UNITED STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
DC 20549
   FORM
10-Q
  x
              Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934: For the quarterly period ended: March 31,
  2008
 
 or
 o
              Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934: For the transition period from _______ to
  _________
 
 Commission
file number: 000-32490
 
 HYPERDYNAMICS
CORPORATION
 (Exact
name of registrant as specified in its charter)
 
 Delaware
              87-0400335(State
      or other jurisdiction of incorporation or organization)
              (IRS
      Employer Identification No.)
 
 
 One Sugar
Creek Center Blvd., # 125
 Sugar
Land, Texas 77748
 
 (Address
of principal executive offices, including zip code)
 
 713-353-9400
 (registrant's
principal executive office telephone number)
 
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes  x   
No o
 
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and
‘‘smaller reporting company’’ in Rule 12b–2 of the Exchange Act. (Check
one):
   Large
      Accelerated Filer
              oAccelerated
      Filer
              xNon-Accelerated
      Filer
              oSmaller
      Reporting Company
              o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)   YES  o   NO 
x
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS As of May
19, 2008, 59,258,937 shares of common stock, $0.001 par value, were
outstanding.







Tableof Contents




Part
      I. Financial InformationItem
      1
            Financial StatementsConsolidated Balance Sheets at March 31, 2008 and June 30,
      2007
            2Consolidated Statements of Operations for the Three and Nine
      Months Ended March 31, 2008 and 2007
            3Consolidated Statements of Cash Flows for the Nine Months Ended
      March 31, 2008 and 2007
            4Notes to Consolidated Financial
    Statements
            6Item
      2
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            15Item
      3
            Quantitative and Qualitative Disclosures about Market
      Risks
            26Item
      4
            Controls and Procedures
            26Part
      II. Other InformationItem
      1
            Legal Proceedings
            27Item
      1A
            Risk Factors
            27Item
      2
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            28Item
      4
            Submission of Matters to a Vote of Security
      Holders
            28Item
      6
            Exhibits
            29Signatures
            30





Table of Contents





HYPERDYNAMICS CORPORATION


Consolidated
Balance Sheets


(In
thousands, except number of shares and per share amounts)


(Unaudited)





March
      31,
            
            
            June
      30,2008
            
            
            2007ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            328
            
            
            $
            618Restricted
      certificate of deposit
            
            
            -
            
            
            
            75Accounts
      receivable, net of allowance for doubtful accounts of $15 and
      $0
            
            
            220
            
            
            
            112Subscription
      receivable
            
            
            -
            
            
            
            5,250Deposit
      on acquisition of oil and gas assets
            
            
            -
            
            
            
            374Prepaid
      expenses and other current assets
            
            
            222
            
            
            
            196Total
      current assets
            
            
            770
            
            
            
            6,625Property
      and equipment, net of accumulated depreciation of $204 and
      $149
            
            
            430
            
            
            
            366Oil
      and gas properties:Evaluated
      properties, using full cost accounting, net of accumulated depreciation
      and depletion of $547 and $174
            
            
            2,398
            
            
            
            204Unevaluated
      properties excluded from amortization
            
            
            5,409
            
            
            
            4,279Other
      assets
            
            
            12
            
            
            
            6Total
      assets
            
            $
            9,019
            
            
            $
            11,480LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesShort
      term notes payable and current portion of long term debt, net of discount
      of $130 and $0
            
            $
            238
            
            
            $
            375Accounts
      payable and accrued expenses
            
            
            1,331
            
            
            
            842Accounts
      payable - seismic data
            
            
            650
            
            
            
            650Accounts
      payable - related party
            
            
            15
            
            
            
            53Asset
      retirement obligation, current
            
            
            90
            
            
            
            84Dividends
      payable
            
            
            372
            
            
            
            372Dividends
      payable to related party
            
            
            320
            
            
            
            245Total
      current liabilities
            
            
            3,016
            
            
            
            2,621Long
      term debt, net of discount of $125 and $0
            
            
            1,547
            
            
            
            -Asset
      retirement obligation, non current
            
            
            128
            
            
            
            44Deferred
      rent
            
            
            77
            
            
            
            89Total
      liabilities
            
            
            4,768
            
            
            
            2,754Commitments
      and contingencies
            
            
            -
            
            
            
            -Shareholders'
      equity:Convertible
      preferred stock, par value $0.001; stated value $1,000, 20,000,000 shares
      authorizedSeries
      A – 1,945 shares issued and outstanding
            
            
            -
            
            
            
            -Series
      B – 2,725 shares issued and 2,460 and 2,487 shares
    outstanding
            
            
            -
            
            
            
            -Common
      stock, $0.001 par value, 250,000,000 shares authorized, 56,584,951 and
      54,467,902 shares issued and outstanding
            
            
            57
            
            
            
            54Additional
      paid-in capital
            
            
            61,860
            
            
            
            59,045Accumulated
      deficit
            
            
            (57,666
            )
            
            
            (50,373
            )Total
      shareholders' equity
            
            
            4,251
            
            
            
            8,726Total
      liabilities and shareholders' equity
            
            $
            9,019
            
            
            $
            11,480





(See
accompanying notes to consolidated financial statements)





2
 Table of Contents





HYPERDYNAMICS CORPORATION


Consolidated
Statements of Operations


(In
thousands, except number of shares and per share amounts)


(Unaudited)




Three
      Months Ended March 31,
            
            
            Nine
      Months Ended March 31,2008
            
            
            2007
            
            
            2008
            
            
            2007RevenuesOil
      and gas sales
            
            $
            792
            
            
            $
            113
            
            
            $
            1,606
            
            
            $
            716Oilfield
      service revenues
            
            
            -
            
            
            
            -
            
            
            -
            31
            
            
            
            64Total
      revenues
            
            
            792
            
            
            
            113
            
            
            
            1,637
            
            
            
            780Costs
      and expensesLease
      operating expense
            
            
            601
            
            
            
            139
            
            
            
            2,104
            
            
            
            414Accretion
      expense
            
            
            5
            
            
            
            -
            
            
            
            15
            
            
            
            -Depreciation,
      depletion and amortization
            
            
            240
            
            
            
            41
            
            
            
            488
            
            
            
            108Selling,
      general and administrative
            
            
            1,689
            
            
            
            2,039
            
            
            
            6,192
            
            
            
            5,815Total
            
            
            2,535
            
            
            
            2,219
            
            
            
            8,799
            
            
            
            6,337LOSS
      FROM OPERATIONS
            
            
            (1,743
            )
            
            
            (2,106
            )
            
            
            (7,162
            )
            
            
            (5,557
            )Other
      income (expense)Interest
      expense, net
            
            
            (112
            )
            
            
            (31
            )
            
            
            (66
            )
            
            
            (1,245
            )Gain
      on settlement of debt
            
            
            -
            
            
            
            28
            
            
            
            10
            
            
            
            28Total
      other income (expense)
            
            
            (112
            )
            
            
            (3
            )
            
            
            (56
            )
            
            
            (1,217
            )NET
      LOSS
            
            
            (1,855
            )
            
            
            (2,109
            )
            
            
            (7,218
            )
            
            
            (6,774
            )Preferred
      stock dividend to related party
            
            
            (25
            )
            
            
            (28
            )
            
            
            (75
            )
            
            
            (82
            )Net
      loss chargeable to common shareholders
            
            $
            (1,880
            )
            
            $
            (2,137
            )
            
            $
            (7,293
            )
            
            $
            (6,856
            )Basic
      and diluted loss per common share
            
            $
            (0.03
            )
            
            $
            (0.04
            )
            
            $
            (0.13
            )
            
            $
            (0.14
            )Weighted
      average shares outstanding –basic and diluted
            
            
            56,286,798
            
            
            
            48,323,566
            
            
            
            55,762,174
            
            
            
            47,422,094





(See
accompanying notes to consolidated financial statements)





3
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HYPERDYNAMICS CORPORATION


Consolidated
Statements of Cash Flows


(In
thousands, except number of shares and per share amounts)


(Unaudited)




Nine
      months ended
              March
      31,2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (7,218
            )
            
            $
            (6,774
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation,
      depletion and amortization
            
            
            488
            
            
            
            108Accretion
      of asset retirement obligation
            
            
            15
            
            
            
            -Common
      stock  issued for services
            
            
            450
            
            
            
            383Employee
      stock options
            
            
            1,042
            
            
            
            1,618Gain
      on settlement of debt
            
            
            (10
            )
            
            
            (28
            )(Gain)
      loss on disposal of operating assets
            
            
            25
            
            
            
            (8
            )Bad
      debt expense
            
            
            15
            
            
            
            31Amortization
      of debt discount
            
            
            10
            
            
            
            1,081Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (123
            )
            
            
            (40
            )Prepaid
      expenses and other current assets
            
            
            (33
            )
            
            
            77Accounts
      payable and accrued expenses
            
            
            45
            
            
            
            178Accounts
      payable – related party
            
            
            (38
            )
            
            
            -Deferred
      rent
            
            
            (12
            )
            
            
            42Net
      cash used in operating activities
            
            
            (5,344
            )
            
            
            (3,332
            )CASH
      FLOWS FROM INVESTING ACTIVITIESInvestment
      in oil and gas properties
            
            
            (2,446
            )
            
            
            (96
            )Purchase
      of property and equipment
            
            
            (150
            )
            
            
            (182
            )Change
      in restricted cash
            
            
            75
            
            
            
            -Proceeds
      from the sale of assets
            
            
            -
            
            
            
            36Net
      cash used in investing activities
            
            
            (2,521
            )
            
            
            (242
            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from sale of common stock, net
            
            
            135
            
            
            
            -Proceeds
      from warrant exercises, net
            
            
            544
            
            
            
            226Collection
      of stock subscription receivable
            
            
            5,250
            
            
            
            -Proceeds
      from convertible notes
            
            
            -
            
            
            
            1,820Proceeds
      from notes payable
            
            
            2,000
            
            
            
            -Proceeds
      from installment debt
            
            
            47
            
            
            
            58Payments
      on installment debt
            
            
            (401
            )
            
            
            (150
            )Net
      cash provided by financing activities
            
            
            7,575
            
            
            
            1,954Net
      decrease in cash
            
            
            (290
            )
            
            
            (1,620
            )Cash
      at beginning of period
            
            
            618
            
            
            
            3,435Cash
      at end of period
            
            $
            328
            
            
            $
            1,815





(See
accompanying notes to consolidated financial statements)





4
 Table of Contents





HYPERDYNAMICS
CORPORATION


Consolidated
Statements of Cash Flows (Continued)


(In
thousands, except number of shares and per share amounts)


(Unaudited)




Nine
      months ended
              March
      31,2008
            
            
            2007SUPPLEMENTAL
      DISCLOSURESInterest
      paid in cash
            
            $
            107
            
            
            $
            408Income
      taxes paid in cash
            
            
            -
            
            
            
            -NON-CASH
      TRANSACTIONSConversion
      of notes payable to common stock
            
            $
            -
            
            
            $
            4,000Payment
      of preferred stock dividends in common shares
            
            
            -
            
            
            
            82Deemed
      dividend attributable to repriced warrants issues as part of convertible
      debt
            
            
            153
            
            
            
            333Accrued
      and unpaid preferred stock dividend to related party
            
            
            75
            
            
            
            82Account
      payable for oil and gas properties
            
            
            542
            
            
            
            -Acquisition
      of asset retirement obligation
            
            
            75
            
            
            
            -Note
      payable for fixed assets
            
            
            30
            
            
            
            -Debt
      discount on convertible debt
            
            
            -
            
            
            
            450Debt
      discount on notes payable
            
            
            265
            
            
            
            -Common
      stock issued for accounts payable
            
            
            95
            
            
            
            -Common
      stock issued for purchase of working interest in oil and gas
      properties
            
            
            285
            
            
            
            -





(See
accompanying notes to consolidated financial statements)





5
 Table of Contents





HYPERDYNAMICS CORPORATION


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.  Basis
of Presentation





The
unaudited consolidated financial statements of Hyperdynamics Corporation
("Hyperdynamics") have been prepared in accordance with accounting principles
generally accepted in the United States and the rules of the Securities
and  Exchange Commission ("SEC"), and should be read in conjunction
with the audited  financial statements and notes thereto contained in
Hyperdynamics' latest Annual Report filed with the SEC on Form 10-K, as
amended,  for the year ended June 30, 2007. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year. Notes to the financial statements
which would substantially duplicate the disclosures contained in the audited
financial statements for the most recent fiscal year, 2007, as reported in the
Form 10-K,as amended, have been omitted.





Reclassifications





Certain
amounts in the 2007 financial statements have been reclassified to conform with
the 2008 financial statement presentation.





New
Accounting Pronouncements




We do not
expect the adoption of recently issued accounting pronouncements to have a
significant impact on our results of operations, financial position, or cash
flow.





2.  Oil
and Gas Properties





Evaluated
properties





During
the nine months ended March 31, 2008, Hyperdynamics closed on the purchase of an
85% working interest in various oil wells, leases, and oil and gas equipment in
Louisiana, USA (“RABB properties”).  Hyperdynamics paid a total of
$1,250,000 cash and issued 200,000 shares of common stock valued at
$559,000.  We issued 100,000 shares of common stock in June 2007 as a
deposit and the remaining 100,000 shares of common stock upon closing of the
acquisition in July 2007.  The initial estimate of the asset
retirement obligation associated with these properties was $75,000.





Under the
purchase agreement, the seller remained the operator of the properties and
retained a 15% working interest therein; however, Hyperdynamics is required to
pay 100% of all working interest costs, including work-over and new development
and exploration costs, up to $4,000,000 (“Promised Funds”) over the eighteen
months ended December 31, 2008.  After the Promised Funds have been
invested, working interest costs, except the cost of new drilling, will be
shared pro rata according to the working interest
percentage.  Hyperdynamics will continue to pay 100% of the costs of
any new drilling performed on the properties.





The
properties that were purchased are subject to overriding royalty interests of up
to 27.46%.  Accordingly, Hyperdynamics’ holds net revenue interests of
approximately 57.54% in the properties.





Other
additions to the full cost center during the nine months ended March 31, 2008
included the cost of drilling an unproductive exploratory well of $190,000,
development costs of $270,000, including the cost of drilling a non-productive
well during the three months ended March 31, 2008, capitalized geophysical and
geological costs of $23,000, lease acquisition costs of $39,000, and lease
improvement costs of  $185,000.  As of March 31, 2008, we
have capitalized $2,325,000 in oil and gas properties, net of depletion, which
is subject to the full cost ceiling test for impairment.  At March 31,
2008, there was no impairment indicated.





Evaluated
Oil and Gas Properties also includes oilfield services equipment with a net book
value of $73,000 as of March 31, 2008, which is not subject to amortization, but
is depreciated on a straight line basis over its estimated useful life and
assessed for impairment in accordance with Statement of Financial Accounting
Standards No. 144.  During the quarter ended March 31, 2008,
Hyperdynamics conducted an impairment test of these assets using a market value
approach and concluded that an impairment of $6,000, which is included in
depreciation, depletion and amortization expense, exists.





6
 Table of Contents





Pro Forma
Results





The
acquisition of the RABB Properties occurred on July 1,
2007.  Accordingly, the results of operations for the three and nine
months ended March 31, 2008 include the results of the RABB
Properties.





The
unaudited pro forma results presented below for the three months and nine months
ended March 31, 2007 have been prepared to give effect to the purchase of the
RABB Properties described above as if it had been consummated on July 1,
2006.  The unaudited pro forma results do not purport to represent
what our results of operations actually would have been if this acquisition had
been completed on such date or to project our results of operations for any
future date or period.





Pro
      Forma:Three
      months ended
              March 31,
      2007
            
            
            Nine
              months
      ended
              March
      31, 2007Revenue
            
            $
            268,000
            
            
            $
            1,198,000Loss
      from operations
            
            
            (2,270,000
            )
            
            
            (6,066,000
            )Net
      loss chargeable to common shareholders
            
            
            (2,301,000
            )
            
            
            (7,357,000
            )Loss
      per share, basic and diluted
            
            
            (0.05
            )
            
            
            (0.16
            )





Unevaluated
properties





We
incurred $803,000 of geological and geophysical costs for our Guinea concession
during the nine months ended March 31, 2008.  The costs were incurred
as follows: consulting for our Forward Exploration Program of $91,000; payroll
costs directly associated with the evaluation of our Guinea concession of
$46,000; data purchases of $78,000; costs associated with our 2008 seismic shoot
of $575,000; and geophysical and geological software for $13,000.





In
addition, we have unevaluated properties in Louisiana, USA.  The
unevaluated properties involve three wells, one of which is complete and
productive but reserves have not yet been attributed to it.  The other
two wells are in the preparatory stage. Total cost, of $326,000 has been
incurred as of March 31, 2008.





3.  Asset
Retirement Obligations





The
following is a reconciliation of our asset retirement obligation
liability:





(
      in thousands)Asset
      retirement obligation, June 30, 2007
            
            $
            128Liabilities
      incurred
            
            
            75Revisions
      of estimates
            
            
            -Accretion
      of discount
            
            
            15Asset
      retirement obligation, March 31, 2008
            
            $
            218





7
 Table of Contents





4.  Short
term notes payable and long term debt





Short
term notes payable and long term debt consist of:





March
      31, 2008
            
            
            June
      30, 2007Short
      term note payable
            
            $
            -
            
            
            $
            240,000Installment
      notes payable
            
            
            40,000
            
            
            
            135,000YA
      GlobalGross
            
            
            2,000,000
            
            
            
            -Unamortized
      discount
            
            
            (255,000
            )
            
            
            -Net
            
            
            1,745,000
            
            
            
            -Total
      short term notes payable and long term debt
            
            
            1,785,000
            
            
            
            375,000Less:
      current portion
            
            
            (238,000
            )
            
            
            (375,000
            )Carrying
      value of notes as of March 31, 2008
            
            $
            1,547,000
            
            
            $
            -





Short
term notes payable





During
the nine months ended March 31, 2008, Hyperdynamics repaid an installment note
payable for legal settlement that was originally payable in six monthly
installments of $40,000 each.  The original amount of the note was
$240,000.  The noteholder accepted $230,000 in full payment of the
note, resulting in a gain on the settlement of debt of $10,000.





Installment
notes payable





During
the nine months ended March 31, 2008, Hyperdynamics entered into an installment
note payable in the amount of $30,000 for the purchase of a
vehicle.  The note bears imputed interest of 10% per annum and is
payable in installments of principal and interest of $600 per month for 60
months and is secured by the vehicle.





During
the nine months ended March 31, 2008, Hyperdynamics financed three insurance
policies for an aggregate amount of $47,000.  The notes are payable
over nine months from inception in installments of approximately $5,000 per
month.





YA
Global





On
February 6, 2008, Hyperdynamics entered into a financing agreement (the
Financing Agreement) with YA Global Investments, LP (“YA Global”). Under the
Financing Agreement, we will issue, and YA Global will purchase, up to
$3,000,000 of notes. On February 6, 2008, we completed the first closing and
issued $911,000 of notes under the Financing Agreement. We issued an additional
$1,089,000 of notes in March 2008, and the remaining $1,000,000 of notes may be
issued within 120 days from February 2008. We expect the new note agreements
will contain provisions similar to those described below. In connection with
this Financing Agreement, we will issue an aggregate 94,899 shares of common
stock and a total of 825,000 warrants to purchase common stock of which 550,000
warrants with an exercise price of $2.00 per share were issued on February 6,
2008 in connection with the first closing. The remaining warrants, with an
exercise price equal to 130% of the market value of our common stock on the date
of closing, will be issued at the third closing, which is expected to occur in
approximately 120 days from February 6, 2008. The exercise price of the warrants
are 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 (see Note 12. Subsequent
Events).  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. We will also issue shares with a value
equivalent to $60,000 based upon the market price of our common stock
at  the contemporaneous closing market price upon the third
closing.





Notes
issued under this arrangement are collateralized by substantially all of the
assets of Hyperdynamics and its subsidiaries, except the assets of SCS
Corporation and SCS Guinea. Further, this new agreement limits our ability to
draw down on our equity line of credit with Dutchess Capital.





8
 Table of Contents





We issued
$2,000,000 of notes under the arrangement and received net proceeds of
$1,785,000. The notes carry an annual interest rate equal to 20% and mature on
July 6, 2010. The notes will be repaid in monthly installments of $50,000 and
interest installments will also be paid monthly on the outstanding
balance.  Interest installments commence on May 31, 2008 and principal
installments commence on September 1, 2008. At our option, we can redeem the
notes at an earlier date and pay an “early redemption premium” of 15% of the
principal amount being redeemed.





The note
agreement contains several default provisions.  Events of default
include non-payment of principal or interest, default on notes payable to other
parties where the notes exceed $250,000, bankruptcy, delisting from a stock
exchange in which our stock is quoted; any change of control transaction; and
various other default provisions. Upon default, the notes become immediately due
and payable. In addition, any time following an event of default, the notes
become convertible at the option of the holder into shares of the Company’s
common stock. The conversion price is equal to the lesser of $2.00 or 70% of the
lowest closing bid price of the common stock during the 15 consecutive trading
days prior to the conversion date. At the inception of the notes, the potential
intrinsic value of the contingent conversion feature was
$1,535,000.  If the contingency is triggered, we will evaluate the
conversion option under SFAS 133 and EITF 000-19 for potential liability
treatment.


In the
event we issue or sell shares of common stock at a price that is less than the
conversion price, the conversion price is automatically reset to the new lower
price.   The aggregate number of shares issuable under the notes
is approximately 20% of the number of shares outstanding as of the date we
entered into the transaction, or approximately 11,000,000 shares, unless we
obtain shareholder approval to exceed this limit.  In accordance with
our agreement, we have reserved 11,000,000 shares.





Hyperdynamics
has evaluated the warrants for derivative accounting consideration under SFAS
133 and EITF 00-19.  We have concluded that the warrants meets the
criteria for classification in stockholders' equity under SFAS 133 and EITF
00-19. Therefore, derivative accounting is not applicable for the
warrants.


The fair
value of the investment was allocated among the notes, common stock, and warrant
as follows:





Relative
      fair value of warrant
            
            $
            185,000Relative
      fair value of stock
            
            
            80,000Relative
      fair value of note payable
            
            
            1,735,000





The fair
value of the warrant was calculated using the Black-Scholes method, assuming
volatility of 88%, expected term of 2.5 years, and a risk adjusted interest rate
of 2%.  The fair value of the stock was calculated based upon the
closing stock price at date of grant.





The
relative fair value of the warrants and stock were recorded as a discount to the
notes. These discounts associated with the warrant and the stock, totaling
$265,000, will be amortized and charged to interest expense over the life of the
notes using the effective interest rate method.  The effective
interest rate on the notes, including the discount, is 43%





Prepaid
interest and financing costs





Prepaid
financing costs consist of prepaid interest and a monitoring fee deducted from
proceeds of the notes payable at closing.  In accordance with the
notes, the first ninety days of interest were deducted from the proceeds of the
note as a prepayment.  In May 2008, Hyperdynamics will begin paying
interest installments on the notes payable.  The prepaid interest
balance as of March 31, 2008 was $57,000.  A prepaid monitoring fee
was deducted from the proceeds of the notes.  The fee is held in
escrow and as of March 31, 2008 the escrowed balance was $60,000.  The
note holder earns a fee of $3,000 per month, which is being amortized to
interest expense as it is earned, until January 1, 2010, or the note payoff,
whichever is earlier.  If the notes are paid off early, Hyperdynamics
will receive a refund of the unearned monitoring fee.





9
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6.  Shareholders’
Equity





Common
stock issuances





In June
2007, warrants to purchase 2,100,000 shares of common stock at $2.50 per share
were exercised for gross proceeds of $5,250,000, which was shown as a
subscription receivable in the June 30, 2007 balance sheet. The cash was
received on July 3, 2007.





In July
2007, two officers of the company received 738,251 shares of common stock upon
the cashless exercise of warrants to purchase 800,000 shares of common stock
that were granted in 2001, each with an exercise price of $0.23.





In July
2007, an investor received 119,389 shares of common stock upon the cashless
exercise of warrants to purchase 142,000 shares of common stock, each with an
exercise price of $0.50.





In July
2007, an investor purchased 48,160 shares of common stock for $135,000 cash when
we exercised a put on our equity line of credit.





In July
2007, a consultant received 30,000 shares of common stock valued at $89,000 in
exchange for services.





In July
2007, three directors received 16,669 shares of common stock valued at $50,000
in conjunction with their compensation package.





In August
2007, we issued 100,000 shares of common stock in connection with the purchase
of the RABB properties (see note 2).  The stock was valued at fair
value or $2.85 per share.  The total value of the stock was
$285,000.





In
October 2007, three directors received 24,654 shares of common stock valued at
$54,000 in conjunction with their compensation package.





In
October 2007, an attorney received 35,000 shares of common stock in payment of
legal fees of $76,000.





In
October 2007, a consultant received 30,000 shares of common stock valued at
$95,000 for services..





In
December 2007, an investor received 544,000 shares upon the exercise of a
warrant to purchase 544,000 shares of common stock with an exercise price of
$1.00.





In
January 2008, we issued 22,360 shares of common stock to two directors in
accordance with their compensation packages to pay directors fees of
$36,000.





In
January 2008, we issued 23,000 shares of common stock valued at $37,000 to a
consultant for services rendered.





In
February 2008, we issued 94,899 shares of common stock to an investor in
conjunction with their notes payable (see Note 4).





In March
2008, we issued 200,000 shares of common stock to a related party when the
entity converted 27 shares of its Series B preferred stock to common
stock.





In March
2008, a Hyperdynamics employee received a stock award of 15,000 shares valued at
$18,000.





In March
2008, we issued 51,667 shares of common stock to four directors in accordance
with their compensation packages to pay directors fees of $62,000.  We
also issued 24,000 shares of common stock valued at $29,000 to an attorney for
services rendered.





7.
 Deemed Dividend





In
December 2007, the Company modified the terms of certain warrants previously
issued in June 2006 in connection with the sale of convertible
debt.  All of the convertible debt was converted prior to the
modification.  The price of the warrants was reduced from $2.50 to
$1.00.  The modification resulted in a deemed dividend of $153,000,
which was calculated using the Black-Scholes method, assuming volatility of 96%,
expected term of 3.5 years, and a risk adjusted interest rate of
3%.





10
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8. 
Stock Options and Warrants





On
February 20, 2008, shareholders approved two amendments to Hyperdynamics’ 1997
Stock and Stock Option Plan (“1997 Plan”) that extended the expiration date of
the plan by ten years to May 7, 2017 and increased the number of shares issuable
from the 1997 Plan from 10,000,000 to 14,000,000 shares.  Also on
February 20, 2008, shareholders approved the 2008 Stock and Stock Option Plan
(“2008 Plan”).  A maximum of 3,000,000 shares are issuable under the
2008 Plan.





Hyperdynamics'
Stock and Stock Option Plans provide for the grant of stock, stock options, or
warrants to purchase common stock to directors, employees and consultants, and
opportunities for directors, officers, employees and consultants to make
purchases of stock in Hyperdynamics. Plan grants are administered by the Board
of Directors or the Compensation Committee, who have substantial discretion to
determine which persons, amounts, time, price, exercise terms, and restrictions,
if any.  Options granted generally are exercisable immediately as of
the effective date of the option grant.





Options
granted to employees





During
the nine months ended March 31, 2008, Hyperdynamics granted 885,000 options to
employees.   The options had exercise prices ranging from $1.18
to  $3.01, expected exercise terms ranging from 1 to 1.5 years,
vesting dates ranged from immediate to August 3, 2008, and a fair value on the
date of grant totaling $964,000.  The weighted average fair value of
the employee stock options granted during the nine months ended March 31, 2008
was $1.09.





The
aggregate compensation cost recognized for the share-based compensation during
the nine months ended March 31, 2008 was $1,042,000.





The
following table details the significant assumptions used in the Black-Scholes
model to compute the fair market values of employee stock options
granted:





2008Risk-free
      interest rate
            
            
            2 -
      5
            %Dividend
      yield
            
            
            0
            %Volatility
      factor
            
            
            75
      - 110
            %Expected
      life (years)
            
            
            1 -
      1.5





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 110.  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.





11
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The
following table summarizes employee stock options issued and
outstanding:





Options
            
            
            Weighted
      average exercise price
            
            
            Aggregate
      intrinsic value
            
            
            Weighted
      average remaining contractual life (years)Outstanding
      at year end June 30, 2007
            
            
            1,609,999
            
            
            
            3.89
            
            
            $
            -
            
            
            
            2Granted
            
            
            885,000
            
            
            
            2.47Exercised
            
            
            -
            
            
            
            -Forfeited
            
            
            (99,629
            )
            
            
            2.86Expired
            
            
            (30,000
            )
            
            
            1.00Outstanding
      at March 31, 2008
            
            
            2,365,370
            
            
            $
            3.44
            
            
            $
            68,000
            
            
            
            2





Options
      outstanding and exercisable as of March 31, 2008:Exercise Price
            Outstanding
      Number of Shares
            Remaining  Life
            Exercisable
       Number of Shares$1.00
      - 1.49
            370,000
            1
      year or less
            370,000$1.00
      - 1.49
            70,000
            3
      years
            70,000$1.50
      - 1.99
            40,000
            1
      year
            40,000$1.50
      - 1.99
            45,000
            2
      years
            45,000$1.50
      - 1.99
            30,000
            3
      years
            30,000$2.00
      - 2.49
            195,000
            1
      year or less
            195,000$2.00
      – 2.49
            359,999
            2
      years
            359,999$2.00
      - 2.49
            115,000
            3
      years
            115,000$2.50
      - 2.99
            40,000
            1
      year or less
            40,000$2.50
      – 2.99
            105,000
            2
      years
            105,000$2.50
      – 2.99
            290,371
            3
      years
            290,371$3.00
      – 3.50
            40,000
            2
      years
            40,000$3.00
      – 3.50
            65,000
            3
      years
            65,000$5.00
            300,000
            3
      years
            -$10.00
            300,000
            3
      years
            -2,365,370
            
            1,765,370





At March
31, 2008, there was $136,000 of unrecognized compensation costs related to
non-vested share-based compensation arrangements granted under the
Plan.





The
following table summarizes common stock warrants issued and outstanding as of
March 31, 2008:





Warrants
            
            
            Weighted
      average exercise price
            
            
            Aggregate
      intrinsic value
            
            
            Weighted
      average remaining contractual life (years)Outstanding
      at year June 30, 2007
            
            
            10,112,783
            
            
            
            2.46
            
            
            $
            -
            
            
            
            4Granted
            
            
            1,094,000
            
            
            
            1.50Exercised
            
            
            (1,401,640
            )
            
            
            .55Cancelled
            
            
            (628,360
            )
            
            
            2.20Expired
            
            
            -
            
            
            
            -Outstanding
      at March 31, 2008
            
            
            9,176,783
            
            
            $
            2.66
            
            
            $
            116,250
            
            
            
            4





12
 Table of Contents








Warrants
      outstanding and exercisable as of March 31, 2008:Exercise
      Price
            Outstanding
      Number  of Shares
            Remaining
      Life
            Exercisable
       Number of Shares$.25
            
            125,000
            1
      year or less
            125,000$2.00
            
            550,000
            5
      years
            550,000$2.40
            
            3,480,000
            7
      years
            3,480,000$2.50
            
            3,471,783
            1
      year or less
            3,471,783$4.00
            
            1,500,000
            7
      years
            1,500,000$5.00
            
            50,000
            3
      years
            -9,176,783
            
            9,126,783





At March
31, 2008, there was $28,000 of unrecognized compensation expense associated with
the outstanding warrants.  Cash proceeds received for the exercise of
warrants during the nine months ended March 31, 2008 was $544,000.





9.
Cost Reimbursement





In July
2007, Hyperdynamics received $130,000 as a reimbursement of legal costs we
incurred during fiscal 2006 and 2007 in our lawsuit with Trendsetter Investors
LLC.  The reimbursement was recorded as a reduction of current year
legal costs and it is included in selling, general and administrative
expense.





10.  Related
Party Transactions





Accounts
payable – related party consists of director’s fees payable to independent
directors in accordance with their compensation packages of $0 and
$50,000  expense reimbursements owed to employees totaling $15,000 and
$3,000 as of March 31, 2008 and June 30, 2007, respectively.





During
the nine months ended March 31, 2008, two officers of the company received
738,251 shares of common stock upon the cashless exercise of 800,000 warrants
with an exercise price of $0.23 per share.





11.
Commitments and Contingencies





During
the nine months ended March 31, 2008, Hyperdynamics signed a contract with
Geophysical Service Incorporated (“GSI”) for the acquisition of seismic 6,000
kilometers of 2-D data in our Guinea concession area.





Under the
agreement, Hyperdynamics will pay a $555,500 mobilization fee, a $275,000
demobilization fee, data acquisition and processing fees totaling $525 per
kilometer, and other fees and reimbursements.  The total cost of the
shoot, based on the fee schedule, is approximately $4,100,000.  As of
March 31, 2008, Hyperdynamics had paid $575,000 against the contract and GSI had
traveled to the contract area to begin work.  As of May 18, 2008,
approximately 39% of the work had been completed.





In
addition to the above, GSI acquired a revenue interest in the
data.  If Hyperdynamics, on its own or with a JV partner as an
operator, engages in additional exploration, production, or development
activities (excluding the acquisition of additional seismic data) in the area
covered by the survey, an additional $355 per kilometer will be paid to GSI. The
data is to be owned by Hyperdynamics but GSI has exclusive marketing rights and
is entitled to an additional fee of approximately $355 per kilometer at a split
revenue ration of 75% for GSI up to the $355 per
kilometer.   Based on the total 6,000 kilometer contracted area,
this could total up to $2,130,000.  Any license fees that GSI receives
from third parties would be subtracted from the $355 additional compensation
amount due.  After GSI receives its $355 additional compensation,
either from a drilling operator or from License fees from the 75/25% split, any
new license fees will be shared 50% by GSI and 50% by
Hyperdynamics.





12.
Subsequent Events





In April
2008, we issued 25,000 shares valued at $57,000 to an attorney for services
rendered.





13
 Table of Contents





In April
2008, two officers of the company and four independent directors were granted
options to purchase 117,500 shares of common stock in accordance with their
compensation packages.  The options have a value of $32,000 based upon
the Black-Sholes valuation method.





In May
2008, an officer exercised options to purchase 50,000 shares of common stock at
$2.00 per share for $100,000 cash.





In May
2008, an employee exercised options to purchase 2,500 shares of common stock at
$2.15 per share for $5,000 cash.





In May
2008, we issued 35,000 shares of common stock valued at $56,000 to our Investor
Relations/Public Relations consultant.  The shares were earned in
accordance with its contract on January 1, 2008 and is included in accounts
payable as of March 31, 2008.  Also in May 2008, this consultant’s
final 35,000 shares, with a value of $65,000, were earned and
issued.





In May
2008, a Series B preferred stockholder converted 13 shares of Series B preferred
stock to common stock.  100,320 shares of common stock were issued for
conversion shares and accrued dividends.





In May
2008, Hyperdynamics completed a registered direct offering under which it sold
2,424,243 shares of common stock at $1.65 per share, for gross proceeds of
$4,000,000. Hyperdynamics paid a placement agent and legal fees of $355,000 in
conjunction with the offering, resulting in net proceeds of
$3,645,000.  The investors who participated in the offering also
received warrants to purchase 2,424,243 shares of common stock at $3.27 per
share, exercisable through May 2015.





As a consequence of the financing, we
are currently evaluating the effect on the warrants associated with the YA
Global notes payable and any other outstanding warrants which may have reset
provisions.





In May
2008, an employee received 1,923 shares of common stock upon the cashless
exercise of options to purchase 9,052 shares of common stock with an exercise
price of $2.15.





13.
Segment Information





Reportable
segments


--------------------


Hyperdynamics
has two reportable segments: SCS Corporation ("SCS") and our domestic Louisiana
operations ("HYDR"). SCS is engaged in oil and gas exploration activities
pertaining to offshore Guinea, West Africa. HYDR is engaged in oil and gas
exploration, development, and production activities in Louisiana, USA.
Hyperdynamics evaluates performance based on profit or loss from operations. The
reportable segments are managed by separate management teams who are evaluated
based on their segment’s performance.





The
following tables summarize certain balance sheet data as of March 31, 2008 and
June 30, 2007 and income statement data about Hyperdynamics' reportable segments
and corporate overhead for the three months and nine months ended March 31, 2008
and 2007:





SCS
            
            
            HYDR
            
            
            Corporate
            
            
            TotalSegment
      assetsAs
      of March 31, 2008
            
            $
            5,354,000
            
            
            $
            3,245,000
            
            
            $
            420,000
            
            
            $
            9,019,000As
      of June 30, 2007
            
            
            4,467,000
            
            
            
            804,000
            
            
            
            6,209,000
            
            
            
            11,480,000Nine
      months ended March 31, 2008:Revenues
      from external customers
            
            
            -
            
            
            
            1,637,000
            
            
            
            -
            
            
            
            1,637,000Depreciation,
      depletion and amortization
            
            
            61,000
            
            
            
            396,000
            
            
            
            31,000
            
            
            
            488,000Loss
      from operations
            
            
            (2,912,000
            )
            
            
            (1,360,000
            )
            
            
            (2,890,000
            )
            
            
            (7,162,000
            )Expenditures
      for long-lived assets
            
            
            938,000
            
            
            
            2,500,000
            
            
            
            14,000
            
            
            
            3,452,000Three
      months ended March 31, 2008:Revenues
      from external customers
            
            
            -
            
            
            
            792,000
            
            
            
            -
            
            
            
            792,000Depreciation,
      depletion and amortization
            
            
            26,000
            
            
            
            203,000
            
            
            
            11,000
            
            
            
            240,000Loss
      from operations
            
            
            (714,000
            )
            
            
            (189,000
            )
            
            
            (840,000
            )
            
            
            (1,743,000
            )Expenditures
      for long-lived assets
            
            
            643,000
            
            
            
            631,000
            
            
            
            -
            
            
            
            1,274,000Nine
      months ended March 31, 2007:Revenues
      from external customers
            
            
            -
            
            
            
            780,000
            
            
            
            -
            
            
            
            780,000Depreciation,
      depletion and amortization
            
            
            18,000
            
            
            
            68,000
            
            
            
            22,000
            
            
            
            108,000Loss
      from operations
            
            
            (2,151,000
            )
            
            
            (485,000
            )
            
            
            (2,921,000
            )
            
            
            (5,557,000
            )Expenditures
      for long-lived assets
            
            
            81,000
            
            
            
            66,000
            
            
            
            131,000
            
            
            
            278,000Three
      months ended March 31, 2007Revenues
      from external customers
            
            
            -
            
            
            
            113,000
            
            
            
            -
            
            
            
            113,000Depreciation,
      depletion and amortization
            
            
            8,000
            
            
            
            23,000
            
            
            
            10,000
            
            
            
            41,000Loss
      from operations
            
            
            (896,000
            )
            
            
            (273,000
            )
            
            
            (937,000
            )
            
            
            (2,106,000
            )Expenditures
      for long-lived assets
            
            
            5,000
            
            
            
            11,000
            
            
            
            13,000
            
            
            
            29,000





14
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CAUTIONARY
STATEMENT ON FORWARD-LOOKING INFORMATION





The
Company is including the following cautionary statement to make applicable and
take advantage of the safe harbor provision of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statements made by, or on behalf of,
the Company. This quarterly report on form 10Q contains forward-looking
statements. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, expectations, future events or performance and
underlying assumptions and other statements which are other than statements of
historical facts. Certain statements contained herein are forward-looking
statements and, accordingly, involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those expressed in the
forward-looking statements. The Company's expectations, beliefs and projections
are expressed in good faith and are believed by the Company to have a reasonable
basis, including without limitations, management's examination of historical
operating trends, data contained in the Company's records and other data
available from third parties, but there can be no assurance that management's
expectations, beliefs or projections will result or be achieved or accomplished.
In addition to other factors and matters discussed elsewhere herein, the
following are important factors that, in the view of the Company, could cause
actual results to differ materially from those discussed in the forward-looking
statements: the ability of the Company to respond to changes in the oil and gas
exploration and production environment, competition, the availability of
financing, and, if available, on terms and conditions acceptable to the Company,
and the availability of personnel in the future.




Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations





Overview





During
the quarter ended March 31, 2008, we moved forward with the exploration work for
our September 22, 2006 Production Sharing Contract (the “2006 PSC”) area
offshore the Republic of Guinea.  We signed a contract during the
quarter with Geophysical Services, Inc. (“GSI”) regarding the extensive
exploration effort offshore Guinea. Mr. James R. Spear, our Vice President of
Exploration and Production and Mr. Jeffrey Sprain, our Exploration Manager,
traveled to Guinea to supervise the initiation of the 2008 2-D seismic
acquisition program.   GSI is performing a 2-D seismic data
acquisition program in our concession area.  The 2-D will provide a
better regional profile and our geologists and geophysicists can use the
information gathered in their design of 3-D acquisition programs.





We
engaged GSI to initiate a 6,000 kilometer grid necessary to allow us to fine
tune the layout of our 3-D seismic grids.  During the 2-D acquisition,
previously delineated targets are being verified and new zones are being
identified.  During the 2-D acquisition, we  are delineating
new target areas for the 3-D seismic acquisition program.   It is
expected that this 2-D work will lead to the first 3-D seismic acquisition in
history offshore Guinea and will give the Company a portfolio of drillable
prospects with potential to hold world class reserves.





15
 Table of Contents





The 2006
PSC gives us exclusive rights to explore and develop approximately 31,000 square
miles off the coast of Guinea. However, certain provisions of the contract
require us to surrender 64% (approximately 20,000 square miles) of the contract
area upon the passage of a “Project of Law”, a Presidential Decree, and a
Republic of Guinea Supreme Court ruling. We would retain a priority
non-exclusive right, to be defined in the future, to participate in the
development of the surrendered contract area. Although the 2006 PSC is a legally
binding contract under Guinea’s 1986 Petroleum Code, the process of passing a
law, obtaining a Presidential Decree, and a Republic of Guinea Supreme Court
ruling effectively codifies the 2006 PSC into a new Guinea law in and of
itself.  Whether these things are accomplished or not is entirely up
to the Guinea government.  We are proceeding with our work under the
2006 PSC in any respect. We expect, through the priority rights granted in the
2006 PSC, to continue our participation under our priority non-exclusive rights
in any surrendered contract area and to retain exclusive rights in the remaining
36% (approximately 11,000 square miles) of the contract area.





Since Mr.
Spear joined Hyperdynamics in October, he has reinterpreted and clarified many
leads from our past 2-D seismic surveys, which were completed in 2002 and
2003.  During last quarter we reported that we have identified
approximately twenty-five leads so far as potential drilling targets. Mr. Spear
also helped to identify and to focus our attention on the notable potential
development in the Upper and Lower Cretaceous section where most of the West
African oil has been found to date.  In April 2008, we received Brutte
Stack raw datae that confirmed many of the targets delineated last
year.  This very encouraging clarification prompted us to concentrate
on, as a primary niche area, the transform margin play offshore the Republic of
Guinea.  Over the last three years, this play has resulted in at least
40 new field discoveries offshore West Africa that we know of to
date.  We also reported during the quarter that, as a result of the
company’s exploration work since 2002, including the identification of
interpretive procedures performed over the last several months, detailed and
focused specifications have now been laid out to acquire additional 2-D seismic
data and, for the first time in the history of the Guinea offshore, we began
laying out 3-D seismic grids as a next step to having drillable
prospects.  During the quarter ended March 31, 2008 and now into the
current quarter, Mr. Spear has worked closely with Kent Watts, our Chief
Executive Officer, to lay out operational plans for our 2008 exploration efforts
and as the 2-D acquisition for 2008 is being completed and new information is
flowing, the two are working together to manage the exploration
program.





We
realized oil production revenues of $792,000 for the quarter ended March 31,
2008 compared to  $113,000 in oil production revenue for the quarter
ended March 31, 2007. When we acquired the RABB properties, we planned to
evaluate workovers and other repairs on the wells that would increase production
from the wells. This work was performed to optimize production from the wells we
acquired.  The other, more routine, lease operating costs, such as
pumping, electricity, and other costs are relatively stable, regardless of the
production flow.  The increased production and revenue would thus add
to our margin and cash flow without significant incremental costs after the cost
of repair to each well.




During
the quarter ended March 31, 2008, oil sales for January and February hit all
time new highs. In March, flood waters from the Missisippi River shut in some of
our production but  we had a successful drilling operation. We drilled
a successful completed well on our Deville lease.  The new well is
productive.  Despite production decreases attributable to the shut in
wells, we have hit a new high of production for April from other wells. We
expect new  production records for May and June. Management expects to
continue infield drilling operations soon that could again increase production
and reserves.  Also, during the quarter ended March 31, 2008, we
commissioned a new reserve report by Ryder Scott Company, L. P. that reported
proved developed producing reserves as approximately 121,000 barrels as of
February 28, 2008.  We have development plans for existing leases and
we expect to acquire additional leases. Thus, we are continuing to work toward
our goal, to generate profits from our developmental operations.  The
price of oil has helped with this endeavor, as it has hit over $120 per barrel
in recent weeks.




16
 Table of Contents





RESULTS
OF OPERATIONS




Reportable
segments


--------------------


Hyperdynamics
has two reportable segments: SCS Corporation ("SCS") and our domestic Louisiana
operations ("HYDR"). SCS is engaged in oil and gas exploration activities
pertaining to offshore Guinea, West Africa. HYDR is engaged in oil and gas
exploration, development, and production activities in Louisiana, USA.
Hyperdynamics evaluates performance based on profit or loss from operations. The
reportable segments are managed by separate management teams who are evaluated
based on their segment’s performance.





The
following tables summarize certain balance sheet data as of March 31, 2008 and
June 30, 2007 and income statement data about Hyperdynamics reportable segments
and corporate overhead for the three months and nine months ended March 31, 2008
and 2007:





SCS
            
            
            HYDR
            
            
            Corporate
            
            
            TotalSegment
      assetsAs
      of March 31, 2008
            
            $
            5,354,000
            
            
            $
            3,245,000
            
            
            $
            420,000
            
            
            $
            9,019,000As
      of June 30, 2007
            
            
            4,467,000
            
            
            
            804,000
            
            
            
            6,209,000
            
            
            
            11,480,000Nine
      months ended March 31, 2008:Revenues
      from external customers
            
            
            -
            
            
            
            1,637,000
            
            
            
            -
            
            
            
            1,637,000Depreciation,
      depletion and amortization
            
            
            61,000
            
            
            
            396,000
            
            
            
            31,000
            
            
            
            488,000Loss
      from operations
            
            
            (2,912,000
            )
            
            
            (1,360,000
            )
            
            
            (2,890,000
            )
            
            
            (7,162,000
            )Expenditures
      for long-lived assets
            
            
            938,000
            
            
            
            2,500,000
            
            
            
            14,000
            
            
            
            3,452,000Three
      months ended March 31, 2008:Revenues
      from external customers
            
            
            -
            
            
            
            792,000
            
            
            
            -
            
            
            
            792,000Depreciation,
      depletion and amortization
            
            
            26,000
            
            
            
            203,000
            
            
            
            11,000
            
            
            
            240,000Loss
      from operations
            
            
            (714,000
            )
            
            
            (189,000
            )
            
            
            (840,000
            )
            
            
            (1,743,000
            )Expenditures
      for long-lived assets
            
            
            643,000
            
            
            
            631,000
            
            
            
            -
            
            
            
            1,274,000Nine
      months ended March 31, 2007:Revenues
      from external customers
            
            
            -
            
            
            
            780,000
            
            
            
            -
            
            
            
            780,000Depreciation,
      depletion and amortization
            
            
            18,000
            
            
            
            68,000
            
            
            
            22,000
            
            
            
            108,000Loss
      from operations
            
            
            (2,151,000
            )
            
            
            (485,000
            )
            
            
            (2,921,000
            )
            
            
            (5,557,000
            )Expenditures
      for long-lived assets
            
            
            81,000
            
            
            
            66,000
            
            
            
            131,000
            
            
            
            278,000Three
      months ended March 31, 2007Revenues
      from external customers
            
            
            -
            
            
            
            113,000
            
            
            
            -
            
            
            
            113,000Depreciation,
      depletion and amortization
            
            
            8,000
            
            
            
            23,000
            
            
            
            10,000
            
            
            
            41,000Loss
      from operations
            
            
            (896,000
            )
            
            
            (273,000
            )
            
            
            (937,000
            )
            
            
            (2,106,000
            )Expenditures
      for long-lived assets
            
            
            5,000
            
            
            
            11,000
            
            
            
            13,000
            
            
            
            29,000





Nine
months ended March 31, 2008 compared to Nine months ended March 31,
2007.





Louisiana
Operations ("HYDR")





Nine
months ended March 31, 2008 compared to Nine months ended March 31,
2007.





Revenues  Our
revenues were $1,637,000 for the nine months ended March 31, 2008, of which
$1,606,000 was derived from oil revenues and $31,000 from service revenues. This
compares to $780,000 in 2007, of which $716,000 was derived from oil revenues
and $64,000 from service revenues. The increase in total revenue is $857,000 or
110%. The increase of 124% in oil revenues, or $890,000, is attributable to an
increase in the selling price of oil and an increase in production attributable
to the acquired RABB properties.




17
 Table of Contents





The
following table summarizes certain production information:





Nine
      months ended March 31,2008
            
            
            2007Net
      barrels
            
            
            17,955
            
            
            
            10,214Gross
      barrels
            
            
            27,519
            
            
            
            16,534Average
      price per barrel
            
            $
            90.00
            
            
            $
            70.00





Lease operating
expense was $2,104,000 for the nine months ended March 31, 2008 compared
to $414,000 for the nine months ended March 31, 2007. During the nine months
ended March 31, 2008, lease operating expense consists of $1,490,000 associated
with the RABB properties, $504,000 associated with our operated properties
(Magee-Smith, Kelly, and Norris leases), and $110,000 of severance
tax.  During the nine months ended March 31, 2007, lease operating
expense consists of $331,000 associated with our operated properties and $83,000
of severance tax.  The increase in total lease operating expense of
408%, or $1,690,000, is primarily attributable to the expenses of operating the
RABB properties. These expenses include significant repairs that we performed in
an effort to increase future production. We worked over or reworked twelve oil
wells and four service wells for a cost of $665,000. We also incurred routine
lease operating expenses related to the RABB properties of $825,000 related to
the operation of oil wells acquired in July 2007.  The increase of
operating expenses on our operated properties of $173,000, or 52%, is
attributable to increased payroll costs and work-over and service work on our
wells.





Lease
operating expense also includes severance tax of $110,000 and $83,000 for the
nine months ended March 31, 2008 and the nine months ended March 31, 2007,
respectively. The increase in severance tax of 33%, or $27,000, is attributable
to additional oil production and higher prices. Our severance tax rates for each
well depend on production levels. Our average tax rates declined in 2008 because
our production increases derived from wells that, at the time, qualified for a
reduced tax regimen under Louisiana law. Our production has increased due to our
workovers and lease improvements and as of March 31, 2008 several wells are now
classified as subject to the full Louisiana severance tax rate. Accordingly, our
average severance tax rate, and our costs attributable to severance tax, for the
fourth quarter and beyond will increase.





Accretion
expense.  In accordance with SFAS 143, we discount the fair
value of our asset retirement obligations and record accretion expense due to
the passage of time using the interest method of allocation.  As of
July 1, 2007 and 2006, respectively, our asset retirement obligation was
$128,000 and $12,000, respectively.  Additional liabilities incurred
during the current period were $75,000. Total accretion expenses for the nine
months ended March 31, 2008 were $15,000 compared to $0 in 2007.  As
of March 31, 2008, the asset retirement obligation is $218,000.





Depreciation, depletion and
amortization was $396,000 for the nine months ended March 31, 2008
compared to $68,000 for the nine months ended March 31, 2007. The increase of
482% or $328,000 is due to higher depletion expenses attributable to the
acquisition of the RABB properties, partially offset by a decrease in the
depletion rate.  The full cost pool increased $2,239,000 with the RABB
properties acquisition, the improvements to the production facilities at our
Magee-Smith lease, development costs, and additional geological and geophysical
expenses.  The depletion rate decreased because of the reserves added
with the purchase of the RABB properties.





Selling, general and
administrative expense includes administrative expenses, field overhead,
and gain or loss on disposal of assets.  Total selling, general and
administrative decreased $300,000, or 38%, from $782,000 during the nine months
ended March 31, 2007 to $482,000 during the nine months ended March 31,
2008.





Administrative expenses and loss
from disposal of assets were $172,000 for the nine months ended March 31,
2008 compared to $350,000 for the nine months ended March 31, 2007. This
represents a decrease of 51%, or $ 178,000, due to cost decreases of $235,000
offset by cost increases of $57,000.  Cost decreases include a
decrease in legal expenses of $206,000 and a decrease in bad debt expense of
$29,000.  The legal category includes insurance proceeds of
$130,000  which reimbursed us for legal expenses we incurred in a
lawsuit we settled during June 2007.  The primary difference in bad
debt expense is due to the write off of joint interest billings due from our
then working interest partner in 2007.





18
 Table of Contents





Cost
increases include: salaries increased by $16,000 due to selected raises and
additional employees in the period, utilities increased by $6,000, local taxes
increased by $4,000  and insurance costs increased by $4,000 due
health insurance costs for employees.   Administrative expense
also includes $12,000 paid to Mike Watts, the brother of Kent Watts, who
provides investor relations, public relations, financial consulting, and general
advisory services in conjunction with a contract entered into during March 2007
for services he will deliver through March 2010.  The $12,000
represents reimbursements for his expenses as authorized by his contract. Loss
from disposal of assets during the year was $7,000, and the gain from disposal
of assets was $8,000 during the period ended March 31, 2007, which resulted in a
net change of $15,000.





Field overhead relates to the
cost of maintaining a field office and equipment yard in Jena,
Louisiana.  The cost was $310,000
for the nine months ended March 31, 2008 compared to $432,000 for the nine
months ended March 31, 2007. The decrease of 28%, or $122,000, is attributable
to lower worker’s compensation expenses, tools & yard costs, repairs and
maintenance, other field related expenses where drastic cost savings measures
were implemented and in payroll related costs due to hour reductions and
personnel reductions.





Loss from operations
was $1,360,000 for the nine months ended March 31, 2008 compared to $485,000 for
the nine months ended March 31, 2007. This represents an increase of $875,000,
or 180%, due to the factors discussed above.





Gain on settlement of
debt. In July 2007, we prepaid an installment note payable for legal
settlement related to our Louisiana operations that was originally payable in
six monthly installments of $40,000 each.  The original amount of the
note was $240,000.  The note holder accepted $230,000 in full payment
of the note, resulting in a gain on the settlement of $10,000.  During
the nine months ended March 31, 2007, we settled a billing dispute with a
vendor, resulting in a gain of $28,000.





Interest Expense
increased $2,000, or 100%, to $4,000 in 2008 and $2,000 in 2007.





Our expenditures for long
lived assets were $2,500,000 during the nine months ended March 31, 2008
compared to $66,000 during the nine months ended March 31, 2007. This represents
an increase of 3,688% or $2,434,000, attributable to the costs for improvements
at the Magee-Smith lease and the acquisition of the RABB
properties.





Guinea
and Seismic Data Management ("SCS")





Nine
months ended March 31, 2008 compared to nine months ended March 31,
2007.





Revenues We had no
revenues during the nine months ended March 31, 2008 and 2007. We signed a
Production Sharing Contract (PSC) with the Republic of Guinea on September 22,
2006 and are currently focusing on our drilling and exploration plans in the
concession delineated in the PSC.





Depreciation, depletion and
amortization was $61,000 for the nine months ended March 31, 2008
compared to $18,000 for the nine months ended March 31, 2007. The increase of
238% or $43,000 is due to depreciation expense on additional assets purchased
for use in Guinea.





Selling, general and
administrative expenses were $2,851,000 for the nine months ended March
31, 2008 compared to $2,133,000 for the nine months ended March 31, 2007. This
represents an increase of 34%, or $718,000, attributable to an increase of some
general and administrative expenses of $1,401,000 offset by a decrease in other
general and administrative expenses of $683,000. The increase of $1,401,000 is
due to the following factors:





1) Public
relations and marketing expenses increased by $797,000.  Our public
relations and marketing programs promote our company and educate the people of
Guinea in order to gain recognition and support throughout Guinea. The programs
include television commercials, radio, and other types of media and journalistic
coverage and sponsorship of entertainment events;





2)
Professional expenses increased $58,000 due to higher legal and technical
expenses as well as other professional expenses incurred in Guinea.





3)
Salaries and payroll taxes increased by $214,000 due in part to hiring our new
Vice President and Chief Geophysicist and accounting staff for SCS-Guinea, as
well as to wage increases for various employees;





19
 Table of Contents





4) Auto
expense increased by $75,000 due to maintenance and repairs of vehicles in
Guinea;





5) Office
supplies and postage increased $55,000 due to increase in supply usage both in
the US and Guinea offices;





6) Office
lease and utilities increased by $5,000 due to increase in office space in
Guinea;





7)
Insurance expenses increased by $41,000 mainly due to increased health insurance
costs due to new hires and our cholera program in Guinea.





8) Travel
expense increased by $117,000 due in part to payment of travel costs for the
Guinean delegation to visit Houston as well as increased travel to and from
Guinea, particularly to support the current seismic data acquisition program;
and





9) Other
administrative expenses increased by $21,000 and loss from disposal of assets
increased by $18,000.





The
decrease of $683,000 is due to the following factors:





1)
            Consulting
      expense decreased $419,000. Consulting expense consists of lobbying costs,
      which decreased by $170,000, and winding up of contract commitments with
      Seacon and Geoexperts resulting in decreases of $230,000. The decrease in
      lobbying expense occurred because a payment in fiscal year 2006 to our
      lobbyist in Guinea was not repeated this year, and our geological
      consultant, Geoexperts, completed work related to the completion of a
      farm-out brochure in 2007.  We brought in our own in house Vice
      President and Chief Geo-Physicist thus reducing the amount of geophysical
      and geological consulting expenses. Other consulting expenses
      decreased by $19,000.





2)
            Equity
      based compensation decreased by $264,000 related to reduced share based
      compensation expenses.





Loss from operations
was $2,912,000 for the nine months ended March 31, 2008 compared to $2,151,000
for the nine months ended March 31, 2007 due to the factors discussed
above.





Expenditures for long lived
assets were $938,000 for the nine months ended March 31, 2008 compared to
$81,000 for the nine months ended March 31, 2007. This represents a increase of
1,058% or $857,000, due to decrease in purchases of office furniture, equipment
and leasehold improvements in Guinea.





Corporate
Overhead





Nine
months ended March 31, 2008 compared to nine months ended March 31,
2007.





Depreciation, depletion, and
amortization was $31,000 for the nine months ended March 31, 2008
compared to $22,000 in the nine months ended March 31, 2007. This represents an
increase of 41%, or $9,000. The increase is due to an increase during the six
months ended December 31, 2006 in capitalized office equipment placed in service
and depreciation of those assets during all of the 2008 period..





Selling, general and
administrative expenses were $2,859,000 for the nine months ended March
31, 2008 compared to $2,900,000 for the nine months ended March 31, 2007. This
represents a decrease of approximately 1%, or $41,000, due to a decrease in
certain administrative expenses of $303,000, which was partially offset by an
increase in other administrative expenses of $262,000.





The
decrease in expenses includes a decrease in equity based compensation expenses
of $291,000, lower office lease expenses of $6,000, and a decrease in insurance
and other expenses of $6,000.  The decrease in stock-based
compensation of $290,000 was attributable in part to changes in the fair value
of recurring awards, as computed using the Black-scholes option pricing model,
and in part to awards granted in 2007 that were not repeated in
2008.





20
 Table of Contents





The
increase is due to the following factors:





1)
Professional expenses increased by $115,000 due to increased audit fees, costs
associated with compliance with the provisions of the Sarbanes-Oxley Act, and
the retention of a new financial advisor offset by a $40,000 decrease in legal
costs, for a net increase of $75,000;





2)
Consulting, including investor relations and public relations expenses,
increased by $64,000 due to increased costs related to nationwide road show
appearances for the purposes of promoting and educating the investors about our
company as well as additional cost of retaining a public relations
company;





3)
Salaries and taxes increased by $51,000 due to employee new hires and raises for
several office personnel,





4) Travel
expenses increased by $45,000 due to director and officer’s travel as well as
additional travel expenses related to the road show promotions; and





5)
Hyperdynamics reimbursed Michael Watts, the brother of Kent Watts, $27,000 in
reimbursements for expenses incurred in conjunction with his contract to provide
investor relations, public relations, financial consulting, and general advisory
services.





Loss from operations
was $2,890,000 for the nine months ended March 31, 2008 compared to $2,921,000
for the nine months ended March 31, 2007, due to the factors discussed
above.





Interest expense was
$62,000 and $1,243,000 for the nine months ended March 31, 2008 and 2007,
respectively.  The interest expense for 2007 included interest payable
on convertible debentures and accelerated amortization of the discount of
debentures, which were satisfied and fully paid in the fiscal year ended June
30, 2007.  Interest expense decreased $1,181,000, or 95%.





Net loss chargeable to
common shareholders. Based on the factors discussed above, our net loss
chargeable to common shareholders was $7,293,000 and $6,856,000 for the nine
months ended March 31, 2008 and 2007, respectively.  The loss per
common share was $0.13 in the nine months ended March 31, 2008 and $0.14 in the
nine months ended March 31, 2007.





Our expenditures for long
lived assets were $14,000 for the nine months ended March 31, 2008
compared to $131,000 in the nine months ended March 31, 2007. The decrease of
$117,000, or 89%, is due to the purchases of office furniture and fixtures and
leasehold improvements incurred in fiscal 2007 when we moved into our new
offices, which were not repeated in fiscal 2008.





Three
months ended March 31, 2008 compared to three months ended March 31,
2007.





Louisiana
Operations ("HYDR")





Three
months ended March 31, 2008 compared to three months ended March 31,
2007.





Revenues.  Our
revenues were $792,000 for the three months ended March 31, 2008 compared to
$113,000 in 2007. All revenues during the three months represented oil revenues.
The increase of 601% in oil revenues, or $679,000, is attributable to an
increase in the selling price of oil and an increase in
production.  The RABB properties generated about 84% of our total oil
production.  The increase in revenue from the Rabb properties during
this quarter is a result of the work-over and repair work performed on our wells
during the previous quarters that were complete as of December 31,
2007.





21
 Table of Contents





The
following table summarizes certain production information:





Three
      months ended March 31,2008
            
            
            2007Net
      barrels
            
            
            8,123
            
            
            
            2,049Gross
      barrels
            
            
            12,651
            
            
            
            2,794Average
      price per barrel
            
            $
            98.00
            
            
            $
            55.00





Lease operating
expense was $601,000 for the three months ended March 31, 2008 compared
to $139,000 for the three months ended March 31, 2007. The increase of 332%, or
$462,000, is primarily attributable to expenses of operating the RABB
properties. These expenses include repairs and maintenance to increase future
production. We worked over or reworked two oil wells  for a cost of
$80,000. We incurred routine lease operating expenses of $267,000 related to the
operation of oil wells acquired with the RABB properties.  The
operating expenses on our operated properties of $193,000, increased $67,000 due
to increased payroll costs and workover and service work on our
wells.  Lease operating expense also includes severance tax of $62,000
and $13,000 for the three months ended March 31, 2008 and the three months ended
March 31, 2007, respectively.  Severance tax increased $49,000, or
377%, due to higher production.





Accretion
expense.  In accordance with SFAS 143, we discount the fair
value of our asset retirement obligations and record accretion expense due to
the passage of time using the interest method of allocation.  As of
July 1, 2007 and 2006, respectively, our asset retirement obligation was
$128,000 and $12,000, respectively.  This resulted in accretion
expense of $5,000 for the three months ended March 31, 2008 compared to $0 in
2007.  As of March 31, 2008, the asset retirement obligation is
$218,000.





Depreciation, depletion and
amortizationwere $203,000 for the three months ended March 31, 2008
compared to $23,000 for the three months ended March 31, 2007. The increase of
783%, or $ 180,000, is due to higher depletion expenses primarily attributable
to the acquisition of the RABB properties on July 1, 2007, partially offset by a
decrease in the depletion rate.  The depletion rate decreased because
of the reserves added with the purchase of the RABB properties.





Selling, general and
administrative expense includes administrative expenses, field overhead,
and gain or loss on disposal of assets.  Total selling, general and
administrative decreased $52,000, or 23%, from $224,000 during the three months
ended March 31, 2007 to $172,000 during the three months ended March 31,
2008.





Administrative expenseswere
$93,000 for the three months ended March 31, 2008 compared to $99,000 for the
three months ended March 31, 2007. This represents a decrease of 6%, or $6,000,
attributable to increase in local taxes of $6,000 and increase in general
liability and health insurance costs of $18,000, which was offset by decreases
in bad debt expense of $16,000, professional expenses of $7,000 and wage expense
of $7,000. Loss from disposal of assets during the period was
$7,000.





Field overhead relates to the
cost of maintaining a field office and equipment yard in Jena, Louisiana. The
costwas
$72,000 for the three months ended March 31, 2008 compared to $125,000 for the
three months ended March 31, 2007. The decrease of 42%, or $53,000, is
attributable to lower worker’s compensation expenses, tools & yard costs,
repairs and maintenance, and other field related expenses.





Loss from operations
was $ 189,000 for the three months ended March 31, 2008 compared to $273,000 for
the three months ended March 31, 2007. This represents a decrease of 31%, or
$84,000, due to the factors discussed above.





Interest Expense was
comparable at $2,000 for 2008 and $0 in 2007.





Gain on settlement of
debt. During the three months ended March 31, 2007, we settled a billing
dispute with a vendor, resulting in a gain of $28,000.





Our expenditures for long
lived assets were $ 631,000 during the three months ended March 31, 2008
compared to $11,000 during the three months ended March 31, 2007. This
represents an increase of 5,636% or $620,000, primarily attributable to the
costs of drilling the Deville #1 and a non-productive well on the Ballymagan
Field..





22
 Table of Contents





Guinea
and Seismic Data Management ("SCS")





Three
months ended March 31, 2008 compared to three months ended March 31,
2007.





Revenues. We had no
revenues during the three months ended March 31, 2008 and 2007. We are currently
focusing on our drilling and exploration plans in the concession delineated in
the PSC.





Depreciation, depletion and
amortization were $ 26,000 for the three months ended March 31, 2008
compared to $8,000 for the three months ended March 31, 2007. The increase of
225% or $ 18,000 is due to depreciation expense on additional assets purchased
in Guinea.





Selling, general and
administrative expenses were $688,000 for the three months ended March
31, 2008 compared to $ 888,000 for the three months ended March 31, 2007. This
represents a decrease of 23%, or $ 200,000, attributable to an increase of some
general and administrative expenses of $326,000 offset by a decrease in other
general and administrative expenses of $526,000. The increase of $326,000 is due
to the following factors:





1)
Salaries and payroll taxes increased by $102,000 due in part to hiring our new
Vice President and Chief Geophysicist and accounting staff for SCS-Guinea, as
well as to wage increases for various employees;





2) Auto
expense increased by $21,000 due to maintenance and repairs of vehicles in
Guinea;





3) Office
supplies and postage increased $19,000 due to increase in supply usage both in
the US and Guinea offices;





4)
Insurance expenses increased by $7,000 due to increase in employee new
hires;





5) Travel
expenses increased $59,000 due to the increase of travel to Guinea;





6) Other
administrative expenses increased by $2,000;





7)
Professional fees increased by $98,000 and mainly can be attributed to $60,000
of legal costs incurred to protect our PSC contract; and





8) Loss
on disposal of assets during the year amounted to $18,000.





The
decrease of $526,000 is mainly due to a decrease in consulting expense of
$137,000, $5,000 in general administrative expenses, and a decrease in equity
based compensation $384,000.  The decrease is due to various
factors:





1)
            Consulting
      expense decreased $137,000. Consulting expense consists of lobbying costs
      and costs associated with industry visibility work of geological industry
      consultants.  The decrease in lobbying expense occurred because a
      payment in 2006 to our lobbyist in Guinea was not repeated this
      year.  Our geological consultant, Geoexperts, completed work related
      to the completion of a farm-out brochure in 2007.  Their contract was
      completed as of December 31, 2007.





2)
            Equity
      based compensation decreased by $384,000 and relates to option grants to
      employees.





Loss from operations
was $ 714,000 for the three months ended March 31, 2008 compared to $896,000 for
the three months ended March 31, 2007 due to the factors discussed
above.





Expenditures for long lived
assets were $643,000 for the three months ended March 31, 2008 compared
to $5,000 in the three months ended March 31, 2007. This represents a increase
of $ 638,000, due to decrease in purchases of office furniture, equipment and
leasehold improvements in Guinea.





23
 Table of Contents





Corporate
Overhead





Three
months ended March 31, 2008 compared to three months ended March 31,
2007.





Depreciation, depletion, and
amortization were stable at $11,000 for the three months ended March 31,
2008 compared to $10,000 in the three months ended March 31, 2007.





Selling, general and
administrative expenses were $829,000 for the three months ended March
31, 2008 compared to $927,000 for the three months ended March 31, 2007. This
represents a decrease of approximately 11%, or $98,000, due to a decrease in
administrative expenses of $210,000, which was partially offset by an increase
in other administrative expenses of $112,000.





The
decrease in expenses includes a decrease in equity based compensation of
$99,000; a decrease in professional expenses of $44,000, mainly due to lower
legal fees; decreased travel and auto costs of $22,000; decreased insurance cost
of $19,000 due to lower renewal rates on health and workman’s compensation
coverage; and decreased other expenses of $26,000.





The
increase is due to increased consulting and investor relations/public relations
costs of $29,000, increased salaries of $19,000, additional listing fees
associated with listing new shares on the American Stock exchange of $60,000,
and supplies cost increases of $4,000.





Loss from operations
was $840,000 for the three months ended March 31, 2008 compared to $937,000 for
the three months ended March 31, 2007, due to the factors discussed
above.





Interest expense was
$109,000 and $31,000 for the three months ended March 31, 2008 and 2007,
respectively.  The interest expense for 2008 includes structuring fees
and interest costs associated with our new note with YA Global, as discussed in
Note 5 of the financial statement.  Although we had convertible
debentures outstanding as of March 31, 2007, there was less principal
outstanding during the period due to conversions of the debentures prior to the
quarter ended March 31, 2007, and thus interest was lower than in prior
quarters.  Accordingly, interest expense for the third quarter
increased $78,000, or 252%.





Net loss chargeable to
common shareholders. Based on the factors discussed above, our net loss
chargeable to common shareholders was $1,880,000 and $2,137,000 for the nine
months ended March 31, 2008 and 2007, respectively.  The loss per
common share was $0.03 in the nine months ended March 31, 2008 and $0.04 in the
nine months ended March 31, 2007.





Our expenditures for long
lived assets were $0 for the three months ended March 31, 2008 compared
to $13,000 in the three months ended March 31, 2007. The decrease of $13,000, or
100%, is due to the purchases of office furniture and fixtures and leasehold
improvements incurred in fiscal 2007 when we moved into our new offices, which
were not repeated in fiscal 2008.





Liquidity
and Capital Resources





Our ratio
of current assets to current liabilities (current ratio) was .26 to 1 at March
31, 2008 and .92 to 1 at March 31, 2007. Our current ratio is expected to
improve with financings completed as we raise capital and fund our ongoing
exploration operations.  The combination of increasing our production
revenues and lowering lifting costs to yield a net gain for operations will have
a major impact on improving our current ratio.  This last quarter, the
current ratio dropped considerably due management’s strategy to minimize
dilution while funding the company’s strategically important 2-D seismic
exploration program.  Our goal is to see our ratios improve as we are
continuing to gradually reduce our net cash used in operating activities with
goals in the future to cash flow the company from domestic operations except for
the major exploration investment offshore Guinea. Historically we have raised
capital to continue to finance the work required by our oil and gas exploration
contract in Guinea and also to fund any operating deficits. It is the operating
deficits that we are working to reduce and turn into a positive. We
significantly increased our Louisiana revenues during the quarter
and  we saw revenues back up this quarter from last
quarter.  As such, we expect to reduce our cash operating deficit
going forward, considering also the capital raise necessary to progress forward
with exploring our offshore West African concession.





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Our
Production Sharing Contract signed on September 22, 2006, requires that we
acquire additional seismic in the first exploration period.  We have
fulfilled this requirement. The first exploration period started on September
22, 2006 and, with automatic extensions available to us upon our notice, would
end September 22, 2010. Thus we are far in advance of this requirement. In the
second exploration period, which begins officially on September 23, 2010, our
contract requires us to drill two exploration wells by September 22, 2018. At
current costs, these wells could cost an estimated $10 million to $35 million
each to drill.





We are at
the stage now of finding a 3-D seismic vendor to acquire seismic that will give
us the data necessary to delineate a portfolio of potentially world class
drillable prospects.  Thus, we are considering all of our options or
any combination of these options to; a) increase revenues from operations; b)
raise additional capital on a conventional equity financing basis; c) negotiate
one or more transactions with oil company partners who share in the required
work and financing risk; and d) negotiate work program related deals with oil
industry vendors such as seismic acquisition companies. We believe that our
ability to manage and affect one or more of these options will improve our
current ratio and financial position in the future.





We own a
very unique offshore oil and gas asset and are continuing to invest in exploring
the oil and gas concession of 31,000 square miles. Our cash from operations was
a deficit this last year and quarter based on our asset appreciation based plan.
We are continuing overhead reduction steps to minimize non productive
expenditures. We are spending the bulk of the capital raised directly or
indirectly on enhancing the value of our offshore oil and gas concession. These
expenditures, however, do not improve cash flow from operations in the short
term. In order to improve our operating cash flow situation for future periods,
management has budgeted certain amounts of capital and has started to build up
our domestic production. We are continuing this process and making progress as
evidenced by increased reserves and  production revenues during this
quarter.





In
addition, we expect to exploit our leases increasingly in Louisiana. We have
work programs to economically maximize the production we have built up. We
believe the relatively high price of oil will help make these wells more
economically viable. We are also evaluating niche acquisitions in the Northeast
Louisiana area to bolster our production and to drill additional wells on our
leases there.





In
November 2005 we executed an investment agreement and received a commitment from
Dutchess Private Equities Fund II, LP (Dutchess) to fund up to $20,000,000 in
equity at 95% of the market price. We have approximately 6 million shares
remaining that we can issue to raise capital from this equity line. The equity
line expires in February 2009.  The amount ultimately raised by this
financing will be determined strictly by the stock price at each point in time
the equity line is used and the discretion of management on whether to use this
at all.  Our new note payable with YA Global restricts our use of the
Dutchess financing.  While the loan remains outstanding and not in
default, and the closing bid price of our common stock exceeds $4.00 per shares,
we will have limited use of the Dutchess financing  for aggregate
gross proceeds of up to $500,000 per 60 day period.





Depending
on the price of our stock, we could obtain additional capital also upon the
exercise of other previously issued outstanding warrants and options for common
stock.





Management
is confident in its ability to raise additional capital under more conventional
financing structures, but we also believe that ultimately we will be able to
secure oil and gas working interest partners to fund and carry significant
portions of the capital investment burden. We have implemented a farm-out
program offshore West Africa. This program is expected to provide material
license fees to the company. Also, with or without partners, we feel that we can
successfully finance our required work programs through an equity financing
plan, through third  party royalty or working interest partners, or a
combination of both.





In
February 2008, the SEC declared our S-3 shelf registration statement
effective.  The S-3 positions Hyperdynamics to raise up to
$50,000,000. On May 12, 2008, we announced that we signed a registered direct
offering to raise $4MM and drew down on the shelf registration.  We
may continue to draw on this shelf registration to fund our business goals
towards growing domestic operations and building a world class portfolio of
drillable prospects with the potential to hold world class
reserves.





In
summary, our financing options include: 1) utilizing our S-3 to obtain equity
financing, 2) increased revenues and cash flows from our producing properties,
and 3) attracting JV partners who want to participate in the Guinea
concession.  Altogether we believe our options to obtain the necessary
liquidity to move forward have grown and we believe we can continue to enhance
these options.




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Item 3. Quantitative and Qualitative Disclosures About Market
Risk





Our
functional currency is the US dollar. Our revenue is directly related to the
price of oil and gas. Assuming that we sell one barrel of oil, then a one dollar
decrease in the price that we get for that barrel of oil will lower our revenue
by one dollar, and correspondingly so for a one dollar increase in price. The
same is true for changes in the price of natural gas. We intend to sell oil and
gas immediately upon lifting to the wellhead. We do not contemplate retaining
any oil and gas inventory. We do not hedge any market risk. Although the prices
of oil and gas have recently increased substantially, there is no assurance that
the price of oil and gas will not fall dramatically in the future.





Item 4.  Controls and procedures





We
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures pursuant
to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the
period covered by this quarterly report. In the course of this evaluation, our
management considered the material weaknesses in our internal control over
financial reporting discussed below. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as a result of
this material weakness, our disclosure controls and procedures as of March 31,
2008 were not effective in ensuring that the information required to be
disclosed by us in reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the SEC. To address the material weakness, we have
taken additional steps in an effort to ensure our consolidated financial
statements included in this quarterly report have been prepared in accordance
with generally accepted accounting principles. Accordingly, management believes
that the financial statements included in this report fairly present in all
material respects our financial condition, results of operations and cash flows
for the periods presented.





In
connection with the preparation of our Annual Report on Form 10-K, as amended,
for the year ended June 30, 2007 ("Annual Report"), management assessed the
effectiveness of our disclosure controls and procedures and internal control
over financial reporting as of June 30, 2007 as more fully described in Item 9A
of our Annual Report. Based on that assessment, management identified material
weaknesses in our internal controls.  Because of these material
weaknesses, management concluded that we did not maintain effective internal
control over financial reporting as of June 30, 2007.





To
address the issues associated with the material weaknesses, we have made changes
in our internal controls over financial reporting in fiscal 2009 through the
date of this report, and we continue to spend a significant amount of time and
effort to improve our control environment. We have been implementing and will
continue to implement changes that are both organizational and process-focused
to improve the control environment. The changes made through the date of this
quarterly report include, among others:





*   hiring
a full-time certified public accountant, who joined the company in October 2007,
to assist with the preparation of required SEC disclosures and with our internal
financial reporting requirements; this new employee will also assist in the
interpretation and application of new accounting standards and the effect of
such standards on our financial reporting; our management will continue to
evaluate our accounting function with respect to the number of personnel needed
and determine whether our requirements are best satisfied through the hiring of
internal personnel on a full-time or part-time basis, outsourcing or a
combination thereof;





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 Table of Contents





*   implementing
new purchasing and spending controls in our Guinea operations;





*   implementing
new accounting policies and requiring employee acknowledgement of same;
and





*   implementing
procedures to ensure proper approvals for expenditures.





Although
these organizational and process changes have improved our internal controls
environment and increased the likelihood of our identifying non-routine and
non-systematic transactions, many of the initiatives were either recently
initiated or are being further refined, enhanced and tested as of March 31,
2008.  As a result, they were not considered effective in remediating
the material weakness as of that date. We will continue our efforts to improve
our control environment and to focus on:





*   improving
our organizational structure to help achieve the proper number and quality of
our accounting and finance personnel;





*   refining
our period-end financial reporting processes to improve the quality and
timeliness of our financial information; and





*   improving
our processes and systems requiring periodic self-assessments, independent
tests, and reporting of our personnel's adherence to our accounting policies and
procedures.





*   hiring
additional staff to assist in the recording of transactions and reconciliation
of account activity.





Except as
described above and in our Annual Report, there have been no changes in our
internal control over financial reporting that occurred during the most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.






Part
II Other Information





Item 1.  Legal Proceedings





For
information regarding our legal proceedings see the legal proceedings disclosed
in Item 3 of our most recent on Form 10-K. Except as disclosed below, there have
been no material developments from the disclosures contained in our most recent
Form 10-K.




US
Oil




In the US
Oil v. SCS and HDY case, we are preparing discovery to be sent to Plaintiff.
Initial efforts by Plaintiff to resolve this case without further litigation is
in the very early stages. It is unknown at this time the chance of success of
these resolution efforts.  We remain in the discovery
stage.  Management considers the probability of loss from this case
remote.
  Item 1A.  Risk Factors




For
information regarding our risk factors see the risk factors disclosed in Item 1A
of our most recent on Form 10-K. Except as disclosed below, there have been no
material changes from the risk factors previously disclosed in our most recent
Annual Report on Form 10-K.




There
is a Material Weakness in Our Financial Controls and Procedures




A
material weakness is a control deficiency, or a combination of control
deficiencies, that results in there being more than a remote likelihood that a
material misstatement in our financial statements will not be prevented or
detected. We have determined that our financial controls and procedures were not
effective in ensuring that the information required to be disclosed by us in
reports filed under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC. The actions that we have taken to date have not been effective in
remediating this material weakness. We do not know when this material weakness
will be corrected. This could result in a material misstatement in our financial
statements.




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 Table of Contents




Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds




In May
2008, we issued 35,000 shares of common stock valued at $56,000 to a consultant
for services rendered. This transaction was made in reliance upon exemptions
from registration under Section 4(2) of the Securities Act. Each certificate
issued for unregistered securities contained a legend stating that the
securities have not been registered under the Securities Act and setting forth
the restrictions on the transferability and the sale of the securities. No
underwriter participated in, nor did we pay any commissions or fees to any
underwriter, in this transaction. These transactions did not involve a public
offering. The investor had knowledge and experience in financial and business
matters that allowed them to evaluate the merits and risk of receipt of these
securities. The investor was knowledgeable about our operations and financial
condition.




In May
2008, one owner of Hyperdynamics Corporation Series B preferred stock converted
a total of 13.5 shares of Series B preferred stock and dividends accrued on the
stock to 100,320 shares of common stock.  This transaction was made in
reliance upon exemptions from registration under Section 4(2) of the Securities
Act. Each certificate issued for unregistered securities contained a legend
stating that the securities have not been registered under the Securities Act
and setting forth the restrictions on the transferability and the sale of the
securities. No underwriter participated in, nor did we pay any commissions or
fees to any underwriter, in this transaction. This transaction did not involve a
public offering. The investor had knowledge and experience in financial and
business matters that allowed him to evaluate the merits and risk of receipt of
these securities. The investor was knowledgeable about our operations and
financial condition.




In May
2008, we issued 35,000 shares of common stock valued at $65,000 to a consultant
for services rendered. This transaction was made in reliance upon exemptions
from registration under Section 4(2) of the Securities Act. Each certificate
issued for unregistered securities contained a legend stating that the
securities have not been registered under the Securities Act and setting forth
the restrictions on the transferability and the sale of the securities. No
underwriter participated in, nor did we pay any commissions or fees to any
underwriter, in this transaction. These transactions did not involve a public
offering. The investor had knowledge and experience in financial and business
matters that allowed them to evaluate the merits and risk of receipt of these
securities. The investor was knowledgeable about our operations and financial
condition.




ITEM 4 Submission of Matters to a Vote of Security
Holders





On
February 20, 2008, the company held its annual shareholder meeting (1) to elect
six (6) directors; (2) to approve the amendment to extend the termination date
of the Stock and Stock Option Plan; (3) to approve the amendment to increase the
number of shares issuable under the Stock and Stock Option Plan; and (4) to
approve the new 2008 Restricted Stock Award Plan. The directors who were elected
are Kent Watts, Harry James Briers, Harold A. Poling, Albert F Young, L. Gene
Stohler, and Charles Andrews.




The
results of the voting by Item are as follows:




ITEM
1:




With
respect to election of Directors of the Company:




Director
      Name
            Number
      of Affirmative Votes
            Number
      of Votes WithheldKent
      Watts
            53,105,227
            2,622,648Harry
      James Briers
            53,126,995
            2,600,880Harold
      A. Poling
            52,944,958
            2,782,917Albert
      F. Young
            52,896,008
            2,831,867L.
      Gene Stohler
            52,842,463
            2,885,412Charles
      Andrews
            53,403,509
            2,324,366





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ITEM
2:




With
respect to the proposal to approve the amendment to extend the termination date
of the Stock and Stock Option Plan




Number
      of Affirmative Votes
            Number
      of Negative Votes
            Abstentions24,616,209
            2,580,127
            325,620Broker
      Non-votes28,205,919





ITEM
3:




With
respect to the proposal to approve the amendment to increase the number of
shares issuable under the Stock and Stock Option Plan




Number
      of Affirmative Votes
            Number
      of Negative Votes
            Abstentions24,239,904
            2,945,632
            336,420Broker
      Non-votes28,205,919





ITEM
4:




With
respect to the proposal to approve the new 2008 Restricted Stock Award
Plan




Number
      of Affirmative Votes
            Number
      of Negative Votes
            Abstentions24,236,958
            2,685,078
            599,920Broker
      Non-votes28,205,919





Item 6 Exhibits




Exhibit 23.1 – Consent of Ryder Scott Company,
L.P.





Exhibit 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 2002.





Exhibit 31.2 - Certification of Chief Financial 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.





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 Table of Contents





Exhibit 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. 63.





Exhibit 32.2 - Certification of Chief Financial Officer of
Hyperdynamics Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and Section 1350 of 18 U.S.C. 63.





Signature





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned
thereunto duly





Hyperdynamics
      Corporation(Registrant)By:
      /s/ Kent WattsKent
      Watts, Chairman of the Board,Chief
      Executive OfficerDated:
      May 19, 2008By:
      /s/ Steven M. PlumbSteven
      M. Plumb,Chief
      Financial OfficerPrincipal
      Accounting OfficerDated:
      May 19, 2008






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