and gas properties
generally results in higher capitalized costs and higher depreciation, depletion
and amortization rates compared to the successful efforts method of accounting
for oil and gas properties.
  21
 
 Costs
Excluded
 
 Costs
associated with unevaluated properties are excluded from the full cost pool
until we have made a determination as to the existence of proved reserves. We
review our unevaluated properties at the end of each quarter to determine
whether the costs incurred should be transferred to the full cost pool and
thereby subject to amortization.
 
 We assess
all items classified as unevaluated property on a quarterly basis for possible
impairment or reduction in value. We assess properties on an individual basis or
as a group if properties are individually insignificant. The assessment includes
consideration of the following factors, among others: intent to drill; remaining
lease term; geological and geophysical evaluations; drilling results and
activity; the assignment of proved reserves; and the economic viability of
development if proved reserves are assigned. We assess our unevaluated
properties on a country-by-country basis. During any period in which these
factors indicate an impairment, the cumulative drilling costs incurred to date
for such property and all or a portion of the associated leasehold costs are
transferred to the full cost pool and are then subject to amortization. However,
if proved reserves have not yet been established in a full cost pool, these
costs are charged against earnings. For international operations where a reserve
base has not yet been established, an impairment requiring a charge to earnings
may be indicated through evaluation of drilling results, relinquishing drilling
rights or other information.
 
 Ceiling
Test
 
 The full
cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule
4-10. Under full cost accounting rules for each cost center, capitalized costs
of proved properties, less accumulated amortization and related deferred income
taxes, shall not exceed an amount (the "cost ceiling") equal to the sum of (a)
the present value of future net cash flows from estimated production of proved
oil and gas reserves, based on current operating conditions, discounted at 10
percent, plus (b) the cost of properties not being amortized, plus (c) the lower
of cost or estimated fair value of any unproved properties included in the costs
being amortized, less (d) any income tax effects related to differences between
the book and tax basis of the properties involved. If capitalized costs exceed
this limit, the excess is charged as an impairment expense. As of June 30, 2010
and 2009, we have no capitalized cost in oil and gas properties that are subject
to the ceiling test for impairment.
 
 Impairment
 
 At June,
30, 2010, we had $92,000 of capitalized costs associated with our Guinea
operations. Based on an impairment analysis performed by management and the
completion of work requirements under the PSC Amendment No. 1 and MOU, no
impairment of these assets was indicated as of June 30, 2010.
 
 Environmental
Obligations and Other Contingencies
 
 Management
makes judgments and estimates in accordance with applicable accounting rules
when it establishes reserves for environmental remediation, litigation and other
contingent matters. Provisions for such matters are charged to expense when it
is probable that a liability has been incurred and reasonable estimates of the
liability can be made. Estimates of environmental liabilities are based on a
variety of matters, including, but not limited to, the stage of investigation,
the stage of the remedial design, evaluation of existing remediation
technologies, and presently enacted laws and regulations. In future periods, a
number of factors could significantly change our estimate of environmental
remediation costs, such as changes in laws and regulations, or changes in their
interpretation or administration, revisions to the remedial design,
unanticipated construction problems, identification of additional areas or
volumes of contaminated soil and groundwater, and changes in costs of labor,
equipment and technology. Consequently, it is not possible for management to
reliably estimate the amount and timing of all future expenditures related to
environmental or other contingent matters and actual costs may vary
significantly from our estimates.
 
 Asset
Retirement Obligations
 
 Our asset
retirement obligations represent our best estimate of the fair value of our
future abandonment costs associated with our oil and gas properties, including
the costs of removal and disposition of tangible equipment, site and
environmental restoration. We estimate the fair value of our retirement costs in
the period in which the liability is incurred, if a reasonable estimate can be
made. The determination of the fair value of an asset retirement obligation
generally involves estimating the fair value of the obligation at the end of the
property's useful life and then discounting it to present value using our credit
adjusted, risk free rate of return. Estimating future asset removal costs is
difficult and requires management to make estimates and judgments regarding the
expected removal and site restoration costs, timing and present value discount
rates. Changes in the estimated useful life and the fair value of the asset
retirement obligation are imprecise since the removal activities will generally
occur several years in the future and asset removal technologies and costs are
constantly changing, as are political, environmental and safety considerations
that may ultimately impact the amount of the obligations.
 
 Fair
Value of our debt and equity transactions
 
 Many of
our various debt and equity transactions require us to determine the fair value
of a debt or equity instrument in order to properly record the transaction in
our financial statements. Fair value is generally determined by applying widely
acceptable valuation models, (e.g., the Black Scholes and binomial lattice
valuation models) using the trading price of the underlying instrument or by
comparison to instruments with comparable maturities and terms.
  22
 
 Share-Based
Compensation
 
 We follow
ASC 718 which requires recognition in the financial statements of the cost of
employee services received in exchange for an award of equity instruments over
the period the employee is required to perform the services in exchange for the
award (presumptively the vesting period). ASC 718 also requires measurement of
the cost of employee services received in exchange for an award based on the
grant-date fair value of the award. We account for non-employee share-based
awards based upon the provisions of ASC 505-50, “Equity-Based Payments to
Non-Employees.”
 
 Contractual
Commitments and Obligations
 
 We have a
contingent $350,000 note payable that is only payable with 25% of the profits of
SCS Corporation. We have the right to pay this note off using common
stock.
 
 
 Disclosure of Contractual Obligations as of June 30, 2010Payments due by period ($thousands)Contractual Obligations
                  
                  Total
                  
                  
                  Less than 1
                    year
                  
                  
                  1-3 years
                  
                  
                  3-5 years
                  
                  
                  More than 5
                    yearsInstallment
      Obligations
                  
                  $
                  160
                  
                  
                  $
                  160
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Operating
      Lease Obligations
                  
                  
                  1,048
                  
                  
                  
                  124
                  
                  
                  
                  462
                  
                  
                  
                  462
                  
                  
                  
                  -Seismic
      Contracts (1)
                  
                  
                  23,500
                  
                  
                  
                  23,500
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  24,708
                  
                  
                  $
                  23,784
                  
                  
                  $
                  462
                  
                  
                  $
                  462
                  
                  
                  $
                  -
 
 (1)
              The
      Company expects its share to be 77% of the seismic contract
      amounts.
 
 On June
11, 2010, we entered into an Agreement for the Supply of Marine Seismic Data
with PGS Geophysical AS, Norway (“PGS”) , a copy of which is included as an
exhibit to this report on Form 10-K. The overall cost of the survey is
estimated to be $21.0 million, including mobilization and demobilization
expenses.  We expect our share of the cost to be 77% of that amount.
Under the terms of the 3D Seismic Contract, we secured a Letter of Credit in the
amount of $21.0 million for the sole purpose of funding this seismic
acquisition. As work is performed and invoiced, PGS will submit draw documents
to the institution the letter of credit is with for payment of
invoices.
 
 The
Letter of Credit is through Amegy Bank N.A. and the Letter of Credit
Reimbursement Agreement was entered into on July 15, 2010. The Letter of Credit
is secured by a Certificate of Deposit, which was funded in the amount of $21.0
million on July 8, 2010 and bears interest at a rate of 0.25% per annum. We will
incur an issuance fee with respect to the Letter of Credit computed at the rate
of 0.0125% per annum on the daily average amount available to be drawn under the
Letter of Credit from and including the date of issuance until the stated expiry
date payable quarterly in arrears on the last business day of each calendar
quarter end commencing September 30, 2010. In addition, with respect to each
Draft paid, we will pay the bank a transaction fee in the amount of $125, an
advising fee in the amount of $150 and a swift fee in the amount of $75. A copy
of all the agreements pertaining to this Letter of Credit are included as
exhibits to this report on Form 10-K.
 
 On July
12, 2010, we entered into an Agreement for the processing of 3D Marine Seismic
Data with PGS Data Processing, Inc. Under the terms of this contract, PGS agreed
to provide data processing and other geophysical services in connection with the
processing of data acquired from our 3D seismic survey. The estimated cost
of this e 3D processing contract is approximately $2.5 million.  We
expect our share of the cost to be 77% of that amount. A copy of this contract
is included as an exhibit to this report on Form 10-K.
 
 Item 7A Quantitative and Qualitative
Disclosures About Market Risk
 
 Our
functional currency is the US dollar. We have some foreign currency exchange
rate risk resulting from our in-country office in Guinea. US dollars are
accepted in Guinea and many of our purchases and purchase obligations, such as
our office lease in Guinea, are denominated in US dollars. However, our costs
for labor, supplies, and fuel could increase if the Guinea Franc significantly
appreciates against the US dollar. We do not hedge the exposure to currency rate
changes.
 
 Item
8 Financial Statements and Supplementary Data
 
 The Financial Statements
and Supplementary Data information required hereunder is included in
this report as set forth in the "Index to Financial Statements" on page
F-1.
  23
  HYPERDYNAMICS
CORPORATION
 (An
Exploration Stage Company)
 Index to
Financial Statements
 
 TABLE
OF CONTENTS
 
 Report
      of Independent Registered Public Accounting Firm
                    
                    
                    F-2Consolidated
      Balance Sheets as of June 30, 2010 and 2009
                    
                    
                    F-3Consolidated
      Statements of Operations for the fiscal years ended June 30, 2010 and
      2009,and for the period from inception of exploration stage (July 1, 2009)
      through June 30, 2010
                    
                    
                    F-4Consolidated
      Statements of Shareholders' Equity for the fiscal years ended June 30,
      2010 and 2009
                    
                    
                    F-5Consolidated
      Statements of Cash Flows for the fiscal years ended June 30, 2010 and
      2009,and for the period from inception of exploration stage (July 1, 2009)
      through June 30, 2010
                    
                    
                    F-7Notes
      to Consolidated Financial Statements
                    
                    
                    F-9
  F-1
 
 REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and Shareholders of
 Hyperdynamics
Corporation
 (An
Exploration Stage Company)
 Houston,
Texas
 
 We have
audited the accompanying consolidated balance sheets of Hyperdynamics
Corporation (an Exploration Stage Company), as of June 30, 2010 and 2009,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the years ended June 30, 2010 and 2009, and for the period from
July 1, 2009 (inception of exploration stage) to June 30, 2010. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
 
 We
conducted our audits in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hyperdynamics
Corporation as of June 30, 2010 and 2009, and the results of their
operations and their cash flows for each of the two years then ended and for the
period from July 1, 2009 (inception of exploration stage) to June 30, 2010, in
conformity with accounting principles generally accepted in the United States of
America.
 
 The
accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company does not have revenues from
operations and has significant financial commitments in excess of current
capital resources, together which  raise substantial doubt about
its ability to continue as a going concern. Management’s plans in regard to
these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
 
 /s/ GBH CPAS, PCGBH
      CPAS, PCwww.gbhcpas.comHouston,
      TexasSeptember
      28, 2010
  F-2
  HYPERDYNAMICS
CORPORATION
 (An
Exploration Stage Company)
 CONSOLIDATED
BALANCE SHEETS
 (In
Thousands, Except Number of Shares and Per Share Amounts)
 June 30,2010
                    
                    
                    2009ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    26,040
                    
                    
                    $
                    1,360Accounts
      receivable – joint interest
                    
                    
                    150
                    
                    
                    
                    -Prepaid
      expenses and other current assets
                    
                    
                    205
                    
                    
                    
                    52Assets
      held for sale – Discontinued Operations
                    
                    
                    -
                    
                    
                    
                    145Total
      current assets
                    
                    
                    26,395
                    
                    
                    
                    1,557Property
      and equipment, net of accumulated depreciation of $445 and
      $339
                    
                    
                    664
                    
                    
                    
                    209Oil
      and gas properties:Unevaluated
      properties excluded from amortization
                    
                    
                    92
                    
                    
                    
                    7,663Deposits
                    
                    
                    69
                    
                    
                    
                    11Total
      assets
                    
                    $
                    27,220
                    
                    
                    $
                    9,440LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued expenses
                    
                    
                    3,859
                    
                    
                    
                    803Accounts
      payable - seismic data
                    
                    
                    650
                    
                    
                    
                    650Variable
      share issuance obligation
                    
                    
                    -
                    
                    
                    
                    553Dividends
      payable
                    
                    
                    372
                    
                    
                    
                    372Dividends
      payable to related party
                    
                    
                    -
                    
                    
                    
                    434Short-term
      notes payable and current portion of long-term debt, net of discount of $0
      and $134
                    
                    
                    160
                    
                    
                    
                    639Total
      current liabilities
                    
                    
                    5,041
                    
                    
                    
                    3,451Long-term
      debt, net of discount of $0 and $342
                    
                    
                    -
                    
                    
                    
                    1,661Liabilities
      related to assets held for sale - discontinued
      operations-noncurrent
                    
                    
                    -
                    
                    
                    
                    18Warrant
      derivative liability
                    
                    
                    583
                    
                    
                    
                    -Deferred
      rent
                    
                    
                    70
                    
                    
                    
                    56Total
      liabilities
                    
                    
                    5,694
                    
                    
                    
                    5,186Commitments
      and contingencies (Note 14)
                    
                    
                    -
                    
                    
                    
                    -Shareholders'
      equity:Convertible
      preferred stock, par value $0.001; stated value $1,000; 20,000,000
      authorizedSeries
      A – 3,000 shares issued and 1,945 shares outstanding
                    
                    
                    -
                    
                    
                    
                    -Series
      B - 2,725 shares issued and 0 and 2,406 shares outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $0.001 par value, 250,000,000 shares authorized; 104,227,199 and
      64,162,813 shares issued and outstanding
                    
                    
                    104
                    
                    
                    
                    64Additional
      paid-in capital
                    
                    
                    97,046
                    
                    
                    
                    71,805Accumulated
      deficit
                    
                    
                    (67,615
                    )
                    
                    
                    (67,615
                    )Deficit
      accumulated after reentering exploration stage
                    
                    
                    (8,009
                    )
                    
                    
                    -Total
      shareholders' equity
                    
                    
                    21,526
                    
                    
                    
                    4,254Total
      liabilities and shareholders' equity
                    
                    $
                    27,220
                    
                    
                    $
                    9,440
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-3
 
 HYPERDYNAMICS
CORPORATION
 (An
Exploration Stage Company)
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (In
Thousands, Except Number of Shares and Per Share Amounts)
 
 Year Ended June 30,
                      
                      
                      Inception of
                        Exploration
                        Stage (July 1,
                        2009) through
                        June 30,2010
                      
                      
                      2009
                      
                      
                      2010Costs
      and expenses:Depreciation
                      
                      $
                      156
                      
                      
                      $
                      134
                      
                      
                      $
                      156Selling,
      general and administrative
                      
                      
                      10,847
                      
                      
                      
                      5,949
                      
                      
                      
                      10,847Total
      costs and expenses
                      
                      
                      11,003
                      
                      
                      
                      6,083
                      
                      
                      
                      11,003Loss
      from operations
                      
                      
                      (11,003
                      )
                      
                      
                      (6,083
                      )
                      
                      
                      (11,003
                      )Other
      income (expense):Gain
      on sale of interest in unevaluated oil and gas properties
                      
                      
                      2,955
                      
                      
                      
                      -
                      
                      
                      
                      2,955Gain
      on warrant derivative liability
                      
                      
                      279
                      
                      
                      
                      -
                      
                      
                      
                      279Interest
      expense, net
                      
                      
                      (707
                      )
                      
                      
                      (2,530
                      )
                      
                      
                      (707
                      )Loss on
      settlement of debt
                      
                      
                      (298
                      )
                      
                      
                      (579
                      )
                      
                      
                      (298
                      )Total
      other income (expense)
                      
                      
                      2,229
                      
                      
                      
                      (3,109
                      )
                      
                      
                      2,229Loss
      from continuing operations
                      
                      
                      (8,774
                      )
                      
                      
                      (9,192
                      )
                      
                      
                      (8,774
                      )Income
      from discontinued operations, net of tax (including gain on sale of $765
      in 2010 and gain on sale of $2,259 and impairment of $2,303, in
      2009)
                      
                      
                      765
                      
                      
                      
                      406
                      
                      
                      
                      765Net
      loss
                      
                      
                      (8,009
                      )
                      
                      
                      (8,786
                      )
                      
                      
                      (8,009
                      )Preferred
      stock dividend to related party
                      
                      
                      -
                      
                      
                      
                      (97
                      )
                      
                      
                      -Net
      loss attributable to common shareholders
                      
                      $
                      (8,009
                      )
                      
                      $
                      (8,883
                      )
                      
                      $
                      (8,009
                      )Basic
      and diluted income (loss) per common shareFrom
      continuing operations
                      
                      $
                      (0.10
                      )
                      
                      $
                      (0.15
                      )
                      
                      $
                      (0.10
                      )From
      discontinued operations
                      
                      $
                      0.01
                      
                      
                      $
                      0.00
                      
                      
                      
                      0.01Net
      loss attributable to common shareholders
                      
                      $
                      (0.09
                      )
                      
                      $
                      (0.15
                      )
                      
                      $
                      (0.09
                      )Weighted
      average shares outstanding  - basic and diluted
                      
                      
                      85,913,956
                      
                      
                      
                      61,845,036
                      
                      
                      
                      85,913,956
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-4
 
 HYPERDYNAMICS
CORPORATION
 (An
Exploration Stage Company)
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
 (In
Thousands, Except Number of Shares)
 
 Series A Preferred
                      
                      
                      Series B Preferred
                      
                      
                      Common Stock
                      
                      
                      Additional
                        Paid-in
                      
                      
                      AccumulatedShares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Deficit
                      
                      
                      TotalBalance,
      June 30, 2008
                      
                      
                      1,945
                      
                      
                      $
                      -
                      
                      
                      
                      2,446
                      
                      
                      $
                      -
                      
                      
                      
                      59,339,481
                      
                      
                      $
                      59
                      
                      
                      $
                      65,443
                      
                      
                      $
                      (58,829
                      )
                      
                      $
                      6,673Common
      stock issued for:Services
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,185,448
                      
                      
                      
                      2
                      
                      
                      
                      1,555
                      
                      
                      
                      
                      
                      
                      
                      1,557Deferred
      financing costs
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      66,000
                      
                      
                      
                      -
                      
                      
                      
                      103
                      
                      
                      
                      
                      
                      
                      
                      103Conversion
      of debentures
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,250,000
                      
                      
                      
                      2
                      
                      
                      
                      2,036
                      
                      
                      
                      
                      
                      
                      
                      2,038Preferred
      stock dividends
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      21,884
                      
                      
                      
                      -
                      
                      
                      
                      7
                      
                      
                      
                      
                      
                      
                      
                      7Conversion
      of Series B Preferred Stock and accrued dividends
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (40
                      )
                      
                      
                      
                      
                      
                      
                      300,000
                      
                      
                      
                      1
                      
                      
                      
                      (1
                      )
                      
                      
                      
                      
                      
                      
                      -Issuance
      of warrants
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,886
                      
                      
                      
                      
                      
                      
                      
                      1,886Discount
      on convertible debt
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      486
                      
                      
                      
                      
                      
                      
                      
                      486Discount
      related to modification of convertible debt
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      106
                      
                      
                      
                      
                      
                      
                      
                      106Amortization
      of fair value of stock options
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      281
                      
                      
                      
                      
                      
                      
                      
                      281Warrant
      repricings:Deemed
      Dividend
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (29
                      )
                      
                      
                      
                      
                      
                      
                      (29
                      )Deemed
      Dividend
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      29
                      
                      
                      
                      
                      
                      
                      
                      29Preferred
      stock dividends to related party
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (97
                      )
                      
                      
                      
                      
                      
                      
                      (97
                      )Net
      loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (8,786
                      )
                      
                      
                      (8,786
                      )Balance,
      June 30, 2009
                      
                      
                      1,945
                      
                      
                      $
                      -
                      
                      
                      
                      2,406
                      
                      
                      $
                      -
                      
                      
                      
                      64,162,813
                      
                      
                      $
                      64
                      
                      
                      $
                      71,805
                      
                      
                      $
                      (67,615
                      )
                      
                      $
                      4,254
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-5
 
 HYPERDYNAMICS
CORPORATION
 (An
Exploration Stage Company)
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
 (In
Thousands, Except Number of Shares)
  Series A Preferred
                    
                    
                    Series B Preferred
                    
                    
                    Common Stock
                    
                    
                    Additional
                      Paid-in
                    
                    
                    Accumulated
                    
                    
                    Deficit
                      Accumulated
                      during
                      ExplorationShares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    Deficit
                    
                    
                    Stage
                    
                    
                    TotalBalance,
      June 30, 2009, as previously reported
                    
                    
                    1,945
                    
                    
                    $
                    -
                    
                    
                    
                    2,406
                    
                    
                    $
                    -
                    
                    
                    
                    64,162,813
                    
                    
                    $
                    64
                    
                    
                    $
                    71,805
                    
                    
                    $
                    (67,615
                    )
                    
                    $
                    -
                    
                    
                    $
                    4,254Cumulative
      effect of reclassification of warrants as a derivative under ASC
      815
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,585
                    )
                    
                    
                    —
                    
                    
                    
                    -
                    
                    
                    
                    (1,585
                    )Balance
      at July 1, 2009, as adjusted
                    
                    
                    1,945
                    
                    
                    
                    -
                    
                    
                    
                    2,406
                    
                    
                    
                    -
                    
                    
                    
                    64,162,813
                    
                    
                    
                    64
                    
                    
                    
                    70,220
                    
                    
                    
                    (67,615
                    )
                    
                    
                    -
                    
                    
                    
                    2,669Common
      stock issued for:Services
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    442,049
                    
                    
                    
                    -
                    
                    
                    
                    324
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    324Conversion
      of Series B Preferred Stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,406
                    )
                    
                    
                    -
                    
                    
                    
                    15,822,222
                    
                    
                    
                    16
                    
                    
                    
                    (16
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Conversion
      of debentures
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,949,411
                    
                    
                    
                    2
                    
                    
                    
                    1,294
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,296Cash
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    16,878,096
                    
                    
                    
                    17
                    
                    
                    
                    17,183
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    17,200Exercise
      of warrants
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,646,465
                    
                    
                    
                    5
                    
                    
                    
                    4,409
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,414Cashless
      Exercise of options
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    124,653
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Cashless
      Exercise of warrants classified as a derivative
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    201,490
                    
                    
                    
                    -
                    
                    
                    
                    723
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    723Amortization
      of fair value of stock options
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,579
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,579Discount
      related to modification of convertible debt
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,172
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,172Warrant
      repricing charged to interest expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    158
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    158Warrant
      repricingDeemed
      dividend
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    322
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    322Deemed
      dividend
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (322
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (322
                    )Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (8,009
                    )
                    
                    
                    (8,009
                    )Balance,
      June 30, 2010
                    
                    
                    1,945
                    
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    104,227,199
                    
                    
                    $
                    104
                    
                    
                    $
                    97,046
                    
                    
                    $
                    (67,615
                    )
                    
                    $
                    (8,009
                    )
                    
                    $
                    21,526
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-6
 
 HYPERDYNAMICS
CORPORATION
 (An
Exploration Stage Company)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (In Thousands)
 
 Years Ended June 30,
                  
                  
                  Inception of
                    Exploration Stage
                    (July 1, 2009)
                    through June 30,2010
                  
                  
                  2009
                  
                  
                  2010CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (8,009
                  )
                  
                  $
                  (8,786
                  )
                  
                  $
                  (8,009
                  )Income
      from discontinued operations
                  
                  
                  (765
                  )
                  
                  
                  (406
                  )
                  
                  
                  (765
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation,
      depletion and amortization
                  
                  
                  156
                  
                  
                  
                  134
                  
                  
                  
                  156Common
      stock issued for services
                  
                  
                  143
                  
                  
                  
                  1,097
                  
                  
                  
                  143Employee
      stock options
                  
                  
                  1,579
                  
                  
                  
                  281
                  
                  
                  
                  1,579Variable
      share issuance obligation
                  
                  
                  (374
                  )
                  
                  
                  553
                  
                  
                  
                  (374
                  )Loss
      on settlement of debt
                  
                  
                  298
                  
                  
                  
                  579
                  
                  
                  
                  298Gain
      on sale of oil and gas properties
                  
                  
                  (2,955
                  )
                  
                  
                  -
                  
                  
                  
                  (2,955
                  )Gain
      on derivative liability
                  
                  
                  (279
                  )
                  
                  
                  
                  
                  
                  
                  (279
                  )Interest
      accreted to debt principal
                  
                  
                  342
                  
                  
                  
                  1,614
                  
                  
                  
                  342Repricing
      of warrants
                  
                  
                  158
                  
                  
                  
                  -
                  
                  
                  
                  158(Gain)
      loss on disposition of assets
                  
                  
                  32
                  
                  
                  
                  (11
                  )
                  
                  
                  32Amortization
      of discount and financing costs on debt
                  
                  
                  144
                  
                  
                  
                  708
                  
                  
                  
                  144Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (150
                  )
                  
                  
                  -
                  
                  
                  
                  (150
                  )Prepaid
      expenses and other current assets
                  
                  
                  122
                  
                  
                  
                  206
                  
                  
                  
                  122Other
      assets
                  
                  
                  (58
                  )
                  
                  
                  -
                  
                  
                  
                  (58
                  )Accounts
      payable and accrued expenses
                  
                  
                  2,714
                  
                  
                  
                  (1,060
                  )
                  
                  
                  2,714Deferred
      rent
                  
                  
                  14
                  
                  
                  
                  (17
                  )
                  
                  
                  14Cash
      used in operating activities – continuing operations
                  
                  
                  (6,888
                  )
                  
                  
                  (5,108
                  )
                  
                  
                  (6,888
                  )Cash
      provided by (used in) operating activities – discontinued
      operations
                  
                  
                  (76
                  )
                  
                  
                  1,177
                  
                  
                  
                  (76
                  )Net
      cash used in operating activities
                  
                  
                  (6,964
                  )
                  
                  
                  (3,931
                  )
                  
                  
                  (6,964
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property and equipment
                  
                  
                  (651
                  )
                  
                  
                  (5
                  )
                  
                  
                  (651
                  )Investment
      in oil and gas properties
                  
                  
                  (14,041
                  )
                  
                  
                  (227
                  )
                  
                  
                  (14,041
                  )Proceeds
      from the sale of assets
                  
                  
                  -
                  
                  
                  
                  32
                  
                  
                  
                  -Proceeds
      from sale of interest in unevaluated oil and gas
properties
                  
                  
                  25,001
                  
                  
                  
                  -
                  
                  
                  
                  25,001Cash
      provided by (used in) investing activities – continuing
      operations
                  
                  
                  10,309
                  
                  
                  
                  (200
                  )
                  
                  
                  10,309Cash
      provided by investing activities – discontinued operations
                  
                  
                  881
                  
                  
                  
                  1,739
                  
                  
                  
                  881Net
      cash provided by investing activities
                  
                  
                  11,190
                  
                  
                  
                  1,539
                  
                  
                  
                  11,190CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of stock and warrants, net of offering costs of
      $1,285
                  
                  
                  17,200
                  
                  
                  
                  -
                  
                  
                  
                  17,200Proceeds
      from exercise of warrants
                  
                  
                  4,414
                  
                  
                  
                  -
                  
                  
                  
                  4,414Proceeds
      from convertible debt
                  
                  
                  -
                  
                  
                  
                  5,000
                  
                  
                  
                  -Placement
      fees on convertible debentures
                  
                  
                  -
                  
                  
                  
                  (300
                  )
                  
                  
                  -Financing
      costs deducted from convertible debentures
                  
                  
                  -
                  
                  
                  
                  (30
                  )
                  
                  
                  -Prepayment
      penalty on notes payable
                  
                  
                  -
                  
                  
                  
                  (271
                  )
                  
                  
                  -Payments
      of dividends payable – related party
                  
                  
                  (430
                  )
                  
                  
                  -
                  
                  
                  
                  (430
                  )Payments
      on notes payable and installment debt
                  
                  
                  (730
                  )
                  
                  
                  (2,117
                  )
                  
                  
                  (730
                  )Cash
      provided by financing activities – continuing operations
                  
                  
                  20,454
                  
                  
                  
                  2,282
                  
                  
                  
                  20,454Cash
      used in financing activities – discontinued operations
                  
                  
                  -
                  
                  
                  
                  (10
                  )
                  
                  
                  -Net
      cash provided by financing activities
                  
                  
                  20,454
                  
                  
                  
                  2,272
                  
                  
                  
                  20,454(DECREASE)
      INCREASE IN CASH AND CASH EQUIVALENTS
                  
                  
                  24,680
                  
                  
                  
                  (120
                  )
                  
                  
                  24,680CASH
      AND CASH EQUIVALENTS AT BEGINNING OF YEAR
                  
                  
                  1,360
                  
                  
                  
                  1,480
                  
                  
                  
                  1,360CASH
      AND CASH EQUIVALENTS AT END OF YEAR
                  
                  $
                  26,040
                  
                  
                  $
                  1,360
                  
                  
                  $
                  26,040
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-7
 
 SUPPLEMENTAL
      DISCLOSURES:Interest
      paid in cash
                  
                  $
                  69
                  
                  
                  $
                  473
                  
                  
                  $
                  69Income
      taxes paid in cash
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -NON-CASH
      INVESTING and FINANCING TRANSACTIONSCommon
      stock issued for accounts payable
                  
                  $
                  -
                  
                  
                  $
                  321
                  
                  
                  $
                  -Common
      stock issued to settle variable share obligation
                  
                  
                  181
                  
                  
                  
                  -
                  
                  
                  
                  181Payment
      of preferred stock dividends in common shares
                  
                  
                  -
                  
                  
                  
                  7
                  
                  
                  
                  -Common
      stock issued for oil and gas properties
                  
                  
                  -
                  
                  
                  
                  40
                  
                  
                  
                  -Common
      stock issued for prepaid legal services
                  
                  
                  -
                  
                  
                  
                  99
                  
                  
                  
                  -Stock
      issued for deferred financing costs
                  
                  
                  -
                  
                  
                  
                  103
                  
                  
                  
                  -Deemed
      dividend attributable to repriced warrants originally issued with purchase
      of common stock
                  
                  
                  322
                  
                  
                  
                  -
                  
                  
                  
                  322Discount
      on modified debt attributable to repriced warrants
                  
                  
                  -
                  
                  
                  
                  106
                  
                  
                  
                  -Debt
      discount on convertible debt
                  
                  
                  -
                  
                  
                  
                  2,372
                  
                  
                  
                  -Conversion
      of notes payable to common stock, net of discount
                  
                  
                  -
                  
                  
                  
                  2,038
                  
                  
                  
                  -Asset
      retirement obligation transferred as part of sale of
assets
                  
                  
                  18
                  
                  
                  
                  783
                  
                  
                  
                  18Accounts
      payable for oil and gas property
                  
                  
                  434
                  
                  
                  
                  82
                  
                  
                  
                  434Note
      payable for prepaid insurance
                  
                  
                  275
                  
                  
                  
                  32
                  
                  
                  
                  275Accrued
      and unpaid dividend to related parties
                  
                  
                  -
                  
                  
                  
                  97
                  
                  
                  
                  -Conversion
      of Series B Preferred Stock into Common Stock
                  
                  
                  16
                  
                  
                  
                  -
                  
                  
                  
                  16Fair
      value of warrant modifications
                  
                  
                  480
                  
                  
                  
                  -
                  
                  
                  
                  480Relative
      fair value of warrants issued in connection with equity
      offerings
                  
                  
                  3,839
                  
                  
                  
                  -
                  
                  
                  
                  3,839Conversion
      of debt, net of discount of $1,116
                  
                  
                  1,294
                  
                  
                  
                  -
                  
                  
                  
                  1,294Discount
      of convertible debt modification
                  
                  
                  1,172
                  
                  
                  
                  -
                  
                  
                  
                  1,172Exercise
      of warrants classified as a derivative
                  
                  
                  723
                  
                  
                  
                  -
                  
                  
                  
                  723Reclassification
      of warrants as a derivative under ASC 815
                  
                  
                  1,585
                  
                  
                  
                  -
                  
                  
                  
                  1,585
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-8
 
 HYPERDYNAMICS
CORPORATION
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 1.
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
 Nature
of business
 
 Hyperdynamics
Corporation (“Hyperdynamics,” the “Company,” “we,” and “our”) is a Delaware
corporation formed in March 1996. Hyperdynamics has two wholly-owned
subsidiaries, SCS Corporation (SCS) and HYD Resources Corporation (HYD). Through
SCS and its wholly-owned subsidiary, SCS Corporation Guinea SARL, which is a
Guinea limited liability company formed under the laws of the Republic of Guinea
(“Guinea”) located in Conakry, Guinea, Hyperdynamics focuses on oil and gas
exploration offshore the coast of West Africa. SCS began operations in oil and
gas exploration, seismic data acquisition, processing, and interpretation in
late fiscal 2002. In April 2004, Hyperdynamics acquired HYD, and in January
2005, HYD acquired Trendsetter Production Company (Trendsetter), an oil and gas
operator in Louisiana that had been under common ownership with
HYD.  Trendsetter operated all of the Company’s domestic oil and gas
assets until the completion of their sale in August, 2009.
 
 With sale
of all of our proved reserves, Hyperdynamics reentered the Exploration stage
effective July 1, 2009.  We are seeking, among other things, to bring
in one or more additional PSC participants to operate and help fund our search
for oil and gas deposits on our Guinea concession.
 
 Principles of
Consolidation
 
 The
accompanying consolidated financial statements include the accounts of
Hyperdynamics and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States and the rules of the Securities and Exchange
Commission (“SEC”). Certain prior year amounts have been reclassified to conform
with the current presentation. Certain amounts have been reclassified to present
our sale of domestic oil and gas properties as discontinued operations. See Note
3, Sales of Oil and Gas Properties, Assets Held for Sale and Discontinued
Operations, for further discussion.
 
 Use
of Estimates
 
 The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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. Significant
estimates are required for proved oil and gas reserves, which, as described in
Note 18 – Supplemental Oil and Gas Properties Information (unaudited), have a
material impact on the carrying value of oil and gas property, and the warrant
derivative liability described in Note 10 – Warrant Derivative Liability. Actual
results could differ from these estimates and such differences could be
material.
 
 Cash
and cash equivalents
 
 Cash
equivalents are highly liquid investments with an original maturity of three
months or less.
 
 The
Company maintains its cash in bank deposit accounts which, at times, exceed the
federally insured limits.  Accounts are guaranteed by the FDIC up to
$250,000 in 2010 and in 2009, respectively. At June 30, 2010, the Company
had approximately $25,600,000 in excess of FDIC limits.  The Company
has not experienced any losses in such accounts.
 
 Accounts
receivable and allowance for doubtful accounts
 
 Hyperdynamics
does not require collateral from its customers. The Company establishes
provisions for losses on accounts receivable if it determines that it will not
collect all or part of the outstanding balance. Accounts receivable are written
down to reflect management's best estimate or realizability based upon known
specific analysis, historical experience, and other currently available evidence
of the net collectible amount. There is no allowance for doubtful accounts as of
June 30, 2010 or 2009.
  F-9
  Other
Current Assets
 
 As of
June 30, 2010, prepaid expenses and other current assets consist of $188,000 in
prepaid insurance and $17,000 in other prepaid expenses, for a total of
$205,000. As of June 30, 2009, such prepaid expenses and other current assets
consisted of $7,000 in prepaid insurance and $45,000 in other prepaid expenses,
for a total of $52,000.
 
 Assets
held for sale
 
 Assets
held for sale were $145,000 as of June 30, 2009. Assets held for sale included
all remaining assets of our domestic oil and gas operations.  See Note
3 for additional discussion.  The sale was completed in August
2009.
 
 Oil
and Gas Properties
 
 Full
Cost Method
 
 We
account for oil and natural gas producing activities using the full cost method
of accounting as prescribed by the United States Securities and Exchange
Commission (SEC). Accordingly, all costs incurred in the acquisition,
exploration, and development of proved oil and natural gas properties, including
the costs of abandoned properties, dry holes, geophysical costs and annual lease
rentals are capitalized. All general and administrative corporate costs
unrelated to drilling activities are expensed as incurred. Sales or other
dispositions of oil and natural gas properties are accounted for as adjustments
to capitalized costs, with no gain or loss recorded unless the ratio of
capitalized costs to proved reserves would significantly change, or to the
extent that the sale proceeds exceed our capitalized costs. Depletion of
evaluated oil and natural gas properties is computed on the units of production
method based on proved reserves. The net capitalized costs of proved oil
and natural gas properties are subject to a full cost ceiling limitation in
which the costs are not allowed to exceed their related estimated future net
revenues discounted at 10%, net of tax considerations. In accordance with SEC
release 33-8995, prices based on the preceding 12-months’ average price based on
closing prices on the first day of each month, or prices defined by existing
contractual arrangements, are used in deriving future net revenues discounted at
10%, net of tax. The application of the full cost method of accounting for oil
and gas properties generally results in higher capitalized costs and higher
depreciation, depletion and amortization rates compared to the successful
efforts method of accounting for oil and gas properties.
 
 Costs
Excluded
 
 Costs
associated with unevaluated properties are excluded from the full cost pool
until we have made a determination as to the existence of proved reserves. We
review our unevaluated properties at the end of each quarter to determine
whether the costs incurred should be transferred to the full cost pool and
thereby subject to amortization.
 
 We assess
all items classified as unevaluated property on a quarterly basis for possible
impairment or reduction in value. We assess properties on an individual basis or
as a group if properties are individually insignificant. The assessment includes
consideration of the following factors, among others: intent to drill; remaining
lease term; geological and geophysical evaluations; drilling results and
activity; the assignment of proved reserves; and the economic viability of
development if proved reserves are assigned. We assess our unevaluated
properties on a country-by-country basis. During any period in which these
factors indicate an impairment, the cumulative drilling costs incurred to date
for such property and all or a portion of the associated leasehold costs are
transferred to the full cost pool and are then subject to amortization. However,
if proved reserves have not yet been established in a full cost pool, these
costs are charged against earnings. For international operations where a reserve
base has not yet been established, an impairment requiring a charge to earnings
may be indicated through evaluation of drilling results, relinquishing drilling
rights or other information.
 
 Ceiling
Test
 
 The full
cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule
4-10. Under full cost accounting rules, for each cost center, capitalized costs
of proved properties, less accumulated amortization and related deferred income
taxes, shall not exceed an amount (the "cost ceiling") equal to the sum of (a)
the present value of future net cash flows from estimated production of proved
oil and gas reserves, based on current economic and operating conditions,
discounted at 10 percent, plus (b) the cost of properties not being amortized,
plus (c) the lower of cost or estimated fair value of any unproved properties
included in the costs being amortized, less (d) any income tax effects related
to differences between the book and tax basis of the properties involved. If
capitalized costs exceed this limit, the excess is charged as an impairment
expense. As of June 30, 2010 and 2009, we have no capitalized cost in oil and
gas properties that are subject to the ceiling test for impairment. During the
year ended June 30, 2009, we incurred an impairment of $2,303,000 related to our
domestic oil and gas operations and which is included in income from
discontinued operations.
  F-10
 
 Property
and Equipment, other than Oil and Gas
 
 Property
and equipment are stated on the basis of historical cost less accumulated
depreciation. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, generally three to five
years.
 
 Provision
for Impairments of Long-lived Assets
 
 Long-lived
assets are reviewed for impairment annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment loss recognized is the excess of the carrying amount
over the fair value of the asset.  Any impairment charge is included
in depreciation, depletion, and amortization expense.   We
recognized no impairment charges in the years ended June 30, 2010 and 2009,
respectively.
 
 Asset
Retirement Obligations
 
 ASC
410-20, “Asset Retirement Obligations,” addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. ASC 410-20 requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred. The associated asset retirement costs are
capitalized as part of the carrying cost of the asset.
 
 Our asset
retirement obligations represent our best estimate of the fair value of our
future abandonment costs associated with our oil and gas properties, including
the costs of removal and disposition of tangible equipment, site and
environmental restoration. We estimate the fair value of our retirement costs in
the period in which the liability is incurred, if a reasonable estimate can be
made. The determination of the fair value of an asset retirement obligation
generally involves estimating the fair value of the obligation at the end of the
property's useful life and then discounting it to present value using a credit
adjusted, risk free rate of return. Estimating future asset removal costs is
difficult and requires management to make estimates and judgments regarding the
expected removal and site restoration costs, timing and present value discount
rates. Changes in the estimated useful life and the fair value of the asset
retirement obligation are imprecise since the removal activities will generally
occur several years in the future and asset removal technologies and costs are
constantly changing, as are political, environmental and safety considerations
that may ultimately impact the amount of the obligations.
 
 Deferred
Rent
 
 Accounting
principles generally accepted in the United States require rent expense to be
recognized on a straight-line basis over the lease term. Rent holidays, rent
concessions, rent escalation clauses and certain other lease provisions are
recorded on a straight-line basis over the lease term (including one renewal
option period if renewal is reasonably assured based on the imposition of an
economic penalty for failure to exercise the renewal option). The difference
between the rent due under the stated lease agreement compared to that of the
straight-line basis is recorded as deferred rent. The short-term portion is the
portion which is scheduled to reverse within twelve months of the balance sheet
date and it is included in accounts payable and accrued expenses.  At
the beginning of our office lease, we received a free rent period, which began
in March 2010 and will end in November 2010. During the free rent period from
March 2010 to June 30, 2010, we recorded $70,000 of deferred rent, which is
being amortized over the life of the lease.
 
 Income
Taxes
 
 We
account for income taxes in accordance with ASC 740, “Income Taxes,” which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary difference between the tax and financial
reporting basis of assets and liabilities and for loss and credit carryforwards.
Valuation allowances are provided when recovery of deferred tax assets is not
considered likely.
 
 Tax
benefits are recognized only for tax positions that are more likely than not to
be sustained upon examination by tax authorities. The amount recognized is
measured as the largest amount of benefit that is greater than 50 percent likely
to be realized upon ultimate settlement. Unrecognized tax benefits are tax
benefits claimed in our tax returns that do not meet these recognition and
measurement standards.
 
 Our
policy is to recognize potential interest and penalties accrued related to
unrecognized tax benefits within income tax expense.  For the years
ended June 30, 2010 and 2009, we did not recognize any interest or penalties in
our consolidated statement of operations, nor did we have any interest or
penalties accrued on our consolidated balance sheet at June 30, 2010 and 2009
relating to unrecognized benefits.
 
 The tax
years 2005-2009 remain open to examination for federal income tax purposes and
by the other major taxing jurisdictions to which we are subject.
  F-11
 
 Stock-Based
Compensation
 
 ASC 718,
“Compensation-Stock Compensation” requires recognition in the financial
statements of the cost of employee services received in exchange for an award of
equity instruments over the period the employee is required to perform the
services in exchange for the award (presumptively the vesting period). We
measure the cost of employee services received in exchange for an award based on
the grant-date fair value of the award. We account for non-employee share-based
awards based upon ASC 505-50, “Equity-Based Payments to
Non-Employees.”
 
 Earnings
Per Share
 
 Basic
loss per share is computed using the weighted average number of shares of common
stock outstanding during each period. Diluted loss per share includes the
dilutive effects of common stock equivalents on an “as if converted” basis. For
the years ended June 30, 2010 and 2009, all potential dilutive securities had an
anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
 
 Contingencies
 
 Legal
 
 We are
subject to legal proceedings, claims and liabilities which arise in the ordinary
course of business. We accrue for losses associated with legal claims when such
losses are probable and can be reasonably estimated. These accruals are adjusted
as additional information becomes available or circumstances change. Legal fees
are charged to expense as they are incurred.  See Note 14, Commitments
and Contingencies, for more information on legal proceedings.
 
 Environmental
 
 We accrue
for losses associated with environmental remediation obligations when such
losses are probable and can be reasonably estimated. These accruals are adjusted
as additional information becomes available or circumstances change. Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value. Recoveries of environmental remediation costs from other
parties are recorded at their undiscounted value as assets when their receipt is
deemed probable.
 
 Financial
instruments
 
 The
accounting standards regarding fair value of financial instruments and related
fair value measurements define fair value, establish a three-level valuation
hierarchy for disclosures of fair value measurement, and enhance disclosure
requirements for fair value measures.
 
 The three
levels are defined as follows:
 
 ·
              Level
      1 - inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.
 
 ·
              Level
      2 - inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.
 
 ·
              Level
      3 - inputs to the valuation methodology are unobservable and significant
      to the fair value measurement.
 
 Financial
assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement.  The
Company has determined that certain warrants outstanding as of the date of these
financial statements qualify as derivative financial instruments under the
provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts
in an Entity’s Own Stock.” See Note 10 for discussion of the impact the
adoption of this standard had on the Company’s financial statements and results
of operations.  These warrant agreements include provisions designed
to protect holders from a decline in the stock price (‘down-round’ provision) by
reducing the exercise price in the event we issue equity shares at a price lower
than the exercise price of the warrants.  As a result of this
down-round provision, the exercise price of these warrants could be modified
based upon a variable that is not an input to the fair value of a
‘fixed-for-fixed’ option as defined under FASB ASC Topic No. 815-40 and
consequently, these warrants must be treated as a liability and recorded at fair
value at each reporting date.
 
 The fair
value of these warrants was determined using a Lattice Model with any change in
fair value during the period recorded in earnings as “Other income (expense) –
Gain (loss) on warrant derivative liability.” As a result, the derivative
warrant liability is carried on the balance sheet at its fair
value.
 
 Significant
Level 3 inputs used to calculate the fair value of the warrants include the
stock price on the valuation date, expected volatility, risk-free interest rate
and management’s assumptions regarding the likelihood of a repricing of these
warrants pursuant to the down-round provision.
 
 The
following table sets forth by level within the fair value hierarchy our
financial assets and liabilities that were accounted for at fair value on a
recurring basis as of June 30, 2010.
  F-12
  (in thousands)
                    
                    Carrying
                      Value at
                      June 30, 2010
                    
                    
                    Fair Value Measurement at March 31, 2010Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3Derivative
      warrant liability
                    
                    $
                    583
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    583
 
 
 The
following table sets forth the changes in the fair value measurement of our
Level 3 derivative warrant liability during the year ended June 30,
2010:
 
 Beginning
      balance – July 1, 2009 (after adoption of ASC 815)
                        
                        $
                        1,585Reduced
      for warrants exercised and reclassified to additional paid-in
      capital
                        
                        
                        (723
                        )Change
      in fair value of derivative liability
                        
                        
                        (279
                        )At
      June 30, 2010
                        
                        $
                        583
 
 The
$279,000 change in fair value was recorded as a reduction of the derivative
liability and as a non-cash gain in our statement of operations, $327,000 of
which was unrealized gain on the change in fair value of the liability and
$48,000 loss which was related to the exercise during the period of warrants
classified as derivative liabilities.
 
 The
Company did not identify any other assets and liabilities that are required to
be presented on the consolidated balance sheet at fair value in accordance with
FASB ASC Topic No. 815.
 
 Recently issued accounting
pronouncements
 
 In June
2008, the FASB’s Emerging Issues Task Force reached a consensus regarding ASC
815-40 (EITF No. 07-5), “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5).
ASC 815-40 outlines a two-step approach to evaluate the instrument’s contingent
exercise provisions, if any, and to evaluate the instrument’s settlement
provisions when determining whether an equity-linked financial instrument (or
embedded feature) is indexed to an entity’s own stock. ASC 815-40 is effective
for fiscal years beginning after December 15, 2008 and must be applied to
outstanding instruments as of the beginning of the fiscal year of adoption as a
cumulative-effect adjustment to the opening balance of retained earnings. Early
adoption is not permitted.  Effective July 1, 2009, the Company
adopted ASC 815-40.  See Note 10 for discussion of the impact the
adoption had on the Company’s financial statements and results of
operations.
 
 In
December 2008, the SEC issued release 33-8995, Modernization of Oil and Gas
Reporting. The new disclosure requirements include provisions that permit the
use of new technologies to determine proved reserves if those technologies have
been demonstrated empirically to lead to reliable conclusions about reserves
volumes. The new requirements also will allow companies to disclose their
probable and possible reserves to investors. In addition, the new disclosure
requirements require companies to: (a) report the independence and
qualifications of its reserves preparer or auditor; (b) file reports when a
third party is relied upon to prepare reserves estimates or conducts a reserves
audit; and (c) report oil and natural gas reserves using an average price based
upon the prior 12-month period rather than period-end prices. The use of average
prices will affect future impairment and depletion calculations. The new
disclosure requirements become effective for annual reports on Form 10-K for our
fiscal year ended June 30, 2010. The adoption of this rule has no impact to the
Company’s financial statements and disclosures as we do not currently have
proved or probable reserves.
 
 In May
2009, ASC 855 “Subsequent Events” was issued. ASC 855 establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. In particular, this Statement sets forth: (1) the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements; (2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and (3) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. In accordance
with ASC 855, an entity should apply the requirements to interim or annual
financial periods ending after June 15, 2009. The Company adopted ASC 855
effective June 30, 2009 and the adoption did not have a material impact on its
consolidated financial statements.
  F-13
 
 In June
2009, ASC 105-10 was issued “Financial Accounting Standards Board (FASB)
Accounting Standards Codification.” The FASB Accounting Standards Codification,
(“Codification”) will become the source of authoritative GAAP recognized by the
FASB to be applied by nongovernmental entities. Rules and interpretive releases
of the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The Codification superseded all
then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification
became non-authoritative. ASC 105-10 is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The
Company has adopted these requirements.
 
 Other
recently issued or adopted accounting pronouncements are not expected to have,
or did not have, a material impact on the Company’s financial position or
results from operations.
 
 Subsequent
Events
 
 The
Company evaluated all subsequent events from June 30, 2010 through the date of
this issuance of the financial statements.
 
 2.
GOING CONCERN
 
 The
accompanying Consolidated Financial Statements have been prepared assuming we
will continue as a going concern.  We have incurred losses since inception,
resulting in cumulative losses of $75.6 million through June 30, 2010.  We
have historically been able to finance our activities by raising capital,
including sales of our common stock for net proceeds in excess of $17.5 million
in the period ended June 30, 2010.  During the period ended June 30, 2010,
we also received approximately $25.0 million in payments from oil and gas
companies related to our Concession offshore Guinea.  However, because of
our history of operating losses, our limited capital resources, our plans to
continue to expend substantial sums in connection with our commitment to drill
our first well offshore Guinea in late 2011 without anticipation of operating
cash flow prior to drilling, there exists substantial doubt about our ability to
continue as a going concern.
 Historically,
we have raised capital through the sale of a minority interest in the
Concession, issuance of debt and registered direct offerings; however, it is our
preference to resolve this uncertainty by entering into an agreement with one or
more companies in the oil and gas industry for the sale of minority interests in
the Concession.  If we are not successful in obtaining additional
funding, we may not be able to continue as a going concern.  The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
 
 3.
SALES OF OIL AND GAS PROPERTIES, ASSETS HELD FOR SALE AND DISCONTINUED
OPERATIONS
 
 On April
1, 2009, management executed a contract to sell the working interest in all of
its domestic oil and gas properties in a transaction that was accounted for as
three sales.  The liabilities associated with the working interest in
the oil and gas properties, asset retirement obligations (see Note 6.
Asset Retirement Obligations) were transferred with the assets. The
transaction was completed during August 2009.  The Company received
scheduled payments of $1,030,000 and $820,000 during May 2009.  The
final payment of $820,000 was received in August 2009.
 
 These
assets, which were associated with HYD Resources, our domestic business segment,
are a disposal group and constitute a component of the entity with
distinguishable cash flows.  Accordingly, these assets and cash flows
and results of operations associated with these assets are classified as
discontinued operations in the accompanying consolidated statements of
operations, consolidated balance sheets, and consolidated statements of cash
flows for all periods presented.
 
 Assets
held for sale as of June 30, 2009 consisted of land and a building in Trout,
Louisiana, and working interests in our remaining domestic oil and gas
properties.  The remaining properties were sold in August
2009.  The following assets and liabilities have been segregated and
classified as assets held for sale and liabilities associated with assets held
for sale, as appropriate, in the consolidated balance sheets as of June 30, 2010
and 2009.  The amounts presented below do not include cash, or
payables, which will be retained by Hyperdynamics.
 
 June 30,(in thousands)
                  
                  2010
                  
                  
                  2009Assets
      held for saleLand
      and building, net of accumulated depreciation of $7,000
                  
                  $
                  -
                  
                  
                  $
                  43Oil
      and Gas Properties, net of accumulated impairment of
    $576,000
                  
                  
                  -
                  
                  
                  
                  102Assets
      held for sale and discontinued operations
                  
                  $
                  -
                  
                  
                  $
                  145Liabilities
      related to assets held for sale and discontinued operations-
      noncurrentAsset
      retirement obligations
                  
                  $
                  -
                  
                  
                  $
                  18
  F-14





The
following summarized financial information for the years ended June 30, 2010 and
2009 relates to the assets held for sale and has been reported as discontinued
operations for all periods presented.





Year ended June 30,(in thousands)
                
                2010
                
                
                2009Revenues
                
                $
                -
                
                
                $
                2,397Costs
      and Expenses:Lease
      operating costs
                
                
                -
                
                
                
                (1,331
                )Depreciation,
      depletion, and amortization
                
                
                -
                
                
                
                (527
                )Accretion
                
                
                -
                
                
                
                (71
                )Impairment
      and other expenses
                
                
                -
                
                
                
                (2,303
                )Gain
      on settlement of debt
                
                
                -
                
                
                
                144Other
      expenses
                
                
                -
                
                
                
                (162
                )Gain
      on sale of discontinued operations
                
                
                765
                
                
                
                2,259Income
      from discontinued operations
                
                $
                765
                
                
                $
                406





4.
PROPERTY AND EQUIPMENT





A summary
of property and equipment as of June 30, 2010 and 2009 is as
follows:





June 30,(in thousands)
                    
                    2010
                    
                    
                    2009Useful LifeComputer
      equipment and software
                    3
      years
                    
                    $
                    415
                    
                    
                    $
                    128Office
      equipment and furniture
                    5
      years
                    
                    
                    224
                    
                    
                    
                    112Vehicles
                    3
      years
                    
                    
                    200
                    
                    
                    
                    234Leasehold
      improvements
                    3
      years
                    
                    
                    270
                    
                    
                    
                    74Total
      cost
                    
                    
                    
                    1,109
                    
                    
                    
                    548Less
      - Accumulated depreciation
                    
                    
                    
                    (445
                    )
                    
                    
                    (339
                    )Net
      carrying value
                    
                    
                    $
                    664
                    
                    
                    $
                    209





We review
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. As of June 30, 2010 and
2009, there were no impairments of property and equipment.





5.
INVESTMENT IN OIL AND GAS PROPERTIES





Investment
in oil and gas properties consists of our Guinea concession in offshore West
Africa.




Excluded
Costs





Hyperdynamics
excludes capitalized costs of unevaluated oil and gas properties from
amortization. Currently, geological and geophysical information pertaining to
the Guinea concession is being collected and evaluated and no reserves have been
attributed to this concession. The net costs associated with such unproved
properties of $92,000 and $7,663,000 as of June 30, 2010 and 2009, respectively,
are excluded from amounts subject to amortization. The majority of the
evaluation activities are expected to be completed within the next two years. As
of June 30, 2010, based on our impairment review and our intent to continue
evaluation activities, there was no impairment indicated for our excluded
costs.





We
incurred $15,417,000 and $349,000 of geological and geophysical costs for our
Guinea Concession during the years ended June 30, 2010 and 2009, respectively.
The geological and geophysical costs incurred during the year ended June 30,
2010 included a payment of $3 million made to Geophysical Service Inc
(“GSI”).  The amount was for settlement of a dispute between the
parties that arose during the year that related to the 2008 Master Geophysical
Data Acquisition Agreement between SCS and GSI (“MGDA
Agreement”).  Pursuant to the Settlement Agreement, the parties
terminated the MGDA Agreement and also granted mutual releases to one another
concerning further payments and disputes arising from or related to the services
provided by GSI to SCS under the MGDA Agreement.


F-15





We
received $1.7 million from Dana in February 2010, related to our assignment of a
23% participation interest in the Guinea Concession to Dana. We also received in
February 2010, $3.7 million from Repsol related to their proposed acquisition of
a 37% participation interest in our Guinea Concession. These amounts were
recorded as a reduction in the carrying value of our Guinea Concession upon
receipt. In May 2010, upon obtaining the Republic of Guinea Presidential decree
for the amended PSC and an arête that officially allowed Dana to participate in
the PSC, Dana paid us an additional cash purchase price of $19.6 million for its
23% participation interest and assumed its 23% share of costs for all future
operations. We recorded the $19.6 million received from Dana as a reduction in
the carrying value of our Guinea Concession and, after reducing our investment
to zero, we recognized a gain of $2,955,000, which represented the excess of the
$19.6 million over our net remaining investment in the Guinea Concession as of
the date the funds were received. Subsequent to reducing our investment in the
Guinea Concession to zero, we incurred $92,000 of additional costs, which
represent the carrying value at June 30, 2010.





Guinea
Concession





On
September 22, 2006, we, acting through SCS, entered into the PSC with
Guinea.  Under that agreement, we were granted certain exclusive
contractual rights by Guinea to explore and exploit offshore oil and gas
reserves, if any, off the coast of Guinea.




2009
Memorandum of Understanding





On
September 11, 2009, we entered into a Memorandum of Understanding (MOU) with
Guinea in which we agreed with the government to resolve certain issues related
to the PSC.  The MOU required negotiation between the parties
concerning the terms and conditions of the provisions in the PSC to ensure that
such terms were consistent with the Guinea Petroleum Code and usually applicable
international standards and practices.  A copy of the MOU was filed as
an exhibit to our Current Report on Form 8-K that was filed with the SEC on
September 15, 2009.





Amendment
No.1 to the PSC





On March
25, 2010, we entered into the PSC Amendment with Guinea.  The PSC
Amendment was signed by the Guinean Minister of Mines and Geology, Mahmoud
Thiam; the Guinean Minister of Finances and Economy, Kerfala Yansane, and Ray
Leonard, President and Chief Executive Officer of Hyperdynamics and
SCS.  The PSC Amendment was entered into pursuant to the
MOU.  The PSC Amendment provides that the parties to the MOU have
fully complied with the terms of the MOU.





The
PSC Amendment clarified that we retained a contract area of approximately 9,650
square miles, which is approximately equivalent to 30% of the original Contract
Area under the PSC, following a December 31, 2009 relinquishment of
approximately 70% of the original contract area.  The PSC Amendment
requires that we relinquish an additional 25% of the retained Contract Area by
September 21, 2013.  Under the terms of the PSC Amendment, the first
exploration period will end and the Company will enter into the second
exploration period on September 21, 2010.  The second exploration
period runs until September 2013, may be renewed to September 2016 and may be
extended for one (1) additional year to allow the completion of a well in
process and for two (2) additional years to allow the completion of the
appraisal of any discovery made. Under the PSC Amendment, we are required
to drill an exploration well, which is to be commenced by the year-end 2011, to
a minimum depth of 2500m below seabed and to drill an additional exploration
well, which is to be commenced by the end of September 2016, to a minimum depth
of 2500m below seabed.  The PSC Amendment requires the expenditure of
$15 million on each of the exploration wells ($30 million in the
aggregate).  We are also required to acquire a minimum of 2000 square
kilometer 3D seismic by September 2013 with a minimum expenditure of $12
million. Fulfillment of work obligations exempts us from expenditure obligations
and exploration works in excess of minimum work obligations for each exploration
period may be carried forward to the following exploration period.





Under the
PSC Amendment, Guinea may participate in development of any discovery at a
participating interest of up to 15%, being carried for its share. The cost of
that carry is to be recovered out of 62.5% of Guinea's share of cost and profit
oil.  The PSC Amendment removed the right of first refusal held by us
covering the relinquished acreage under the original PSC.  The PSC
Amendment clarified that only those eligible expenditures, which were made
following the date the PSC was signed on September 22, 2006, are eligible for
cost recovery.  We are required to establish an annual training budget
of $200,000 for the benefit of Guinea’s oil industry personnel, and we are also
obliged to pay an annual surface tax of $2.00 per square kilometer on our
retained Concession acreage.  As of June 30, 2010, we have accrued
$185,000 relating to the future payment of such surface tax. The PSC Amendment
also provides that should the Guinea government note material differences
between provisions of the PSC Amendment and international standards or the
Petroleum Code, the parties will renegotiate the relevant articles.





Under the
PSC and PSC Amendment our Guinea Concession is subject to a 10% royalty interest
to Guinea.  Of the remaining 90% of the first production, we will
receive 75% of the revenue for recovery of the cost of operations, and Guinea
will receive 25%.





After
recovery cost of operations, revenue will be split as outlined in the table
below:





Daily production (b/d)
                
                Guinea Share
                
                
                HDY ShareFrom
      0 to 2,000
                
                
                25
                %
                
                
                75
                %From
      2,001 to 5,000
                
                
                30
                %
                
                
                70
                %From
      5,001 to 100,000
                
                
                41
                %
                
                
                59
                %Over
      100,001
                
                
                60
                %
                
                
                40
                %




F-16




The
Guinea Government may elect to take a 15% working interest in any exploitation
area.




Presidential
Decree





In May
2010, the government of Guinea issued a Presidential Decree approving the PSC,
as amended.




Assignment
of Participating Interest





On
December 4, 2009, we entered into a Sale and Purchase Agreement (“SPA”) with
Dana Petroleum (E&P) Limited (“Dana”) for Dana to acquire a 23%
participating interest in the PSC.  On January 28, 2010, the Company
closed on the transaction with Dana assigning it a minority interest in our
Concession offshore Guinea.  In connection with the closing of the
transaction, we entered into an Assignment of Participating Interest (the
“Assignment”) with Dana, a Deed of Assignment and Joint Operating Agreement
(JOA).  Pursuant to the Assignment, we assigned to Dana an undivided
23% of our participating interest in the contractual interests, rights,
obligations and duties under the PSC.  As required by the PSC, the
Deed of Assignment was delivered as the necessary notice of the Assignment to be
given to the Ministry of Mines, Energy and Hydraulics of Guinea.




As part
of the obligation to bear the proportionate share of costs, the SPA required
Dana to make a cash payment to us upon closing the assignment of the 23%
participating interest to Dana in the amount of $ 1.7 million for Dana’s
pro-rata portion of accrued expenditures associated with our marine 2D seismic
data acquisition program within the Contract Area.  The $1.7 million
payment was received by us on February 4, 2010 and was recorded as a reduction
in the carrying value of our Guinea concession.




The
Operating Agreement appoints us as the operator for purposes of conducting oil
and gas exploration and production activities within the retained Contract
Area.  We share operating costs of joint operations with Dana in
proportion to the parties’ respective participating interests (Hyperdynamics,
77%; Dana, 23%). An operating committee and voting procedures are established
whereby managerial and technical representatives of the Company and Dana make
decisions regarding joint operations, exploration and appraisal of commercial
discoveries, and the disposition of commercial production.  The
Operating Agreement places restrictions upon the transfer of the parties’
respective participating interests in the form of a right of first purchase that
is triggered by a proposed transfer or certain changes in control of us or
Dana.




In May
2010, we received an administrative order from the Ministry of Mines and Geology
of Guinea, referred to as an arrêté, confirming the Guinea government’s approval
of the assignment of a 23% participating interest in the PSC, as amended, to
Dana.  On May 20, 2010, we received a payment of $19.6 million in cash
from Dana as payment for the assigned  23% participating interest in
the contractual interests, rights, obligations and duties under the PSC, as
amended.





Repsol
Letter of Intent





On
January 29, 2010, we entered into an Amendment to the Agreement for Exclusive
Dealing and Letter of Intent (“Amended LOI”) with Repsol Exploracion, S.A.,
(“Repsol”).  This Amended LOI extended the term of the Agreement for
Exclusive Dealing and Letter of Intent (“Original LOI”) that was entered into
between the parties on November 26, 2009, from January 31, 2010 until March 11,
2010, which date has not been further extended.  The Original LOI
contemplated the prospective acquisition by Repsol of an undivided 37%
participating interest in our concession off the coast of
Guinea.





Under the
provisions of the Original LOI, Repsol committed to make certain seismic
acquisition payments to us upon the closing of the assignment of a 37%
participating interest in the Concession.  Under and for the
consideration of the Amended LOI, Repsol paid $2.7 million to us, representing
Repsol’s pro-rata share of work preformed to date under the Marine 2D Seismic
Data Acquisition Services Agreement with Bergen Oilfield Services (“BOS
Agreement”).  The $2.7 million payment was received by us on February
11, 2010. In addition, following our delivery of an invoice to Repsol for
subsequent work performed under the BOS Agreement, Repsol paid its pro-rata
share of such invoice, which was approximately $1.0 million.  These
payments totaling $3.7 million, which also represented the consideration paid by
Repsol for extending the LOI to March 11, 2010, were recorded as a reduction in
the carrying value of our Guinea concession.





Domestic
Oil and Gas Properties





In August
2009, the Company completed the sale of its domestic oil and gas
properties.  The Company no longer has any proved oil and gas
reserves.





6.
ASSET RETIREMENT OBLIGATIONS





As of
June 30, 2010, we have no asset retirement obligation. The following is a
reconciliation of our asset retirement obligation liability as of June 30,
2009:


F-17





(in
      thousands)
                  
                  2009Asset
      retirement obligation, beginning of period
                  
                  $
                  730Liabilities
      incurred
                  
                  
                  -Liabilities
      related to property sales
                  
                  
                  (783
                  )Revisions
      of estimates
                  
                  
                  -Accretion
      of discount
                  
                  
                  71Asset
      retirement obligation, end of period
                  
                  $
                  18





The asset
retirement obligation at June 30, 2009 has been included in liabilities related
to assets held for sale in the accompanying balance sheet for the period ended
June 30, 2009, and was transferred during 2010 to the purchaser of our domestic
properties.





7.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES





Accounts
payable and accrued expenses as of June 30, 2010 and 2009 include the
following:





(in
      thousands)
                
                2010
                
                
                2009Accounts
      payable - Trade
                
                $
                2,061
                
                
                $
                688Accrued
      payroll and bonus
                
                
                1,362
                
                
                
                11Accrued
      - Other
                
                
                436
                
                
                
                -Taxes
      payable
                
                
                -
                
                
                
                88Deferred
      rent
                
                
                -
                
                
                
                16$
                3,859
                
                
                $
                803





8. ACCOUNTS PAYABLE SEISMIC
DATA





In
February 2003, SCS agreed to pay $650,000 to Offshore Seismic Surveys, Inc.
(“OSS”), an offshore seismic company, in exchange for OSS agreeing to release
SCS from the $550,000 due to OSS for Guinea seismic data and to accept a
deferred payment arrangement. The additional $100,000 was charged to interest
expense in 2003. OSS maintains a lien on the ownership and sale of 1,000
kilometers of the seismic data acquired in 2002, as security for the
$650,000.





Any user
license sales proceeds generated from user licenses of this data shall first go
to pay off the $650,000 liability at a rate of 90% of gross user license sales
proceeds to OSS and 10% to SCS until the $650,000 is paid in full. Any funding
arrangement SCS enters into with respect to the PSC, whereby all rights and
obligations under the PSC are transferred, shall cause the $650,000 to become
immediately due upon signing and funding of such agreement. The payable remains
accrued at June 30, 2010. The agreement does not provide for interest
payments.  Accordingly, we have not accrued interest on this
payable.





9.
SHORT-TERM NOTES PAYABLE AND LONG-TERM DEBT





Short-term
notes payable and long-term debt as of June 30, 2010 and 2009 consist of the
following:





(in
      thousands)
                
                2010
                
                
                2009Installment
      notes payable
                
                $
                160
                
                
                $
                23Convertible
      debentures:Gross
                
                
                -
                
                
                
                2,752Unamortized
      discount
                
                
                -
                
                
                
                (476
                )Net
                
                
                -
                
                
                
                2,276Total
      short term notes payable and long- term debt
                
                
                160
                
                
                
                2,299Less:
      current portion
                
                
                (160
                )
                
                
                (639
                )Long-
      term notes payable, net of discount
                
                $
                -
                
                
                $
                1,660





Installment
notes payable





During
the year ended June 30, 2010, Hyperdynamics financed an insurance policy for an
aggregate amount of $178,000, with a down payment of $18,000. As of June 30,
2010, the net amount outstanding on these notes was $160,000. The notes are
payable over nine months from inception in installments of approximately $18,000
per month.


F-18





During
the year ended June 30, 2009, Hyperdynamics financed three insurance policies
for an aggregate amount of $32,000. The balance of these notes was $23,000 as of
June 30, 2009.





Convertible
Debentures





On
September 12, 2008, Hyperdynamics sold $5,000,000 convertible debentures,
convertible at $2.25 per share, to an investor in a registered direct
offering.  Placement costs totaled $403,000, resulting in net cash
proceeds of $4,670,000.   The investor also received warrants to
purchase 1,111,111 shares of common stock at $3.00 per share (“Series A”) and
warrants to purchase 1,111,111 shares of common stock at $2.75 per share
(“Series B”). The fair value of the warrants was $1,886,000, which was recorded
as a discount on the convertible note.  The warrants also contained
beneficial conversions features with a fair value of $486,000, which was
recorded as a discount on the convertible note.





During
October 2008, the above investor converted $563,000 of debenture principal to
common stock, resulting in the issuance of 250,000 shares of common stock and
payment of cash of $89,000 for a portion of the associated make whole
interest.  The remaining make whole interest of $133,000 associated
with these conversions was added to the debenture principal in November 2008 as
discussed below.





In conjunction with the
November 20, 2008 extinguishment discussed below, the investor converted
$1,440,000 of the convertible debt ($3,254,000 of debenture principal, net of
unamortized discount of $1,814,000) into 1,972,222 shares of common stock which
was recognized as additional paid in capital.  Also, on March 31, 2009, an
additional $46,000 of principal was converted to 27,778 shares of common stock
which was immediately recognized as additional paid in capital.On
November 20, 2008, Hyperdynamics entered into an amendment agreement with the
same debenture investor.  The agreement reduced the conversion price
of the convertible debentures to $1.65 per share, reduced the exercise price of
the 2,424,243 warrants issued during May 2008 to $2 per share, and reduced the
exercise price of the 1,111,111 Series A and Series B warrants each issued
during  September 2008 to $2.25 per share and $2.50 per share,
respectively. The amendment also provided a new interest payment option, payment
in kind, by which interest, including any ‘make whole’ interest due, could be
added to the outstanding principal amount of the Debenture.




The
amendment resulted in a substantial modification of terms of the
debt.  Accordingly, Hyperdynamics recognized the amendment as an
extinguishment of debt (the “2008 Extinguishment”) which provides that the
fair value of the assets given to the investor to refund the existing debt was
compared with the carrying value of the existing debt and a gain or loss be
recognized. A gain on extinguishment of $56,000 was recognized in the year ended
June 30, 2009. As a result of the 2008 Extinguishment, the post modification
debt was recorded at its fair value of $1,963,000, which was determined based
upon the value of the conversion feature in the debenture using the Company’s
stock price on November 20, 2008 of $0.73 per share.  The resulting
debt discount of $2,474,000, which represented the difference between the stated
principal amount of $4,438,000 and the fair value of the post modification debt
and the fair value of the warrants of $106,000 that were repriced as part of the
debt modification, was to be amortized as interest expense over the term of the
convertible debentures.  The post modification debt had an effective
interest rate of 29% per annum.





On
November 12, 2009, we entered into a Securities Purchase Agreement with the
convertible debenture holder. Pursuant to the Securities Purchase Agreement and
the terms of the convertible debenture, the conversion price of the convertible
debenture was reduced from $1.65 per share to $0.95 per share, subject to no
further adjustment other than for stock splits and stock dividends. Pursuant to
FASB ASC Topic No. 470-20, “Debt with Conversion and Other
Options,” we determined the reduction in the conversion price resulted in
the recognition of a contingent beneficial conversion feature.  The
intrinsic value of the contingent beneficial conversion feature was $1,172,000,
which was treated as additional discount on the outstanding convertible
debenture balance of $1,590,000 on November 12, 2009.





During
the year ended June 30, 2010, based upon the conversion prices of $1.65 and
$0.95 per share, the convertible debenture investor converted a total principal
amount, including interest accreted to principal, of $1,296,000 (net of a
discount of $1,116,000) into 1,949,411 shares of our common stock.  We
paid approximately $525,000 to retire the remaining outstanding convertible
debenture amount.  We recognized a loss of approximately $298,000 for
the year June 30, 2010, which represents the difference between the remaining
convertible debenture amount outstanding, net of the unamortized discount
associated with the contingent beneficial conversion feature discussed above,
and the payoff amount.  The beneficial conversion feature did not have
any intrinsic value at the time the convertible debenture was paid
off.





10.
WARRANT DERIVATIVE LIABILITY





Effective
July 1, 2009, we adopted FASB ASC Topic No. 815-40 (formerly EITF 07-05) which
defines determining whether an instrument (or embedded feature) is indexed to an
entity’s own stock. This literature specifies that a contract that would
otherwise meet the definition of a derivative but is both (a) indexed to our own
stock and (b) classified in stockholders’ equity in the statement of financial
position, would not be considered a derivative financial instrument and provides
a new two-step model to be applied in determining whether a financial instrument
or an embedded feature is indexed to an issuer’s own stock and thus able to
qualify for the scope exception.





As a
result of this adoption, certain warrants previously treated as equity pursuant
to the derivative treatment exemption are no longer afforded equity treatment
because these warrants have a down-round ratchet provision on the exercise
price. As a result, the warrants are not considered indexed to our own stock,
and as such, all future changes in the fair value of these warrants will be
recognized currently in earnings in our consolidated statement of operations
under the caption “Other income (expense) – Gain (loss) on warrant derivative
liability” until such time as the warrants are exercised or
expire.


F-19




The
exercise price of certain warrants issued to YA Global Investments, LP (“YA
Global”) is subject to “reset” provisions in the event we subsequently issue
common stock, stock warrants, stock options or convertible debt with a stock
price, exercise price or conversion price lower than $2.00. If these provisions
are triggered, YA Global will receive warrants to purchase additional shares of
common stock and a reduction in the exercise price of all their
warrants.





As such,
effective July 1, 2009, we reclassified from additional paid-in capital, as a
cumulative effect adjustment, $1,585,000 to Warrant Derivative Liability to
recognize the fair value of the YA Global Warrants as if these warrants had been
treated as a derivative liability since their issuance in February
2008.





In
November 2009, the YA Global warrants, then totaling 666,666 were reset to an
exercise price of $0.95 and into a total number of shares of
1,157,894.  In December 2009, these warrants, then totaling 1,157,894
were reset to an exercise price of $0.90 and into a total number of shares of
1,222,222.





In April
2010, YA Global exercised 520,000 of these warrants on a cashless basis. This
reduced the derivative liability by $722,000 and increased by the same amount
additional paid-in capital.





We
recognized a $279,000 gain on the warrant derivative liability, of which
$231,000 was unrealized based on the change in fair value of the liability and
$48,000 which was related to the exercise of the 520,000 warrants in April 2010.
The fair value of the YA Global Warrants was $583,000 on June 30,
2010.




These
common stock purchase warrants do not trade in an active securities market, and
as such, we estimate the fair value of these warrants using a Lattice Model
using the following assumptions:




June 30,
      2010
                    
                    
                    July 1,
      2009Annual
      dividend yield
                    
                    
                    0.00
                    
                    
                    
                    0.00Expected
      life (years)
                    
                    
                    2.61
                    
                    
                    
                    3.61Risk-free
      interest rate
                    
                    
                    1.45
                    %
                    
                    
                    1.40
                    %Expected
      volatility
                    
                    
                    133
                    %
                    
                    
                    442
                    %Probability
      of below exercise price issuance
                    
                    
                    10
                    %
                    
                    
                    10
                    %





Expected
volatility is based on historical volatility of our common stock.  The
expected life is based on the remaining term of the warrants. The risk-free
interest rate is based on U.S. Treasury securities according to the remaining
term of the warrants. The expected dividend yield was based on our current and
expected dividend policy. The Lattice Model includes our assessment of the
likelihood of a future issuance of equity at a price lower than the current
exercise price of the warrants.





11.
INCOME TAXES





Federal
Income taxes are not due since Hyperdynamics has had losses since inception.
Hyperdynamics has net operating loss carryforwards of approximately $48,000,000
at June 30, 2010.  Components of deferred tax assets as of June 30,
2010 and 2009 are as follows:





(in
      thousands)
                
                2010
                
                
                2009Net
      operating loss carryforward
                
                $
                16,713
                
                
                $
                14,472Valuation
      allowance for deferred tax assets
                
                
                (16,713
                )
                
                
                (14,472
                )Net
      deferred tax asset
                
                $
                -
                
                
                $
                -





The
deferred tax asset generated by the loss carry-forward has been fully reserved
due to the uncertainty that the Company will be able to realize the benefit from
it.


F-20





Internal
Revenue Code Section 382 restricts the ability to use these carryforwards
whenever an ownership change, as defined, occurs. Hyperdynamics incurred such an
ownership change on January 14, 1998 and again on June 30, 2001.  As a
result of the first ownership change, Hyperdynamics' use of net operating losses
as of January 14, 1998, of $949,000, are restricted to $151,000 per year. The
availability of losses from that date through June 30, 2001 of $3,313,000 are
restricted to $784,000 per year. Losses in fiscal 2002 and beyond are not
restricted. The net operating loss carryforwards expire from 2010 to
2028.





The
difference between the statutory tax rates and our effective tax rate is due to
the valuation allowance applied against our deferred tax assets generated by net
operating losses. A reconciliation of the actual taxes to the U.S. statutory tax
rate for the years ended June 30, 2010 and 2009 is as follows:





(in
      thousands)
                
                2010
                
                
                2009Income
      tax benefit at the statutory federal rate (35%)
                
                $
                (2,803
                )
                
                $
                (3,125
                )Increase  resulting
      from nondeductible stock compensation
                
                
                553
                
                
                
                209Decrease
      resulting from nontaxable gain on derivative liability
                
                
                (98
                )
                
                
                -Other,
      net
                
                
                107
                
                
                
                8Change
      in valuation
                
                
                2,241
                
                
                
                2,908Net
                
                $
                -
                
                
                $
                -





12.
SHAREHOLDERS' EQUITY





Series
A Preferred Stock




In
January 2000, we issued 3,000 shares of Series A Convertible Preferred Stock for
net proceeds of $2,604,190. The stated value is $1,000 per share and par value
is $0.001. This series is non-voting and has a dividend rate of 4%, payable at
conversion in either cash or shares of common stock, at Hyperdynamics' option.
During 2000 and 2001, 1,055 shares were converted to common stock. As a result,
1,945 shares remain outstanding at June 30, 2010. By terms of the original
agreement, the preferred shares are convertible into Hyperdynamics' common stock
at a price equivalent to the lower of the trading price when purchased of $5.25
or 80% of the current 5-day trading average. All or any of the stock may be
converted at any time at the holder's option. According to the terms of the
agreement, all preferred shares outstanding as of January 30, 2002 were to be
automatically converted to common stock. If the Series A stock had been
converted at that time, approximately 4,862,000 shares of common stock would
have been issued. This conversion did not occur because of legal claims filed by
both the Series A shareholders and Hyperdynamics against each other. Remaining
conversions, if any, would be determined by the outcome of the lawsuit further
described in Note 14.





Since the
outcome was not known and no conversion had been effected, Hyperdynamics
continued to accrue dividends on the 1,945 shares through September 30, 2004.
Management evaluated the accrual as of September 30, 2004 and determined the
accrual should be discontinued. Management reevaluates the accrual periodically
and considers the current accrual to be adequate to cover the liability, if any,
pursuant to the lawsuit.





As of
June 30, 2010, $372,000 in dividends had been accrued, which represents accruals
through September 30, 2004. No dividends were accrued in 2010 or
2009.





Series
B Preferred Stockholders




Prior to
the conversion of our Series B preferred stock on September 29, 2009, the Series
B stockholders were entitled to a 4% cumulative dividend on the stated value,
which was payable only upon conversion of the preferred stock. Dividends were to
be paid in stock or cash at Hyperdynamics' option. During the year ended June
30, 2009, related party dividends of $97,000 were accrued and a related party
converted 40.5 shares of Series B Preferred Stock into 300,000 shares of common
stock.   Dividends payable to the related party at the time of
conversion were $7,000, which was paid by issuing 21,884 shares of our common
stock.




On
September 29, 2009, we entered into the Series B Agreement with the holders of
all of our Series B preferred stock in which the Series B holders (i) converted
all of  their shares of Series B preferred stock into approximately
15,822,222 shares of common stock, (ii) agreed to the cancellation of warrants
to purchase 1,000,000 shares of common stock, (iii) agreed to donate, pursuant
to a specified schedule, 2,000,000 shares of common stock, issued upon
conversion of the Series B preferred stock, and warrants to purchase 1,000,000
shares of common stock, to the American Friends of Guinea, a charitable
organization that provides support to the people of Guinea, and (iv) agreed to
be subject to a nine month lock-up of the 15,822,222 million shares of common
stock received in connection with the conversion of the Series B preferred
stock, and any shares that may be received upon exercise of their
warrants.  The common stock received upon conversion represented a
reduction of 2,000,000 shares that otherwise would have been issuable under the
original terms of the Series B preferred stock.




F-21





Under the
terms of the Series B Agreement, if we completed an equity or debt financing in
the future of $10,000,000 or more, we also agreed to (i) pay a
previously owed dividend in the aggregate amount of $430,000 to the Series B
holders and (ii) subject to market conditions, release from the lock-up
provision described above, up to 1,000,000 shares of common stock received in
connection with the Series B preferred stock conversion in order to allow for
resale by the Series B holders. On April 23, 2010, following our April 20, 2010
registered direct offering, $430,000 was paid to the Series B
holders.





Agreement
with Certain Stockholders




On July
21, 2010, the Company entered into two agreements (the “Letter Agreements”) with
certain holders of Common Stock in which an aggregate of 13,400,000 shares of
Common Stock of the Company and Warrants to purchase an aggregate of 3,980,000
shares of Common Stock of the Company that are owned by the holders (the shares
of Common Stock and shares of Common Stock underlying the Warrants are
collectively referred to as the “Securities”) will be subject to certain lock-up
restrictions. The holders have agreed that, during the period beginning on July
21, 2010, and ending nine months later on April 21, 2011 (the “Restriction
Period”), except under certain circumstances discussed below and identified in
the Letter Agreements, without the written consent of the Company, they will not
(i) sell, offer to sell, contract to agree to sell, hypothecate, hedge, pledge,
grant any option to purchase, make any short sale or otherwise dispose of or
agree to dispose of, directly or indirectly, any of the 13,400,000 shares of
Common Stock held by them or the 3,980,000 shares that may be acquired pursuant
to exercise of the Warrants, or any of the 3,980,000 Warrants or (ii) enter into
any swap or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of any of these Securities,
whether any such transaction is to be settled by delivery of such Securities, in
cash or otherwise. During the Restriction Period (i) 15 percent of the locked-up
shares will be released from the lock-up if the stock price reaches $3 a share
for five consecutive trading days, (ii) 50 percent will be released if the price
reaches $5 a share for five days, and (iii) 100 percent will be released if the
stock price reaches $9 a share for the same period. Under the terms of the
Letter Agreements, the holders also agreed to donate an aggregate of 2,000,000
shares of Common Stock and Warrants to purchase an aggregate of 1,000,000 shares
of Common Stock to the American Friends of Guinea, a charitable organization
with which the Company is working to provide support to the people of Guinea.
The agreement entered into between the Company and the holders dated September
29, 2009 is terminated under the terms of the Letter Agreements.




Common
Stock issuances





For
exercise of options for cash:





No
options were exercised for cash during the year ended June 30, 2009 or June 30,
2010.





For
exercise of warrants for cash:





During
the fiscal year ended June 30, 2010, Enable exercised all warrants to purchase
4,646,465 shares of common stock at an exercise price of $0.95 for total gross
proceeds of $4,414,142.  No warrants were exercised for cash during the
year ended June 30, 2009.





For
cashless exercise of options:





During
the year ended June 30, 2010, we issued 124,653 shares of common stock upon the
cashless exercise of stock options to purchase 220,000 shares of common
stock.  There were no cashless exercises of options for the year ended
June 30, 2009.





For
cashless exercise of warrants:





During
the year ended June 30, 2010, we issued 201,490 shares of common stock to YA
Global upon the cashless exercise of warrants to purchase 520,000 shares of
common stock.  There were no cashless exercises of warrants for the
year ended June 30, 2009.





For
services:





During
the year ended June 30, 2010, we issued192,049 shares of common stock
fromourStock and Stock Option plan
to employees, directors and consultants for services valued at$143,000. Services were valued using the market close price on the date
of grant.





In July
2008, we entered an agreement with an international law firm to support our 2006
PSC for services to be provided from July 2008 through March 2009.  The
agreement required that we issue a combination of our common stock and cash as
payment for services of approximately $700,000.  The contract also provided
for a true-up six months after the date any shares were issued and upon final
settlement.  Under the true-up provision, the law firm was entitled to
receive additional shares if the market value of our common stock declined in
value prior to full payment of the obligations.  The true up provision
constitutes an obligation to issue a variable number of shares based upon a
fixed monetary value (the “variable share issuance obligation”).  All
issuances of our common stock were recorded at the fair value of the shares at
the date of grant.  During the year ended June 30, 2009 we issued 350,000
shares of our common stock valued at $543,000 as an initial payment under the
agreement.  We accrued an additional $584,500 of expense in respect of the
variable share issuance obligation and the amount remained unsettled as of June
30, 2009.  During the year ended June 30, 2010, we settled the variable
share issuance obligation by issuing 250,000 shares of our common stock valued
at $181,000 and made a payment totaling $214,843.


F-22





During
the year ended June 30, 2009, Hyperdynamics issued 1,835,448 shares of common
stock for services rendered by consultants, employees, and independent members
of the board of directors with a total value of $1,014,000. Services were valued
using the market close price on the date of grant.





During
the year ended June 30, 2009, Hyperdynamics issued 66,000 shares for the payment
of deferred financing costs related to the issuance of the convertible
debentures.  The shares were valued at $103,000 based on the closing
market price on the date of grant.





For
cash:





On
November 12, 2009, we entered into a Shares Purchase Agreement with Enable
Growth Partners, L.P. (“Enable”), which then held certain securities that were
previously issued by us.  Pursuant to the Shares Purchase Agreement,
we issued to Enable 1,578,948 shares of our common stock, par value $0.001
per share.  The aggregate net proceeds from the offering, after
deducting offering expenses payable by us, were approximately
$1,485,000.  The offering closed on November 17,
2009.




On
December 3, 2009, we entered into a Securities Purchase Agreement pursuant to
which we agreed to sell an aggregate of 7,222,223 shares of our common stock and
warrants to purchase a total of 3,250,000 shares of our common stock to
institutional investors for gross proceeds of approximately $6.5 million.
 The net proceeds to us from the offering, after deducting placement agent
fees and our offering expenses, were approximately $6,045,000.  The
placement agent also received warrants to purchase 144,444 shares of common
stock as additional compensation.  The purchase price of a share of
common stock and fractional warrant was $0.90.  Subject to certain
ownership limitations, the warrants are exercisable 181 days following the
closing date of the offering and expire four years following the initial
exercise date at an exercise price of $0.98.  See Note 13 for additional
information.  The offering closed on December 7, 2009.  The
proceeds from this offering were used to pay for a portion of the current
seismic program as well as to retire remaining convertible debt.





On April
20, 2010, the Company entered into a securities purchase agreement pursuant to
which the Company agreed to sell an aggregate of 8,076,925 shares of our
common stock and warrants to purchase a total of 2,826,923 shares of our
common stock to institutional investors for gross proceeds of approximately
$10.5 million. The net proceeds to us from the offering, after deducting
placement agent fees and our offering expenses, were approximately
$9,670,000. The purchase price of a share of common stock and warrant was
$1.30.  Subject to certain ownership limitations, the warrants are
exercisable 181 days following the closing date of the
offering. Warrants to purchase 807,692 shares of common stock
expire one year following the initial exercise date.  Warrants to
purchase 2,019,231 shares of common stock expire five years following the
initial exercise date. The warrants have an exercise price of
$1.58.  The exercise price of the warrants is subject to adjustment in the
case of stock splits, stock dividends, combinations of shares and similar
recapitalization transactions.  See Note 13 for additional
information.





There
were no issuances of common stock for cash for the fiscal year ended June 30,
2009.





For
conversion of convertible debenture:





During
the year ended June 30, 2010, based upon the conversion prices of $1.65 and
$0.95 per share, the convertible debenture investor converted a total principal
amount, including interest accreted to principal, of $1,296,000 (net of a
discount of $1,116,000) into 1,949,411 shares of our common stock.





During
the year ended June 30, 2009, holders of the convertible debentures elected to
convert debentures in the principal amount of $3,862,000 into 2,250,000 shares
of common stock. The conversion of the debentures accelerated the amortization
of discounts in the amount of $1,824,000, resulting in the shares issued being
valued at the net amount of $2,038,000.





Employee
stock options





During
the year ended June 30, 2010, we granted options to purchase 7,514,000 shares of
common stock to our employees and directors.   The compensation
expense associated with employee stock options during the year ended June 30,
2010 was $1,579,000. During the year ended June 30, 2009, we granted options to
purchase 870,000 shares of common stock to our employees and
directors.   The compensation expense associated with employee
stock options during the year ended June 30, 2009 was $281,000. See Note 13 for
additional information.





Other
items affecting equity





In July
2008, Hyperdynamics entered into a contract for 2D seismic work offshore Guinea.
The contract provided for Hyperdynamics to issue 2,500,000 shares of common
stock to the vendor as a deposit. The value ascribed to the stock by the parties
in the contract was $6.00 per share. The 2,500,000 shares were issued during
August 2008 and delivered to the vendor during October 2008. The contract
provided that the stock may be sold to pay invoices after the seismic work
began. Any proceeds from the sale of this stock would be applied by the
direction of us to any legitimate outstanding invoices. Should we elect to pay
cash for the seismic work, any remaining unsold stock will be returned to
us.  Because there was no performance commitment, there was no
accounting recognition of the stock issued for the year ended June 30, 2010 and
2009, in accordance with EITF 00-18 governing share-based payment to
non-employees. As a result, these shares were not shown as issued in the
accompanying financial statements. We paid cash for this entire work program,
and the entire 2,500,000 share stock certificate was returned to us in August
2010.


F-23





13.
STOCK OPTIONS AND WARRANTS





On
February 18, 2010, at our annual meeting of stockholders, the board of directors
and stockholders approved the 2010 Equity Incentive Plan (the “2010 Plan”).
Prior to the 2010 stockholder meeting, we had two stock award plans: the Stock
and Stock Option Plan, which was adopted in 1997 (“1997 Plan”) and the 2008
Restricted Stock Award Plan (“2008 Plan”). In conjunction with the approval of
the 2010 Plan at the annual meeting, the 1997 Plan and 2008 Plan were terminated
as of February 18, 2010.





The 2010
Plan provides for the grants of shares of common stock, restricted stock or
incentive stock options and/or nonqualified stock options to purchase our common
stock to selected employees, directors, officers, agents, consultants,
attorneys, vendors and advisors of ours’ or of any parent or subsidiary thereof.
Shares of common stock, options, or restricted stock can only be granted under
this plan within 10 years from the effective date of February 18, 2010. A
maximum of 5,000,000 shares are issuable under the 2010 Plan and at June 30,
2010, 3,851,000 shares remained available for issuance.




The 2010
Plan provides a means to attract and retain the services of participants and
also to provide added incentive to such persons by encouraging stock ownership
in the Company. Plan grants are administered by the Compensation Committee, who
have substantial discretion to determine which persons, amounts, time, price,
exercise terms, and restrictions, if any.




Additionally,
from time to time, we issue non-compensatory warrants, such as warrants issued
to investors.





The fair
value of non-market based options or warrants are estimated using the
Black-Scholes valuation model. For market based options, the fair value was
estimated using a Black-Scholes option pricing model with inputs adjusted for
the probability of the vesting criteria being met and the median expected term
for each grant as determined by utilizing a Monte Carlo simulation. Expected
volatility is based solely on historical volatility of our common stock over the
period commensurate with the expected term of the stock options. We rely solely
on historical volatility as we do not have traded options. The expected term
calculation for stock options is based on the simplified method as described in
the Securities and Exchange Commission Staff Accounting Bulletin number 107. We
use this method because we do not have sufficient historical information on
exercise patterns to develop a model for expected term. The risk-free interest
rate is based on the U. S. Treasury yield in effect at the time of grant for an
instrument with a maturity that is commensurate with the expected term of the
stock options. The dividend yield rate of zero is based on the fact that we have
never paid cash dividends on our common stock and we do not intend to pay cash
dividends on our common stock.




2008
Restricted Stock Award Plan





During
the years ended June 30, 2010 and 2009 no options or warrants were issued under
the plan.





1997
Stock and Stock Option Plan





Options
granted to employees and directors:





The
following table provides information about options granted under this plan
during the years ended June 30:





2010
                  
                  
                  2009Number
      of options granted
                  
                  
                  6,365,000
                  
                  
                  
                  870,000Compensation
      expense recognized
                  
                  $
                  1,501,132
                  
                  
                  $
                  281,000Compensation
      cost capitalized
                  
                  
                  -
                  
                  
                  
                  -Weighted
      average fair value of options
                  
                  $
                  0.45
                  
                  
                  $
                  0.24





The
following table details the significant assumptions used to compute the fair
market values of employee stock options granted during the years ended June
30:





2010
                  
                  
                  2009Risk-free
      interest rate
                  
                  
                  0.37
      - 3.58
                  %
                  
                  
                  0.40 – 2.63
                  %Dividend
      yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %Volatility
      factor
                  
                  
                  113
      - 178
                  %
                  
                  
                  89 – 118
                  %Expected
      life (years)
                  
                  
                  0.4
      – 5.0
                  
                  
                  
                  1 –
      2.5




F-24


2010
Stock Option Plan





Options
granted to employees and directors:





With the
approval of the 2010 Plan at the annual meeting, this plan was effective as of
February 18, 2010. The following table provides information about options
granted during the year ended June 30:





2010Number
      of options granted
                  
                  
                  1,149,000Compensation
      expense recognized
                  
                  $
                  77,660Compensation
      cost capitalized
                  
                  
                  -Weighted
      average fair value of options
                  
                  $
                  0.85





The
following table details the significant assumptions used to compute the fair
market values of employee stock options granted during the year ended June
30:





2010Risk-free
      interest rate
                  
                  
                  0.17
      - 2.75
                  %Dividend
      yield
                  
                  
                  0
                  %Volatility
      factor
                  
                  
                  58
      - 165
                  %Expected
      life (years)
                  
                  
                  0.23
      – 5.0





Summary
information regarding employee stock options issued and outstanding under all
plans as of June 30, 2010 is as follows:





Options
                                          
                                          
                                          Weighted
                                            Average Share
                                            Price
                                          
                                          
                                          Aggregate
                                            intrinsic value
                                          
                                          Weighted
                                            average
                                            remaining
                                            contractual life
                                            (years)Outstanding
      at year ended June 30, 2008
                                          
                                          
                                          2,238,696
                                          
                                          
                                          $
                                          3.45
                                          
                                          
                                          
                                          320,000
                                          
                                          1.79Granted
                                          
                                          
                                          870,000
                                          
                                          
                                          
                                          1.07Exercised
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Expired
                                          
                                          
                                          (888,989
                                          )
                                          
                                          
                                          1.57Outstanding
      at year ended June 30, 2009
                                          
                                          
                                          2,219,707
                                          
                                          
                                          
                                          3.27
                                          
                                          
                                          
                                          45,375
                                          
                                          1.76Granted
                                          
                                          
                                          7,514,000
                                          
                                          
                                          
                                          0.83Exercised
                                          
                                          
                                          (220,000
                                          )
                                          
                                          
                                          0.63Forfeited
                                          
                                          
                                          (130,000
                                          )
                                          
                                          
                                          2.05Expired
                                          
                                          
                                          (1,434,947
                                          )
                                          
                                          
                                          4.10Options
      outstanding at year ended June 30, 2010
                                          
                                          
                                          7,948,760
                                          
                                          
                                          $
                                          0.91
                                          
                                          
                                          $
                                          2,589,600
                                          
                                          6.20Options
      exercisable at year ended June 30, 2010
                                          
                                          
                                          2,553,760
                                          
                                          
                                          $
                                          1.14
                                          
                                          
                                          $
                                          664,100
                                          
                                          2.96





Options outstanding and exercisable as of June 30, 2010


Exercise Price
                        
                        
                        Outstanding
                          Number of Shares
                        
                        Remaining Life
                        
                        Exercisable
                          Number of Shares$
                        0.01
      – 0.99
                        
                        
                        
                        75,000
                        
                        1
      year or less
                        
                        
                        75,0000.01
      – 0.99
                        
                        
                        
                        100,000
                        
                        1
      year
                        
                        
                        100,0000.01
      – 0.99
                        
                        
                        
                        85,000
                        
                        2
      years
                        
                        
                        85,0000.01
      – 0.99
                        
                        
                        
                        150,000
                        
                        3
      years
                        
                        
                        50,0000.01
      – 0.99
                        
                        
                        
                        1,800,000
                        
                        4
      years
                        
                        
                        750,0000.01
      – 0.99
                        
                        
                        
                        480,000
                        
                        6
      years
                        
                        
                        -0.01
      – 0.99
                        
                        
                        
                        810,000
                        
                        7
      years
                        
                        
                        -0.01
      – 0.99
                        
                        
                        
                        1,200,000
                        
                        11
      years
                        
                        
                        -1.00
      – 1.49
                        
                        
                        
                        105,000
                        
                        1
      year or less
                        
                        
                        105,0001.00
      – 1.49
                        
                        
                        
                        100,000
                        
                        1
      year
                        
                        
                        -1.00
      – 1.49
                        
                        
                        
                        920,000
                        
                        4
      years
                        
                        
                        800,0001.00
      – 1.49
                        
                        
                        
                        680,000
                        
                        9
      years
                        
                        
                        -1.00
      – 1.49
                        
                        
                        
                        294,000
                        
                        10
      years
                        
                        
                        -1.50
      – 1.99
                        
                        
                        
                        30,000
                        
                        1
      year or less
                        
                        
                        30,0001.50
      – 1.99
                        
                        
                        
                        611,000
                        
                        4
      years
                        
                        
                        50,0002.00
      - $2.49
                        
                        
                        
                        120,000
                        
                        1
      year or less
                        
                        
                        120,0002.00
      - $2.49
                        
                        
                        
                        235,000
                        
                        1
      year
                        
                        
                        235,0002.50
      - $3.00
                        
                        
                        
                        88,760
                        
                        1
      year or less
                        
                        
                        88,7603.00
      - $3.50
                        
                        
                        
                        65,000
                        
                        1
      year or less
                        
                        
                        65,0007, 948,760
                        
                        
                        
                        
                        2,553,760





F-25




Options
outstanding and exercisable as of June 30, 2009


Exercise Price
                      
                      
                      Outstanding
                        Number of Shares
                      
                      Remaining Life
                      
                      Exercisable
                        Number of Shares$
                      0.01
      – 0.49
                      
                      
                      
                      75,000
                      
                      2
      years
                      
                      
                      75,0000.01
      – 0.49
                      
                      
                      
                      165,000
                      
                      3
      years
                      
                      
                      165,0000.01
      – 0.49
                      
                      
                      
                      150,000
                      
                      5
      years
                      
                      
                      150,0001.00
      – 1.49
                      
                      
                      
                      22,500
                      
                      1
      year or less
                      
                      
                      22,5001.00
      – 1.49
                      
                      
                      
                      60,000
                      
                      2
      years
                      
                      
                      60,0001.00
      – 1.49
                      
                      
                      
                      30,000
                      
                      3
      years
                      
                      
                      30,0001.50
      – 1.99
                      
                      
                      
                      15,000
                      
                      1
      year or less
                      
                      
                      15,0001.50
      – 1.99
                      
                      
                      
                      90,000
                      
                      2
      years
                      
                      
                      90,0002 -
      $2.49
                      
                      
                      
                      248,447
                      
                      1
      year or less
                      
                      
                      248,4472 -
      $2.49
                      
                      
                      
                      170,000
                      
                      2
      years
                      
                      
                      170,0002 -
      $2.49
                      
                      
                      
                      295,000
                      
                      3
      years
                      
                      
                      295,0002.50
      - $2.99
                      
                      
                      
                      65,000
                      
                      1
      year or less
                      
                      
                      65,0002.50
      - $2.99
                      
                      
                      
                      153,760
                      
                      2
      years
                      
                      
                      153,7603 -
      $3.50
                      
                      
                      
                      15,000
                      
                      1
      year or less
                      
                      
                      15,0003 -
      $3.50
                      
                      
                      
                      65,000
                      
                      2
      years
                      
                      
                      65,0005.00
                      
                      
                      
                      300,000
                      
                      3
      years
                      
                      
                      -10.00
                      
                      
                      
                      300,000
                      
                      3
      years
                      
                      
                      -2, 219,707
                      
                      
                      
                      
                      1,619,707





At June
30, 2010, there was $2,244,000 of unrecognized compensation costs related to
non-vested share based compensation arrangements granted to employees under the
plans.




During
2010, a total of 1,975,000 options, with a weighted average grant date fair
value of $0.57 per share, vested in accordance with the underlying
agreements. Unvested options at June 30, 2010 totaled 5,395,000 with a weighted
average grant date fair value and exercise price of $0.47, and $1.14,
respectively, an amortization period of 2.66 years and a weighted average
remaining life of 7.73 years.





Options
granted to employees, directors and vendors during the year ended June 30,
2010:





·
            550,000 stock options granted to
      a vendor for services rendered associated with the search and hiring of
      our new CEO, Ray Leonard.  These options are immediately vested
      and have a $1.28 strike price and a five year life. These options had an
      estimated value of $491,095, all of which was expensed
      immediately.





·
            250,000 stock options granted
      with immediate vesting to Robert Solberg in connection with his addition
      and appointment to the Board of Directors as Chairman of the Board with a
      strike price of $1.15 and a five year life. These options had an estimated
      value of $247,525.


F-26





·
            155,000 stock options granted
      with immediate vesting to certain officers and directors of the Company
      with a strike price of $0.52. A total of 60,000 of the options have a two
      year life and the remaining 95,000 options have a three year life. These
      options had an estimated value of
  $41,937.




·
            45,000
      stock options granted with immediate vesting to an officer of the Company
      with a strike price of $0.42 and a three year life. These options had an
      estimated value of $13,442 all of which was expensed
      immediately.




·
            90,000 stock options granted to
      an employee of the Company in connection with his hiring with a strike
      price of $0.54, vesting ratably over three years and a five year life.
      These options had an estimated value of
  $25,110.





·
            200,000 stock options for a
      director of the Company with a strike price of $0.40, with vesting
      dependent upon certain performance conditions and a two year life. These
      options had an estimated value of
  $31,715.




·
            50,000 stock options to a
      director upon his election to the Board of the Company with a strike price
      of $1.54, immediate vesting and a five year life. These options had an
      estimated value of $53,720, all of which was expensed
      immediately.





·
            In connection with the hiring of
      our CEO, we granted our CEO:




·
              Options
      with immediate vesting to purchase 500,000 shares of our common stock at
      an exercise price of $0.49 and with a five year
  life.




·
            Options to purchase 300,000
      shares of our common stock at an exercise price of $0.49 that vest on a
      monthly basis over five years.  These options have a five
      year life.





In
addition to the equity award grants discussed above, Mr. Leonard received the
following stock option grants, the vesting of which starts on the date the
performance metric (Trigger Event) is achieved:





·
            When $8 million cumulative is
      raised, the award is 210,000 stock
  options.





·
            When $20 million cumulative is
      raised, the award is an additional 180,000 stock
      options.





·
            When $30 million cumulative is
      raised, the award is an additional 210,000 stock
      options.





All
awards vest 1/36 per month over a three-year period from the Trigger
Event.  These options have a five year life, and the exercise
price will be $0.49.





A market
based stock option incentive grant was made to our CEO based on achieving the
following share price thresholds:





$2.00/share
              90,000
      stock options$3.00/share
              210,000
      stock options$5.00/share
              600,000
      stock options$9.00/share
              1,200,000
      stock options





All
awards vest 1/36 per month over a three-year period from the Trigger
Event.  These options have a five year life, and the exercise
price will be $0.49.





For
awards related to the $2.00 and $3.00 share price, the stock option is earned if
the closing price of the shares trade at or above the target price for 15
consecutive trading days.  For awards related to the $5.00 and $9.00
share price, the stock option is earned if the closing price of the shares trade
at or above the target price for 5 consecutive trading days.





These
options had a fair value of $692,409. Based on the expected vesting schedule,
$342,810 was expensed during the year ended June 30, 2010.




·
            In
      October and November 2009, we granted options to purchase 825,000 shares
      of common stock to employees, directors and consultants. The options have
      an exercise price of between $1.12 and $1.61 and a term of five years. The
      options vest ratably over three years. These options had an estimated fair
      value of $838,272.




·
            In
      December 2009, we granted options to purchase 400,000 shares of common
      stock to William Young, our Executive Vice President of Commercial
      Affairs. The options have an exercise price of $0.92 per share and a term
      of five years. Options to purchase 200,000 shares of common stock vest
      ratably over three years. The remaining 200,000 market based awards vest
      upon achieving a trading share price for our common stock of $3.00 per
      share. These options had an estimated fair value of
    $231,742.


F-27




·
            In January 2010, 200,000 stock
      options granted to an employee of the Company in connection with his
      hiring with an exercise price of $0.87, vesting ratably over three years
      and a five year life. These options had an estimated value of
      $133,913.




·
            In January 2010, 100,000 market
      based stock options granted to an officer of the Company with an exercise
      price of $0.90, vesting upon achieving a trading share price for our
      common stock of $3.00 per share and a five year term. These options had an
      estimated value of $43,153.




·
            Between
      April and June 2010, we granted options to purchase 555,000 shares of
      common stock to employees. The options have an exercise price of between
      $1.07 and $1.49 and a term of ten years. The options vest ratably over
      three years. These options had an estimated fair value of
      $476,563.




·
            In
      May 2010, we granted options to purchase 300,000 shares of common stock to
      an employee. The options have an exercise price of $1.06 per share and a
      term of ten years. Options to purchase 200,000 shares of common stock vest
      ratably over three years. The remaining 100,000 market based awards vest
      upon achieving a trading share price for our common stock of $3.00 per
      share. These options had an estimated fair value of
    $228,968.




·
            In
      June 2010, we granted options to purchase 294,000 shares of common stock
      to directors. The options have an exercise price of $1.09 and a term of
      ten years. The options vest ratably over two years. These options had an
      estimated fair value of $273,260.




Options
granted to employees and directors during the year ended June 30,
2009:





·
            705,000 stock options granted to
      employees with exercise prices ranging from $0.24 to $2.00 per share.
      These options vested immediately and have a three year life. These options
      had an estimated fair value of $157,751, all of which was expensed
      immediately.





·
            165,000 stock options granted to
      directors with exercise prices ranging from $0.31 to $1.68 per share.
      These options vested immediately and have a two year life. These options
      had an estimated fair value of $54,750, all of which was expensed
      immediately.





Warrants





During
the years ended June 30, 2010 and 2009, we did not grant any warrants to
consultants.





In
addition to the compensatory warrants granted, as discussed above, we issued or
modified the following warrants during the years ended June 30, 2010 and
2009:





Year
ended June 30, 2010:





The
holders of all of our Series B preferred stock agreed to the cancellation of
warrants to purchase 1,000,000 shares of the Company’s common
stock.





As a
result of the offerings in November and December 2009, outstanding YA Global
warrants to purchase 666,666 shares of common stock at an exercise price of
$1.65 were amended to increase the number of underlying shares of common stock
to 1,222,222 and decrease the exercise price to $0.90 per share. These warrants
are included in the warrant derivative liability. The change in value of the
warrants as a result of the amendment is reflected in the valuation of the
derivative as of June 30, 2010.





As a
result of the equity transaction in November 2009, the exercise price of
2,424,243 warrants held by Enable and previously granted as part of an equity
purchase, was reduced from $2.00 per share to $0.95 subject to no further
adjustment other than for stock splits and stock dividends. The modification
resulted in a deemed dividend of $322,000 which was calculated as the difference
in the fair value of the warrants immediately before and after the modification
using the Black-Scholes option pricing model. The following table details the
significant assumptions used to compute the fair market value of the warrant
modification:




F-28





Before
                    Modification
                  
                  
                  After
                    ModificationRisk-free
      interest rate
                  
                  
                  2.63
                  %
                  
                  
                  2.63
                  %Dividend
      yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %Volatility
      factor
                  
                  
                  127
                  %
                  
                  
                  127
                  %Remaining
      term (years)
                  
                  
                  5.49
                  
                  
                  
                  5.49





As a
result of the equity transaction in November 2009, the exercise price of
warrants held by Enable and previously granted as part of the convertible
debenture transaction discussed in Note 10, was reduced from $2.50 to $0.95 per
share for 1,111,111 warrants, and from $2.25 to $0.95 per share for 1,111,111
warrants, subject to no further adjustment other than for stock splits and stock
dividends. This modification resulted in an increased fair value of $158,000,
which has been treated as additional interest expense and which was calculated
as the difference in the fair value of the warrants immediately before and after
the modification using the Black-Scholes option pricing model. The following
table details the significant assumptions used to compute the fair market value
of the warrant modification:





Before
                    Modification
                  
                  
                  After
                    ModificationRisk-free
      interest rate
                  
                  
                  2.63
                  %
                  
                  
                  2.63
                  %Dividend
      yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %Volatility
      factor
                  
                  
                  125
                  %
                  
                  
                  125
                  %Remaining
      term (years)
                  
                  
                  5.80
                  
                  
                  
                  5.80





During
the fiscal year ended June 30, 2010, Enable exercised all 4,646,465 warrants for
a total $4,414,142.





As a
result of the equity transaction in December 2009, the Company issued warrants
to purchase a total of 3,250,000 shares of its common stock to institutional
investors.  The placement agent in the transaction received 144,444
warrants. The warrants have an exercise price of $0.98 per share a term of four
years from the date they become exercisable and are exercisable 181 days
following the close of the transaction. The exercise price of the warrants may
be adjusted in the case of stock splits, stock dividends or combinations of
shares, or in the event the Company issues rights, options or warrants to all
holders of the Company’s common stock with an exercise or purchase price less
than the volume weighted average price of the Company’s shares on the record
date. The warrants issued to the investors and the placement agent had a
relative fair value of $1,572,000 and $70,000, respectively. The relative fair
value of the 7,222,223 shares issued in the transaction was $4,403,000 based
upon the market price on the transaction date. The fair value of the warrants
was determined using the Black-Scholes option pricing model. The following table
details the significant assumptions used to compute the fair market value of the
warrant modification:




Risk-free
      interest rate
                  
                  
                  2.14
                  %Dividend
      yield
                  
                  
                  0
                  %Volatility
      factor
                  
                  
                  118
                  %Expected
      term (years)
                  
                  
                  4.5





On April
20, 2010, the Company entered into a securities purchase agreement pursuant to
which the Company agreed to sell an aggregate of 8,076,925 shares of its
common stock and warrants to purchase a total of 2,826,923 shares of its
common stock to institutional investors for gross proceeds of approximately
$10.5 million.  The placement agent in the transaction received 161,539
warrants. The purchase price of a share of common stock and warrant was $1.30.
 Subject to certain ownership limitations, the warrants are exercisable
181 days following the closing date of the offering. Warrants to
purchase 807,692 shares of common stock expire one year following the
initial exercise date.  Warrants to purchase 2,019,231 shares of common
stock expire five years following the initial exercise date. The
warrants will have an exercise price of $1.58.  The exercise price of
the warrants is subject to adjustment in the case of stock splits, stock
dividends, combinations of shares and similar recapitalization transactions. The
warrants issued to the investors and the placement agent had a relative fair
value of $442,000 and $1,755,000, respectively.  The relative fair
value of the 8,076,925 shares issued in the transaction was $8,303,000 based
upon the market price on the transaction date. The fair value of the warrants
was determined using the Black-Scholes option pricing model. The following table
details the significant assumptions used to compute the fair market value of the
warrant modification:




Risk-free
      interest rate
                  
                  
                  0.41
                  %
                  
                  
                  2.49
                  %Dividend
      yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %Volatility
      factor
                  
                  
                  118
                  %
                  
                  
                  118
                  %Expected
      term (years)
                  
                  
                  1.5
                  
                  
                  
                  5.5




F-29


Year
ended June 30, 2009:





In
September 2008, we issued warrants to purchase 1,111,111 shares of common stock
at $3.00 per share and warrants to purchase 1,111,111 shares of common stock at
$2.75 per share in conjunction with the issuance of $5,000,000 of convertible
debentures.  (See Note 9)





The
investors in the convertible debentures previously received 2,424,243 warrants
to purchase common stock with an exercise price of $3.27 per share as part of a
registered direct offering of our common stock completed in May
2008.  The provisions of the warrants include a reduction in the
exercise price in the event stock or convertible securities were issued with a
lower exercise price. In September 2008, by agreement with the investors, the
exercise price of the warrants was reduced from $3.27 to $3.00. The modification
resulted in a deemed dividend of $29,000, which was calculated using the
Black-Scholes method. The following table details the significant assumptions
used to compute the fair market value of the modification to these
warrants:





Before
                      
                      
                      AfterRisk-free
      interest rate
                      
                      
                      3.45
                      %
                      
                      
                      3.45
                      %Dividend
      yield
                      
                      
                      0
                      %
                      
                      
                      0
                      %Volatility
      factor
                      
                      
                      111.88
                      %
                      
                      
                      111.88
                      %Remaining
      term (years)
                      
                      
                      6.7
                      
                      
                      
                      6.7





On
November 20, 2008, Hyperdynamics entered into an amendment agreement with the
same warrant holder.  The agreement reduced the exercise price of the
2,424,243 warrants issued during May 2008 to $2 per share. The modification
resulted in a fair value of $75,000, which was calculated using the
Black-Scholes method. The following table details the significant assumptions
used to compute the fair market value of the modification to these
warrants:




Before
                  
                  
                  AfterRisk-free
      interest rate
                  
                  
                  2.43
                  %
                  
                  
                  2.43
                  %Dividend
      yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %Volatility
      factor
                  
                  
                  111.62
                  %
                  
                  
                  111.62
                  %Remaining
      term (years)
                  
                  
                  6.47
                  
                  
                  
                  6.47




Pursuant
to the agreement,the price of the warrants, originally issued in September 2008, was also
reduced from $2.75 and $3.00 to $2.25 and $2.50, respectively. The modification
resulted in a fair value of $31,000, which was calculated using the
Black-Scholes method. The following table details the significant assumptions
used to compute the fair market value of the warrant modification:




Before
                    
                    
                    AfterRisk-free
      interest rate
                    
                    
                    2.43
                    %
                    
                    
                    2.43
                    %Dividend
      yield
                    
                    
                    0
                    %
                    
                    
                    0
                    %Volatility
      factor
                    
                    
                    112.32
                    %
                    
                    
                    112.32
                    %Remaining
      term (years)
                    
                    
                    6.78
                    
                    
                    
                    6.78




The total
fair value of these warrant modifications of $106,000 was included in the
discount on the post modification debt further described in Note 9 above, with
the offsetting credit recorded as additional paid in capital.





Summary
information regarding common stock warrants issued and outstanding as of June
30, 2010 is as follows:


F-30





Warrants
                
                
                Weighted
                  Average
                  SharePrice
                
                
                Aggregate
                  intrinsic
                  value
                
                
                Weighted
                  average
                  remaining
                  contractual
                  life(years)Outstanding
      at year ended June 30, 2008
                
                
                11,717,692
                
                
                $
                2.54
                
                
                
                346,000
                
                
                
                4.42Granted
                
                
                2,222,222
                
                
                
                2.56Exercised
                
                
                -
                
                
                
                -Expired
                
                
                (3,596,783
                )
                
                
                2.84Outstanding
      at year ended June 30, 2009
                
                
                10,343,131
                
                
                $
                1.99
                
                
                $
                45,375
                
                
                
                5.59Granted
                
                
                6,938,462
                
                
                $
                1.16Exercised
                
                
                (5,166,465
                )
                
                
                0.94Expired
                
                
                (1,050,000
                )
                
                
                4.05Outstanding
      at year ended June 30, 2010
                
                
                11,065,128
                
                
                $
                1.25
                
                
                $
                1,168,000
                
                
                
                3.93





Warrants
outstanding and exercisable as of June 30, 2010




Exercise
                        Price
                      
                      
                      Outstanding
                        Number of
                        Shares
                      
                      Remaining
                        Life
                      
                      Exercisable
                        Number of
                        Shares$
                      0.90
                      
                      
                      
                      702,222
                      
                      3
      years
                      
                      
                      702,2220.90
                      
                      
                      
                      3,480,000
                      
                      4
      years
                      
                      
                      3,480,0000.98
                      
                      
                      
                      3,394,444
                      
                      4
      years
                      
                      
                      3,394,4441.58
                      
                      
                      
                      807,693
                      
                      1
      years
                      
                      
                      807,6931.58
                      
                      
                      
                      2,180,769
                      
                      5
      years
                      
                      
                      2,180,7694.00
                      
                      
                      
                      500,000
                      
                      4
      years
                      
                      
                      500,00011,065,128
                      
                      
                      
                      
                      11,065,128





Warrants
outstanding and exercisable as of June 30, 2009




Exercise
                        Price
                      
                      
                      Outstanding
                        Number of
                        Shares
                      
                      Remaining
                        Life
                      
                      Exercisable
                        Number of
                        Shares$
                      1.65
                      
                      
                      
                      666,666
                      
                      4
      years
                      
                      
                      666,6661.65
                      
                      
                      
                      3,480,000
                      
                      5
      years
                      
                      
                      3,480,0002.00
                      
                      
                      
                      2,424,243
                      
                      6
      years
                      
                      
                      2,424,2432.25
                      
                      
                      
                      1,111,111
                      
                      7
      years
                      
                      
                      1,111,1112.50
                      
                      
                      
                      1,111,111
                      
                      7
      years
                      
                      
                      1,111,1114.00
                      
                      
                      
                      1,500,000
                      
                      5
      years
                      
                      
                      1,500,0005.00
                      
                      
                      
                      50,000
                      
                      2
      years
                      
                      
                      -10,343,131
                      
                      
                      
                      
                      10,293,131





Of the
11,065,128 warrants outstanding at June 30, 2010, 8,076,666 are exercisable,
while the 2,988,462 of warrants issued on April 20, 2010, as described above,
are exercisable 181 days following the closing date of the
offering.





14.
COMMITMENTS AND CONTINGENCIES





LITIGATION
AND OTHER LEGAL MATTERS





From time
to time, Hyperdynamics and its subsidiaries are involved in business disputes
that may occur in the ordinary course of business. Hyperdynamics is unable to
predict the outcome of such matters when they arise. Other than disputes
currently disclosed under litigation, the Company is unaware of any other
disputes that exist and does not believe that the ultimate resolution of such
matters would have a material adverse effect on the financial statements of
Hyperdynamics.




Wellington
Lawsuit
 
 On April
9, 2001, we were named as a defendant in a lawsuit styled Wellington, LLC vs.
Hyperdynamics Corporation et al. Civil Action# 18811-NC, The Court of Chancery
of Delaware.




F-31




The
Plaintiff claims that we did not carry out conversion of Series A preferred
stock to common stock.  On August 9, 2002 Plaintiff, Defendant, and
their respective counsels executed an “Agreement for Transfer of Claims in
Delaware Action to Georgia.” Subsequently, the lawsuit was moved in its entirety
to Atlanta, Georgia to be litigated under the lawsuit discussed
below.  Under the agreement, the Plaintiff in the Delaware action,
Wellington, LLC. would become the Defendant in Atlanta.  During the
fiscal year ended June 30, 2004, the Court of Chancery of Delaware dismissed the
Delaware case.




On
November 5, 2001, we filed a lawsuit styled Hyperdynamics Corporation,
Plaintiff, v. J.P. Carey Securities, Inc., J.P. Carey Asset Management LLC,
Joseph C. Canouse, John C. Canouse, James P. Canouse, Jeffrey Canouse,
Southridge Capital Management LLC, Stephen Hicks a/k/a Steve Hicks, Thomson
Kernaghan & Co., Limited, Mark Valentine, Talya Davies, Cache Capital
(United States), L.P., Carpe Diem, Carpe Diem LTD., Wellington, LLC, Minglewood
Capital, LLC, Falcon Securities, LTD, Navigator Management LTD., David Sims, and
Citco Trustees (Cayman) Limited, Defendants; and Wellington LLC,
Counterclaim/Third-Party Plaintiff, v. Hyperdynamics Corporation, a Delaware
corporation, Kent Watts, Michael Watts, Robert Hill, Harry J. Briers, DJX, Ltd.,
a Belize corporation, and Does 1-10, Counterclaim/Third-Party Defendants, Civil
Action File No. 2001CV44988, In The Superior Court of Fulton County, State of
Georgia.




We filed
our First Amended Complaint against Defendants on September 12, 2002 in which we
presented thirteen counts for Causes of Action against defendants including
“Violations of Georgia Racketeer Influenced and Corrupt Organizations” (RICO)
Act (O.C.G.A. SS 16-14-1, ET SEO).




We
believe that more than one of the Defendants worked together to create the
appearance of providing initial long term financing ($3,000,000) and additional
financing commitments (up to additional $5,000,000), all from reputable sources,
while the Defendants' real plan was to manipulate our stock through
contractually prohibited short selling and multiple breaches of the
contractually agreed to selling covenants.




We are
subject to counterclaims in this Georgia litigation.  The
counterclaimants allege that Hyperdynamics and its Officers and Directors
breached their fiduciary duties to shareholders and committed other tortuous
acts.  We intend to continue to vigorously pursue damages and defend
all counterclaims.  Discovery is being primarily focused on
jurisdictional issues at this time.  During the litigation we have
made numerous claims of discovery abuse resulting in certain defendants and
defense attorneys involved being sanctioned by the court.  They have
filed for sanctions against us as well.  The court dismissed all
non-Georgia defendants.  We have filed a notice of appeal of that
ruling.




The
Georgia Court of Appeals rejected our appeal of the trial court’s order
dismissing the non-Georgia defendants because it was not a “final order,” though
it was in effect as to the dismissed defendants.  The Court of
Appeals’ action returned the case to the trial court where a Motion for
Reconsideration was filed due to a dramatic change in the law of personal
jurisdiction in Georgia. (See Innovative Clinical & Consulting v. First
National Bank of Ames, 279 Ga. 672 (2005).   On November 25, 2008, the
court consented to an interlocutory appeal of the ruling, thereby allowing that
ruling to become final and allow for appeal.  The appeal was filed on
October 3, 2009 and briefing should concluded by January 22, 2010 with a ruling
expected in 2010.    The Georgia Court of Appeals reversed the trial
court in July, 2010 and held that jurisdiction existed. The defendants affected
by this ruling have sought review by the Georgia Supreme Court. The Company has
determined that the possibility of loss is remote and has not recorded a
potential liability.




Ashley
and Wilburn Lawsuits





Trendsetter
Production Company was named in two separate lawsuits, Raymond Thomas et al v.
Ashley Investment et al and Wilburn L. Atkinsand Malcolm L. Mason
Jr. vs. BP America Production et al, Nos. 38,839 and 41,913-B, respectively,
“C”, 5th  Judicial District Court, Parish of Richland, State of
Louisiana. These cases are environmental cleanup cases involving wells operated
by Trendsetter prior to our acquisition of Trendsetter. These cases are in the
early discovery stage and our attorneys are developing strategies to defend the
suits. We believe losses from these cases are possible; however, the loss or
range of loss cannot be reasonably estimated.





COMMITMENTS
AND CONTINGENCIES





Contingent
notes payable





Hyperdynamics'
subsidiary, SCS, has $350,000 remaining of a contingent note payable due to
Seacon Computer Systems Inc., the former owners of SCS Corporation's assets. It
is payable in Hyperdynamics common stock and it is payable only if SCS has net
income in any given quarter. If SCS experiences net income in a quarter, 25% of
the income will be paid against the note, until the contingency is
satisfied.





PGS
Geophysical AS, Norway





On June
11, 2010, the Company entered into an Agreement for the Supply of Marine Seismic
Data (“3D Seismic Contract”) with PGS Geophysical AS, Norway
(“PGS”).  Under the terms of the 3D Seismic Contract PGS agreed to
conduct the acquisition phase of a 3,635 square kilometer 3D seismic survey of
the area that is subject to the Company’s rights, or concession, to explore and
exploit offshore oil and gas reserves off the coast of Guinea.  The
intended purpose of the 3D seismic survey is to obtain detailed imaging of the
multiple prospects which were identified from the Company’s prior 2D seismic
data of the concession.


F-32




Under the
terms of the 3D Seismic Contract, PGS has agreed to carry out the survey in two
separate portions that commenced in August 2010.  The cost of the
survey under the 3D Seismic Contract is estimated to be $21.0 million,
including mobilization and demobilization expenses.





In
addition, the Company has contracted with PGS to process the data from the 3D
seismic survey. The seismic data processing is expected to cost about $2.5
million and be completed in the first quarter of 2011.





Operating
Leases





Hyperdynamics
leases vehicles and office space under long-term operating leases with varying
terms. Most of the operating leases contain renewal and purchase options.
Hyperdynamics expects that in the normal course of business, the majority of
operating leases will be renewed or replaced by other leases.





The
following is a schedule by years of minimum future rental payments required
under operating leases that have initial or remaining noncancellable lease terms
in excess of one year as of June 30, 2010:





Years
ending June 30:


(in
thousands)


2011
                
                $
                1242012
                
                
                2212013
                
                
                2412014
                
                
                2682015
                
                
                194Total
      minimum payments required
                
                $
                1,048





Rent
expense included in net loss from operations for the years ended June 30, 2010
and 2009 was $154,000 and $ 125,000, respectively.





Environmental
Contingencies





Because
we are engaged in extracting natural resources, our business is subject to
various Federal, state and local provisions regarding the environment.
Compliance with environmental laws may, in certain circumstances, necessitate
significant capital outlays, affect our earnings potential, and cause material
changes in our current and proposed business activities. At the present time,
however, the environmental laws do not materially hinder nor adversely affect
our business. Capital expenditures relating to environmental control facilities
have not been prohibitive to our operations since our inception.





15.
SUBSEQUENT EVENTS





3D
Marine Seismic Data Payments




On June
11, 2010, we entered into the 3D Seismic Contract with PGS. The
cost of the survey under 3D Seismic Contract is estimated to be $21.0 million,
including mobilization and demobilization expenses.  The Company
expects its share of the cost to be 77% of that amount. Under the terms of the
3D Seismic Contract, we secured a Letter of Credit in the amount of $21.0
million for the sole purpose of funding this seismic acquisition. As work is
performed and invoiced, PGS will submit draw documents to the institution the
letter of credit is with for payment of such invoices under the terms of the
agreement





In
August, we received the first invoice for mobilization of the vessel performing
this seismic acquisition in the amount of $1.3 million. We have received Dana’s
23% share of these costs, and the invoice has been paid under the Letter of
Credit which now has been reduced to $19.7 million. In early September, we
received the next PGS invoice for seismic acquisition work performed during
August, in the amount of $7.5 million. We have invoiced Dana for their 23%
share, or $1.7 million, and the Letter of credit is set to fund the $7.5 million
invoice in early October.





The
Letter of Credit is through Amegy Bank N.A. and the Letter of Credit
Reimbursement Agreement was entered into on July 15, 2010. The Letter of Credit
is secured by a Certificate of Deposit, which was funded in the amount of $21.0
million on July 8, 2010 and bears interest at a rate of 0.25% per annum. We will
incur an issuance fee with respect to the Letter of Credit computed at the rate
of 0.0125% per annum on the daily average amount available to be drawn under the
Letter of Credit from and including the date of issuance until the stated expiry
date payable quarterly in arrears on the last business day of each calendar
quarter end commencing September 30, 2010. In addition, with respect to each
Draft paid, we will pay the bank a transaction fee in the amount of $125, an
advising fee in the amount of $150 and a swift fee in the amount of
$75.


F-33





Warrants
Exercised




Significant
warrant exercises since June 30, 2010 include:




·
            On
      September 8, 2010, 235,000 warrants with a strike price of $0.90 were
      exercised on a cashless basis for a net issuance of 100,287 shares of the
      Company’s common stock and on September 23, 2010 233,611 warrants with a
      strike price of $0.90 were exercised on a cashless basis for a net
      issuance of 122,953 shares of the Company’s common
  stock.


·
            On
      September 9, 2010, 50,000 warrants with a strike price of $0.98 were
      exercised for cash resulting in proceeds to us of
  $49,000.





Equity
transactions





Significant
stock options granted, exercised, forfeited or expired since June 30, 2010
include:





·
            75,000
      stock options under the 2010 Plan for certain employees of the Company
      with a strike price of $1.22, with a ten year life. The 75,000
      options have immediate vesting, upon our stock achieving a 5 day weighted
      average price of $3.00.


·
            On
      September 7, 2010, 22,500 options with strike prices ranging from $0.31 to
      $1.13 were exercised for cash resulting in proceeds to us of
      $14,175.





16. SUPPLEMENTAL OIL AND GAS INFORMATION
(UNAUDITED)




In
December2008 the SEC
announced revisions to its regulations on oil and gas reporting. In January
2010, the Financial Accounting Standards Board issued an accounting standards
update which was intended to harmonize the accounting literature with the SEC’s
new regulations.





Future
cash flows for 2010 would be computed by applying average price for the year to
the year-end quantities of proved reserves. The 2010 average price for the year
would be calculated using the twelve month period prior to the ending date of
the period covered by the report, determined as an unweighted arithmetic average
of the first day of the month price for each month within such period. The
Company had no proved reserves in 2010. Future cash flows for 2009 were computed
by applying the year end price to the year-end quantities of proved
reserves.




The
following estimates of reserve quantities and related standardized measure of
discounted net cash flows are estimates only, and are not intended to reflect
realizable values or fair market values of the Hyperdynamics’ reserves.
Hyperdynamics emphasizes that reserve estimates are inherently imprecise and
that estimates of new discoveries are more imprecise than producing oil and gas
properties. Additionally, the price of oil has been very volatile and downward
changes in prices can significantly affect quantities that are economically
recoverable. Accordingly, these estimates are expected to change as future
information becomes available and these changes may be significant.





Proved
reserves are estimated reserves of crude oil and natural gas that geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are those expected to be recovered through
existing wells, equipment and operating methods.





The
standardized measure of discounted future net cash flows as of June 30, 2009 was
computed by applying year-end prices of oil and gas (with consideration of price
changes only to the extent provided by contractual arrangements) to the
estimated future production of proved oil and gas reserves, less estimated
future expenditures (based on year-end costs) to be incurred in developing and
producing the proved reserves, less estimated future income tax expenses. The
estimated future net cash flows are then discounted using a rate of 10% per year
to reflect the estimated timing of the future cash flows.





Capitalized Costs Related to Oil and
Gas Activities





Aggregate
capitalized costs relating to the Hyperdynamics’ crude oil and natural gas
producing activities, including asset retirement costs and related accumulated
depreciation, depletion & amortization are shown below:





United
                
                
                Republic ofStates
                
                
                Guinea
                
                
                Total(in
      thousands)June
      30, 2010Unproved
      properties
                
                $
                -
                
                
                $
                92
                
                
                $
                92Proved
      properties
                
                
                -
                
                
                
                -
                
                
                
                -Oilfield
      equipment
                
                
                -
                
                
                
                -
                
                
                
                --
                
                
                
                92
                
                
                
                92Less
      accumulated DD&A
                
                
                -
                
                
                
                -
                
                
                
                -Net
      capitalized costs
                
                $
                -
                
                
                $
                92
                
                
                $
                92June
      30, 2009Unproved
      properties
                
                $
                -
                
                
                $
                7,663
                
                
                $
                7,663Proved
      properties
                
                
                -
                
                
                
                -
                
                
                
                -Oilfield
      equipment
                
                
                -
                
                
                
                -
                
                
                
                --
                
                
                
                7,663
                
                
                
                7,663Less
      accumulated DD&A
                
                
                -
                
                
                
                -
                
                
                
                -Net
      capitalized costs
                
                $
                -
                
                
                $
                7,663
                
                
                $
                7,663




F-34





Costs
Incurred in Oil and Gas Activities





Costs
incurred in connection with Hyperdynamics’ crude oil and natural gas
acquisition, exploration and development activities are shown
below:





United
                
                
                Republic ofStates
                
                
                Guinea
                
                
                Total(in
      thousands)June
      30, 2010Property
      acquisition:Unproved
                
                $
                -
                
                
                $
                185
                
                
                $
                185Proved
                
                
                -
                
                
                
                -
                
                
                
                -Exploration
                
                
                -
                
                
                
                15,232
                
                
                
                15,232Development
                
                
                -
                
                
                
                -
                
                
                
                -Total
      costs incurred
                
                $
                -
                
                
                $
                15,417
                
                
                $
                15,417June
      30, 2009Property
      acquisition:Unproved
                
                $
                -
                
                
                $
                -
                
                
                $
                -Proved
                
                
                -
                
                
                
                -
                
                
                
                -Exploration
                
                
                -
                
                
                
                349
                
                
                
                349Development
                
                
                78
                
                
                
                -
                
                
                
                78Total
      costs incurred
                
                $
                78
                
                
                $
                349
                
                
                $
                427





Results
of Operations for Producing Activities





The
following schedule includes only the revenues from the production and sale of
gas, oil, condensate and NGLs. The income tax expense is calculated by applying
the current statutory tax rates to the revenues after deducting costs, which
include DD&A allowances, after giving effect to permanent differences. Due
to significant net operating loss carryforwards related to producing activities,
income taxes have not been provided at June 30, 2009. The results of operations
exclude general office overhead and interest expense attributable to oil and gas
activities. We sold our domestic producing activities in 2009 and have no such
activity for the year ended June 30, 2010.





2010
                
                
                2009(in
      thousands)Net
      revenues from production
                
                $
                -
                
                
                $
                2,397Production
      costs:Oil
      and gas operating
                
                
                -
                
                
                
                1,123Other
      taxes
                
                
                -
                
                
                
                208Total
      production costs
                
                
                -
                
                
                
                1,331Depreciation,
      depletion and amortization
                
                
                -
                
                
                
                598Impairment
      of oil and gas properties
                
                
                -
                
                
                
                2,303Total
      costs
                
                
                -
                
                
                
                4,232Income
      (loss) before income taxes
                
                
                -
                
                
                
                (1,835
                )Income
      tax expense
                
                
                -
                
                
                
                -Results
      of operations
                
                $
                -
                
                
                $
                (1,835
                )DD&A
      rate per net equivalent barrel
                
                $
                -
                
                
                $
                17.20DD&A
      and impairment rate per net equivalent barrel
                
                $
                -
                
                
                $
                83.43




F-35





Proved
Reserves





Hyperdynamics
does not hold any proved reserves as of June 30, 2010 and 2009.





Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas
Reserves





Sources
of Changes in Discounted Future Net Cash Flows





We hold
no proved reserves as of June 30, 2010 and 2009. Principal changes in the
aggregate standardized measure of discounted future net cash flows attributable
to the Hyperdynamics’ proved crude oil reserves at year end June 30, 2009 are
set forth in the table below.


2009Standardized
      measure of discounted future net cash flows at the beginning of the
      year
                  
                  $
                  8,842,000Net
      changes in prices and production costs
                  
                  
                  -Changes
      in estimated future development costs
                  
                  
                  -Sales
      of oil and gas, net of production costs
                  
                  
                  (1,066,000
                  )Extensions,
      discoveries and improved recovery less related costs
                  
                  
                  -Purchases
      (sales) of minerals in place
                  
                  
                  (7,776,000
                  )Revisions
      of previous quantity estimates
                  
                  
                  -Previously
      estimated development costs incurred
                  
                  
                  -Net
      change in income taxes
                  
                  
                  -Accretion
      of discount
                  
                  
                  -Standardized
      measure of discounted future net cash flows at the end of the
      year
                  
                  $
                  -


F-36





Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure





On
December 17, 2008, we discharged our former certifying accountant, Malone &
Bailey, PC.  During the past two fiscal years, there were no adverse
opinions or disclaimers of opinion, or qualifications or modifications as
to uncertainty, audit scope, or accounting principles by Malone &
Bailey, PC in those reports. The decision to change accountants was
approved by our audit committee of the board of
directors.  During the two fiscal years and during the interim period
commencing on July 1, 2008 and ending on December 17, 2008, preceding the
discharge of Malone & Bailey, PC as our principal accountants, there were no
disagreements with Malone & Bailey, PC, whether or not resolved, on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to
Malone & Bailey, PC's satisfaction, would have caused it to make
reference to the subject matter of the disagreement(s) in connection with
its report. Malone & Bailey, PC did not advise us:  (A) that
internal controls necessary to develop reliable financial statements did
not exist; or (B) that information had come to its attention which made it
unwilling to rely on management's representations, or unwilling to be
associated with the financial statements prepared by management; or (C)
that the scope of the audit should have been expanded significantly, or that
information had come to its that it concluded would, or if further
investigated might, (i) materially impact the fairness or reliability of a
previously issued audit report or the underlying financial statements, or
the financial statements issued or to be issued covering the
fiscal period(s) subsequent to the date of the most recent audited
financial statements (including information that might prevent the issuance
of an unqualified audit report), and (ii) cause it to be unwilling to rely
on management’s representations or be associated with our financial statements;
or (D)(1) that information had come to its attention that it had concluded
materially impacts the fairness or reliability of either:  (i) a
previously issued audit report or the underling financial statements, or (ii)
the financial statements issued or to be issued covering the fiscal period(s)
subsequent to the date of the most recent financial statements covered by an
audit report (including information that, unless resolved to Malone &
Bailey, PC’s satisfaction, would prevent it from rendering an unqualified audit
report on those financial statements), and (2) that there were any issues that
had not be resolved to Malone & Bailey, PC’s satisfaction prior to its
dismissal.





On
December 17, 2008, we engaged GBH CPAS, PC to be our new certifying
accountant.  During two fiscal years and during the interim period
commencing on July 1, 2008 and ending on December 17, 2008, preceding the
appointment of GBH CPAS, PC as our principal accountants, we did not consult
with GBH CPAS, PC regarding: the application of accounting principles to a
specific completed or contemplated transaction, or the type of audit
opinion that might be rendered on our financial statements and neither
written or oral advice was provided that was an important factor considered
by us in reaching a decision as to the accounting, auditing or financial
reporting issue.





We
provided the disclosure contained herein to Malone & Bailey, PC, which
provided a letter addressed to the Commission stating whether it agrees
with the statements made by us and, if not, stating the respects in which
it does not agree.  That letter was filed as Exhibit 16.1 to our Form
8-K/A filed with the Commission on December 22, 2008.





Item 9A.    Controls
and Procedures




Not
applicable.





Item 9A(T). Controls and
Procedures




We
conducted an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Principal Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. The term “disclosure controls and procedures,” as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls
and other procedures of a company that are designed to ensure that information
required to be disclosed by the company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. Disclosure controls
and procedures also include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. Based upon
that evaluation, our principal executive and principal financial officers
concluded that our disclosure controls and procedures were effective as of June
30, 2010.





Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Under the supervision and with the participation of our
management, including our principal executive and financial officers, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting as of June 30, 2010, based on the frame work in the
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the
framework in Internal Control-Integrated Framework, our management concluded
that our internal control over financial reporting was effective as of
June 30, 2010.


24


This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered accounting
firm pursuant to §989G of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, which exempts the Company from the requirement that it include
an attestation report of the Company’s registered public accounting firm
regarding internal control over our management’s assessment of internal controls
over financial reporting.




Item
9B.                      
Other Information.




As
previously disclosed by us in the Current Report on Form 8-K that was filed with
the SEC on August 20, 2010, we entered into a Consulting Agreement, dated August
14, 2010 (the “Consulting Agreement”), with William Young, the Company’s
Executive Vice President of Commercial Affairs.  The agreement
provides for the termination of Mr. Young’s employment as the Company’s
Executive Vice President of Commercial Affairs effective on September 30, 2010
(unless his employment his terminated earlier pursuant to his Employment
Agreement with the Company dated November 24, 2009) at which time Mr. Young was
to become a consultant to the Company under the terms of the Consulting
Agreement.


On
September 23, 2010, we entered into a First Amendment to the Consulting
Agreement (the “First Amendment”) which provides that Mr. Young’s employment as
Executive Vice President of Commercial Affairs will terminate on October 8,
2010.  The Employment Agreement and Consulting Agreement shall
terminate at such time and there will be no conversion to a consultancy role as
described in Article 1 of the Consulting Agreement.  The First
Amendment is filed herewith as Exhibit 10.19.


PART
III




Item
      10.
            Directors,
      Executive Officers and Corporate
Governance.





Board
of Directors




The
following table sets forth each of our Directors’ name, age, and positions and
offices with us.  The expiration of each of their current terms as our
directors expires at the next annual meeting of our stockholders. There is
no family relationship between or among any of the Directors and our Executive
Officers.  Board vacancies are filled by a majority vote of the
Board. We have an Audit Committee, a Compensation Committee, a Nominating
Committee and a Government Relations Committee.




Name
                
                Position
                
                AgeRay
      Leonard
                
                Director,
      CEO and President
                
                57Robert
      A. Solberg
                *
                Director
      and Non-Executive Chairman
                
                64Herman
      Cohen
                *
                Director
                
                78Roger D. Friedberger
                *
                Director
                
                59Lord
      David Owen
                *
                Director
                
                72Fred
      Zeidman
                *
                Director
                
                64







*           Independent
Director





Ray
Leonard was appointed to the Board of Directors and was appointed CEO and
President in July 2009.  Mr. Leonard most recently served as the Vice
President of Eurasia & Exploration for the newly formed Kuwait Energy
Company from December 2006 to June 2009.  From January 2005 to
November 2006, Mr. Leonard served as the Senior Vice President of International
Exploration and Production of MOL Plc.  Mr. Leonard also served as
Vice President of Exploration & New Ventures for YUKOS, Russia’s second
largest oil company, based in Moscow, Russia from February 2001 to December
2004.  Prior to joining YUKOS, Leonard held the title of Vice
President of Exploration with First International Oil from June 1998 to January
2001.  Previously, Mr. Leonard spent 19 years with Amoco, where he
began as a geologist and was promoted to the executive level as Vice President
of Resource Acquisitions.  During his tenure at Amoco, he held a
three-year assignment as Division Geologist in West Africa.  Mr.
Leonard holds a Master of Arts in Geology from the University of Texas-Austin
and a Bachelor of Science in Geosciences from the University of
Arizona.





In
addition to the professional and education background and experience described
above, the following experience, qualifications, attributes and/or skills led
the Board to conclude that Mr. Leonard should serve as a director:




Leadership
Experience – Mr. Leonard has held numerous roles in key executive management
over his career including the Vice President of Exploration for YUKOS and First
International Oil.


Industry
Experience – Mr. Leonard has worked in the Oil & Gas industry his entire
career in various Exploration and Production companies





Robert A.
Solberg was appointed to the Board of Directors in August 2009 and serves
as non-executive Chairman of the Board.  He was the president of
Texaco Inc.’s Worldwide Development division from 1998 until his retirement in
2002.  Prior to 1998, Mr. Solberg held senior management positions at
Texaco, Inc. for operations in the U.S., the Middle East, Asia and
Europe.  Mr. Solberg retired in July 2010 after serving as a director
and the non-executive chairman of Scorpion Offshore, an offshore drilling
company, that is a public company on the Oslo, Norway stock
exchange.  Mr. Solberg is also a director and the non-executive
chairman of JDR Cable Systems, a privately owned company, which supplies custom
seismic cable and subsea connection equipment.  Mr. Solberg is a
licensed petroleum engineer, and he holds a B.S Degree in Civil
Engineering—University of North Dakota (1969).





In
addition to the professional and education background and experience described
above, the following experience, qualifications, attributes and/or skills led
the Board to conclude that Mr. Solberg should serve as a director:





25





Leadership
Experience – Mr. Solberg has held various key executive positions with public
companies such as the president of Texaco Inc.’s Worldwide Development division
and the chairman of Scorpion Offshore.


Industry
Experience – Mr. Solberg has worked in the Oil & Gas industry his entire
career in various Exploration and Production companies





Herman
Cohen was appointed to the Board of Directors in July
2009.  Mr. Cohen has been the owner of Cohen & Woods International
since 1998.  At Cohen & Woods International, Mr. Cohen specializes
in providing strategic planning services to African governments and companies
doing business in Africa.  Mr. Cohen also served as a Senior Advisor
to Global Coalition for Africa from 1993-1998 at World Bank.  Previous
to his position at World Bank, Mr. Cohen served in the U.S. Foreign Service from
1955-1993.  During his career with the U.S. Foreign Service, Mr. Cohen
served as the U.S. Ambassador to Senegal and Gambia from 1977 to 1980 and from
1989 to 1993 Mr. Cohen served as assistant secretary for African Affairs under
President George H.W. Bush.





In
addition to the professional and education background and experience described
above, the following experience, qualifications, attributes and/or skills led
the Board to conclude that Mr. Cohen should serve as a director:





Leadership
Experience – Mr. Cohen has held numerous responsible roles in the US Government
including the Amassador to Senegal and the assistant secretary for African
Affairs.





Roger D. Friedberger was
appointed to the Board of Directors in June 2008.  Since November
2009, Mr. Friedberger has been the Chief Financial Officer of GRIDiant
Corporation, a smart grid optimization solutions company.  From November
2008 to February 2010 he was Chief Financial Officer of  Encore Power
Development, LLC, a wind energy services company, and from March 2008 to October
2009 the Chief Financial Officer of GrowthForce LLC, an accounting services
firm. From March 2007 to November 2007 he was the Chief Financial Officer of
Realm Business Solutions, a commercial real estate software solutions
company.    From October 2005 to December 2006 he was the Chief
Financial Officer of SPL WorldGroup, a utilities software company which was
acquired by Oracle in November 2006.  He also has served from April
2005 to September 2005 as the interim Chief Financial Officer of Insignia
Solutions, which company he helped to take public as Chief Financial Officer on
NASDAQ in 1995. From January 2004 to September 2005 he served as the Chief
Financial Officer of MailFrontier, an email security software
company. Previously from 1996 to 2004 he was the Chief Financial Officer of
ILOG S.A (NASDAQ: ILOG).    He has a Bachelor of Commerce degree
(Accounting) from the University of Leeds, England (1972).  Mr.
Friedberger qualified as a California CPA in 1977 and as a Chartered Accountant
in England and Wales in 1975.





In
addition to the professional and education background and experience described
above, the following experience, qualifications, attributes and/or skills led
the Board to conclude that Mr. Friedberger should serve as a
director:




Leadership
Experience: Mr. Friedberger for over 25 years has been CFO of private &
public multinational companies, has led 3 IPOs and handled multiple acquisitions
and mergers in a variety of industries. Ten of his career years were as CFO of
public companies on New York, London & Paris stock exchanges.  He also
serves on the boards of private companies where he is an investor.




Financial
Experience: In addition to being a CFO for over 25 years, Mr. Friedberger served
as an auditor with Price Waterhouse, London, England and San Jose, California
for seven years, the last of which was as a manager.




Lord David
Owen was appointed to the Board of Directors in September
2009.  Since 2002, Lord Owen has been the non-executive chairman of
Europe Steel, Ltd., and since 1996, the non-executive director of US Healthcare,
Abbott Laboratories, Inc. (NYSE: ABT).  He was also the chairman
of YUKOS International U.K. B.V., part of the former Russian oil company, YUKOS,
from 2002 until 2005. Prior to that, he was Executive Chairman of Global Natural
Energy Ltd, a metals trading company with interests in gasoline stations in the
United Kingdom.  Lord Owen was also a member of the advisory board of Terra
Firma Capital Partners from 2004 until 2008.  He is a former member of
the British Parliament.  In his last position with the British government,
Lord Owen was named Secretary of State for Foreign and Commonwealth Affairs from
1977 to 1979.  During that time he was heavily involved in diplomatic
activity in both South and West Africa.  Lord Owen was the opposition Labor
Party spokesman on Energy from 1979 until 1981.  He co-founded the British
Social Democratic Party in 1981 and served as its leader from 1983 until
1990.





In
addition to the professional and education background and experience described
above, the following experience, qualifications, attributes and/or skills led
the Board to conclude that Lord Owen should serve as a director:





Leadership
Experience – Mr. Owen has held numerous responsible roles in the British
Government including the Secretary of State for Foreign and Commonwealth
Affairs. He also has served on various boards of public companies.





Fred
Zeidman was appointed to our Board of Directors in December
2009.  Mr. Zeidman has been Chairman of the Board since April 2009 and
a director since August 2008 for SulphCo Inc., a publicly traded crude oil
service company.  Since March 2009, Mr. Zeidman has been a Senior
Director for Governmental Affairs at Ogilvy Government Relations in Washington
D.C.   In March 2008, Mr. Zeidman was appointed the Interim President
of Nova Biosource Fuels, Inc. (“Nova”), a publicly traded biodiesel technology
company, and has served as a Nova director since June 2007.  From
August 2009 through November 2009, Mr. Zeidman was the Chief Restructuring
Officer for Transmeridian Exploration, Inc.  Mr. Zeidman has been
Bankruptcy Trustee of AremisSoft Corp since 2004.  Mr. Zeidman has
served as Vice Chairman of Corporate Strategies, Inc. since July 2004 and Vice
Chairman of the University of Texas Health Science System since October
2008.  Mr. Zeidman has served as Chairman of the United States
Holocaust Memorial Council since March 2002.  Mr. Zeidman was on the
board of Compact Power, Inc., an energy storage systems company from November
2007 to November 2009.  Mr. Zeidman has served on the board of
Prosperity Bank for 26 years.  He also served as CEO, President and
Chairman of the Board of Seitel Inc., an oil field services company, from
June 2002 to February 2007.  Mr. Zeidman served as a
Managing Director of the law firm Greenberg Traurig, LLP from July 2003 to
December 2008.  Mr. Zeidman holds a Bachelor’s degree from
Washington University in St. Louis and a Masters in Business Administration
degree from New York University.


26





In
addition to the professional and education background and experience described
above, the following experience, qualifications, attributes and/or skills led
the Board to conclude that Mr. Zeidman should serve as a director:





Leadership
Experience – Mr. Zeidman has served in numerous roles of executive and
directorship responsibility including serving on the board of Prosperity Bank
for 26 years and acting as Chairman of the United States Holocaust Memorial
Council.


Financial
Experience – Mr. Zeidman has a Masters in Business Administration and was the
Chief Restructuring Officer for Transmeridian Exploration.





Executive
officers





Jason D.
Davis, 38,
became our Chief Financial Officer, Principal Accounting Officer and Corporate
Secretary in July2009.  In
August 2010, Mr. Davis stepped down as the Chief Financial Officer and currently
serves as the Principal Financial Officer. Mr. Davis is a licensed certified
public accountant and has served in various financial positions for several
companies including the Assistant Controller at Isolagen, Inc (AMEX: ILE) from
March 2004 to August 2005, the Manager of SEC Reporting at Texas Genco, LLC from
August 2005 to June 2006, and the Controller at Particle Drilling Technologies,
Inc. (PDRT.PK) from June 2006 to June 2009.  Mr. Davis also served as
the interim Chief Financial Officer for Particle Drilling Technologies, Inc.
from January 2009 to June 2009.  Mr. Davis was an accountant with
Deloitte & Touche after obtaining his BBA in Accountancy and Taxation from
the University of Houston in 1997 until 2003.





William A.
Young, 59, became our Executive Vice President for Commercial Affairs in
December 2009.  Prior to becoming employed by the Company, Mr. Young
headed the commercial function for all lines of business for BG Group in the
United Kingdom from 2007 through September 30, 2009.  From 2003
through 2006, he was general manager for international commercial and business
development for Burlington Resources/ConocoPhillips.  He served as
relationship manager and director of international finance in the structured
finance global network of British Petroleum from 1999 to 2003.  He
began his career in 1982 at Amoco, where he held a variety of similar positions
in international finance, business development and mergers and
acquisitions.  Mr. Young holds a bachelor’s degree in mathematics from
Duke University and a master’s of business administration degree from the
University of Pennsylvania, Wharton School.





Shareholder
Communications





The Board
has not adopted formal policies with regard to shareholder communications with
individual Board members, nor have we adopted procedures whereby shareholders
may make recommendations for nominations for director.





Board
Meetings During Fiscal Year 2010





The Board
of Directors held 25 meetings during the fiscal year ended June 30, 2010.
 The Board of Directors also took action by written consent on 4 occasions
during the fiscal year ended June 30, 2010.  No incumbent
director attended fewer than 75% of the meetings of the Board in the
fiscal year ended June 30, 2010.





Board
Committees





Committee
Assignments





The table
below reflects the composition of the committees of the Board.




Name of Director
                
                Audit
                  Committee
                
                Compensation
                  Committee
                
                Nomination
                  Committee
                
                Government
                  Relations CommitteeRobert
      A. Solberg*
                
                Member
                
                Chairman
                
                ChairmanRoger
      D. Friedberger
                
                Chairman
                
                MemberHon.
      Lord David Owen
                
                
                
                
                
                Member
                
                MemberFred
      Zeidman
                
                Member
                
                MemberHerman
      Cohen
                
                
                
                
                
                Member
                
                Chairman





*
Chairman of the Board.


27





The audit
committee of the Company reviews the adequacy of systems and procedures for
preparing the financial statements and the suitability of internal financial
controls.  The audit committee also reviews and approves the scope and
performance of the Company’s independent registered public accounting
firm.  As of June 30, 2010, the members of our Audit Committee
consisted of Messrs. Zeidman, Solberg and Friedberger.   All
committee members are independent.  Mr. Friedberger is the chairman of
the Audit Committee and financial expert based on his experience as a chief
financial officer at public companies.  The Audit Committee has a written
charter, which was included in our proxy statement filed on March 3,
2009.  The audit committee reviews and assesses the adequacy of the
Audit Committee charter annually.  During the year ended June 30, 2010, the
Audit Committee met seven times.




As of
June 30, 2010, the members of our Compensation Committee consisted of
Messrs. Solberg, Zeidman and Friedberger.  
 Mr. Solberg is the chairman of the Compensation
Committee.  All committee members are independent.  During the
year ended June 30, 2010, the Compensation Committee met four
times.  The Compensation Committee has a written charter, which was
included in our proxy statement filed on March 3, 2009.




As of
June 30, 2010, the members of our Nomination Committee consisted of
Messrs. Solberg, Owen and Cohen.  Mr. Solberg is the
chairman of the Nomination Committee.  All committee members are
independent. During the year ended June 30, 2010, the Nomination Committee
met three times.  The Nomination Committee does not have a charter.
Though neither the Board of Directors nor the Nomination Committee has a formal
policy concerning diversity, the Board of Directors value diversity on the Board
and believes diversity should be considered in the director identification and
nominating process.





Our
Government Relations Committee was formed in 2009 and its members are Messrs.
Cohen, and Owen.  All committee members are
independent.  Mr. Cohen is the chairman of the Government
Relations Committee.  During the year ended June 30, 2010, the
Governmental Relations Committee met three times.  The Governmental
Relations Committee does not have a charter.




Board
Leadership Structure and Risk Oversight





Board of Directors Leadership
Structure. Our Board of Directors has no fixed policy with respect to the
separation of the offices of Chairman of the Board of Directors and Chief
Executive Officer. Our Board retains the discretion to make this determination
on a case-by-case basis from time to time as it deems to be in the best
interests of the Company and our stockholders at any given time. The Board
currently believes that separating the positions of CEO and Chairman is the best
structure to fit the Company’s needs. This structure ensures a greater role for
the independent directors in the oversight of the Company and active
participation of the independent directors in setting agendas and establishing
priorities and procedures for the work of the Board. As described above, each of
the Board’s three committees are comprised entirely of independent directors.
The Board also believes that this structure is preferred by a significant number
of the Company’s stockholders.




Board of Directors Risk
Oversight. The Board’s role in the Company’s risk oversight process
includes receiving regular reports from members of senior management on areas of
material risk to the Company, including operational, financial, legal and
regulatory, and strategic and reputational risks.  The full Board (or
the appropriate committee in the case of risks that are under the purview of a
particular committee) receives these reports from the appropriate “risk owner”
within the organization to enable it to understand our risk identification, risk
management and risk mitigation strategies.  When a committee receives
the report, the Chairman of the relevant committee reports on the discussion to
the full Board during the next Board meeting.  This enables the Board
and its committees to coordinate the risk oversight role, particularly with
respect to risk interrelationships.





Audit Committee
Report





The Audit
Committee has reviewed and discussed the audited financial statements with
management. The Audit Committee has discussed with the independent auditors
the matters required to be discussed by SAS 90 (Codification of Statements
on Auditing Standards, AU § 380), as may be modified or
supplemented. The Audit Committee has received the written disclosures and
the letter from the independent accountants required by the applicable
requirements of the Public Company Accounting Oversight Board regarding the
independent accountant’s communications with the Audit Committee concerning
independence, as may be modified or supplemented, and has discussed with the
independent accountant the independent accountant's independence. Based on
the review and discussions, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2010.





Members
of the Audit Committee:





/s/
Robert A. Solberg


/s/ Fred
Zeidman


/s/
Roger D. Friedberger


28




Section
16(A) Beneficial Ownership Reporting compliance




Section
16(a) of the Securities Exchange Act requires our executive officers and
directors, and persons who own more than 10% of our common stock, to file
reports regarding ownership of, and transactions in, our securities with the
Securities and Exchange Commission and to provide us with copies of those
filings. Based solely on our review of the copies of such forms received by us,
or written representations from certain reporting persons, we believe that
during fiscal year ended June 30, 2010, all filing requirements applicable to
its officers, directors and greater than 10% beneficial owners were complied
with except for the following late filings: (a) Mr. Watts was late filing a Form
4 with respect to two transactions, which were subsequently reported on a Form
4, (b) Mr. Leonard was late filing a Form 4 with respect to three transactions,
which were subsequently reported on a Form 4, (c) Mr. Solberg was late filing a
Form 4 with respect to two transactions, which were subsequently reported on a
Form 4, (d) Mr. Cohen was late filing a Form 4 with respect to five
transactions, which were subsequently reported on a Form 4, (e) Mr. Friedberger
was late filing a Form 4 with respect to one transaction, which was subsequently
reported on a Form 4, (f) Lord Owen was late filing a Form 4 with respect to
three transactions, which were subsequently reported on a Form 4, (g) Mr.
Scaturro was late filing a Form 4 with respect to two transactions, which were
subsequently reported on a Form 4, (h) Mr. Andrews was late filing a Form 4 with
respect to one transaction, which was subsequently reported on a Form 4, (i) Mr.
Davis was late filing a Form 4 with respect to one transaction, which was
subsequently reported on a Form 4, and (j) Mr. Young was late filing a Form 4
with respect to one transaction, which was subsequently reported on a Form
4.




Code
of Ethics




We have
adopted a Code of Ethics that applies to principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, which was filed on Form 10-KSB/A on May 16, 2005.
 We will provide without charge a copy of our Code of Ethics upon request.
 Such request should be directed in writing to: Jason Davis, Hyperdynamics
Corporation, 12012 Wickchester Lane, Suite 475 Houston, TX 77079, voice: (713)
353-9400, fax: (713) 353-9421.  Our Web site is www.hyperdynamics.com.




Item 11.
            Executive
      Compensation.




Compensation
Discussion and Analysis




Our
compensation discussion and analysis for the fiscal year ended June 30, 2010
discusses the compensation for our Named Executive Officers (“NEO’s”) who are
reflected in the Summary Compensation Table below and consist of our Chief
Executive Officer, Principal Financial Officer, and our other executive
officer.  In this compensation discussion and analysis, the terms “we”
and “our” refer to Hyperdynamics Corporation, and not the Compensation
Committee.




Compensation
Objectives and Elements




What
are the objectives of our executive officer compensation program?




The
objectives of the Compensation Committee of the Board of Directors in
determining executive compensation are to (1) attract and retain key individuals
who are important to the continued success of Hyperdynamics, and (2) provide
strong financial incentives, at reasonable cost to the shareholders, for senior
management to enhance the value of the shareholders’ investment.




What
is our executive officer compensation program designed to reward?




Our
compensation program is designed to reward individuals for the achievement of
our business goals and to foster continuity of management by encouraging key
individuals to maintain long-term careers with Hyperdynamics.




What
are the elements of our executive officer compensation program and why do we
provide each element?




The
elements of compensation that the Compensation Committee uses to accomplish
these objectives include base salaries, bonus, and long term incentives in the
form of stock and stock options.  We also provide perquisites to certain
executives and health and insurance to all employees. The elements of
compensation that we offer help us to attract and retain our officers. The
specific purpose of each element is outlined below.




Base
Salaries




We
provide fixed annual base salaries as consideration for each individual’s
performance of his or her job duties. Salaries are set based on level of
responsibility, skills, knowledge, experience, and contribution to
Hyperdynamics’ business.




Bonus




Bonuses
may be awarded as part of annual salary and it is a component of variable
compensation.  Bonuses are based on goals and objectives that each employee
must meet during the fiscal year.  Each employee is given a target
bonus percentage and the Compensation Committee and the full board of directors
determine the awarded bonuses, if any.




29


Long-term
Incentives





We
provide long-term incentives in the form of stock and stock options; customarily
stock options.  Long-term incentives are a component of variable
compensation because the amount of income ultimately earned is dependent upon
and varies with Hyperdynamics’ common stock price over the term of the
option. The stock option awards tie a portion of executive compensation to
the stock price and accordingly the financial results of the
company. Hyperdynamics does not use a formula to determine stock and stock
option awards to executives.  Stock option awards are not designed to
be tied to yearly results. Hyperdynamics views stock option awards as a
means to encourage equity ownership by executives and thus to generally align
the interests of the executives with the shareholders.




Hyperdynamics’
2010 Equity Incentive Plan (the “Plan”) authorizes the Compensation Committee to
grant stock options, restricted stock, and stock registered under a Form S-8
registration statement to officers and other key employees.  The
Compensation Committee implements this authority by awarding stock options
designed to align the interests of all senior executives to those of
shareholders. This is accomplished by awarding stock options, which rise in
value based upon the market price rise of Hyperdynamics’ common stock, on a
systematic basis.




We report
the estimated fair value of our stock option grants, as determined for
accounting purposes in accordance with ASC 718, using either the Black-Scholes
option pricing model or a Monte Carlo model, in the Summary Compensation Table
and the Grants of Plan-Based Awards table. The amount reflected for
accounting purposes does not reflect whether the executive has or will realize a
financial benefit from the awards. Because stock option awards are made at
a price equal to or above the market price on the date of grant, stock options
have no intrinsic value at the time of grant. We believe the potential
appreciation of the option awards over the stock price provide motivation to
executives.




Perquisites




Perquisites
are determined on a case-by-case basis and currently, no executive officer
receives such perquisites.  Two former officers during fiscal year
2010 did receive perquisites and include the following:




In
accordance with his negotiated employment agreement, Harry Briers was provided a
company car.  Kent Watts (former CEO, President and
Director) was provided a company car pursuant to his employment agreement
that terminated on July 1, 2009 pursuant to its terms.




How
do we determine the amount for each element of executive officer
compensation?




Our
policy is to provide compensation packages that are competitively reasonable and
appropriate for our business needs. We consider such factors as competitive
compensation packages as negotiated with our officers; evaluations of the CEO
and other executive officers; achievement of performance goals and milestones as
additional motivation for certain executives; officers’ ability to work in
relationships that foster teamwork among our executive officers; officers’
individual skills and expertise, and labor market conditions. We do not, at
this time, engage a third-party compensation consultant.




During
the fiscal years ended June 30, 2008, 2009, and 2010, total executive
compensation consists of base salary, bonuses and option awards. Generally,
the option awards for executives negotiated in the executive’s contract, with an
exercise price based on the market price on the grant date. Option awards
are also granted to employees on a case by case basis throughout the
year.  Because of the simplicity of the compensation package, there is
very little interaction between decisions about the individual elements of
compensation.




The
following table reflects each named officer’s base salary and option package as
of June 30, 2010:




Base salary
                  
                  
                  % of CEO
                    amount
                  
                  
                  Options
                  
                  
                  % of CEO
                    amountRay
      Leonard, President and CEO
                  
                  $
                  330,000
                  
                  
                  
                  100
                  %
                  
                  
                  3,500,000
                  
                  
                  
                  100
                  %Jason
      Davis, Principal Financial Officer
                  
                  
                  200,000
                  
                  
                  
                  61
                  %
                  
                  
                  306,000
                  
                  
                  
                  9
                  %William
      Young, EVP of Commercial Affairs
                  
                  
                  200,000
                  
                  
                  
                  61
                  %
                  
                  
                  400,000
                  
                  
                  
                  11
                  %





As more
fully described below in “Agreements with Executives and Officers,” in July
2009, the Compensation Committee approved employment agreements with
Ray Leonard, our current CEO and President, and Jason Davis, our
current Principal Financial Officer and in November 2009, the Compensation
Committee approved an employment agreement with William Young, our Executive
Vice President for Commercial Affairs.  As described in the Current
Report on Form 8-K with the Securities and Exchange Commission on October 16,
2009 and on October 12, 2009,  the Board of Directors approved an
amendment to Mr. Davis’ employment agreement, our current Principal Financial
Officer, that modified the quarterly option grant provisions under his
employment agreement.  Instead of making future quarterly option
grants (following October 2009), the Board of Directors decided to grant Mr.
Davis an option to purchase 161,000 shares of common stock.  The grant
was made pursuant to the Plan.  Mr. Davis’ option has an exercise
price of $1.61, which was the closing price of our common stock on October 9,
2009 or the trading date immediately preceding the date of grant, a term for
five years from the date of grant, and will vest 33% on anniversary date during
each of the three years following the grant date.




Administration
of Executive Compensation




The
Compensation Committee reviews and approves corporate goals and objectives
relevant to compensation of the CEO, evaluates the CEO’s performance and sets
his compensation.  The Compensation Committee also reviews the CEO’s
recommendations for and sets the salaries and bonuses of other key officers and
employees.


30


CEO
involvement in compensation decisions




The CEO
makes recommendations to the Compensation Committee concerning the employment
packages of all subordinate officers.  Neither the CEO nor any other
company officer or employee attends periodic executive sessions of the
Compensation Committee.




How
compensation or amounts realizable from prior compensation are
considered




The
amount of past compensation generally does not affect current year
considerations because bonuses and long term incentives are awarded for each
individual fiscal year’s job performance.




Tax
considerations




The
company’s compensation plans are designed generally to ensure full tax
deductibility of compensation paid under the plans.  This includes
compliance with Section 162(m) of the Internal Revenue Code, which limits the
company’s tax deduction for an executive’s compensation to $1 million unless
certain conditions are met.  For fiscal year ended June 30, 2010 the full
amount of all compensation provided to all executives was tax deductible to the
company.




Timing,
grant date, and exercise price for stock option awards




Our
policy is to award stock options upon hiring of the employee and on a case by
case basis throughout the year.   Stock option exercise prices are the
closing price on the date of grant. We also have made certain awards based
on the completion of performance criteria.




Analysis
of variations in individual NEO’s compensation




Each
NEO’s compensation is detailed in the Compensation Tables.  Each NEO’s
contract is described under the caption Agreements with Executives and
Officers.




Employment
Agreements with Current CEO and Principal Financial Officer




As more
fully described below in “Agreements with Executives and Officers,” in July
2009, the Compensation Committee approved employment agreements with
Ray Leonard, our current CEO and President, and Jason Davis, our
current Principal Financial Officer.




COMPENSATION
TABLES




The
following tables show salaries, bonuses, incentive awards, retirement benefits
and other compensation relating to fiscal year ended June 30, 2010 for the Chief
Executive Officer, Principal Financial Officer, and our other executive
officers. Columns for which there was no compensation have been
omitted.




SUMMARY
COMPENSATION TABLE




Fiscal
Year end June 30, 2010


Name
                                &Principal
                                Position
                              
                              Year
                              
                              Salary
                              
                              
                              Stock Awards
                              
                              
                              Option Awards
                              
                              
                              Bonus
                              
                              
                              All Other Compensation
                              
                              
                              Total(a)
                              
                              (b)
                              
                              ($)
      (c)
                              
                              
                              ($)
      (d) (3)
                              
                              
                              ($)
      (e) (3)
                              
                              
                              ($)
      (f)(4)
                              
                              
                              ($)
      (g) (5)
                              
                              
                              ($)
      (h)Ray
      Leonard, President and CEO
                              
                              2010
                              
                              
                              251,788
                              
                              
                              
                              -
                              
                              
                              
                              692,409
                              
                              
                              
                              522,500
                              
                              
                              
                              7,055
                              
                              
                              
                              1,473,752Kent
      Watts (former Chairman, President, CEO) (1)
                              
                              2010
                              
                              
                              44,833
                              
                              
                              
                              -
                              
                              
                              
                              11,948
                              
                              
                              
                              -
                              
                              
                              
                              9,383
                              
                              
                              
                              66,1642009
                              
                              
                              250,000
                              
                              
                              
                              -
                              
                              
                              
                              44,482
                              
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              294,4822008
                              
                              
                              250,000
                              
                              
                              
                              -
                              
                              
                              
                              140,158
                              
                              
                              
                              
                              
                              
                              
                              17,148
                              
                              
                              
                              407,306Harry
      Briers (former Executive Vice President) (2)
                              
                              2010
                              
                              
                              190,000
                              
                              
                              
                              -
                              
                              
                              
                              32,942
                              
                              
                              
                              -
                              
                              
                              
                              12,600
                              
                              
                              
                              235,5422009
                              
                              
                              190,000
                              
                              
                              
                              -
                              
                              
                              
                              27,801
                              
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              217,8012008
                              
                              
                              190,000
                              
                              
                              
                              -
                              
                              
                              
                              87,600
                              
                              
                              
                              -
                              
                              
                              
                              13,458
                              
                              
                              
                              291,058Jason
      Davis, Principal Financial Officer
                              
                              2010
                              
                              
                              193,125
                              
                              
                              
                              -
                              
                              
                              
                              229,996
                              
                              
                              
                              125,531
                              
                              
                              
                              8,944
                              
                              
                              
                              557,596William
      Young, (EVP of Commercial Affairs) (6)
                              
                              2010
                              
                              
                              113,636
                              
                              
                              
                              -
                              
                              
                              
                              231,742
                              
                              
                              
                              95,741
                              
                              
                              
                              52,687
                              
                              
                              
                              493,806




31




(1)
            Kent Watts resigned as our CEO
      and President on July 22,
2009.


(2)
            Harry Briers resigned as EVP of
      the Company effective as of June 30,
  2009.


(3)
            Columns (d) and (e): Reflects the
      grant date fair value, computed in accordance with FASB ASC Topic 718, for
      option awards granted in fiscal year 2010.  For a description of
      the assumptions used for purposes of determining grant date fair value,
      see Note 13 to the Financial Statements included in this Annual
      Report on Form 10-K for the year ended June 30,
    2010.


(4)
            Column
      (f): Payments made on bonus pay-out in July
  2010.


(5)
            Colum
      (g): Payments made for perquisites that include company leased vehicles,
      relocation expense, and company matches of the 401(k)
  plan.


(6)
            William
      Young has resigned as our EVP of Commercial Affairs effective October 8,
      2010.




As more
fully described below in “Agreements with Executives and Officers,” in July
2009, the Compensation Committee approved employment agreements with
Ray Leonard, our current CEO and President, and Jason Davis, our
current Principal Financial Officer.




Bonuses
and Stock Awards




The
following tables show cash and stock awards made to the named executives in
fiscal year 2010, their outstanding equity awards at the end of fiscal year
2010.




GRANTS
OF PLAN-BASED AWARDS IN FISCAL YEAR 2010


Under Non-Equity Incentive Plan AwardsAll Other Option Awards:Name
                                            
                                            Action
                                              Date
                                            
                                            Grant Date
                                              (3)
                                            
                                            Threshold
                                            
                                            Target
                                            
                                            Maximum
                                            
                                            Number of
                                              Securities
                                              Underlying
                                              Options
                                            
                                            
                                            Exercise or
                                              Base Price of
                                              Option
                                              Awards
                                            
                                            
                                            Grant Date
                                              Fair Value
                                              Awards of
                                              Stock &
                                              Options(a)
                                            
                                            (b)
                                            
                                            (b)
                                            
                                            ($) (c)
                                            
                                            ($) (d)
                                            
                                            ($) (e)
                                            
                                            (#)(f)
                                            
                                            
                                            ($/Share) (g)
                                            
                                            
                                            ($) (h)Ray
      Leonard
                                            
                                            7/22/09
                                            
                                            7/22/09
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            3,500,000
                                            
                                            
                                            $
                                            0.49
                                            
                                            
                                            $
                                            692,409Harry
      Briers (1)
                                            
                                            10/07/06
                                            
                                            7/1/09
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            25,000
                                            
                                            
                                            
                                            0.52
                                            
                                            
                                            
                                            7,468Harry
      Briers (1)
                                            
                                            10/07/06
                                            
                                            4/7/2010
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            75,000
                                            
                                            
                                            
                                            1.49
                                            
                                            
                                            
                                            25,475Jason
      Davis
                                            
                                            7/1/2010
                                            
                                            7/1/2010
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            25,000
                                            
                                            
                                            
                                            2.00
                                            
                                            
                                            
                                            13,442Jason
      Davis
                                            
                                            10/9/2009
                                            
                                            10/9/2009
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            25,000
                                            
                                            
                                            
                                            0.31
                                            
                                            
                                            
                                            173.401Jason
      Davis
                                            
                                            1/8/2010
                                            
                                            1/8/2010
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            100,000
                                            
                                            
                                            
                                            0.90
                                            
                                            
                                            
                                            43,153William
      Young (2)
                                            
                                            12/4/2009
                                            
                                            12/4/2009
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            400,000
                                            
                                            
                                            
                                            0.92
                                            
                                            
                                            
                                            231,742





(1)
            Former EVP and
      Director.


(2)
            EVP of Commercial
      Affairs.


32





As
described in the Current Report on Form 8-K with the Securities and Exchange
Commission on October 16, 2009, on October 12, 2009, the Board of Directors
approved an amendment to Mr. Davis’ employment agreement, our current CFO, that
modified the quarterly option grant provisions under his employment
agreement.  Instead of making future quarterly option grants
(following October 2009), the Board of Directors elected to grant Mr. Davis an
option to purchase 161,000 shares of common stock.  The grant was made
pursuant to the Plan.  Mr. Davis’ option has an exercise price of
$1.61, which was the closing price of our common stock on October 9, 2009 or the
trading date immediately preceding the date of grant, a term for five years from
the date of grant, and will vest 33% on anniversary date during each of the
three years following the grant date.




OUTSTANDING
EQUITY AWARDS AT 2010 FISCAL YEAR-END




Name
                          
                          No. of
                            Securities
                            Underlying
                            Unexercised
                            Options
                            Exercisable
                          
                          
                          No. of
                            Securities
                            Underlying
                            Unexercised
                            Options
                            Unexercisable
                          
                          Option
                            Exercise
                            Price
                            ($/Share)
                          
                          Option
                            Expiration
                            Date
                          
                          No. of
                            Shares
                            or
                            Units
                            of
                            Stock
                            That
                            Have
                            Not
                            Vested
                          
                          Market
                            Value
                            of
                            Shares
                            or
                            Units
                            of
                            Stock
                            That
                            Have
                            Not
                            Vested(a)
                          
                          (#)(b)
      (3)
                          
                          
                          (#)(c)
                          
                          (d)
                          
                          (e)
                          
                          (#)(f)
                          
                          ($)(g)Ray
      Leonard
                          
                          
                          770,000
                          
                          
                          
                          
                          
                          0.50
                          
                          7/22/2014Ray
      Leonard
                          
                          
                          
                          
                          
                          
                          2,730,000
                          
                          0.50
                          
                          7/22/2014Kent
      P Watts (1)
                          
                          
                          40,000
                          
                          
                          
                          
                          
                          3.00
                          
                          7/2/2010Kent
      P Watts (1)
                          
                          
                          40,000
                          
                          
                          
                          
                          
                          2.80
                          
                          10/1/2010Kent
      P Watts (1)
                          
                          
                          30,000
                          
                          
                          
                          
                          
                          2.00
                          
                          1/2/2011Kent
      P Watts (1)
                          
                          
                          40,000
                          
                          
                          
                          
                          
                          2.00
                          
                          4/1/2011Kent
      P. Watts (1)
                          
                          
                          40,000
                          
                          
                          
                          
                          
                          2.00
                          
                          7/1/2011Kent
      P. Watts (1)
                          
                          
                          40,000
                          
                          
                          
                          
                          
                          2.00
                          
                          10/1/2011Kent
      P. Watts (1)
                          
                          
                          40,000
                          
                          
                          
                          
                          
                          2.00
                          
                          1/2/2012Kent
      P. Watts (1)
                          
                          
                          40,000
                          
                          
                          
                          
                          
                          0.30
                          
                          4/1/2012Kent
      P. Watts (1)
                          
                          
                          40,000
                          
                          
                          
                          
                          
                          0.50
                          
                          7/1/2012Harry
      (2) Briers (2)
                          
                          
                          25,000
                          
                          
                          
                          
                          
                          3.00
                          
                          7/2/2010Harry
      Briers (2)
                          
                          
                          25,000
                          
                          
                          
                          
                          
                          2.80
                          
                          10/1/2010Harry
      Briers (2)
                          
                          
                          25,000
                          
                          
                          
                          
                          
                          2.00
                          
                          1/2/2011Harry
      Briers (2)
                          
                          
                          25,000
                          
                          
                          
                          
                          
                          2.00
                          
                          4/1/2011Harry
      Briers (2)
                          
                          
                          25,000
                          
                          
                          
                          
                          
                          2.00
                          
                          7/1/2011Harry
      Briers (2)
                          
                          
                          25,000
                          
                          
                          
                          
                          
                          2.00
                          
                          10/1/2011Harry
      Briers (2)
                          
                          
                          25,000
                          
                          
                          
                          
                          
                          2.00
                          
                          1/2/2012Harry
      Briers (2)
                          
                          
                          75,000
                          
                          
                          
                          
                          
                          1.50
                          
                          7/1/2010Jason
      Davis
                          
                          
                          
                          
                          
                          
                          45,000
                          
                          0.40
                          
                          7/1/2012Jason
      Davis
                          
                          
                          
                          
                          
                          
                          161,000
                          
                          1.60
                          
                          10/9/2014Jason
      Davis
                          
                          
                          
                          
                          
                          
                          100,000
                          
                          0.90
                          
                          1/8/2015William
      Young
                          
                          
                          
                          
                          
                          
                          400,000
                          
                          0.90
                          
                          12/4/2014





(1)
            Former CEO, President and
      Director.


(2)
            Former
  EVP.


(3)
            Column (b): options vest
      immediately.




33





OPTION
EXERCISES AND STOCK VESTED DURING FISCAL YEAR 2010




Name
                
                No. of Shares
                  Acquired on
                  Exercise
                
                
                Value
                  Realized on
                  Exercise
                
                
                No. of Shares
                  Acquired on
                  Vesting
                
                
                Value
                  Realized on
                  Vesting(a)
                
                (#)
                
                
                ($)
                
                
                (#)
                
                
                ($)Harry
      Briers (former EVP)
                
                
                25,000-
                
                
                $
                5,750




Agreements
with Former Executives and Officers




The
employment agreement with Kent Watts (former Director) terminated on July
1, 2009 pursuant to its terms.  On August 10, 2006, our
Compensation Committee approved a Chief Executive Employment Agreement for
Kent Watts (former Director).  The contract has an initial term of
three years.  The contract provides for a base salary of $250,000 annually
with a performance based incentive salary based on 1% of adjusted net income.
 Mr. Watts (former Director) also will receive 40,000 options to
purchase Hyperdynamics common stock each quarter during the term of the
agreement.  Option exercise prices are the higher of the closing market
price on the grant date or $2.00 per share, the options vest immediately upon
grant, and they have a term of three years.  Mr. Watts (former
Director) has a severance agreement.  Under the terms of the severance
agreement, Mr. Watts (former Director) will receive his base salary and
health insurance costs for two years from the date of termination by
Hyperdynamics for a reason other than cause, death, or disability.
 Additionally, in the event there is a “Good Reason”, such as a change of
control or a requirement to relocate, Mr. Watts (former Director) may
terminate the contract and receive severance benefits for two years from the
date of termination.




34


On
October 7, 2006, our Compensation Committee approved an Executive Vice President
Employment Agreement for Harry Briers.  The contract has an initial term of
two years and has been automatically renewed for subsequent years pursuant to
its terms.The contract
provides for a base salary of $190,000 annually.  Mr. Briers also will
receive 25,000 options to purchase Hyperdynamics common stock each quarter
during the term of the agreement.  Option exercise prices are the higher of
the closing market price on the grant date or $2.00 per share, the options vest
immediately upon grant, and they have a term of three years.
 Mr. Briers has a severance agreement.  Under the terms of
the severance agreement, Mr. Briers will receive his base salary costs for
one year from the date of termination by Hyperdynamics for a reason other than
cause, death, or disability.  Additionally, in the event there is a
“Good Reason”, such as a change of control or a requirement to relocate,
Mr. Briers may terminate the contract and receive severance benefits for
one year from the date of termination as more fully described in “Severance and
Change of Control Agreements” below.




Agreements
with Current Executives and Officers


On
November 24, 2009, we entered into an employment agreement with William A. Young
effective as of December 7, 2009.  Mr. Young is our current Executive
Vice President for Commercial Affairs.  In this capacity, Mr. Young is
responsible for negotiating and managing all of our commercial transactions,
including partnerships, mergers and acquisitions and commercial
contracts.  He also oversees our investor relations.  In
connection with the hiring of Mr. Young, we granted to Mr. Young,
effective as of December 7, 2009, options to purchase 200,000 shares of our
common stock.  Under the terms of the agreement, one-third of the
options was to vest on each of the first, second and third anniversaries of the
date of grant.  Mr. Young also received options to purchase
200,000 shares of our common stock of which one-third of the options will vest
beginning if and when our stock price attains a closing market price of $3 per
share or more for five consecutive trading days.  The foregoing
options were granted pursuant to our Employee Stock and Stock Option Plan and
will expire December 7, 2014.  The exercise price for the foregoing
options was the closing price of our common stock on December 4,
2009.
 
 Mr.
Young’s agreement has a three-year term that is automatically extended for
successive one-year periods following the end of the initial three-year term
unless otherwise terminated by delivery of written notice by either party no
less than two months prior to the first day of any one-year extension
period.  Under the terms of the agreement, Mr. Young receives an
annual base salary of $200,000.  Mr. Young is also eligible to
receive performance bonus(es) as determined and agreed to from time to time by
the Chief Executive Officer and the Board of Directors.  Following the
execution of the employment agreement, the Company paid Mr. Young $50,000 to
cover his relocation to Houston, Texas.  Finally, Mr. Young will
receive certain perquisites, including reimbursement in accordance with our
standard policies and procedures of business and business-related business
expenses, four weeks of paid vacation each calendar year, and participation in
all benefits, plans and programs available to our executive
employees.
 
 On August
18, 2010, we entered into a Consulting Agreement, dated August 14, 2010, with
Mr. Young that contemplated the termination of Mr. Young’s employment with us
and subsequent consultancy with us.  However, as described under Item
9B above, pursuant to the terms of the First Amendment to the Consulting
Agreement, Mr. Young’s employment with us will end and his Employment Agreement
and Consulting Agreement will terminate on October 8, 2010.


Jason
Davis, our current Chief Financial Officer, entered into an employment agreement
effective as of July 1, 2009.  This agreement has a two-year term that
is automatically extended for successive one-year periods following the end of
the initial two-year term unless otherwise terminated by delivery of written
notice by either party no less than two months prior to the first day of any
one-year extension period.  The agreement provides that Mr. Davis will
serve as our Chief Financial Officer and Principal Accounting
Officer.  Under the terms of the agreement, Mr. Davis would receive an
annual base salary of $185,000, which may be further increased at the sole
discretion of the Compensation Committee.  This annual base salary was
increased to $200,000 effective January 1, 2010.  Mr. Davis’ salary
could be paid $92,500 per year in cash plus $92,500 payable in common stock
under a 10b5-1 plan.  The Company has opted to pay all base salary in
cash.  Mr. Davis is also eligible to receive performance bonus(es) as
determined and agreed to from time to time by the Chief Executive Officer and
the Board of Directors.  Mr. Davis will also be eligible to
participate, in the sole discretion of the Compensation Committee, in any
long-term incentive arrangements we make available to our executive officers
from time to time.  In connection with his hiring, we granted Mr.
Davis an option to purchase 45,000 shares of our common stock at an exercise
price of $0.42 which immediately vested and expire three years after
issuance.  Under his employment agreement, Mr. Davis was eligible to
received quarterly option grant to purchase 23,000 shares of our common
stock.  On October 12, 2009, the Board of Directors approved an
amendment to Mr. Davis’ employment agreement that modified the foregoing
quarterly option grant provisions under his employment
agreement.  Instead of making future quarterly option grants
(following October 2009), the Board of Directors elected to grant Mr. Davis an
option to purchase 161,000 shares of common stock.  The grant was made
pursuant to the Plan.  The option has an exercise price of $1.61,
which was the closing price of our common stock on October 9, 2009 or the
trading date immediately preceding the date of grant, a term for five years from
the date of grant, and will vest 33% on anniversary date during each of the
three years following the grant date.  Finally, Mr. Davis will receive
certain perquisites, including reimbursement in accordance with our standard
policies and procedures of business and business-related business expenses and
dues and fees to industry and professional organizations, two weeks of paid
vacation each calendar year, and participation by Mr. Davis and his spouse and
dependents in all benefits, plans and programs available to our executive
employees.




We
entered into an employment agreement with Ray Leonard, our current CEO,
President and Director effective as of July 22, 2009.  This agreement
has a three-year term that is automatically extended for successive one-year
periods following the end of the initial two-year term unless otherwise
terminated by delivery of written notice by either party no less than two months
prior to the first day of any one-year extension period.  The
agreement provides that Mr. Leonard will serve as our President and Chief
Executive Officer.  Under the terms of the agreement, the base salary
on the effective date of the employment agreement shall be
$180,000.  At the time that a net cash to the Company aggregate of
$10,000,000 in new cash equity capital is raised beginning from the date first
written above, Mr. Leonard’s base salary will increase to
$330,000.  The base salary is subject to annual adjustments beginning
in July 2010, at the discretion of the Board, but in no event shall the Company
pay Mr. Leonard a base salary less than that set forth above, or any increased
base salary later in effect, without the consent of Mr. Leonard.




In
connection with his hiring in July 2009, we granted Mr. Leonard an option to
purchase 500,000 shares of our common stock at an exercise price of $0.49 which
immediately vested.  Mr. Leonard was also granted options to purchase
300,000 shares of our common stock at an exercise price of $0.49 that vests on a
monthly basis over five years.  Both of these options will expire five
years after issuance.  In addition to the foregoing equity award
grants discussed above, under his employment agreement, we will annually award
Mr. Leonard additional grants based on achieving longer term performance metrics
that will be developed by Mr. Leonard and reviewed and approved by the Board
and/or the Compensation Committee as further discussed below.




A stock
option award will be made for the following three cumulative net cash to the
Company equity capital money raising transactions beginning from the date first
written above:




When $8
million cumulative is raised, the award is 210,000 stock options.




When $20
million cumulative is raised, the award is 390,000 stock options.




When $30
million cumulative is raised, the award is 600,000 stock options.




All
awards vest 1/36 per month over a three-year period from the trigger
event.  The Performance Option-Grant Awards options shall have a five
year life, and the exercise price shall be $0.49.




A stock
option incentive will be made based on achieving the following share price
thresholds:




35





$2.00/share
            90,000
      stock options$3.00/share
            210,000
      stock options$5.00/share
            600,000
      stock options$9.00/share
            1,200,000
      stock options





All
awards vest 1/36 per month over a three-year period from the trigger
event.  The Performance Option-Grant Awards options shall have a five
year life, and the exercise price shall be $0.49.  For awards related
to the $2.00 and $3.00 share price, the stock option is earned if the closing
price of the shares trade at or above the target price for 15 consecutive
trading days.  For awards related to the $5.00 and $9.00 share price,
the stock option is earned if the closing price of the shares trade at or above
the target price for 5 consecutive trading days.




Beginning
with the effective date of the employee agreement, and on an annual basis, Mr.
Leonard will participate in any incentive compensation plan (“ICP”) applicable
to Mr. Leonard’s position, as may be adopted by the Company from time to time
and in accordance with the terms of such plan(s).  Mr. Leonard’s
target award opportunity under the ICP will be 100% of his base salary with a
threshold of 50% and a 200% maximum, and shall be subject to such other terms,
conditions and restrictions as may be established by the Board or the
Compensation Committee.  Annually, Mr. Leonard will develop a proposed
set of current year performance metrics that are subject to review and approval
by the Board and/or the Compensation Committee.  Metrics are as
follows:




(i)           100%
when industry presentation package is completed; 1,000 square kilometers of 3D
is acquired; and a net cash to the Company an aggregate of $15,000,000 in new
cash equity capital is raised beginning from the date first written
above.




(ii)           200%
when all items above are achieved plus either a net cash to the Company an
aggregate of $25,000,000 of new cash equity capital is raised, or,  or
a joint venture agreement related to the Company’s 2006 Production Sharing
Agreement with the Republic of Guinea is executed.




Finally,
Mr. Leonard will receive certain perquisites, including reimbursement in
accordance with our standard policies and procedures of business and
business-related business expenses and dues and fees to industry and
professional organizations, two weeks of paid vacation each calendar year, and
participation by Mr. Leonard and his spouse and dependents in all benefits,
plans and programs available to our executive employees.




Severance
and Change of Control Agreements for Former Executive Officers




Hyperdynamics
had a severance agreement with its former Executive Vice President, Harry
Briers. Under the agreement, Mr. Briers would receive a severance
package if he resigns for “good reason” or if Hyperdynamics terminates him for a
reason other than Cause, Disability, or Death. “Good Reason” is defined as
a breach of the severance agreement, including an assignment of duties
inconsistent with Mr. Briers’ position in the company or a material adverse
alteration in the nature or status of his responsibilities, relocation outside
of the Houston metropolitan area, or a change in control of
Hyperdynamics.




Under the
severance package, Mr. Briers would receive his base salary, $190,000 per
year, for one year after the effective date of the event triggering the
severance package. The salary would be paid with the same timing that
employees of Hyperdynamics are paid, currently bi-weekly. Hyperdynamics
could opt to pay the severance payment in one lump sum.




Current
Director Compensation




The
following table describes compensation arrangements in effect for independent
directors during the year ended June 30, 2010.




Director
                  
                  Quarterly fees
                  
                  
                  OptionsRobert
      Solberg
                  
                  $
                  17,000
                  
                  
                  
                  350,000
                  (1)Roger
      Friedberger
                  
                  $
                  15,000
                  
                  
                  
                  70,000
                  (2)Herman
      Cohen
                  
                  $
                  15,000
                  
                  
                  
                  60,000
                  (3)Lord
      David Owen
                  
                  $
                  12,500
                  
                  
                  
                  100,000
                  (4)Fred
      Zeidman
                  
                  $
                  13,000
                  
                  
                  
                  56,000
                  (5)





(1)
            250,000 options to purchase
      common stock were granted upon joining the board and 100,000 options to
      purchase common stock were granted in conjunction with fiscal year 2010
      service.


(2)
            70,000 options to purchase common
      stock were granted in conjunction with fiscal year 2010
      service.


(3)
            60,000 options to purchase common
      stock were granted upon joining the board and in conjunction with fiscal
      year 2010 service.


(4)
            50,000 options to purchase common
      stock were granted upon joining the board and 50,000 options to purchase
      common stock were granted in conjunction with fiscal year 2010
      service.


(5)
            56,000 options to purchase common
      stock were granted in conjunction with fiscal year 2010
      service.




36





DIRECTOR
COMPENSATION




Name
                
                Fees Earned
                  or Paid in
                  Cash
                
                
                Stock
                  Awards
                
                
                Option
                  Awards
                
                
                All Other
                  Compensation
                
                
                Total($)
                
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)Kent Watts
      (former CEO, President Director) (1)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Harry
      Briers (1)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Gene Stohler
      (former Director)
                
                
                -
                
                
                
                -
                
                
                
                3,390
                (2)
                
                
                -
                
                
                
                3,390Charles H. Andrews
      (former Director)
                
                
                30,500
                
                
                
                -
                
                
                
                53,871
                (3)
                
                
                -
                
                
                
                84,371Roger
      Friedberger
                
                
                63,000
                
                
                
                -
                
                
                
                118,604
                (4)
                
                
                -
                
                
                
                181,604Pasquale
      Scaturro (former Director)
                
                
                20,800
                
                
                
                -
                
                
                
                76,138
                (5)
                
                
                -
                
                
                
                96,938Fred
      Zeidman
                
                
                28,826
                
                
                
                -
                
                
                
                52,050
                (6)
                
                
                -
                
                
                
                80,876Lord
      David Owen
                
                
                37,500
                
                
                
                -
                
                
                
                150,674
                (7)
                
                
                -
                
                
                
                188,174Herman
      Cohen
                
                
                51,767
                
                
                
                -
                
                
                
                116,344
                (8)
                
                
                -
                
                
                
                168,111Robert
      Solberg
                
                
                54,850
                
                
                
                -
                
                
                
                411,689
                (9)
                
                
                -
                
                
                
                466,539Ray
      Leonard (1)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -




(1)
            We do not provide additional
      compensation to employees that also serve as directors for their service
      on the Board of Directors.  All compensation paid to Messrs.
      Watts, Leonard, and Briers is reflected above in the Summary Compensation
      Table. As of June 30, 2010, Mr. Watts held 2,633,827 shares of common
      stock and options to purchase 320,000 shares of common stock, and Mr.
      Briers held 1,923,336 shares of common
  stock.





(2)
            During the year ended June 30,
      2010, Mr. Stohler receivedfive year options to purchase
      15,000 shares of common stock.  The options vested immediately
      and have an exercise price of $0.52 based on the market value of the stock
      on the date of grant.





(3)
            During the year ended June 30,
      2010,Mr. Andrews
      receivedfive year
      options to purchase 65,000 shares of common
      stock.Thegrant of 15,000optionson July 1, 2009vested immediately and haveanexercise price of $0.52  The grant of 50,000
      options on October 9, 2009 have an exercise price of$1.61based on the market value of the
      stock on the date of grantand vest over two
      years.





(4)
            During the year ended June 30,
      2010,Mr.
      Friedberger received five year options to purchase130,000shares of common
      stock.  Thegrant of 10,000 options on July
      1, 2009 vestedimmediately and haveanexercise price of
      $0.31.  The grant of 60,000
      options on October 9, 2009 vest over two yearsandhave an exercise price of$1.61based on the market value of the
      stock on the date of grant.The grant of 60,000 options on
      June 30, 2010 vest over two yearsandhave an exercise price of$1.09based on the market value of the
      stock on the date of grant.





(5)
            During the year ended June 30,
      2010,Mr.Scaturroreceived five year options to
      purchase244,000shares of common
      stock.  Thegrant of 44,000optionson October 9, 2009vestover two yearsand have exercise prices of
      $1.61based on the market value of the
      stock on the date of grant.  Thegrant of 200,000 options on July
      21, 2009 vest 25% immediately, 25% when the Company signed a 25% joint
      venture, 25% with a 50% joint venture, and 25% when the Company signed a
      75% joint ventureand have exercise prices of
      $0.40based on the market value of the
      stock on the date of grant.As of June 30, 2010,Mr.Scaturrodid not hold these options as
      they expired when he resigned the board of
    directors.





(6)
            During the year ended June 30,
      2010,Mr.Zeidmanreceived five year options to
      purchase56,000shares of common
      stock.  These options
      vestover two yearsand have exercise prices of
      $1.09based on the market value of the
      stock on the date of grant.





(7)
            During the year ended June 30,
      2010,Mr.Owenreceived five year options to
      purchase150,000shares of common
      stock.  The grant of 50,000
      options vested immediately and have an exercise price 1.54based on the market value of the
      stock on the date of grant.  In addition, 50,000
      options were granted on October 9, 2009, vestover two yearsand haveanexercise price of $1.61based on the market value of the
      stock on the date of grant.In addition, 50,000 options were
      granted on June 30, 2010, vestover two yearsand haveanexercise price of $1.09based on the market value of the
      stock on the date of grant.





(8)
            During the year ended June 30,
      2010,Mr.Cohenreceived five year options to
      purchase120,000shares of common
      stock.  The grant of
      60,000 granted on June 30, 2010 vest over two years and have an
      exercise price of $1.09 based on the market price of the stock on the
      date of grant.  The grant of 60,000 options on October 9, 2009 vest
      over two years and have an exercise price 1.61based on the market value of the
      stock on the date of grant.





(9)
            During the year ended June 30,
      2010,Mr.Solbergreceived five year options to
      purchase418,000shares of common
      stock.  The grant of 250,000
      options on August 26, 2009 vested immediately and have an exercise price
      1.15based on the
      market value of the stock on the date of grant.  The grant of 100,000
      options on October 9, 2009 vest over two years and have an exercise price
      1.61based on the
      market value of the stock on the date of grant.  The grant of 68,000
      options on June 30, 2010 vest over two years and have an exercise price
      1.09based on the
      market value of the stock on the date of grant.


37





In
connection with the commencement of Ray Leonard’s employment with us as our
Chief Executive Officer and President in July 2009, as more fully described
above in “Agreements with Executives and Officers,” on July 22, 2009, our Board
of Directors appointed Mr. Leonard to serve as a member of our Board of
Directors.  Mr. Leonard does not receive compensation for service on
our Board of Directors in addition to his compensation as Chief Executive
Officer and President.




On
October 12, 2009, the Board of Directors modified the structure by which we
compensate our independent directors for service as members of our
Board.  Each of our independent directors will be compensated for his
service on our Board of Directors under the structure below unless such director
has made a separate arrangement with the Company as is the case of Robert
Solberg and Lord David Owen, who joined our Board of Directors subsequent to
fiscal year 2009, as previously disclosed by the company in the Current Reports
on Form 8-K filed with the Securities and Exchange Commission on September 2,
2009 and October 2, 2009 respectively.  The new compensation arrangements
(except for Messrs. Solberg and Owen), which became effective October 1, 2009,
consist of the following:




·
            Cash
      compensation consisting of quarterly payments, as applicable, of: (i)
      $8,500 for services as a director, (ii) $5,000 for service as the chairman
      of a Board committee, (iii) $2,500 for service as a member of the Audit
      Committee or Government Relations Committee, and (iv) $1,500 for service
      as a member of the Compensation Committee or Nomination
      Committee.  The cash compensation may be paid in cash or stock
      at the election of the Company.





·
            An
      annual grant, pursuant to a stock incentive plan, of options to purchase
      shares of our common stock.  The options are to be granted on or
      about October 1st of each year, have an exercise price equal to the
      closing price of our common stock on the day prior to the grant date, vest
      50% on the first anniversary of the grant date and vest the remaining 50%
      on the second anniversary of the grant date.  The options will
      have a 5 year term.




Director
Option Grants




On
October 12, 2009, the Board made the annual grant (referenced above) of options
to our directors as reflected in the table below.  The grants were
made pursuant to the Plan.  Each option has an exercise price of
$1.61, which was the closing price of our common stock on October 9, 2009 or the
trading date immediately preceding the date of grant, a term for five years from
the date of grant, and will vest 50% on October 12, 2010 and 50% on October 12,
2011.  The following table sets forth the number of shares of our
common stock underlying the options granted to each of our independent directors
on October 12, 2009:




Name of Director
                      
                      Shares of Common Stock
                        Underlying OptionsRobert
      A. Solberg
                      
                      100,000Roger
      D. Friedberger
                      
                      60,000Charles
      H. Andrews
                      
                      50,000Pasquale
      V. Scaturro
                      
                      44,000Herman
      Cohen
                      
                      60,000Hon.
      Lord David Owen
                      
                      50,000





Compensation
Committee Interlocks and Insider Participation




No
executive officer of Hyperdynamics served as a member of the board of directors
of any other public company during the year ended June 30, 2010.  No
member of the Compensation Committee serves as an executive officer of any other
public company during the year ended June 30, 2010.  No interlocking
relationship exists between the members of our Compensation Committee and the
board of directors or compensation committee of any other company.




Compensation
Committee Report




The
Compensation Committee, consisting of Messrs. Solberg, Friedberger and
Zeidman, is responsible for establishing and administering the executive
compensation programs of Hyperdynamics.  The Compensation Committee of
Hyperdynamics has reviewed and discussed the Compensation Discussion and
Analysis required by Item 402(b) of Regulation S-K with management and, based on
such review and discussions, the Compensation Committee recommended to the Board
that the Compensation Discussion and Analysis be included in this Annual
Report.




THE
COMPENSATION COMMITTEE




/s/
Robert Solberg


/s/
Roger Friedberger


/s/ Fred
Zeidman


38





Item 12.
            Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters.




Equity
Compensation Plan Information




The
following table gives aggregate information under all equity compensation plans
of Hyperdynamics as of June 30, 2010.




Equity
Compensation Plan Information





Plan Category
                              
                              Number of
                                Securities to be
                                Issued Upon
                                Exercise of
                                Outstanding
                                Options,
                                Warrants, and
                                Rights
                              
                              
                              Weighted-
                                Average Exercise
                                Price of
                                Outstanding
                                Options,
                                Warrants and
                                Rights
                              
                              
                              Number of
                                Securities
                                Remaining
                                Available for
                                Future Issuance
                                Under Equity
                                Compensation
                                Plans (Excluding
                                Securities
                                Reflected in
                                Column (A))A
                              
                              
                              B
                              
                              
                              CEquity compensation plans approved by security
      holders
                              
                              
                              7,948,760
                              
                              
                              
                              0.91
                              
                              
                              
                              3,851,000Equity compensation plans not approved by security
      holders
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Total
                              
                              
                              7,948,760
                              
                              
                              
                              0.91
                              
                              
                              
                              3,851,000





The Stock
and Stock Option Plan (the “1997 Plan”) of Hyperdynamics was adopted May 7, 1997
and amended on December 3, 2001, on January 21, 2005, and on February 20,
2008.  The total number of shares authorized under the Plan, as
amended, was 14,000,000. The Board terminated the 1997 Plan effective upon
approval of the 2010 Plan by our shareholders as discussed below.





Shareholders
approved the adoption of the 2008 Restricted Stock Award Plan (the “2008 Plan”)
at Hyperdynamics’ Annual Meeting on February 20, 2008.  The total
number of shares authorized under the 2008 Plan was 3,000,000.  The Board
terminated the 2008 Plan effective upon approval of the 2010 Plan by our
shareholders as discussed below.





On
February 18, 2010, at our annual meeting of stockholders, the board of directors
and stockholders approved the 2010 Equity Incentive Plan (the “2010 Plan”). In
conjunction with the approval of the 2010 Plan at the annual meeting, the 1997
Plan and 2008 Plan were terminated as of February 18, 2010. The 2010 Plan
provides for the grants of shares of common stock or incentive stock options
and/or nonqualified stock options to purchase our common stock or restricted
stock to selected employees, directors, officers, agents, consultants,
attorneys, vendors and advisors of ours’ or of any parent or subsidiary thereof.
Shares of common stock, options, or restricted stock can only be granted under
this plan within 10 years from the effective date of February 18, 2010. A
maximum of 5,000,000 shares are issuable under the 2010 Plan.




The 2010
Plan provides a means to attract and retain the services of participants and
also to provide added incentive to such persons by encouraging stock ownership
in the Company. Plan grants are administered by the Compensation Committee, who
has substantial discretion to determine which persons, amounts, time, price,
exercise terms and restrictions, if any.





The
following table provides a reconciliation of the securities remaining available
for issuance as of June 30, 2010 under the Plans.





1997 Plan
                  
                  
                  2008 Plan
                  
                  
                  2010 Plan
                  
                  
                  All PlansShares
      available for issuance, June 30, 2009
                  
                  
                  11,568,870
                  
                  
                  
                  3,000,000
                  
                  
                  
                  -
                  
                  
                  
                  14,568,870Increase
      in shares issuable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,000,000
                  
                  
                  
                  5,000,000Shares
      issued
                  
                  
                  (6,365,000
                  )
                  
                  
                  -
                  
                  
                  
                  (1,149,000
                  )
                  
                  
                  (7,514,000
                  )Previously
      issued shares cancelled or expired
                  
                  
                  1,564,947
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,564,947Plan
      termination of remaining unissued shares
                  
                  
                  (6,768,817
                  )
                  
                  
                  (3,000,000
                  )
                  
                  
                  -
                  
                  
                  
                  (9,768,817
                  )Shares
      available for issuance, June 30, 2010
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,851,000
                  
                  
                  
                  3,851,000





The
purpose of the Plans are to further our interest, and the interest of our
subsidiaries and our stockholders by providing incentives in the form of stock
or stock options to key employees, consultants, directors, and vendors who
contribute materially to our success and profitability. We believe that our
future success will depend in part on our continued ability to attract and
retain highly qualified personnel as employees, independent consultants,
and attorneys. The issuance of stock and grants of options and warrants
will recognize and reward outstanding individual performances and contributions
and will give such persons a proprietary interest in us, thus enhancing their
personal interest in our continued success and progress. We pay wages, salaries,
and consulting rates that we believe are competitive. We use the 2010 Plan to
augment our compensation packages.




39


Security
ownership of certain beneficial owners and management





The
following table sets forth certain information with respect to the beneficial
ownership of shares of Common Stock by (1) each person known to us that owns
beneficially more than 5% of the outstanding shares of Common Stock, (2) each of
our Directors, (3) each of our Executive Officers, and (4) all of our Executive
Officers, Directors as a group.  At September 28, 2010, we had
104,227,199 shares of common stock outstanding.  The address of each
person named in the below table is c/o Hyperdynamics Corporation, 12012
Wickchester Lane, Suite 475 Houston, TX 77079.


Name and Address of Beneficial Owner
                      
                      Number of
                        Shares of
                        Common Stock
                        Beneficially
                        Owned
                      
                      
                      Percent of ClassKent
      Watts
                      
                      
                      12,352,346
                      (1)(2)
                      
                      
                      11.6
                      %TW
      Trust
                      
                      
                      8,265,926
                      (2)
                      
                      
                      7.8
                      %Michael Watts
                      
                      
                      5,325,926
                      (3)(4)
                      
                      
                      5.1
                      %KW
      Trust
                      
                      
                      3,519,629
                      (4)
                      
                      
                      3.4
                      %Ray Leonard
                      
                      
                      889,000
                      (5)
                      
                      
                      *Lord
      David Owen
                      
                      
                      520,569
                      (6)
                      
                      
                      *Robert
      A. Solberg
                      
                      
                      446,600
                      (7)
                      
                      
                      *Jason
      Davis
                      
                      
                      98,667
                      (8)
                      
                      
                      *William
      Young
                      
                      
                      66,667
                      (9)
                      
                      
                      *Roger
      D. Friedberger
                      
                      
                      62,500
                      (10)
                      
                      
                      *Fred
      Zeidman
                      
                      
                      50,000
                      (11)Herman Cohen
                      
                      
                      35,000
                      (12)
                      
                      
                      *Directors
      and Executive Officers as a group (9 persons)
                      
                      
                      2,109,836
                      
                      
                      
                      *





* Less
than 1%




(1)
            This amount includes: 2,633,827
      shares of common stock, currently exercisable warrants to purchase
      1,740,000 shares of common stock; and 6,525,926 shares deemed beneficially
      owned through TW Trust’s ownership of Common Stock.  TW Trust
      owns the shares indirectly through its ownership of TWJ Navigation, Inc.
       TWJ Navigation, Inc. owns 6,525,926 shares of common stock and
      warrants to purchase 1,740,000 shares of common stock.  The
      beneficiaries of TW Trust are Kent Watts’ (former CEO, President and
      Director) children.  Kent Watts (former CEO, President and
      Director) is the trustee of TW
Trust.





(2)
            TW Trust beneficially owns
      6,525,926 shares of common stock indirectly though its ownership of TWJ
      Navigation, Inc.  TWJ Navigation, Inc. owns 6,525,926 shares of
      common stock and warrants to purchase 1,740,000 shares of common
      stock.  The beneficiaries of TW Trust are Kent Watts’
      (former CEO, President and Director) children.  Kent Watts
      (former CEO, President and Director) is the trustee of TW
      Trust.





(3)
            Includes currently
      exercisable warrants to purchase 500,000 shares of common
      stock, 1,306,297 shares of common stock, and securities beneficially owned
      through KW Trust as disclosed in footnote (4)
  below.





(4)
            KW Trust beneficially owns
      3,519,629 shares of common stock indirectly through KW Navigation,
      Inc.  KW Navigation, Inc. owns 2,933,333 shares of common stock,
      6,296 shares of common stock, and warrants to purchase 580,000 shares of
      common stock.  The beneficiary of KW Trust is
      Kelly Wheeler.  Michael Watts is the trustee of KW
      Trust.





(5)
            This amount includes: 99,000
      shares of common stock and currently exercisable options to purchase
      790,000 shares of common
stock.




40




(6)
            This amount includes 445,569
      shares of common stock and currently exercisable options to purchase
      75,000 shares of common
stock.





(7)
            This amount includes 96,600
      shares of common stock and currently exercisable options to purchase
      350,000 shares of common
stock.





(8)
            This amount includes currently
      exercisable options to purchase 98,667 shares of common
      stock.





(9)
            This amount includes currently
      exercisable options to purchase 66,667 shares of common
      stock.





(10)
            This amount includes 22,500
      shares of common stock and currently exercisable options to purchase
      40,000 shares of common
stock.





(11)
            This amount includes currently
      exercisable options to purchase 50,000 shares of common
      stock.





(12)
            This amount includes 5,000 shares
      of common stock and currently exercisable options to purchase 30,000
      shares of common stock.




Item 13.
            Certain Relationships and Related
      Transactions, and Director
Independence.




Hyperdynamics
has a conflict of interest policy governing transactions involving related
parties.  In accordance with the policy, transactions involving
related parties must be pre-approved by the Audit Committee, which is comprised
of independent directors.




Hyperdynamics
did not enter into any transactions involving amounts in excess of $120,000,
excluding employment relationships, with related parties since July 1, 2008, the
beginning of the last fiscal year.




Series
B Preferred Stock




On
September 29, 2009, subsequent to fiscal year 2009, we entered into an agreement
(the “Series B Agreement”) with the holders of all of our Series B preferred
stock in which the Series B holders (i) converted all of their shares of Series
B preferred stock into approximately 15,822,222 shares of common stock, (ii)
agreed to the cancellation of warrants to purchase 1,000,000 shares of common
stock, (iii) agreed to donate, pursuant to a specified schedule, 2,000,000
shares of common stock, issued upon conversion of the Series B preferred stock,
and warrants to purchase 1,000,000 shares of common stock, to the American
Friends of Guinea, a charitable organization that provides support to the people
of Guinea, and (iv) agreed to be subject to a nine month lock-up of the
15,822,222 shares of common stock received in connection with the conversion of
the Series B preferred stock, and any shares that may be received upon exercise
of their warrants.  The common stock received upon conversion
represented a reduction of 2,000,000 shares that otherwise would have been
issuable under the original terms of the Series B preferred stock.




Under the
terms of the Series B Agreement, if we complete an equity or debt financing in
the future of $10,000,000 or more, we also agreed to (i)  pay a
previously owed dividend in the aggregate amount of approximately $430,000 to
the Series B holders and (ii) subject to market conditions, release from the
lock-up provision described above, up to 1,000,000 shares of common stock
received in connection with the Series B preferred stock conversion in order to
allow for resale by the Series B holders.




Director
Independence




Our
common stock is listed on the NYSE Amex, formerly known as the American Stock
Exchange.  We use SEC Rule 10A-3 and the NYSE Amex definition of
Independent Director in determining whether a Director is independent in the
capacity of Director and in the capacity as a member of a board
committee.  In determining Director independence, we have not relied
on any exemptions from any rule’s definition of independence.  In
addition to the requirements of SEC Rule 10A-3 under the Securities Exchange Act
of 1934, the NYSE Amex rules provide that "Independent Director" means a person
other than an executive officer or employee of the company.




Directors
serving on our audit committee must also comply with additional NYSE Amex
requirements as follows:




(a)           The
Director must not have participated in the preparation of our financial
statements or any current subsidiary at any time during the past three years;
and




(b)           The
Director is able to read and understand fundamental financial statements,
including our balance sheet, income statement, and cash flow
statement.




We
currently have a total of six directors, five of whom are Independent
Directors.  Our Independent Directors are: Fred Zeidman,
Roger Friedberger, Robert A. Solberg, Herman Cohen and  Lord
David Owen.


41




Item 14.
            Principal Accounting Fees and
      Services




Audit
Fees




Current
Certifying Accountant: GBH CPAs, billed us in the aggregate amount of $183,119
and $97,650 for the fiscal year ended June 30, 2010 and 2009, respectively, for
professional services related to: their audit of our annual financial statements
included in our Form 10-K; their reviews of our unaudited quarterly financial
statements included in our Form 10-Qs and registration statements (there were no
Sarbanes-Oxley 404 attest services for the fiscal year ended June 30,
2010).




Audit-Related
Fees




Current
Certifying Accountant: GBH CPAs,  billed us $10,550 for professional
services rendered for assurance and related services that were reasonably
related to the performance of audit or review of the Company's financial
statements for the fiscal year ended June 30, 2010.




Former
Certifying Accountant: Malone & Bailey, PC did not bill us for professional
services rendered for assurance and related services that were reasonably
related to the performance of audit or review of the Company's financial
statements for the fiscal years ended June 30, 2009 and
2008.




Tax
Fees




Malone
& Bailey, PC billed us in the aggregate amount of $27,840 and $6,800
professional services rendered for tax related services for the fiscal year
ended June 30, 2010 and 2009, respectively.




Former
Certifying Accountant: Malone & Bailey, PC did not bill us for professional
services rendered for tax related services for the fiscal years ended June 30,
2009 and 2008.




All
Other Fees




Current
Certifying Accountant: GBH CPAs, did not perform, and accordingly did not bill
us for, professional services rendered for any other services for the fiscal
year ended June 30, 2010.




Former
Certifying Accountant: Malone & Bailey, P.C. did not perform, and
accordingly did not bill us for, professional services rendered for any other
services for the fiscal years ended June 30, 2009 and 2008.




Audit
Committee Pre-Approval




Our Audit
Committee Charter provides that either (i) the Audit Committee shall pre-approve
all auditing and non-auditing services of the independent auditor, subject to
deminimus exceptions for other than audit, review or attest services that are
approved by the Audit Committee prior to completion of the audit; or (ii) the
engagement of the independent auditor be entered into pursuant to pre-approved
policies and procedures established by the Audit Committee, provided that the
policies and procedures are detailed as to the particular services and the Audit
Committee is informed of each service.  The Audit Committee
pre-approved 100% of GBH CPAs and Malone & Bailey, PC fees, respectively,
for audit services in year 2010, 2009 and 2008.  Fees for
audit-related services performed by GBH CPAs and Malone & Bailey, PC fees,
respectively, in fiscal years 2010, 2009 and 2008 were not recognized by us at
the time of the engagement to be non-audit services.  Except as
indicated above, there were no fees other than audit fees for years 2010, 2009
and 2008, and the auditors engaged performed all the services described above
with their full time permanent employees.


42




Item
15 Exhibits, Financial Statement Schedules





(A)
                  Exhibit
                  Number
                
                Description3.1.1
                
                Certificate
      of Incorporation (1)3.1.2
                
                Certificate
      of Amendment of Certificate of Incorporation, dated January 21, 1997
      (1)3.1.3
                
                Certificate
      of Amendment of Certificate of Incorporation, dated September 20, 1999
      (1)3.1.4
                
                Certificate
      of Amendment of Certificate of Incorporation, dated December 22, 2003
      (1)3.1.5
                
                Series
      A Certificate of Designation (6)3.1.6
                
                Series
      B Certificate of Designation (8)3.2
                
                By-laws
      (1)3.3
                
                Amendment
      to Bylaws (2)4.1
                
                Form
      of Common Stock Certificate (3)4.2
                
                Form
      of Warrant (4)4.3
                
                Warrant
      issued to YA Global Investments, L.P. on February 6, 2008
    (4)4.4
                
                Form
      of Common Stock Purchase Warrant (5)4.5
                
                Form
      of Series A Preferred Stock Certificate (6)4.6
                
                Warrant
      issued to Trendsetter Investors, LLC on June 12, 2007
  (7)4.7
                
                Form
      of Series A and Series B Common Stock Purchase Warrant
  (9)10.1
                
                Hydrocarbon
      Production Sharing Contract (PSC) between SCS Corporation and the Republic
      of Guinea, dated September 22, 2006 (10)10.2
                
                Amendment
      No. 1 to the Hydrocarbon Production Sharing Contract between SCS
      Corporation and the Republic of Guinea, dated March 25, 2010
      (15)10.3
                
                Employment
      Agreement between Hyperdynamics Corporation and William Young, dated
      November 24, 2009 (28)10.4*
                
                Employment
      Agreement between Hyperdynamics Corporation and Jason D. Davis, dated June
      17, 2009 (12)10.5*
                
                Amendment
      No. 1 to the Employment Agreement between Hyperdynamics Corporation and
      Jason D. Davis, dated October 16, 2009 (26)10.6*
                
                Employment
      Agreement between Hyperdynamics Corporation and Ray Leonard, dated July
      22, 2009 (13)10.7*
                
                Amendment
      No. 1 to the Employment Agreement between Hyperdynamics Corporation and
      Ray Leonard, effective December 11, 2009 (19)10.8
                
                Sale
      and Purchase Agreement, effective as of December 4, 2009, between
      Hyperdynamics Corporation and Dana Petroleum (E&P) Limited
      (16)10.9
                
                Letter
      Agreement between Hyperdynamics Corporation and Dana Petroleum (E&P)
      Limited, dated December 2, 2009 (16)10.10
                
                Intentionally
      omitted.




43




10.11
              
              Operating
      Agreement between SCS Corporation and Dana Petroleum (E&P) Limited,
      dated January 28, 2010 (20)10.12
              
              Lease
      Agreement between Hyperdynamics Corporation and Parkway Properties LP,
      dated December 29, 2009 (21)10.13
              
              Memorandum
      of Understanding between the Government of the Republic of Guinea and SCS
      Corporation, dated September 11, 2009 (English translation)
      (11)10.14
              
              Lock-up
      Agreement among Hyperdynamics and certain Stockholders, dated July 21,
      2010 (17)10.15
              
              Lock-up
      Agreement among Hyperdynamics and TWJ Navigation, Inc., dated July 21,
      2010 (17)10.16
              
              Marine
      2D Seismic Data Acquisition Services Agreement between Hyperdynamics
      Corporation and Bergen Oilfield Services AS of Norway, dated September 29,
      2009 (22)10.17**
              
              3D
      Seismic Contract between PGS Geophysical AS, Norway and Hyperdynamics
      Corporation, dated June 11, 201010.18
              
              Consulting
      Agreement, dated August 14, 2010, between the Company and William Young
      (27)10.19**
              
              First
      Amendment to Consulting Agreement, dated September 23, 2010, between the
      Company and William Young10.20*
              
              2010
      Equity Incentive Plan (14)10.21*
              
              Form
      of Incentive Stock Option Agreement (14)10.22*
              
              Form
      of Non-Qualified Stock Option Agreement (14)10.23*
              
              Form
      of Restricted Stock Agreement (14)10.24
              
              Agreement
      for Exclusive Dealing and Letter of Intent between Hyperdynamics
      Corporation and Repsol Exploración, S.A., dated November 26, 2009
      (24)10.25
              
              Amendment
      to Agreement for Exclusive Dealing and Letter of Intent between
      Hyperdynamics Corporation, SCS Corporation and Repsol Exploración, S.A.,
      dated January 29, 2010 (25)10.26**
              
              Master
      Service Agreement for Geophysical Data Processing Services between SCS
      Corporation and PGS Data Processing, Inc., dated July 2,
    201010.27**
              
              Supplemental
      Agreement No. 1 to Master Service Agreement between SCS Corporation and
      PGS Data Processing, Inc., dated July 2, 201014.1
              
              Code
      of Ethics (1)16.1
              
              Letter
      from Malone & Bailey, P.C. regarding change in certifying accountant
      (18)21.1**
              
              Subsidiaries23.2**
              
              Consent
      of GBH CPAS, P.C.31.1**
              
              Certification
      of Chief Executive Officer of Hyperdynamics Corporation required by Rule
      13a-14(1) or  Rule 15d-14(a) of the Securities Exchange Act of
      1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      200231.2**
              
              Certification
      of Principal Financial Officer and Principal Accounting Officer of
      Hyperdynamics Corporation required by Rule 13a-14(1) or Rule 15d-14(a) of
      the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.32.1**
              
              Certification
      of Chief Executive Officer of Hyperdynamics Corporation pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18
      U.S.C. 6332.2**
              
              Certification
      of Principal Financial Officer and Principal Accounting Officer of
      Hyperdynamics Corporation pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002 and Section 1350 of 18 U.S.C. 63.99.1
              
              Presidential
      Decree (English Version) (23)




44




99.2
              
              Presidential
      Decree (Original French Version) (23)99.3
              
              Arrêté
      (English Version) (23)99.4
              
              Arrêté
      (Original French Version) (23)


*
Management contracts or compensatory plans or arrangements.


** Filed
herewith.





(1)
Incorporated by reference to our Form 10-KSB/A filed May 16, 2005.


(2)
Incorporated by reference to our Form 8-K filed March 9, 2009.


(3)
Incorporated by reference to our Form S-1 filed January 12, 2006, as
amended.


(4)
Incorporated by reference to our Form 8-K filed February 8, 2008.


(5)
Incorporated by reference to our Form 8-K filed May 12, 2008.


(6)
Incorporated by reference to our Form SB-2 filed February 25, 2000.


(7)
Incorporated by reference to our Form 8-K filed June 18, 2007.


(8)
Incorporated by reference to our Form 8-K filed June 15, 2001.


(9)
Incorporated by reference to Form 8-K filed September 2, 2008.


(10)
Incorporated by reference to Form 8-K filed September 28, 2006.


(11)
Incorporated by reference to Form 8-K filed September 15, 2009.


(12)
Incorporated by reference to Form 8-K, dated July 6, 2009.


(13)
Incorporated by reference to Form 8-K filed July 23, 2009.


(14)
Incorporated by reference to Form S-8 filed June 14, 2010.


(15)
Incorporated by reference to Form 8-K filed March 31, 2010.


(16)
Incorporated by reference to Form 8-K filed December 7, 2009.


(17)
Incorporated by reference to Form 8-K filed July 27, 2010.


(18)
Incorporated by reference to Form 8-K/A filed December 22, 2008.


(19)
Incorporated by reference to Form 8-K filed December 11, 2009.


(20)
Incorporated by reference to Form 8-K filed January 29, 2010.


(21)
Incorporated by reference to Form 8-K filed January 6, 2010.


(22)
Incorporated by reference to Form 8-K filed October 2, 2009.


(23)
Incorporated by reference to Form 8-K filed May 14, 2010.


(24)
Incorporated by reference to Form 8-K filed December 1, 2009.


(25)
Incorporated by reference to Form 8-K filed February 1, 2010.


(26)
Incorporated by reference to Form 8-K filed October 16, 2009.


(27)
Incorporated by reference to Form 8-K filed August 20, 2010.


(28)
Incorporated by reference to Form 8-K filed December 1, 2010.





(B)




FINANCIAL
STATEMENT SCHEDULES




The
financial statement schedules required by this item are set forth in the notes
to our financial statements set forth on page 31 and F-1.





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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 authorized.




HYPERDYNAMICS
      CORPORATIONSeptember 28, 2010
                /s/ Ray LeonardRay
      LeonardPresident,
      CEO and Director




45


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.


September
      28, 2010
              /s/ Robert SolbergRobert
      A. SolbergNon-Executive
      Chairman and DirectorSeptember
      28, 2010
              /s/ Ray LeonardRay
      LeonardPresident,
      CEO and DirectorSeptember
      28, 2010
              /s/ Roger FriedbergerRoger
      FriedbergerDirectorSeptember
      28, 2010
              /s/ Fred ZeidmanFred
      ZeidmanDirectorSeptember
      28, 2010
              /s/ David OwenDavid
      OwenDirectorSeptember
      28, 2010
              /s/ Herman CohenHerman
      CohenDirectorSeptember
      28, 2010
              /s/ Jason DavisJason
      DavisPrincipal
      Financial Officer and
                Principal
      Accounting Officer


46





EXHIBIT
INDEX





Exhibit
                Number
              
              Description3.1.1
              
              Certificate
      of Incorporation (1)3.1.2
              
              Certificate
      of Amendment of Certificate of Incorporation, dated January 21, 1997
      (1)3.1.3
              
              Certificate
      of Amendment of Certificate of Incorporation, dated September 20, 1999
      (1)3.1.4
              
              Certificate
      of Amendment of Certificate of Incorporation, dated December 22, 2003
      (1)3.1.5
              
              Series
      A Certificate of Designation (6)3.1.6
              
              Series
      B Certificate of Designation (8)3.2
              
              By-laws
      (1)3.3
              
              Amendment
      to Bylaws (2)4.1
              
              Form
      of Common Stock Certificate (3)4.2
              
              Form
      of Warrant (4)4.3
              
              Warrant
      issued to YA Global Investments, L.P. on February 6, 2008
    (4)4.4
              
              Form
      of Common Stock Purchase Warrant (5)4.5
              
              Form
      of Series A Preferred Stock Certificate (6)4.6
              
              Warrant
      issued to Trendsetter Investors, LLC on June 12, 2007
  (7)4.7
              
              Form
      of Series A and Series B Common Stock Purchase Warrant
  (9)10.1
              
              Hydrocarbon
      Production Sharing Contract (PSC) between SCS Corporation and the Republic
      of Guinea, dated September 22, 2006 (10)10.2
              
              Amendment
      No. 1 to the Hydrocarbon Production Sharing Contract between SCS
      Corporation and the Republic of Guinea, dated March 25, 2010
      (15)10.3
              
              Employment
      Agreement between Hyperdynamics Corporation and William Young, dated
      November 24, 2009 (28)10.4*
              
              Employment
      Agreement between Hyperdynamics Corporation and Jason D. Davis, dated June
      17, 2009 (12)10.5*
              
              Amendment
      No. 1 to the Employment Agreement between Hyperdynamics Corporation and
      Jason D. Davis, dated October 16, 2009 (26)10.6*
              
              Employment
      Agreement between Hyperdynamics Corporation and Ray Leonard, dated July
      22, 2009 (13)10.7*
              
              Amendment
      No. 1 to the Employment Agreement between Hyperdynamics Corporation and
      Ray Leonard, effective December 11, 2009 (19)10.8
              
              Sale
      and Purchase Agreement, effective as of December 4, 2009, between
      Hyperdynamics Corporation and Dana Petroleum (E&P) Limited
      (16)10.9
              
              Letter
      Agreement between Hyperdynamics Corporation and Dana Petroleum (E&P)
      Limited, dated December 2, 2009 (16)10.10
              
              Intentionally
      omitted.




47




10.11
              
              Operating
      Agreement between SCS Corporation and Dana Petroleum (E&P) Limited,
      dated January 28, 2010 (20)10.12
              
              Lease
      Agreement between Hyperdynamics Corporation and Parkway Properties LP,
      dated December 29, 2009 (21)10.13
              
              Memorandum
      of Understanding between the Government of the Republic of Guinea and SCS
      Corporation, dated September 11, 2009 (English translation)
      (11)10.14
              
              Lock-up
      Agreement among Hyperdynamics and certain Stockholders, dated July 21,
      2010 (17)10.15
              
              Lock-up
      Agreement among Hyperdynamics and TWJ Navigation, Inc., dated July 21,
      2010 (17)10.16
              
              Marine
      2D Seismic Data Acquisition Services Agreement between Hyperdynamics
      Corporation and Bergen Oilfield Services AS of Norway, dated September 29,
      2009 (22)10.17**
              
              3D
      Seismic Contract between PGS Geophysical AS, Norway and Hyperdynamics
      Corporation, dated June 11, 201010.18
              
              Consulting
      Agreement, dated August 14, 2010, between the Company and William Young
      (27)10.19**
              
              First
      Amendment to Consulting Agreement, dated September 23, 2010, between the
      Company and William Young10.20*
              
              2010
      Equity Incentive Plan (14)10.21*
              
              Form
      of Incentive Stock Option Agreement (14)10.22*
              
              Form
      of Non-Qualified Stock Option Agreement (14)10.23*
              
              Form
      of Restricted Stock Agreement (14)10.24
              
              Agreement
      for Exclusive Dealing and Letter of Intent between Hyperdynamics
      Corporation and Repsol Exploración, S.A., dated November 26, 2009
      (24)10.25
              
              Amendment
      to Agreement for Exclusive Dealing and Letter of Intent between
      Hyperdynamics Corporation, SCS Corporation and Repsol Exploración, S.A.,
      dated January 29, 2010 (25)10.26**
              
              Master
      Service Agreement for Geophysical Data Processing Services between SCS
      Corporation and PGS Data Processing, Inc., dated July 2,
    201010.27**
              
              Supplemental
      Agreement No. 1 to Master Service Agreement between SCS Corporation and
      PGS Data Processing, Inc., dated July 2, 201014.1
              
              Code
      of Ethics (1)16.1
              
              Letter
      from Malone & Bailey, P.C. regarding change in certifying accountant
      (18)21.1**
              
              Subsidiaries23.2**
              
              Consent
      of GBH CPAS, P.C.31.1**
              
              Certification
      of Chief Executive Officer of Hyperdynamics Corporation required by Rule
      13a-14(1) or  Rule 15d-14(a) of the Securities Exchange Act of
      1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      200231.2**
              
              Certification
      of Principal Financial Officer and Principal Accounting Officer of
      Hyperdynamics Corporation required by Rule 13a-14(1) or Rule 15d-14(a) of
      the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.32.1**
              
              Certification
      of Chief Executive Officer of Hyperdynamics Corporation pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18
      U.S.C. 6332.2**
              
              Certification
      of Principal Financial Officer and Principal Accounting Officer of
      Hyperdynamics Corporation pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002 and Section 1350 of 18 U.S.C. 63.99.1
              
              Presidential
      Decree (English Version) (23)




48




99.2
              
              Presidential
      Decree (Original French Version) (23)99.3
              
              Arrêté
      (English Version) (23)99.4
              
              Arrêté
      (Original French Version) (23)


*
Management contracts or compensatory plans or arrangements.


** Filed
herewith.





(1)
Incorporated by reference to our Form 10-KSB/A filed May 16, 2005.


(2)
Incorporated by reference to our Form 8-K filed March 9, 2009.


(3)
Incorporated by reference to our Form S-1 filed January 12, 2006, as
amended.


(4)
Incorporated by reference to our Form 8-K filed February 8, 2008.


(5)
Incorporated by reference to our Form 8-K filed May 12, 2008.


(6)
Incorporated by reference to our Form SB-2 filed February 25, 2000.


(7)
Incorporated by reference to our Form 8-K filed June 18, 2007.


(8)
Incorporated by reference to our Form 8-K filed June 15, 2001.


(9)
Incorporated by reference to Form 8-K filed September 2, 2008.


(10)
Incorporated by reference to Form 8-K filed September 28, 2006.


(11)
Incorporated by reference to Form 8-K filed September 15, 2009.


(12)
Incorporated by reference to Form 8-K, dated July 6, 2009.


(13)
Incorporated by reference to Form 8-K filed July 23, 2009.


(14)
Incorporated by reference to Form S-8 filed June 14, 2010.


(15)
Incorporated by reference to Form 8-K filed March 31, 2010.


(16)
Incorporated by reference to Form 8-K filed December 7, 2009.


(17)
Incorporated by reference to Form 8-K filed July 27, 2010.


(18)
Incorporated by reference to Form 8-K/A filed December 22, 2008.


(19)
Incorporated by reference to Form 8-K filed December 11, 2009.


(20)
Incorporated by reference to Form 8-K filed January 29, 2010.


(21)
Incorporated by reference to Form 8-K filed January 6, 2010.


(22)
Incorporated by reference to Form 8-K filed October 2, 2009.


(23)
Incorporated by reference to Form 8-K filed May 14, 2010.


(24)
Incorporated by reference to Form 8-K filed December 1, 2009.


(25)
Incorporated by reference to Form 8-K filed February 1, 2010.


(26)
Incorporated by reference to Form 8-K filed October 16, 2009.


(27)
Incorporated by reference to Form 8-K filed August 20, 2010.


(28)
Incorporated by reference to Form 8-K filed December 1, 2010.


49