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,
                  2007
 
 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: 000-25496
 
 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, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act)
 Large
                    Accelerated Filer
                o
 Accelerated
                    Filer
                o
 Non-Accelerated
                    Filer
                x
  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
        9, 2007, 48,702,422 shares of common stock, $0.001 par value, were
        outstanding.
  
 
  Table
        of Contents
 Part
                  I. Financial InformationItem
                  1
              
              Financial
                  StatementsConsolidated
                  Balance Sheets at March 31, 2007 and June 30,
                  2006
              
              2Consolidated
                  Statements of Operations for the Three and Nine
                  Months Ended March 31, 2007 and 2006
              
              3Consolidated
                  Statements of Cash Flows for the Nine Months Ended March 31, 2007
                  and 2006and
                  2006
              
              4Consolidated
                  Notes to Financial
                  Statements
              
              6Item
                  2
              
              Management’s
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              
              8Item
                  3
              
              Quantitative
                  and Qualitative Disclosures about Market
                  Risks
              
              15Item
                  4
              
              Controls
                  and Procedures
              
              15Part
                  II. Other InformationItem
                  1
              
              Legal
                  Proceedings
              
              16Item
                  1A
              
              Risk
                  Factors
              
              18Item
                  2
              
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              
              27Item
                  4
              
              Submission
                  of Matters to a Vote of Security
                  Holders
              
              28Item
                  6
              
              Exhibits
              
              28Signatures
              
              29
  *Table
            of Contents*
 
 HYPERDYNAMICS
        CORPORATION
 Consolidated
        Balance Sheets
 (In
        thousands, except number of shares and per share amounts)
 (Unaudited)
  March
                  31,
              
              June
                  30,2007
              
              2006ASSETSCurrent
                  assetsCash
              
              $
              1,815
              
              $
              3,435Restricted
                  certificate of deposit
              
              
              75
              
              
              75Accounts
                  receivable, net of allowance for doubtful accounts of $44 and
                  $13
              
              
              67
              
              
              58Inventories,
                  net
              
              
              13
              
              
              -Prepaid
                  expenses and other current assets
              
              
              77
              
              
              202Total
                  current assets
              
              
              2,047
              
              
              3,770Property
                  and equipment, net of accumulated depreciation of $136 and
                  $125
              
              
              264
              
              
              93Oil
                  and gas properties, using full cost accounting, net of accumulated
                  depreciation and depletion of $210 and $169
              
              
              4,438
              
              
              4,437Deposits
              
              
              7
              
              
              3Total
                  assets
              
              $
              6,756
              
              $
              8,303LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilitiesCurrent
                  portion of long-term debt
              
              $
              13
              
              $
              106Accounts
                  payable and accrued expenses
              
              
              787
              
              
              637Accounts
                  payable seismic data
              
              
              650
              
              
              650Asset
                  retirement obligation
              
              
              12
              
              
              12Deferred
                  gain
              
              
              159
              
              
              159Convertible
                  debentures, net of discount of $1,993 and $2,444
              
              
              7
              
              
              1,556Dividends
                  payable
              
              
              372
              
              
              372Dividends
                  payable to related party
              
              
              218
              
              
              136Total
                  current liabilities
              
              
              2,218
              
              
              3,628Deferred
                  rent
              
              
              109
              
              
              67Total
                  liabilities
              
              
              2,327
              
              
              3,695Commitments
                  and contingencies
              
              
              -
              
              
              -Shareholders'
                  equityConvertible
                  preferred stock, par value $0.001; 20,000,000 shares
                  authorizedSeries
                  A - 1,945 shares issued and outstanding
              
              
              -
              
              
              -Series
                  B - 2,725 shares issued and outstanding
              
              
              -
              
              
              -Common
                  stock, $0.001 par value, 250,000,000 shares authorized, 48,677,422
                  and
                  46,132,595 shares issued and outstanding
              
              
              49
              
              
              46Additional
                  paid-in capital
              
              
              38,301
              
              
              31,627Accumulated
                  deficit
              
              
              (33,921
              )
              
              (27,065
              )Total
                  shareholders' equity
              
              
              4,429
              
              
              4,608Total
                  liabilities and shareholders' equity
              
              $
              6,756
              
              $
              8,303
  (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 31,2007
              
              2006
              
              2007
              
              2006Revenues
              
              $
              113
              
              $
              134
              
              $
              780
              
              $
              329Operating
                  ExpensesLease
                  operating costs
              
              
              81
              
              
              36
              
              
              204
              
              
              489Severance
                  taxes
              
              
              13
              
              
              5
              
              
              83
              
              
              21Other
                  operational costs
              
              
              175
              
              
              189
              
              
              576
              
              
              985Depreciation,
                  depletion and amortization - oil gas properties
              
              
              23
              
              
              143
              
              
              68
              
              
              192Selling,
                  general and administrative, including depreciation expense of $18,
                  $16,
                  $40 and $40
              
              
              1,927
              
              
              1,043
              
              
              5,414
              
              
              2,816Total
                  Operating Expenses
              
              
              2,219
              
              
              1,416
              
              
              6,345
              
              
              4,503LOSS
                  FROM OPERATIONS
              
              
              (2,106
              )
              
              (1,282
              )
              
              (5,565
              )
              
              (4,174
              )Other
                  Income (Expense)Interest
                  income
              
              
              23
              
              
              -
              
              
              81
              
              
              2Interest
                  expense
              
              
              (54
              )
              
              (1,150
              )
              
              (1,326
              )
              
              (1,314
              )Gain
                  on settlement
              
              
              28
              
              
              -
              
              
              28
              
              
              135Gain(loss)
                  from disposition of assets
              
              
              -
              
              
              (361
              )
              
              8
              
              
              (361
              )NET
                  LOSS
              
              
              (2,109
              )
              
              (2,793
              )
              
              (6,774
              )
              
              (5,712
              )Preferred
                  stock dividend
              
              
              (28
              )
              
              (27
              )
              
              (82
              )
              
              (82
              )Deemed
                  dividend
              
              
              (333
              )
              
              -
              
              
              (333
              )
              
              -Net
                  loss chargeable to common shareholders
              
              $
              (2,470
              )
              $$
              (2,820
              )
              $
              (7,189
              )
              $
              (5,794
              )Basic
                  and diluted loss per common share
              
              $
              (0.05
              )
              $
              (0.06
              )
              $
              (0.15
              )
              $
              (0.14
              )Weighted
                  average shares outstanding
              
              
              48,323,566
              
              
              43,880,008
              
              
              47,422,094
              
              
              42,468,964
  (See
        accompanying notes to consolidated financial statements)
  3
 *Table
            of Contents*
 
 HYPERDYNAMICS
        CORPORATION
 Consolidated
        Statements of Cash Flows
 (In
        thousands, except number of shares and per share amounts)
 (Unaudited)
  Nine
                  months ended
                March
                  31,2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (6,774
              )
              $
              (5,712
              )Adjustments
                  to reconcile net income to net cash from operating
                  activities:Depreciation,
                  depletion and amortization
              
              
              108
              
              
              231Shares
                  issued for services
              
              
              383
              
              
              153Options
                  and warrants expense
              
              
              1,618
              
              
              651(Gain)loss
                  on disposition of assets
              
              
              (8
              )
              
              361Gain
                  on settlement
              
              
              (28
              )
              
              (135
              )Bad
                  debt expense
              
              
              31
              
              
              202Amortization
                  of discount and financing costs on convertible debenture
              
              
              1,081
              
              
              1,110Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (9
              )
              
              (202
              )Accounts
                  receivable - recovery from working interest
              
              
              (31
              )
              
              (30
              )Inventories
              
              
              (13
              )
              
              4Prepaid
                  expenses and other current assets
              
              
              95
              
              
              80Accounts
                  payable and accrued expenses
              
              
              178
              
              
              354Deferred
                  rent
              
              
              42
              
              
              -Net
                  cash provided in operating activities
              
              
              (3,327
              )
              
              (2,933
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESDecrease
                  in restricted cash
              
              
              -
              
              
              (10
              )Investment
                  in oil and gas properties
              
              
              (96
              )
              
              (385
              )Purchase
                  of property and equipment
              
              
              (182
              )
              
              (63
              )Proceeds
                  from the sale of assets
              
              
              36
              
              
              -(Payment)
                  return of deposits
              
              
              (5
              )
              
              20Proceeds
                  from sale working interest in oil and gas properties, net
              
              
              -
              
              
              726Net
                  cash provided by (used in) investing activities
              
              
              (247
              )
              
              288CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  from sale of common stock
              
              
              -
              
              
              940Proceeds
                  from warrant exercises, net
              
              
              226
              
              
              -Proceeds
                  from convertible notes
              
              
              1,820
              
              
              1,981Proceeds
                  from installment debt
              
              
              58
              
              
              78Payments
                  on short-term note payable
              
              
              -
              
              
              (187
              )Payments
                  on installment debt
              
              
              (150
              )
              
              (265
              )Net
                  cash provided by financing activities
              
              
              1,954
              
              
              2,547Net
                  increase (decrease) in cash
              
              
              (1,620
              )
              
              (98
              )Cash
                  at beginning of period
              
              
              3,435
              
              
              259Cash
                  at end of period
              
              $
              1,815
              
              $
              161
  (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)
  Six
                  months ended
                December
                  31,2007
              
              2006SUPPLEMENTAL
                  DISCLOSURESInterest
                  paid in cash
              
              $
              408
              
              $
              112Income
                  taxes paid in cash
              
              
              -
              
              
              -NON-CASH
                  TRANSACTIONSConversion
                  of notes payable to common stock
              
              $
              4,000
              
              $
              -Payment
                  of preferred stock dividends in common shares
              
              
              82
              
              
              82Debt
                  discount on convertible debt
              
              
              450
              
              
              1,465Deemed
                  dividend
              
              
              333Reclassification
                  of downpayment made in prior year to property and
                  equipment
              
              
              30
              
              
              -Geological/Geophysical
                  work on unproved properties paid with equity-based
                  compensation
              
              
              -
              
              
              37
  (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. 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 2006 as reported in the Form 10-K, have been
        omitted.
 
 **2.
        Reclassifications.**
 
 Certain
        amounts in the 2006 financial statements have been reclassified to conform
        with
        the 2007 financial statement presentation.
 
 **3.
        Convertible Debentures**
 
 In
        June
        2006, Hyperdynamics entered into a financing arrangement with Cornell Capital
        Partners, LP (“Cornell”) whereby Hyperdynamics received net proceeds of
        $5,440,000 in exchange for three debentures and warrants to purchase 955,000,
        715,000 and 430,000 shares of our common stock at exercise prices of $2.50,
        $3.50 and $4.00 per share, respectively.
 
 The
        first
        two debentures were funded at closing and upon the filing of a registration
        statement with the SEC, in June 2006. The third debenture of $1,800,000 was
        funded in August 2006 when the aforementioned registration statement became
        effective.
 
 The
        debentures bear interest at an annual rate of 10% and are to be repaid in
        monthly installments of $175,000 plus interest. The debentures may be converted
        into shares of our common stock at the option of the holder. The debentures
        are
        secured by substantially all of the assets of the company, except for the
        assets
        of our subsidiaries SCS Corp and SCS Guinea SARL and our assets and operations
        in the Republic of Guinea.
 
 Hyperdynamics
        analyzed the convertible debentures for derivative accounting consideration
        under SFAS 133 and EITF 00-19. Hyperdynamics determined the conversion feature
        met the criteria for classification in stockholders' equity under SFAS 133
        and
        EITF 00-19. Therefore, derivative accounting is not applicable for the
        convertible instruments.
 
 During
        the six months ended December 31, 2006, Cornell converted $4,000,000 of their
        debentures to 2,000,000 shares of Hyperdynamics common stock.
 
 The
        carrying value of the debentures as of March 31, 2007 is as follows (in
        thousands):
 
 Face
                  value of debentures
              
              $
              6,000Less:  
                  discount related to warrants
              
              
              (1,331
              )discount
                  related to conversion feature
              
              
              (1,219
              )financing
                  costs
              
              
              (560
              )Subtotal
              
              
              2,890Add:
                  amortization of discount
              
              
              1,117Total
                  principal
              
              
              4,007Less
                  payments:Conversion
                  to common shares
              
              
              (4,000
              )Carrying
                  value of note at March 31, 2007
              
              $
              7
  **4.
        Deemed Dividend**
 
 In
        March
        2007 the Company modified the terms of certain warrants previously issued
        between October 2003 and March 2004.  The term and price of the warrants,
        originally 3 years and $2.00, respectively, were changed to 5 years and $4.00,
        respectively.  The modification resulted in a deemed dividend which was
        calculated using the Black-Scholes method assuming volatility of between
        110%
        and 135% and a risk adjusted interest rate of 5%.
  6
 *Table
            of Contents*
  **5.
        Segment Information**
 
 Reportable
        segments
 
 Hyperdynamics
        has two reportable segments: SCS Corporation ("SCS") and its Louisiana
        operations ("HYDR"). SCS is engaged in oil and gas exploration activities
        offshore Guinea, West Africa. Additionally, it provides seismic data
        transcription and management services to support its activities and to external
        customers. The seismic data work is performed in the USA. HYDR is engaged
        in oil
        and gas exploration and production activities in Louisiana, USA; it also
        provides oilfield services to external customers. 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, 2007
        and
        June 30, 2006 and income statement data about Hyperdynamics' reportable segments
        and corporate overhead for the three and six months ended December 31, 2006
        and
        2005:
 
 **SCS**
              
              **HYDR**
              
              **Corporate**
              
              **Total****Segment
                  assets**As
                  of March 31, 2007
              
              $
              4,288,000
              
              $
              505,000
              
              $
              1,963,000
              
              $
              6,756,000As
                  of June 30, 2006
              
              
              4,175,000
              
              
              457,000
              
              
              3,671,000
              
              
              8,303,000Nine
                  months ended March 31, 2007Revenues
                  from external customers
              
              
              -
              
              
              780,000
              
              
              -
              
              
              780,000Depreciation,
                  depletion and amortization - oil and gas properties
              
              
              -
              
              
              68,000
              
              
              -
              
              
              68,000Depreciation
                  - administration
              
              
              18,000
              
              
              -
              
              
              22,000
              
              
              40,000Loss
                  from operations
              
              
              (2,151,000
              )
              
              (493,000
              )
              
              (2,921,000
              )
              
              (5,565,000
              )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 - oil and gas properties
              
              
              -
              
              
              23,000
              
              
              -
              
              
              23,000Depreciation
                  - administration
              
              
              8,000
              
              
              -
              
              
              10,000
              
              
              18,000Loss
                  from operations
              
              
              (896,000
              )
              
              (273,000
              )
              
              (937,000
              )
              
              (2,106,000
              )Expenditures
                  for long-lived assets
              
              
              5,000
              
              
              11,000
              
              
              13,000
              
              
              29,000Nine
                  months ended March 31, 2006Revenues
                  from external customers
              
              
              -
              
              
              329,000
              
              
              -
              
              
              329,000.Depreciation,
                  depletion and amortization - oil and gas properties
              
              
              -
              
              
              192,000
              
              
              -
              
              
              192,000Depreciation
                  - administration
              
              
              22,000
              
              
              -
              
              
              17,000
              
              
              40,000Loss
                  from operations
              
              
              (517,000
              )
              
              (1,636,000
              )
              
              (2,021,000
              )
              
              (4,174,000
              )Expenditures
                  for long-lived assets
              
              
              76,000
              
              
              401,000
              
              
              8,000
              
              
              485,000Three
                  months ended March 31, 2006Revenues
                  from external customers
              
              
              -
              
              
              134,000
              
              
              -
              
              
              134,000Depreciation,
                  depletion and amortization - oil and gas properties
              
              
              -
              
              
              143,000
              
              
              -
              
              
              143,000Depreciation
                  - administration
              
              
              8,000
              
              
              -
              
              
              8,000
              
              
              16,000Loss
                  from operations
              
              
              (181,000
              )
              
              (441,000
              )
              
              (660,000
              )
              
              (1,282,000
              )Expenditures
                  for long-lived assets
              
              
              3,000
              
              
              50,000
              
              
              4,000
              
              
              57,000
  7
 *Table
            of Contents*
  **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 information
        system environment, competition, the availability of financing, and, if
        available, on terms and conditions acceptable to the Company, and the
        availability of personnel in the future.
  Management's
        Discussion and Analysis of Financial Condition and
        Results of Operations
 
 Overview
        of Accomplishments During Quarter
  On
        September 22, 2006, our wholly owned subsidiary, SCS Corporation signed a
        new
        2006 Production Sharing Contract (PSC) with the Republic of Guinea. This
        contract gives us exclusive rights for oil and gas exploration and production
        across this largest remaining exploration area offshore West Africa of
        approximately 31,000 square miles. Compared to last year at this time,
        management would like emphasize to our shareholders that our position with
        the
        new 2006 PSC is believed to be infinitely better now than before with the
        problem riddled 2002 agreement. This new contract is in full accordance with
        Guinea law known as the 1986 petroleum code, and it being considered by the
        National Assembly of Guinea for special action of being codified as a new
        law in
        and of itself.  Our position on the 2006 PSC has been affirmed by a legal
        opinion issued from our counsel in Guinea as we disclosed in our 8K filed
        on
        April 16, 2007. All of this is positive for Hyperdynamics Corporation.
        Additionally, the world demand for oil has remained strong and it appears
        to be
        in a multi-year mega trend. Also, the west coast of Africa is expected to
        remain
        one of the hottest areas in the world for exploration. For these reasons
        we
        believe that the value of the concession has greatly increased over the last
        several months. Thus, management is somewhat perplexed and is looking into
        possible reasons for the recent drop in our stock price.
  As
        part of their political process the Guinea government has decided, as is
        entirely their prerogative, to send the 2006 PSC to the National Assembly
        to be
        considered for a special status of a “project of law”.  Concerning the
        actions of the government surrounding this political process, in early May,
        there was some propaganda generated in Guinea which found its way,
        unfortunately, into incorrect and misleading news articles. This triggered
        the
        Company to make a correcting news release and file an 8K on April 16, 2007.
        We
        felt we needed to do our best to correct this misinformation. The National
        Assembly’s working political process for this major contract status known as a
“project of law” is a process whereby the Guinea government informs its people
        of the benefits of the government’s contracts. It also allows law makers to
        understand the major contracts themselves so that they can make new laws
        that
        can positively affect the people in the future. In our case, the 2006 PSC
        also
        has a special contract provision under article 5.1 whereby certain terms,
        conditions, and rights of the contract will change. Those changes are discussed
        thoroughly in our legal opinion filed in the 8K on April 16, 2007. For the
        National Assembly to pass or not pass a “project of law” on our contract has no
        bearing on the legality or enforceability of the contract. While the legality
        of
        the contract is not affected by passing a “project of law”, management may see a
        need to review the farm-out process and adopt to any changes that may be
        brought
        about if it indeed passes and other certain actions explained in previous
        filings occur as well.
 
 During
        the quarter, the Government of Guinea changed their Ministers and the President
        appointed a new Prime Minister, Lansana Kouyaté.  Our Vice President of
        Guinea Affairs, Famourou Kourouma returned to Guinea to put the Company’s unique
        public relations plan into action.  In summary, this plan includes
        television commercials, news articles, educational seminars, radio advertising,
        press conferences, and being available to explain our exploration work as
        requested by each and every branch of government in Guinea. Based on our
        work
        including this extensive public relations campaign, we have been continually
        educating the Guinea people of the significant truths of the value that
        Hyperdynamics has brought to Guinea including the potential for discovering
        their offshore petroleum resources. All during this quarter, European sourced
        petro-politics has mounted an attack of misinformation and propaganda. Our
        organization has become quite experienced in working in Guinea and has
        successfully set the record straight on numerous occasions. On May 8, 2007,
        Famourou Kourouma reported to us that RTG television and radio in Guinea
        aired a
        press conference with the President of the National Assembly, his honorable,
        Aboubacar Somparé.  As reported by Mr. Kourouma, during the press
        conference, Mr. Somparé answered several direct questions, effectively setting
        the record straight regarding the 2006 PSC and at the same time he expressed
        strong support for Hyperdynamics and the benefits of our oil contract. He
        explained to the press that Hyperdynamics has been the only company in the
        last
        thirty years significantly working on oil exploration to the benefit of Guinea.
        He explained that we were the only company in the world willing to take the
        risk
        and do the necessary work, at a time when no one else would. He further
        explained, that because we were a public company and were required to disclose
        our progress publicly, many companies have come to Guinea and tried to sabotage
        and interfere with Hyperdynamics’ concession. He expressed his strong feeling
        that this was wrong and would not be allowed as it is against Guinea law.
        Finally, he mentioned that the propaganda emanating from various factions
        trying
        to get into the Hyperdynamics concession were promoting that it was time
        to
        divide the area into smaller blocks. His honorable Somparé pointed out that it
        was far too early to divide the area into smaller blocks and that when it
        was
        time to do that, because of the unselfish work we historically performed,
        he
        trusted Hyperdynamics to help Guinea accomplish that task.  Based on our
        work and the clear support of President of the National Assembly, we believe
        that there is a very good chance that the National Assembly will pass the
        2006
        PSC as a “project of law” designation.  We view this as extremely positive
        for the political process in Guinea and that this will bring Hyperdynamics
        closer even yet in working with Guinea and the people there. Regardless of
        the
        passage of a “project of law”, Hyperdynamics will continue its work stepping
        forward methodically to fulfill the requirements of the 2006 PSC.
  8
 *Table
            of Contents*
  In
        January we implemented a farm-out procedure whereby oil companies under
        confidentiality agreements have been invited into our offices for private
        presentations.  While we established a general time line of expected
        participation resulting ultimately in farm-out proposals, we have realized
        a
        significant variance in the specific timing of each interested company. Early
        on, companies either moving out of Africa or not pursuing additional investment
        there came to light quickly and they were de-listed as possible farm-in
        partners. Other potential partners expressed significant interest in us
        contacting them for possible minority participation as we get further down
        the
        road with our exploration work.  Still again, several companies told us
        that they didn’t currently have the capacity to consider any new projects at
        this time due to prior budgetary and bandwidth restraints. These companies
        asked
        us to stay in touch and keep them apprised of our progress and check back
        with
        them towards the end of 2007.   Some of our prime candidates who
        declined meetings earlier this year are now scheduled to come in for
        presentations and just as many more have expressed a desire to schedule a
        meeting soon.  Finally, numerous companies have attended one or more
        meetings concerning our farm out opportunity and are in the process of making
        presentations to their top management about the Hyperdynamics’ farm-in
        opportunity. We believe there is a growing and significant chance that our
        opportunity fits the strategy of one or more of these oil companies. We will
        continue with this process as planned. In addition we have recently begun
        discussing the possibility for a joint venture with one or more financial
        partners.
  In
        October, we engaged Global SanteFe's Applied Drilling Technologies to evaluate
        resources in the country of Guinea that can support the needs of offshore
        drilling operations. We have recently received their comprehensive study.
        The
        contents of the study will be revealed in the context of future related work
        and
        drilling programs and may be discussed in more detail in our next annual
        report.
        We feel this work will help shorten the time to begin drilling a well for
        us or
        any of our partners by at least six to nine months. This report is also part
        of
        the information that we are making available to potential partners that we
        have
        confidentiality agreements with.
  During
        the fourth quarter to end June 30, 2007, we are evaluating the acquisition
        of
        additional production in Louisiana to add to our existing operations in a
        profitable manner.  As part of our business plan we are still working
        toward cash flow from operations domestically while we continue the major
        exploration project offshore Guinea internationally.  Also, management will
        continue to diligently pursue our farm-out program for offshore Guinea and
        simultaneously begin laying out the next work program. Finally, on a prospective
        note, we are considering programs to enhance shareholder value. Such ideas
        being
        discussed include the possibility of having a rights offering as well as
        giving
        consideration for creating a royalty trust pertaining to the Guinea concession
        for the benefit of our shareholders.
  Results
        of Operations
 
 Reportable
        segments
 Hyperdynamics
        has two reportable segments: SCS Corporation ("SCS") and its Louisiana
        operations ("HYDR"). SCS is engaged in oil and gas exploration activities
        offshore Guinea, West Africa. Additionally, it provides seismic data
        transcription and management services to support its activities and to external
        customers. The seismic data work is performed in the USA. HYDR is engaged
        in oil
        and gas exploration and production activities in Louisiana, USA; it also
        provides oilfield services to external customers. 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 table summarizes certain balance sheet data as of March 31, 2007
        and
        June 30, 2006 and income statement data about Hyperdynamics' reportable segments
        and corporate overhead for the three months and Nine months ended March 31,
        2007
        and 2006:
  9
 *Table
            of Contents*
 
 **SCS**
              
              **HYDR**
              
              **Corporate**
              
              **Total****Segment
                  assets**As
                  of March 31, 2007
              
              $
              4,288,000
              
              $
              505,000
              
              $
              1,963,000
              
              $
              6,756,000As
                  of June 30, 2006
              
              
              4,175,000
              
              
              457,000
              
              
              3,671,000
              
              
              8,303,000Nine
                  months ended March 31, 2007Revenues
                  from external customers
              
              
              -
              
              
              780,000
              
              
              -
              
              
              780,000Depreciation,
                  depletion and amortization - oil and gas properties
              
              
              -
              
              
              68,000
              
              
              -
              
              
              68,000Depreciation
                  - administration
              
              
              18,000
              
              
              -
              
              
              22,000
              
              
              40,000Loss
                  from operations
              
              
              (2,151,000
              )
              
              (493,000
              )
              
              (2,921,000
              )
              
              (5,565,000
              )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 - oil and gas properties
              
              
              -
              
              
              23,000
              
              
              -
              
              
              23,000Depreciation
                  - administration
              
              
              8,000
              
              
              -
              
              
              10,000
              
              
              18,000Loss
                  from operations
              
              
              (896,000
              )
              
              (273,000
              )
              
              (937,000
              )
              
              (2,106,000
              )Expenditures
                  for long-lived assets
              
              
              5,000
              
              
              11,000
              
              
              13,000
              
              
              29,000Nine
                  months ended March 31, 2006Revenues
                  from external customers
              
              
              -
              
              
              329,000
              
              
              -
              
              
              329,000.Depreciation,
                  depletion and amortization - oil and gas properties
              
              
              -
              
              
              192,000
              
              
              -
              
              
              192,000Depreciation
                  - administration
              
              
              22,000
              
              
              -
              
              
              17,000
              
              
              39,000Loss
                  from operations
              
              
              (517,000
              )
              
              (1,636,000
              )
              
              (2,021,000
              )
              
              (4,174,000
              )Expenditures
                  for long-lived assets
              
              
              76,000
              
              
              401,000
              
              
              8,000
              
              
              485,000Three
                  months ended March 31, 2006Revenues
                  from external customers
              
              
              -
              
              
              134,000
              
              
              -
              
              
              134,000Depreciation,
                  depletion and amortization - oil and gas properties
              
              
              -
              
              
              143,000
              
              
              -
              
              
              143,000Depreciation
                  - administration
              
              
              8,000
              
              
              -
              
              
              8,000
              
              
              16,000Loss
                  from operations
              
              
              (181,000
              )
              
              (441,000
              )
              
              (660,000
              )
              
              (1,282,000
              )Expenditures
                  for long-lived assets
              
              
              3,000
              
              
              50,000
              
              
              4,000
              
              
              57,000
  Geographical
        Information
 All
        revenues are currently derived from domestic sources. All long-lived assets
        are
        located in the USA and in Guinea.
 
 **Nine
        months ended March 31, 2007 compared to nine months ended March 31,
        2006**
 
 Louisiana
        Operations ("HYDR")
 
 Oil
        and
        Service Revenue totaled $780,000 for the nine months ended March 31, 2007.
        The
        breakdown consists of $716,000 in oil revenues and $64,000 in service revenues
        compared to $329,000 in oil revenue and $0 service revenue for the nine months
        ended in March 2006. The increase in oil revenue of 117% or $387,000 is
        attributable to rework of wells, equipment upgrades and better work control
        procedures, which resulted in less downtime and higher oil production. The
        increase in service revenue of $64,000 is attributable to service work performed
        for third parties.
 
 Lease
        Operating Costs for the nine months ended March 31, 2007 and 2006 were $204,000
        and $489,000, respectively. The decrease of 58% or $285,000 is due to an
        equipment upgrade which reduced costs, maintenance and more cost-efficient
        procedures.
 
 Severance
        Taxes for the nine months ended March 31, 2007 and 2006 were $83,000 and
        $21,000
        respectively. The increase of 295% or $62,000 is due to an increase in oil
        revenues.
 
 Other
        Operational Costs for the nine months ended March 31, 2007 and 2006 were
        $559,000 and $932,000, respectively. The decrease of 40% or $373,000 is due
        to
        the improved efficiency and work control procedures, and decrease in well
        workover requirements.
  Our
        depreciation, amortization and depletion expense for oil and gas properties
        for
        the nine months ended March 31, 2007 and March 2006 was $68,000 and $192,000,
        respectively.
 
 Selling,
        General and Administrative expenses for the nine months ended March 31, 2007
        and
        2006 were $359,000 and $331,000, respectively, representing a increase of
        $28,000 or 8%. The main factors contributing to the increase are: 1) an increase
        in insurance expenses of $10,000; 2) an increase in salaries, payroll taxes
        and
        other taxes of $62,000; 3) a decrease in bad debt expense of $159,000 due
        to an
        lower of a reserve required against on our joint interest billing; 4) an
        increase in legal expenses of $98,000 related to the various lawsuits. We
        also
        experienced a net increase of $17,000 in rent, utilities and other
        administrative expenses.
  10
 *Table
            of Contents*
  We
        realized a gain on sale of fixed assets of $8,000 for the nine months ended
        March 31, 2007 and $0 in 2006. We also realized gain on settlement of obligation
        of $28,000 in March 31, 2007 and $0 in March 2006.
 
 Our
        Loss
        from operations for the nine months ended March 31, 2007 from this segment
        was
        ($493,000) in comparison to ($1,636,000) in March 31, 2006. The decrease
        of 70%
        or $1,143,000 is due to the factors discussed above.
 
 Our
        expenditure for long-lived assets for the nine months ended March 31, 2007
        was
        $66,000 compared to $401,000 in the nine months ended March 31, 2006. The
        net
        decrease of 83% or $335,000 is attributable to equipment upgrades and
        improvements on production facilities.
 
 Guinea
        and Seismic Data Management ("SCS")
 
 We
        had no
        revenues during the nine months ended March 31, 2007 and 2006. We signed
        a
        Production Sharing Contract (PSC) with the Republic of Guinea on September
        22,
        2006 and we are currently focusing on our drilling and exploration plans
        in the
        concession delineated in the PSC.
 
 We
        have
        processed a portion of the data that we have the right to market in order
        to
        provide samples of the data to our prospects. When we sell the right to use
        this
        data, we will receive a fee and we will also be compensated for processing
        the
        data that we sell.
 
 Other
        Operational Costs for the nine months ended March 31, 2007 and 2006 was $17,000
        and $50,000 respectively. The decrease of $33,000 is due to a reduction in
        expenses related to data management.
 
 Selling,
        General and Administrative expenses for the nine months ended March 31, 2007
        and
        2006 were $2,116,000 and $445,000, respectively. The increase of 375% or
        $1,671,000 is due to the following factors: 1) increase in employee salaries
        of
        $105,000; 2) an increase in office rent and utilities of $17,000; 3) an increase
        in insurance and auto expenses of $12,000; 4) an increase in travel expenses
        of
        $168,000; 5) an increase in consulting expenses related to the marketing
        farmout
        packet and professional expenses related to the Guinea concession as well
        as
        security for employees in Guinea of $845,000; 6) an increase in public
        relations, television, media and broadcast coverage in Guinea of $31,000;
        7) an
        increase in office supplies and equipment expenses of $32,000, and 8) an
        increase of $461,000 in employee stock equity based compensation.
 
 Depreciation
        and amortization on administrative properties for the nine months ended March
        31, 2007 and 2006 was $18,000 and $22,000, respectively.
 
 Based
        on
        the factors discussed above, our loss from operations for the nine months
        ended
        March 31, 2007 and 2006 from this segment was $2,151,000 and $517,000, an
        increase of 316% or $1,634,000.
 
 Expenditures
        for long lived assets for the nine months ended March 31, 2007 and 2006 were
        $81,000 and $76,000, respectively. The increase is attributable to the addition
        of our new office in Guinea and purchases of office furniture, equipment
        and
        leasehold improvements.
  Corporate
        Overhead
 
 Selling,
        General and Administrative expense for the nine months ended March 31, 2007
        and
        2006 were $2,899,000 and $2,001,000, respectively. The increase of 44% or
        $898,000 is attributable to the following: 1) new employee hires and increase
        in
        employee salaries and payroll taxes of $218,000; 2) increase in public relations
        and investor relations of $161,000; 3) increase in stock based compensation
        expense of $1,013,000. 4) increase in fees related to SEC reporting and
        registration in the American Stock exchange of $7,000; and 5) an increase
        in
        office supplies and other administrative expenses of $101,000; 6) an increase
        in
        professional expense of $38,000 and 7) an increase in insurance and auto
        expense
        of $14,000. We also experienced a decrease of $654,000 based on 1) office
        rent
        and utilities of $83,000; 2) bank charge expenses of $4,000; 3) travel expenses
        of $70,000; 4) professional expenses of $16,000 and 5) consulting and other
        fees
        of $481,000.
 
 Depreciation
        and amortization on administrative properties for the nine months ended March
        31, 2007 and 2006 was $22,000 and $17,000, respectively.
  11
 *Table
            of Contents*
  Based
        on
        the factors discussed above, our loss from operations for the nine months
        ended
        March 31, 2007 and 2006 was $2,921,000 and $2,021,000, respectively, a decrease
        of 44% or $900,000.
 
 Gain
        on
        settlement of lease for the nine months ended March 31, 2007 and 2006 is
        $28,000
        and $135,000, respectively.
 
 Interest
        Expense for the nine months ended March 31, 2007 and 2006 is $1,326,000 and
        $1,314,000, respectively. The increase of $12,000 arises from the convertible
        note debenture financing in 2006.
 
 Our
        expenditures for long lived assets for the nine months ended March 31, 2007
        and
        2006 were $131,000 and $8,000, respectively. The increase is due to acquisitions
        of fixed assets and leasehold improvements in our new office.
  **Three
        months ended March 31, 2007 compared to three months ended March 31,
        2006**
 
 Louisiana
        Operations ("HYDR")
 
 Oil
        Revenue for the three months ended March 2007 and 2006, were $113,000 and
        $134,000, respectively. The decrease of 15% or $21,000 is attributable
        to  a mechanical
        failure and subsequent crude oil spill on two properties, and an extensive
        rework program was performed further reducing the number of wells producing
        at
        consistent levels.
 
 Lease
        Operating Costs for the three months ended March 31, 2007 and 2006 were $81,000
        and $36,000, respectively. An increase of 126%, or $45,000, is due to the
        well
        rework costs and a crude oil spill and cleanup .
  Severance
        Taxes for the three months ended March 31, 2007 and 2006 were $13,000 and
        $5,000
        respectively.
 
 Other
        Operational Costs for the three months ended March 31, 2007 and 2006 was
        $170,000 and $195,000, respectively. The decrease of 13% or $25,000 is
        attributable to the improved efficiency in other operational costs and a
        decrease in well work-over requirements.
  Our
        depreciation, amortization and depletion for oil and gas properties for the
        three months ended March 2007 and 2006 was $23,000 and $143,000,
        respectively.
 
 Selling,
        General and Administrative expenses for the three months ended March 31,
        2007
        and 2006 were $99,000 and $196,000 respectively, a decrease of $97,000 or
        40%.
        The change includes a decrease in bad debts of $177,000, a decrease in insurance
        expenses of $19,000, and an increase in other expenses of $44,000. We also
        experienced an increase of $55,000 in salaries and payroll taxes, professional
        fees, office and other administrative expenses.
 
 Based
        on
        the factors discussed above, our loss from operations for the three months
        ended
        March 31, 2007 from this segment was $273,000 in comparison to $441,000 in
        March
        31, 2006, a decrease of $168,000 or 38%.
 
 Our
        expenditure for long-lived assets in the three months ended March 2007 was
        $11,000 compared to $50,000 in March 2006. The decrease of $39,000 or
        78%.
  Guinea
        and Seismic Data Management ("SCS")
 
 We
        had no
        revenues during the three months ended March 31, 2007and 2006.
 
 Other
        Operational Cost for the three months ended March 31, 2007 and 2006 was $5,000
        and $32,000, respectively. The decrease of $27,000 or 85% is due to a reduction
        in expenses related to data management.
  12
 *Table
            of Contents*
  Selling,
        General and Administrative expenses for the three months ended March 31,
        2007
        and 2006 were $883,000 and $141,000, respectively. The increase of 528% or
        $742,000 is due to the following factors: 1) an increase of $762,000 in
        salaries, payroll taxes and equity based compensation, increase in public
        relations, professional and consulting expenses related an extensive media
        and
        journalistic coverage, 2) an increase of $29,000 in rent and utilities, property
        taxes, office supplies and other administrative costs and 3) a decrease in
        travel and insurance expenses of $49,000.
 
 Depreciation
        and amortization of administrative properties for each of the three months
        ended
        March 31, 2007 and 2006 was $8,000.
  Based
        on
        the factors discussed above, our loss from operations for the periods ended
        March 31, 2007 and 2006 from this segment was ($896,000) and ($181,000),
        respectively, an increase of 395% or $715,000.
 
 Expenditures
        for long lived assets for the three months ended March 31, 2007 and 2006
        was
        $5,000 and $3,000, respectively. The increase is attributable to the addition
        of
        our new office in Guinea and purchases of office furniture, equipment and
        leasehold improvements.
  Corporate
        Overhead
 
 Selling,
        General and Administrative expenses for the three months ended March 31,
        2007
        and 2006 were $928,000 and $654,000, respectively. An increase of 42% or
        $274,000 is attributable to the following: 1) new employee hires and increases
        in officer salaries and payroll taxes and other taxes of $50,000; 2) insurance
        and other taxes $14,000; 2) increase in public relations and investor relations
        and professional expenses of $168,000; 3) increase in stock based compensation
        expense of $73,000, and 4) increase in auto expenses, office expenses, postage
        and other administrative costs of $54,000. We also experienced a decrease
        of
        $85,000 in office rent and utilities expenses, travel expenses, bank charges
        and
        consulting expenses.
 
 Depreciation
        and amortization on administrative properties for the three months ended
        March
        31, 2007 and 2006 was $10,000 and $8,000, respectively.
 
 Based
        on
        the factors discussed above, our loss from operations for the three months
        ended
        March 31, 2007 and 2006 was $937,000 and $660,000, respectively, an increase
        of
        42% or $277,000.
 
 Our
        expenditures for long lived assets for the three months ended March 31, 2007
        and
        2006 was $13,000 and $4,000 respectively. The increase is due to acquisitions
        of
        fixed assets and leasehold improvements in our new office.
  **Liquidity
        and Capital Resources**
 
 Our
        ratio
        of current assets to current liabilities (current ratio) was .92 to 1 at
        March
        31, 2007, 1.04 to 1 at March 31, 2006. Our current ratio improves and declines
        historically with financings completed as we raise capital and fund our ongoing
        exploration operations. Overall 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. While we dropped
        in our
        Louisiana revenues during the quarter due to having wells shut down for required
        work over, we expect revenues to be back up this quarter and as such, our
        cash
        operating deficit is expected to be reduced going forward.
 
 Our
        new
        Production Sharing Contract signed on September 22, 2006, requires that we
        acquire additional seismic in the first exploration period. The first
        exploration period started on September 22, 2006 and with automatic extensions
        available to us upon our notice, would end September 22, 2010. The estimate
        for
        expenditure in the first exploration period is $10,000,000, but the contract
        does not require this specific amount of expenditure as long as the work
        is
        done. 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.
  13
 *Table
            of Contents*
  Although
        we have several years to complete this work, we wish to initiate a successful
        drilling program as soon as possible. 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
        determine our significant 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 largest 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 and service
        revenues.
 
 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 amount
        ultimately raised by the financing will be determined strictly by the stock
        price at each point in time the equity line is used. We have not used our
        equity
        line since May of 2006 when we closed three convertible debentures totaling
        $6
        million in financing with Cornell Capital. As of the date of this filing,
        all
        but $2 million of this Cornell financing has been converted to equity at
        a fixed
        floor price of $2 per share. Should the stock price not be over $2 per share,
        we
        could be required to pay approximately $175,000 plus 10% per annum interest,
        per
        month in debt service. To date, we have not had to pay any debt service on
        this
        financing other than interest.
 
 Because
        SCS has significant work requirements to accomplish in the future we have
        put a
        multiple strategy in place including our recently announced farm-out program
        to
        attract oil company partners to join our exploration efforts. Our strategy
        includes that each prospective partner would pay a license fee to get the
        opportunity to study our proprietary data offshore Guinea. These license
        fees
        are expected to be material to us and could enhance our liquidity and capital
        resources significantly.
 
 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.
 
 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. As we have discussed in the press,
        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 3 rd party
        royalty or working interest partners, or a combination of both.
 
 Thus,
        management believes that additional capital funds raised has and will continue
        to substantially enhance our asset value in our oil and gas concession. This
        will yield greatly enhanced shareholder value, and make additional capital
        easier to come by at ever increasing stock prices.
 
 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.
  14
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            of Contents*
 
 **Off-Balance
        Sheet Arrangements**
 
 We
        have a
        contractual arrangement and now a lawsuit against USOil Corporation. The
        original agreements provide for us to pay USOil $1,600,000 if SCS obtains
        third
        party financing for the Guinea development project. Also USOil will receive
        a 3%
        royalty if oil and gas is produced on this project and depending on the outcome
        of our legal claims against them. We also have a contingent $350,000 note
        payable that is only payable with 25% of the profits of SCS Corporation.
        We have
        the right to pay this note off using common stock. In conjunction with our
        purchase of HYD Resources Corporation in April 2004, we have two contingent
        obligations to pay $506,000. These obligations are payable over the five
        years
        ending in April 2009 and they are payable only in the event that HYD Resources
        is profitable. The determination of net income will be made quarterly and
        the
        pay down of the obligations is 25% of the net income per quarter. We do not
        plan
        on using significant debt financing except for the possibility of financing
        income-producing assets in the future.
 
 **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**
  Our
            Chief
            Executive Officer and our Chief Financial Officer, have concluded that
            our
            disclosure controls and procedures are appropriate and effective. They
            have
            evaluated these controls and procedures as of the end of the period covered
            by
            this report on Form 10-Q. There were not any changes in the our internal
            controls or in other factors that could affect these controls subsequent
            to the
            date of their evaluation, including any corrective actions with regard
            to
            deficiencies and material weaknesses.
 
 There
            have been no changes in our internal control over financial reporting
            identified
            in connection with the evaluation required by of
            Rule
            13a-15 or Rule 15d-15 of the Exchange Act that
            occurred during our last fiscal quarter that has materially affected,
            or is
            reasonably likely to materially affect, our internal control over financial
            reporting.
 15
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            of Contents*
  **Part
        II. Other Information**
  **ITEM
        1. Legal Proceedings**
 
 **Dixon
        Financial Services**
  We
        included a disclosure for this case in our 10-Q for the period ended December
        31, 2006. In the current period, we report the following clarification regarding
        our financial exposure and potential for recovery of damages upon completion
        of
        the appeal process: Pursuant to the agreement between Dixon and Hyperdynamics,
        a
        judgment was entered in Dixon's favor against Hyperdynamics (See “contractual
        limitation” below). The amount of this judgment may be sought by Hyperdynamics
        against Knollenberg, in addition to Hyperdynamics' damages as found by the
        jury
        and it attorneys fees. While proceeding with an appeal of the case,
        Hyperdynamics and Dixon will be working cooperatively to collect such monies
        as
        may be available from or through Knollenberg on the jury verdict and judgment.
        However, there remains a “contractual limitation’ for any possible required
        payment from Hyperdynamics to Dixon whereby Dixon Financial has agreed that
        it
        will not abstract or otherwise seek to enforce the judgment, except in the
        event
        that the appeal is unsuccessful. In that case though, as long as the appeal
        process is completed, and if the appeal is unsuccessful, we and Dixon Financial
        have agreed that we will pay only the sum of $240,000 payable in the amount
        of
        $10,000 per month for a period of 24 months. Should the appeal be successful,
        Hyperdynamics would expect to receive damages including but may not be limited
        to all of its legal expenses since this case began which could be as easily
        much
        or more than $500,000 in recovery for Hyperdynamics. Thus, the potential
        financial downside for Hyperdynamics regarding this litigation is to pay
        the
        cost of the appeal and if the appeal is unsuccessful, we would be required
        to
        pay $10,000 per month to Dixon for 24 months and then our total obligation
        would
        be completed at that point. If we win the appeal, we owe nothing more to
        Dixon
        and could receive substantial damages and attorney’s fees paid back to us.
  16
 *Table
            of Contents*
  **USOil
        Corporation.**
 
 We
        included a disclosure for this case in our 10-Q for the period ended December
        31, 2006. In the current period, we report the following material development:
        it is anticipated that based upon recent discovery responses by the Defendant
        and soon to be completed additional discovery that this case will be resolved
        in
        our favor in light of the new agreement signed by us directly with the Republic
        of Guinea.
  **Trendsetter
        Investors, LLC**
 
 We
        included a disclosure for this case in our 10-Q for the period ended December
        31, 2006. In the current period, we have several material developments. The
        Court has ruled on our Motion to Dismiss and dismissed Christopher Watts
        as a
        defendant and dismissed several of the Plaintiffs’ causes of action narrowing
        the focus of the case. Discovery has begun including the production of documents
        and the beginning of depositions. The case has been put on the trial docket
        for
        February 29, 2008. Counterclaims have been filed. It is anticipated the case
        will be sent to mediation per the standard procedures in Federal
        Court.
  **Manning,
        Moore, Long**
 
 We
        included a disclosure for this case in our 10-Q for the period ended December
        31, 2006. In the current period, we have several material developments. Key
        party depositions have been completed and additional witness depositions
        are
        anticipated. A Motion for Summary Judgment was filed and at the hearing the
        judge put the motions on hold being of the opinion they were premature pending
        further discovery. It is anticipated the case will be sent to mediation per
        the
        rules of the court.
  17
 *Table
            of Contents*
  **ITEM
        1A. Risk Factors**
  You
        should carefully consider the following risk factors before purchasing our
        common stock. The risks and uncertainties described below are not the only
        ones
        we face. There may be additional risks and uncertainties that are not known
        to
        us or that we do not consider to be material at this time. If the events
        described in these risks occur, our business, financial condition and results
        of
        operations would likely suffer. This prospectus contains forward-looking
        statements that involve risks and uncertainties. Our actual results may differ
        significantly from the results discussed in the forward-looking statements.
        This
        section discusses the risk factors that might cause those differences.
  **Risks
        about the Oil and Gas Industry**
  **OIL
        AND GAS PRICES ARE VOLATILE.**
  Our
        revenues, cash flow, operating results, financial condition and ability to
        borrow funds or obtain additional capital depend substantially on the prices
        that we receive for oil and gas production. Declines in oil and gas prices
        may
        adversely affect our financial condition, liquidity, ability to obtain financing
        and operating results. Lower oil and gas prices also may reduce the amount
        of
        oil and gas that we can produce economically. High oil and gas prices could
        preclude acceptance of our business model. Depressed prices in the future
        could
        have a negative effect on our future financial results. Historically, oil
        and
        gas prices and markets have been volatile, with prices fluctuating widely,
        and
        they are likely to continue to be volatile. Prices for oil and gas are subject
        to wide fluctuations in response to relatively minor changes in supply and
        demand, market uncertainty and a variety of additional factors that are beyond
        our control. These factors include:
  -
              the
                  domestic and foreign supplies of
                  oil;
  -
              the
                  level of consumer product demand;
  -
              weather
                  conditions;
  -
              political
                  conditions in oil producing regions, including the Middle
                  East.
  18
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            of Contents*
  -
              the
                  ability of the members of the Organization of Petroleum Exporting
                  Countries to agree to and maintain oil price and production
                  controls;
  -
              the
                  price of the foreign imports;
  -
              actions
                  of the governmental authorities;
  -
              domestic
                  and foreign governmental
                  regulations;
  -
              the
                  price, availability and acceptance of alternative
                  fuels;
  -
              overall
                  economic conditions.
  These
        factors and the volatile nature of the energy markets make it impossible
        to
        predict with any certainty future oil and gas prices. Our inability to respond
        appropriately to changes in these factors could negatively affect our
        profitability.
  **INVESTMENT
        IN THE OIL AND GAS BUSINESS IS RISKY.**
  Oil
        and
        gas exploration and development are inherently speculative activities. There
        is
        no certain method to determine whether or not a given lease will produce
        oil or
        gas or yield oil or gas in sufficient quantities and quality to result in
        commercial production. There is always the risk that development of a lease
        may
        result in dry holes or in the discovery of oil or gas that is not commercially
        feasible to produce. There is no guarantee that a producing asset will continue
        to produce. Because of the high degree of risk involved, there can be no
        assurance that we will recover any portion of our investment or that our
        investment in leases will be profitable.
  **THERE
        ARE DRILLING AND OPERATIONAL HAZARDS.**
  The
        oil
        and gas business involves a variety of operating risks, including:
  -
              blowouts,
                  cratering and explosions;
  -
              mechanical
                  and equipment problems;
  -
              uncontrolled
                  flows of oil and gas or well
                  fluids;
  -
              fires;
  -
              marine
                  hazards with respect to offshore
                  operations;
  -
              formations
                  with abnormal pressures;
  -
              pollution
                  and other environmental risks;
  -
              natural
                  disasters.
  Any
        of
        these events could result in loss of human life, significant damage to property,
        environmental pollution, impairment of our operations and substantial losses.
        Locating pipelines near populated areas, including residential areas, commercial
        business centers and industrial sites, could increase these risks. In accordance
        with customary industry practice, we will maintain insurance against some,
        but
        not all, of these risks and losses. The occurrence of any of these events
        not
        fully covered by insurance could have an adverse effect on our financial
        position and results of operations.
  19
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            of Contents*
  **WE
        ARE SUBJECT TO GOVERNMENTAL REGULATIONS.**
  Oil
        and
        gas operations in the United States are subject to extensive government
        regulation and to interruption or termination by governmental authorities
        on
        account of ecological and other considerations. The Environmental Protection
        Agency of the United States and the various state departments of environmental
        affairs closely regulate gas and oil production effects on air, water and
        surface resources. Furthermore, proposals concerning regulation and taxation
        of
        the gas and oil industry are constantly before Congress. It is impossible
        to
        predict future proposals that might be enacted into law and the effect they
        might have on us. Thus, restrictions on gas and oil activities, such as
        production restrictions, price controls, tax increases and pollution and
        environmental controls may have an adverse effect on us.
  **THE
        OIL AND GAS INDUSTRY IS SUBJECT TO HAZARDS RELATED TO POLLUTION AND
        ENVIRONMENTAL ISSUES.**
  Hazards
        in the drilling and/or the operation of gas and oil properties, such as
        accidental leakage or spillage, are sometimes encountered. Such hazards may
        cause substantial liabilities to third parties or governmental entities,
        the
        payment of which could reduce distributions or result in the loss of our
        leases.
        Although it is anticipated that insurance will be obtained by third party
        operators for our benefit, we may be subject to liability for pollution and
        other damages due to environmental events which cannot be insured against
        due to
        prohibitive premium costs, or for other reasons. Environmental regulatory
        matters also could increase substantially the cost of doing business, may
        cause
        delays in producing oil and gas or require the modification of operations
        in
        certain areas.
  Our
        operations are subject to numerous stringent and complex laws and regulations
        at
        the Federal, state and local levels governing the discharge of materials
        into
        the environment or otherwise relating to environmental protection. Failure
        to
        comply with these laws and regulations may result in the assessment of
        administrative, civil and criminal penalties, the imposition of remedial
        requirements, and the imposition of injunctions to force future compliance.
  The
        Oil
        Pollution Act of 1990 and its implementing regulations impose a variety of
        requirements related to the prevention of oil spills, and liability for damages
        resulting from such spills in United States waters. OPA 90 imposes strict
        joint
        and several liability on responsible parties for oil removal costs and a
        variety
        of public and private damages, including natural resource damages. While
        liability limits apply in some circumstances, a party cannot take advantage
        of
        liability limits if the spill was caused by gross negligence or willful
        misconduct or resulted from violation of a Federal safety, construction or
        operation regulation. If a party fails to report a spill or to cooperate
        fully
        in a cleanup, liability limits likewise do not apply. Even if applicable,
        the
        liability limits for offshore facilities require the responsible party to
        pay
        all removal costs, plus up to $75 million in other damages. For onshore
        facilities, the total liability limit is $350 million. OPA 90 also requires
        a
        responsible party at an offshore facility to submit proof of its financial
        ability to cover environmental cleanup and restoration costs that could be
        incurred in connection with an oil spill.
  The
        Comprehensive Environmental Response, Compensation, and Liability Act, also
        known as the “Superfund” law, and analogous state laws impose joint and several
        liability on certain classes of persons that are considered to have contributed
        to the release of a “hazardous substance” into the environment. These parties
        include the owner or operator of the site where the release occurred, and
        those
        that disposed or arranged for the disposal of hazardous substances found
        at the
        site. Responsible parties under CERCLA may be subject to joint and several
        liability for remediation costs at the site, and may also be liable for natural
        resource damages. Additionally, it is not uncommon for neighboring landowners
        and other third parties to file tort claims for personal injury and property
        damage allegedly caused by hazardous substances released into the environment.
  State
        and
        local statutes and regulations require permits for drilling operations, drilling
        bonds and reports concerning operations. In addition, there are state statutes,
        rules and regulations governing conservation matters, including the unitization
        or pooling of oil and gas properties, establishment of maximum rates of
        production from oil and gas wells and the spacing, plugging and abandonment
        of
        such wells. Such statutes and regulations may limit the rate at which oil
        and
        gas could otherwise be produced from our properties and may restrict the
        number
        of wells that may be drilled on a particular lease or in a particular field.
  **Risks
        About Our Business**
  **GEOPOLITICAL
        INSTABILITY.**
  We
        conduct business in Guinea, which is in a region of the world where there
        have
        been recent civil wars, revolutionary wars, and internecine conflicts. Although
        Guinea is a peaceful nation, external or internal political forces could
        potentially create a political or military climate that might cause a change
        in
        political leadership or the outbreak of hostilities. Such a change could
        result
        in our having to cease our Guinea operations and result in the loss or delay
        of
        our rights under the PSA.
  20
 *Table
            of Contents*
  **GEOPOLITICAL
        POLITICS.**
  We
        recently entered into a 2006 Production Sharing Contract with the Republic
        of
        Guinea. The government of the Republic of Guinea could unlawfully terminate
        this
        new contract.
  **WE
        MAY HAVE WRITE DOWNS OF OUR ASSETS DUE TO PRICE VOLATILITY.**
  accounting
        rules require us to review the carrying value of our oil and gas properties
        on a
        quarterly basis for possible write down or impairment. Under these rules,
        capitalized costs of proved reserves may not exceed a ceiling calculated
        at the
        present value of estimated future net revenues from those proved reserves.
        Capital costs in excess of the ceiling must be permanently written down.
        A
        decline in oil and natural gas prices could cause a write down which would
        negatively affect our net income.
  **ESTIMATES
        OF OIL AND GAS RESERVES ARE UNCERTAIN AND MAY VARY SUBSTANTIALLY FROM ACTUAL
        PRODUCTION.**
  We
        do not
        have any reserve reports or geology or petroleum engineering reports related
        to
        our foreign property. We do have a third-party reserve report for our Louisiana
        properties. There are numerous uncertainties inherent in estimating quantities
        of proved reserves and in projecting future rates of production and timing
        of
        expenditures, including many factors beyond our control. A reserve report
        is the
        estimated quantities of oil and gas based on reports prepared by third party
        reserve engineers. Reserve reporting is a subjective process of estimating
        underground accumulations of oil and natural gas that cannot be measured
        in an
        exact manner. The accuracy of any reserve estimate is a function of the quality
        of available geological, geophysical, engineering and economic data and the
        precision of engineering and judgment. As a result, estimates of different
        engineers often vary. The estimates of reserves, future cash flows and present
        value are based on various assumptions, including those prescribed by the
        SEC
        relating to oil and natural gas prices, drilling and operating expenses,
        capital
        expenditures, taxes and availability of funds, and are inherently imprecise.
  **THE
        UNAVAILABILITY OR HIGH COST OF DRILLING RIGS, EQUIPMENT, SUPPLIES, PERSONNEL
        AND
        OILFIELD SERVICES COULD ADVERSELY IMPACT US.**
  Drilling
        activity offshore Guinea will require that we have access to an offshore
        drilling rig. Either unavailability, shortages or increases in the cost of
        drilling rigs, equipment, supplies or personnel could delay or adversely
        affect
        our Guinea operations. There can be no assurance that we will be able to
        obtain
        the necessary equipment or that services will be available at economical
        prices.
  **FAILURE
        TO FIND OIL AND GAS.**
  We
        may
        not be able to find oil and gas in commercial quantities, and if not, our
        future
        revenue potential would be substantially reduced.
  **WE
        MAY BE UNABLE TO ACQUIRE OIL AND GAS LEASES.**
  To
        engage
        in oil and gas exploration, we must first acquire rights to conduct exploration
        and recovery activities on identified prospects. We may not be successful
        in
        acquiring farmouts, permits, lease options, leases or other rights to explore
        for or recover oil and gas. Other major and independent oil and gas companies
        with financial resources significantly greater than ours may bid against
        us for
        the purchase of oil and gas leases. If we or our subsidiaries are unsuccessful
        in acquiring these leases, permits, options and other interests, our prospect
        inventory for exploration and drilling could be significantly reduced, and
        our
        business, results of operations and financial condition could be substantially
        harmed.
  **EXPANSION
        OF OUR EXPLORATION PROGRAM WILL REQUIRE CAPITAL FROM OUTSIDE
        SOURCES.**
  We
        do not
        currently have the financial resources to explore and drill all of our currently
        identified prospects. Absent raising additional capital or entering into
        joint
        venture agreements, we will not be able to increase our exploration and drilling
        operations at the projected rate. This could limit the size of our business.
        There is no assurance that capital will be available in the future to us
        or that
        capital will be available under terms acceptable to us. We will need to raise
        additional money, either through the sale of equity securities (which could
        dilute the existing stockholders' interest), through the entering of joint
        venture agreements (which, while limiting our risk, could reduce our ownership
        interest in particular assets), or from borrowings from third parties (which
        could result in additional assets being pledged as collateral and which would
        increase our debt service requirements).
  21
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  Additional
        capital could be obtained from a combination of funding sources, many of
        which
        could have an adverse effect on our business, results of operations and
        financial condition. These potential funding sources, and the potential adverse
        effects attributable thereto, include:
  -
              cash
                  flow from operating activities, which is sensitive to prices we
                  receive
                  for oil and natural gas and the success of current and future
                  operations;
  -
              borrowings
                  from financial institutions, which may subject us to certain restrictive
                  covenants, including covenants restricting our ability to raise
                  additional
                  capital or pay dividends;
  -
              debt
                  offerings, which would increase our leverage and add to our need
                  for cash
                  to service such debt (which could result in additional assets being
                  pledged as collateral and which could increase our debt service
                  requirements);
  -
              additional
                  offerings of equity securities, which would cause dilution of our
                  common
                  stock;
  -
              sales
                  of prospects generated by the exploration program, which would
                  reduce
                  future revenues from that program;
  -
              additional
                  sales of interests in our projects, which could reduce future
                  revenues.
  Our
        ability to raise additional capital will depend on the results of operations
        and
        the status of various capital and industry markets at the time such additional
        capital is sought. Capital may not become available to us from any particular
        source or at all. Even if additional capital becomes available, it may not
        be on
        terms acceptable to us. Failure to obtain additional financing on acceptable
        terms may have an adverse effect on our business, results of operations and
        financial condition.
  **WE
        HAVE COMPETITION FROM OTHER COMPANIES.**
  A
        large
        number of companies and individuals engage in drilling for gas and oil, and
        there is competition for the most desirable prospects. We will encounter
        intense
        competition from other companies and other entities in the sale of our gas
        and
        oil production. We could be competing with numerous gas and oil companies
        which
        may have financial resources significantly greater than ours. Further, the
        quantities of gas and oil to be delivered by us may be affected by factors
        beyond our control, such as the inability of the wells to deliver at the
        necessary quality and pressure, premature exhaustion of reserves, changes
        in
        governmental regulations affecting allowable production and priority
        allocations, and price limitations imposed by Federal and state regulatory
        agencies.
  **WE
        DEPEND ON INDUSTRY VENDORS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE
        SERVICES.**
  We
        are
        and will continue to be dependent on industry vendors for the success of
        our oil
        and gas exploration projects. These contracted services include, but are
        not
        limited to, accounting, drilling, completion, workovers (remedial down hole
        work
        on a well) and reentries (entering an existing well and changing the direction
        and/or depth of a well), geological evaluations, engineering, leasehold
        acquisition (landmen), operations, legal, investor relations/public relations,
        and prospect generation. We could be harmed if we fail to attract quality
        industry vendors to participate in the drilling of prospects which we identify
        or if our industry vendors do not perform satisfactorily. We often have,
        and
        will continue to have, little control over factors that would influence the
        performance of our vendors.
  **WE
        RELY ON THIRD PARTIES FOR PRODUCTION SERVICES AND PROCESSING
        FACILITIES.**
  The
        marketability of our production depends upon the proximity of our reserves
        to,
        and the capacity of, facilities and third party services, including oil and
        natural gas gathering systems, pipelines, trucking or terminal facilities,
        and
        processing facilities. The unavailability or lack of capacity of such services
        and facilities could result in the shut-in of producing wells or the delay
        or
        discontinuance of development plans for properties. A shut-in or delay or
        discontinuance could adversely affect our financial condition. In addition,
        Federal and state regulation of oil and natural gas production and
        transportation affect our ability to produce and market oil and natural gas
        on a
        profitable basis.
  22
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  **OUR
        APPROACH TO TITLE ASSURANCE COULD ADVERSELY AFFECT OUR BUSINESS AND
        OPERATIONS.**
  We
        intend
        to purchase oil and gas interests and leases from third parties or directly
        from
        the mineral fee owners as the inventory upon which we will perform our
        exploration activities. The existence of a title deficiency can render a
        lease
        worthless and can result in a large expense to us. Title insurance covering
        the
        mineral leaseholds is not generally available and in all instances, we forego
        the expense of retaining lawyers to examine the title to the mineral interest
        to
        be placed under lease or already placed under lease until the drilling block
        is
        assembled and ready to be drilled. We rely upon the judgment of oil and gas
        lease brokers or experienced landmen who perform the field work in examining
        records in the appropriate governmental office before attempting to acquire
        or
        place under lease a specific mineral interest. This is customary practice
        in the
        oil and gas industry. However, if there is a defect in title, the amount
        that we
        paid for such oil and gas leases or interests is generally lost. If the
        defective lease covers acreage which is critical to the success of a particular
        project, the loss could have an adverse effect by making the target area
        potentially not drillable.
  **RISKS
        RELATED TO OUR FINANCIAL OPERATIONS**
  **WE
        HAVE A HISTORY OF LOSSES.**
  We
        have
        experienced substantial operating losses. We expect to incur significant
        operating losses until sales increase. We will also need to raise sufficient
        funds to finance our activities. We may be unable to achieve or sustain
        profitability.
  **WE
        HAVE AN ACCUMULATED DEFICIT AND MAY INCUR ADDITIONAL
        LOSSES.**
  We
        have a
        substantial accumulated deficit. We may not be able to meet our debts as
        they
        become due. If we are unable to generate sufficient cash flow or obtain funds
        to
        pay debt, we will be in default.
  **WE
        MAY EXPERIENCE POTENTIAL FLUCTUATIONS IN RESULTS OF
        OPERATIONS.**
  Our
        future revenues may be affected by a variety of factors, many of which are
        outside our control, including (a) the success of project results; (b) swings
        in
        availability of drilling services needed to implement projects and the pricing
        of such services; (c) a volatile oil and gas pricing market which may make
        certain projects that we undertake uneconomic; (d) the ability to attract
        new
        independent professionals with prospects in a timely and effective manner;
        and
        (e) the amount and timing of operating costs and capital expenditures relating
        to conducting our business operations and infrastructure. As a result of
        our
        limited operating history and the emerging nature of our business plan, it
        is
        difficult to forecast revenues or earnings accurately, which may fluctuate
        significantly from quarter to quarter.
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  **IF
        WE CANNOT OBTAIN ADDITIONAL FINANCING, WE MAY HAVE TO CURTAIL OPERATIONS
        AND MAY
        ULTIMATELY CEASE TO EXIST.**
  Our
        financial statements reflect recurring, ongoing and substantial yearly net
        losses, and negative cash flows from operations. These conditions require
        sufficient additional funding or alternative sources of capital to meet our
        working capital needs. We have raised capital by selling common stock, issuing
        convertible debentures and our equity line of credit which will also requires
        us
        to issue common stock. However, future financing may not be available in
        amounts
        or on terms acceptable to us, if at all. If we cannot raise funds on acceptable
        terms, or achieve positive cash flow, we may be forced to curtail operations
        or
        may ultimately cease to exist.
  **WE
        MAY NOT BE ABLE TO RAISE THE REQUIRED CAPITAL TO CONDUCT OUR OPERATIONS;
        EQUITY
        LINE OF CREDIT.**
  We
        may
        require additional capital resources in order to conduct our operations.
        If we
        cannot obtain additional funding, we may make reductions in the scope and
        size
        of our operations. In order to grow and expand our business, and to introduce
        our services to the marketplace, we will need to raise additional funds.
        We have
        an equity line of credit. We have made 5 puts on the equity line of credit
        since
        February 2006 in the aggregate amount of $967,000. At October 10, 2006, the
        remaining amount available for us to draw down on the equity line of credit
        is
        $19,032,900. The equity line of credit expires in February 2009, after which
        we
        will not be able to draw down on the equity line of credit even if has not
        been
        fully utilized by us. The Cornell agreements limit our use of the equity
        line of
        credit. Whether as a result of the Cornell Agreements or as a result of our
        discretion, between now and February 2009, we may not have drawn down the
        full
        $19,032,900 currently available in the equity line of credit.
  **RISKS
        ABOUT OUR SECURITIES**
  **WE
        MAY ISSUE ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE, WHICH COULD CAUSE
        DILUTION TO ALL SHAREHOLDERS.**
  We
        may
        seek to raise additional equity capital in the future. Any issuance of
        additional shares of our common stock will dilute the percentage ownership
        interest of all shareholders and may dilute the book value per share of our
        common stock.
  **SHAREHOLDERS
        COULD INCUR NEGATIVE IMPACT DUE TO THE REMOVAL OF THE LEGEND ON A SIGNIFICANT
        PERCENTAGE OF OUR OUTSTANDING SHARES OF COMMON STOCK, OR THE EXERCISE OF
        OPTIONS
        AND WARRANTS.**
  As
        of
        June 30, 2006, approximately 9,225,938 shares of our common stock was restricted
        stock, some of which was eligible to be sold immediately pursuant Rule 144
        of
        the Securities Act of 1933, as amended. We have outstanding warrants and
        options
        to purchase 8,421,902 shares of our common stock. If these options and warrants
        are exercised, the underlying shares will ultimately become subject to resale
        pursuant to Rule 144. We do not know when or if these options will be exercised.
        In the event that a substantial number of these shares are offered for sale
        in
        the market by several holders, the market price of our common stock could
        be
        adversely affected.
  **OUR
        MANAGEMENT CONTROLS A SIGNIFICANT PERCENTAGE OF OUR CURRENT OUTSTANDING COMMON
        STOCK; THEIR INTERESTS MAY CONFLICT WITH THOSE OF OUR
        SHAREHOLDERS.**
  Our
        Directors and Executive Officers and their affiliates collectively and
        beneficially owned approximately 35 % of our outstanding common stock voting
        control (including voting Series B Preferred Stock. This concentration of
        voting
        control gives our Directors and Executive Officers and their respective
        affiliates substantial influence over any matters which require a shareholder
        vote, including, without limitation, the election of Directors, even if their
        interests may conflict with those of other shareholders. It could also have
        the
        effect of delaying or preventing a change in control of or otherwise
        discouraging a potential acquirer from attempting to obtain control of us.
        This
        could have an adverse effect on the market price of our common stock or prevent
        our shareholders from realizing a premium over the then prevailing market
        prices
        for their shares of common stock.
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  **IF
        WE ISSUE COMMON STOCK PURSUANT TO THE EQUITY LINE OF CREDIT, THEN EXISTING
        STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION.**
  We
        utilize an equity line of credit. The sale of shares pursuant to equity line
        of
        credit will have a dilutive impact on our stockholders. As a result, our
        net
        income per share could decrease in future periods, and the market price of
        our
        common stock could decline. In addition, the lower our stock price at the
        time
        we exercise draw down on the equity line of credit, the more shares we will
        have
        to issue. If our stock price decreases, then our existing stockholders would
        experience greater dilution.
  **IMPACT
        OF THE EQUITY LINE OF CREDIT**
  As
        we
        draw down on the equity line of credit, our common stock will be purchased
        at or
        less than the then market price. Sales of such common stock could cause the
        market price of our common stock to decline.
  **IF
        WE ISSUE COMMON STOCK PURSUANT TO CORNELL'S CONVERSION OF DEBENTURES OR EXERCISE
        OF WARRANT, THEN EXISTING STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT
        DILUTION.**
  The
        conversion into shares pursuant to Cornell debentures and warrants will have
        a
        dilutive impact on our stockholders. As a result, our net income per share
        could
        decrease in future periods, and the market price of our common stock could
        decline. In addition, the lower our stock price at the time we exercise draw
        down on the equity line of credit, the more shares we will have to issue.
        If our
        stock price decreases, then our existing stockholders would experience greater
        dilution.
  **OUR
        STOCK PRICE IS HIGHLY VOLATILE AND YOU MAY LOSE SOME OR ALL OF YOUR
        INVESTMENT.**
  Trading
        prices of our common stock may fluctuate in response to a number of events
        and
        factors, such as:
  -
              general
                  economic conditions changes in interest
                  rates;
  -
              conditions
                  or trends in the oil and gas
                  business;
  -
              fluctuations
                  in the stock market in general and market prices for oil and gas
                  companies
                  in particular;
  -
              quarterly
                  variations in our operating
                  results;
  -
              new
                  products, services, innovations, and strategic developments by
                  our
                  competitors or us, or business combinations and investments by
                  our
                  competitors or us;
  -
              changes
                  in environmental regulation;
  -
              changes
                  in our capital structure, including issuance of additional debt
                  or equity
                  to the public;
  -
              additions
                  or departures of our key personnel;
  -
              corporate
                  restructurings, including layoffs or closures of
                  facilities;
  -
              certain
                  analyst reports, news and
                  speculation.
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  **WE
        DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE; THEREFORE, YOU
        MAY
        NEVER SEE A RETURN ON YOUR INVESTMENT.**
  We
        do not
        anticipate the payment of cash dividends on our common stock in the foreseeable
        future. We anticipate that any profits from our operations will be devoted
        to
        our future operations. Any decision to pay dividends will depend upon our
        profitability at the time, cash available and other factors.
  **SINCE
        WE HAVE NOT PAID ANY DIVIDENDS ON OUR COMMON STOCK AND DO NOT INTEND TO DO
        SO IN
        THE FUTURE, A PURCHASER OF OUR COMMON STOCK WILL ONLY REALIZE A GAIN ON THEIR
        INVESTMENT IF THE MARKET PRICE OF OUR COMMON STOCK
        INCREASES.**
  We
        have
        never paid, and do not intend to pay, any cash dividends on our common Stock
        for
        the foreseeable future. An investor in this offering, in all likelihood,
        will
        only realize a profit on their investment if the market price of our common
        stock increases in value.
  **MATERIAL
        RISKS RELATED TO OUR CORPORATE GOVERNANCE**
  **OUR
        DIRECTORS AND OFFICERS HAVE RIGHTS TO INDEMNIFICATION.**
  The
        Delaware General Corporation Law provides that we will indemnify our directors
        and officers if they are a party to any civil or criminal action. This may
        discourage claimants from making claims against the directors and officers
        even
        if the claims have merit. The cost of indemnification could be high.
  Insofar
        as indemnification for liabilities arising under the Securities Act may be
        permitted to our directors, officers and controlling persons pursuant to
        the
        foregoing provisions, we have been advised that in the opinion of the Securities
        and Exchange Commission, such indemnification is against public policy as
        expressed in the Securities Act and is therefore unenforceable.
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  **I** **TEM
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds**
  In
        April
        2007, we issued 25,000 shares of restricted common stock to a consultant
        for
        services rendered. The services were valued at $40,000. This transaction
        was
        made in reliance upon exemptions from registration under Section4(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 them to evaluate the merits and
        risk
        of receipt of these securities. The investor was knowledgeable about our
        operations and financial condition.
 
 In
        April
        2007, we issued options to purchase 50,000 shares of common stock to a
        consultant as compensation. These options have an exercise price of $5.00
        per
        share and expire three years from the vesting date. These transactions were
        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 these transactions. These transactions did
        not
        involve a public offering. The investors had knowledge and experience in
        financial and business matters that allowed them to evaluate the merits and
        risk
        of receipt of these securities. The investors were knowledgeable about our
        operations and financial condition
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  **ITEM
        4 Submission of Matters to a Vote of Security
        Holders**
  On
        March
        6, 2007, the company held its annual shareholder meeting (1) to elect five
        members of the Board of Directors to serve for one-year terms and (2) to
        ratify
        the selection of Malone and Bailey, PC as our Independent Auditor for the
        fiscal
        year ended June 30, 2007. The directors who were elected are Kent Watts,
        Harry
        James Briers, Harold A. Poling, Albert F Young, and L. Gene
        Stohler.
  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 Withheld**Kent
                  Watts
              
              60,462,854
              
              326,132Harry
                  James Briers
              
              60,458,214
              
              330,772Harold
                  A. Poling
              
              60,436,664
              
              352,322Albert
                  F. Young
              
              60,478,764
              
              310,222L.
                  Gene Stohler
              
              60,475,144
              
              313,842
  **ITEM
        2:**
  With
        respect to Ratification of Selection of Malone & Bailey, PC as the Company's
        Independent Auditors for the Fiscal Year ended June 30, 2007
  **Number
                  of Affirmative Votes**
              
              **Number
                  of Negative Votes**
              
              **Abstentions**60,552,043
              
              150,769
              
              83,993
 
 **ITEM** **6
        Exhibits**
 -
        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.
 -
        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.
 -
        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.
 -
        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.
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 **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 15, 2007By:
                  /s/ Steven M. PlumbSteven
                  M. Plumb,Chief
                  Financial Officer andPrincipal
                  Accounting OfficerDated:
                  May 15, 2007
   29