UNITED
          STATES
 SECURITIES
          AND EXCHANGE COMMISSION
 WASHINGTON,
          DC 20549
 
 
 **FORM
          10-Q**
 
 T
                Quarterly
                    report pursuant to Section 13 or 15(d) of the Securities Exchange
                    Act of
                    1934: For the quarterly period ended: September 30,
                    2006
 
 or
 £
                Transition
                    report pursuant to Section 13 or 15(d) of the Securities Exchange
                    Act of
                    1934: For the transition period from _______ to
                    _________
  Commission
          file number: 000-25496
 
 **HYPERDYNAMICS
          CORPORATION**
 (Exact
          name of registrant as specified in its charter)
 
 DELAWARE
                87-0400335(State
                    or other jurisdiction 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.
 YesT
                No£
 
 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£
                Accelerated
                    Filer£
                Non-Accelerated
                    FilerT
 
 Indicate
          by check mark whether the registrant is a shell company (as defined in
          Rule
          12b-2 of the Exchange Act)
 Yes£
                NoT
 
 APPLICABLE
          ONLY TO CORPORATE ISSUERS
  As
          of
          November 6, 2006, 47,655,302 shares of common stock, $0.001 par value,
          were
          outstanding.
 
 
 Transitional
          Small Business Disclosure Format (check one):
 Yes
                    £
                NoT
  
 
 
 TABLE
        OF CONTENTS
 Part
                      I
                  Financial
                      InformationItem
                      1
                  Financial
                      Statements (unaudited)
                  2Consolidated
                      Balance Sheets at September 30, 2006And June 30, 2006
                  2Consolidated
                      Statements of Operations for the three months
                      ended September 30, 2006 and 2005
                  3Consolidated
                      Statements of Cash Flows for the three months
                      ended September 30, 2006 and 2005
                  4Notes
                      to Consolidated Financial
                      Statements
                  6Item
                      2
                  Management's
                      Discussion and Analysis of Financial Condition
                      and Results of Operations
                  8Item
                      3
                  Quantitative
                      and Qualitative DisclosuresAbout Market Risk
                  13Item
                      4
                  Controls
                      and Procedures
                  13Part
                      II
                  Other
                      InformationItem
                      1
                  Legal
                      Proceedings
                  13Item
                      2
                  Unregistered
                      Sales of Equity Securities and Use of
                      Proceeds
                  15Item
                      6
                  Exhibits
                  16Signature
                  17
  1
 *Table
            of Contents*
  HYPERDYNAMICS
        CORPORATION
 CONSOLIDATED
        BALANCE SHEETS
 (In
        thousands, except number of shares and per share amounts)
 (Unaudited)
 
 September
                  30,
                2006
              
              June
                  30,
                2006ASSETSCurrent
                  assetsCash
              
              $
              4,128
              
              $
              3,435Restricted
                  certificate of deposit
              
              
              75
              
              
              75Accounts
                  receivable, net of allowance for doubtful accounts of$13
                  and $13
              
              
              93
              
              
              58Inventories,
                  net
              
              
              13
              
              
              -Prepaid
                  expenses and other current assets
              
              
              193
              
              
              202Total
                  current assets
              
              
              4,502
              
              
              3,770Property
                  and equipment, net of accumulated depreciation of$132
                  and $125
              
              
              222
              
              
              93Oil
                  and gas properties, using full cost accounting, net of accumulated
                  depreciation and depletion of $165 and $169
              
              
              4,406
              
              
              4,437Deposits
              
              
              3
              
              
              3Total
                  assets
              
              $
              9,133
              
              $
              8,303LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilitiesCurrent
                  portion of long-term debt
              
              $
              124
              
              $
              106Accounts
                  payable and accrued expenses
              
              
              771
              
              
              637Accounts
                  payable seismic data
              
              
              650
              
              
              650Asset
                  retirement obligation
              
              
              12
              
              
              12Deferred
                  gain
              
              
              159
              
              
              159Convertible
                  debentures, net of discount of $2,326 and $2,068
              
              
              1,199
              
              
              1,556Dividends
                  payable
              
              
              372
              
              
              372Dividends
                  payable to related party
              
              
              164
              
              
              136Total
                  current liabilities
              
              
              3,451
              
              
              3,628Deferred
                  rent
              
              
              100
              
              
              67Total
                  liabilities
              
              $
              3,551
              
              $
              3,695Commitments
                  and contingenciesShareholders'
                  equityConvertible
                  preferred stock, par value $0.001; 20,000,000 shares
                  authorizedSeries
                  A -1,945shares issued and outstanding
              
              
              -
              
              
              -Series
                  B -2,725shares issued and outstanding
              
              
              -
              
              
              -Common
                  stock, $0.001 par value, 250,000,000 shares authorized, 47,348,990
                  and
                  46,132,595 shares issued and outstanding
              
              
              47
              
              
              46Additional
                  paid-in capital
              
              
              35,462
              
              
              31,627Accumulated
                  deficit
              
              
              (29,927
              )
              
              (27,065
              )Total
                  shareholders' equity
              
              
              5,582
              
              
              4,608Total
                  liabilities and shareholders' equity
              
              $
              9,133
              
              $
              8,303
  See
        accompanying notes to consolidated financial statements.
  2
 *Table
            of Contents*
  HYPERDYNAMICS
        CORPORATION
 CONSOLIDATED
        STATEMENTS OF OPERATION
 (In
        thousands, except number of shares and per share amounts)
 (Unaudited)
 
 Three
                  Months ended
                September
                  30,2006
              
              2005Revenues
              
              $
              325
              
              $
              87Operating
                  ExpensesLease
                  Operating Costs
              
              
              91
              
              
              216Severance
                  Taxes
              
              
              39
              
              
              9Other
                  operational costs
              
              
              173
              
              
              464Depreciation,
                  depletion and amortization - oil & gas properties
              
              
              22
              
              
              24Selling,
                  general & administrative, including depreciation expense of $7 and
                  $12
              
              
              1,996
              
              
              759Total
                  Operating Expenses
              
              
              2,321
              
              
              1,472LOSS
                  FROM OPERATIONS
              
              
              (1,996
              )
              
              (1,385
              )Other
                  Income (Expense)Other
                  income (expense)
              
              
              -
              
              
              (1
              )Interest
                  income
              
              
              23
              
              
              1Interest
                  expense
              
              
              (870
              )
              
              (59
              )Gain
                  from sale of asset
              
              
              8
              
              
              -NET
                  LOSS
              
              
              (2,835
              )
              
              (1,444
              )Preferred
                  stock dividend
              
              
              (27
              )
              
              (27
              )Net
                  loss chargeable to common shareholders
              
              $
              (2,862
              )
              $
              (1,471
              )Basic
                  and diluted loss per common share
              
              $
              (0.06
              )
              $
              (0.03
              )Weighted
                  average shares outstanding
              
              
              47,348,990
              
              
              42,168,410
  See
        accompanying notes to consolidated financial statements.
  3
 *Table
            of Contents*
  HYPERDYNAMICS
        CORPORATION
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Three
                  months ended
                September
                  30,2006
              
              2005CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (2,835
              )
              $
              (1,444
              )Adjustments
                  to reconcile net income to net cash provided by (used in) operating
                  activities)Depreciation,
                  depletion and amortization
              
              
              29
              
              
              36Shares
                  issued for services
              
              
              101
              
              
              -Options
                  and warrants expense
              
              
              811
              
              
              183Gain
                  on sale of assets
              
              
              (8
              )
              
              -Bad
                  debt expense
              
              
              31
              
              
              -Amortization
                  of discount and financing costs on convertible debenture
              
              
              747
              
              
              31Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (66
              )
              
              (37
              )Inventories
              
              
              (13
              )
              
              4Prepaid
                  expenses and other current assets
              
              
              (21
              )
              
              24Accounts
                  payable and accrued expenses
              
              
              135
              
              
              229Deferred
                  rent
              
              
              33
              
              
              -Net
                  cash used in operating activities
              
              
              (1,056
              )
              
              (974
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESInvestment
                  in oil & gas properties
              
              
              (20
              )
              
              (309
              )Purchase
                  of property and equipment
              
              
              (105
              )
              
              (4
              )Proceeds
                  from the sale of assets
              
              
              36
              
              
              -Payment
                  of deposit
              
              
              -
              
              
              (1
              )Net
                  cash used in investing activities
              
              
              (89
              )
              
              (314
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  from sale working interest in oil and gas properties, net
              
              
              -
              
              
              616Proceeds
                  from convertible notes
              
              
              1,820
              
              
              -Proceeds
                  from installment debt
              
              
              57
              
              
              -Proceeds
                  from sale of debentures, net
              
              
              -
              
              
              910Payments
                  on short-term note payable
              
              
              -
              
              
              (74
              )Payments
                  on installment debt
              
              
              (39
              )
              
              (44
              )Net
                  cash provided by financing activities
              
              
              1,838
              
              
              1,408Net
                  increase (decrease) in cash
              
              
              693
              
              
              120Cash
                  at beginning of period
              
              
              3,435
              
              
              259Cash
                  at end of period
              
              $
              4,128
              
              $
              379
  See
        accompanying notes to consolidated financial statements.
  4
 *Table
            of Contents*
  HYPERDYNAMICS
        CORPORATION
 CONSOLIDATED
        STATEMENTS  OF CASH FLOWS (Continued)
 (Unaudited)
 
 Three
                  months ended
                September
                  30,SUPPLEMENTAL
                  DISCLOSURES
              
              2006
              
              2005Interest
                  paid in cash
              
              $
              264
              
              $
              28Income
                  taxes paid in cash
              
              
              -
              
              
              -NON-CASH
                  TRANSACTIONSConversion
                  of notes payable to common stock
              
              $
              2,475
              
              $
              -Issuance
                  of common stock for oil and gas properties
              
              
              -
              
              
              15Payment
                  of preferred stock dividends in common shares
              
              
              27
              
              
              27Reclassification
                  of down payment made in prior year to property and
                  equipment
              
              
              30
              
              
              -Debt
                  discount on convertible debt
              
              
              450
              
              
              -
  See
        accompanying notes to consolidated financial statements.
  5
 *Table
            of Contents*
 
 HYPERDYNAMICS
        CORPORATION
 NOTES
        TO 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 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.
 
 The
        carrying value of the debentures as of September 30, 2006 is as follows (in
        thousands):
 
 Face
                  value of debentures
              
              $
              6,000Less:
                  discount related to warrants
              
              
              (1,331
              )discount related to conversion feature
              
              
              (1,779
              )Subtotal
              
              
              2,890Add:
                  amortization of discount
              
              
              784Total
                  principal
              
              
              3,674Less
                  payments:Conversion to common shares
              
              
              (2,475
              )Carrying
                  value of note at September 30, 2006
              
              $
              1,199
 
 **4.**
              **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.
  6
 *Table
            of Contents*
 
 HYPERDYNAMICS
        CORPORATION
 NOTES
        TO FINANCIAL STATEMENTS
 (Unaudited)
 
 The
        following tables summarize certain balance sheet and income statement data
        about
        Hyperdynamics' reportable segments and corporate overhead for the three months
        ended September 30, 2006 and 2005:
 
 **SCS**
              
              **HYDR**
              
              **Corporate**
              
              **Total****As
                  of September 30, 2006:**Segment
                  assets
              
              $
              4,368
              
              $
              799
              
              $
              3,966
              
              $
              9,133Three
                  months ended September 30, 2006Revenues
                  from external customers
              
              
              -
              
              
              325
              
              
              -
              
              
              325Depreciation,
                  depletion and amortization - oil and gas properties
              
              
              -
              
              
              22
              
              
              -
              
              
              22Depreciation,
                  depletion and amortization - administration
              
              
              3
              
              
              -
              
              
              4
              
              
              7Loss
                  from operations
              
              
              (545
              )
              
              (137
              )
              
              (1,314
              )
              
              (1,996
              )Expenditures
                  for long-lived assets
              
              
              8
              
              
              12
              
              
              105
              
              
              125**As
                  of September 30, 2005:**Segment
                  assets
              
              $
              4,177
              
              $
              634
              
              $
              571
              
              $
              5,382Three
                  months ended September 30, 2005Revenues
                  from external customers
              
              
              -
              
              
              87
              
              
              -
              
              
              87Depreciation,
                  depletion and amortization - oil and gas properties
              
              
              -
              
              
              24
              
              
              -
              
              
              24Depreciation,
                  depletion and amortization - administration
              
              
              7
              
              
              -
              
              
              5
              
              
              12Loss
                  from operations
              
              
              (161
              )
              
              (688
              )
              
              (536
              )
              
              (1,385
              )Expenditures
                  for long-lived assets
              
              
              29
              
              
              280
              
              
              4
              
              
              313
 
 **5.**
              **Subsequent
                  Events**
 
 **Debt
        Conversion**
 
 In
        October 2006, the holder of our convertible debentures elected to convert
        a
        portion of the convertible debenture into common stock. $500,000 of debt
        was
        converted through the issuance of 250,000 shares of common stock.
  **CAUTIONARY
        STATEMENT ON FORWARD-LOOKING INFORMATION**
 
 The
        Company is including the following cautionary statement to make applicable
        and
        take advantage of the safe harbor provision of the Private Securities Litigation
        Reform Act of 1995 for any forward-looking statements made by, or on behalf
        of,
        the Company. This quarterly report on form 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.
  7
 *Table
            of Contents*
  Item 2.
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
 
 Overview
 
 We
        have a
        mission to explore, discover, and develop new and re-develop residual sources
        of
        energy worldwide. As previously reported in our press, 8K, and 10K filings,
        On
        September 22, 2006, our wholly owned subsidiary, SCS Corporation signed a
        new
        2006 Production Sharing Contract with the Republic of Guinea. Based on our
        foundation of historical success working in Guinea since 2002, this new contract
        was a result of over one year working in Guinea with the government in an
        open
        and transparent manner. The resulting contract was born out of three separate
        negotiation processes and numerous trips to Guinea by members of our management
        team. With exclusive rights across this largest remaining exploration block
        offshore West Africa, of approximately 33,000 square miles, we immediately
        began
        our exploration work towards the goal to begin drilling exploration wells
        and
        making world class discoveries.
 
 Working
        with our offshore oil exploration team, management made decisions to begin
        adding on substantial oil and gas exploration capabilities from the extensive
        pool of in-depth experience available in Houston, the “oil capital of the
        world”. We recently hired GlobalSanteFe’s Applied Drilling Technologies to work
        with us to immediately evaluate resources in the Country of Guinea that can
        support the needs of offshore drilling operations. As of November 15, 2006,
        our
        reconnaissance team has been in Guinea surveying the facilities, ports, and
        capabilities there. An extensive report is expected sometime next month.
        We felt
        this was an important first step to take after the new contract was signed
        as
        the work we are doing will shorten the time to begin drilling a well for
        us or
        any of our partners by at least six to nine months.
 
 Building
        on the foundation established and the technical talents of Mr. Neil Moore,
        Mr.
        Robert Bearnth, and Dr. Tai-Lin Hong, we contracted GeoExperts of Houston,
        Texas
        to join our team. Our work with them is first focused on gathering all of
        our
        geophysical and geological information together into a package that can be
        easily studied by our potential oil company partners, helping to determine
        how
        they will want to participate in our exploration efforts. Our GeoExpert team
        started from the technical foundation established by Mr. Moore and Mr. Bearnth
        and began an in-depth study of the oil and gas prospect potential for our
        concession and how best to communicate this to prospective partners. We expect
        to have preliminary marketing flyers out by the end of November and a complete
        brochure for oil companies available in December. As of November 15, 2006,
        the
        count of companies we have identified to be interested in a farm-in to our
        concession with at least an interest to pay our data license fees and join
        our
        study group has totaled to over fifty viable oil and gas companies. We continue
        to sign potential oil and gas exploration partners to confidentiality agreements
        as we have reported in the past and are having business discussions with
        these
        companies on an increasing basis. On November 1, 2006 GeoExperts introduced
        us
        to the Central and South Africa Industry Forum and we were inducted as a
        member.
        This group consists of 37 members of oil and gas companies that have exploration
        and production operations on and offshore Africa. The members of the group
        are
        primarily “new ventures” professionals looking for new opportunities for oil and
        gas discoveries and production. The group is led by ExxonMobil and meets
        monthly
        at a member sponsored luncheon where status reports are given by each member
        company and ideas for business are spawned and sometimes consummated.
  Through
        several planning sessions for the updated business plan being worked on by
        top
        management, several meetings were held between Mr. Neil Moore, President
        for SCS
        Corporation and Mr. Robert Bearnth, Vice President. It was discussed
        significantly that Mr. Moore and Mr. Bearnth were interested in retirement
        and
        that working on a full time basis at this point, was not possible for them.
        To
        provide for the extensive exploration efforts we are performing it was mutually
        decided by Mr. Moore and Mr. Bearnth, together with Kent Watts, our Chief
        Executive Officer, for them to stay on our team strictly in a consulting
        role
        and to step down as officers and directors of SCS Corporation, making room
        for
        full time management. Thus, their resignations as officers and directors
        were
        tendered and accepted. Their existing consulting agreement runs through June
        30,
        2007 and we are happy to have their continued insight and advice as our
        operations continue to move forward.
  8
 *Table
            of Contents*
  During
          the quarter we realized oil production revenues of $325,000 for the quarter
          ended September 2006 with $0 service revenue compared to $87,000 in oil
          production revenue and $0 service revenue for the quarter ended September
          2005.
          The increase in net loss for September 2006 is due to additional interest
          expense related to accelerated debt discount amortization as the related
          debt
          was converted into our common stock and compensation expense related to
          the
          granting of stock options. Cost of revenues decreased 54% or $388,000 to
          $325,000 for the quarter ended September 2006 compared to $713,000 for
          September
          2005. General and administrative expenses including depreciation of
          administrative properties significantly increased 163% or $1,237,000 in
          September 2006 to $1,996,000 from $759,000 in September 2005. The increase
          attributable to salaries and payroll taxes, stock options for officers,
          directors and employees, professional, consulting, travel, public relations,
          insurance, reporting and registration fee and interest expenses.
 
 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 tables summarize certain balance sheet and income statement data about
        Hyperdynamics' reportable segments and corporate overhead for the three months
        ended September 30, 2006 and 2005:
 
 SCS
              
              HYDR
              
              Corporate
              
              TotalAs
                  of September 30, 2006:Segment
                  assets
              
              $
              4,368
              
              $
              799
              
              $
              3,966
              
              $
              9,133Three
                  months ended September 30, 2006Revenues
                  from external customers
              
              
              -
              
              
              325
              
              
              -
              
              
              325Depreciation,
                  depletion and amortization - oil and gas properties
              
              
              -
              
              
              22
              
              
              -
              
              
              22Depreciation,
                  depletion and amortization - administration
              
              
              3
              
              
              -
              
              
              4
              
              
              7Loss
                  from operations
              
              
              (545
              )
              
              (137
              )
              
              (1,314
              )
              
              (1,996
              )Expenditures
                  for long-lived assets
              
              
              8
              
              
              12
              
              
              105
              
              
              125As
                  of September 30, 2005:Segment
                  assets
              
              $
              4,177
              
              $
              634
              
              $
              571
              
              $
              5,382Three
                  months ended September 30, 2005Revenues
                  from external customers
              
              
              -
              
              
              87
              
              
              -
              
              
              87Depreciation,
                  depletion and amortization - oil and gas properties
              
              
              -
              
              
              24
              
              
              -
              
              
              24Depreciation,
                  depletion and amortization - administration
              
              
              7
              
              
              -
              
              
              5
              
              
              12Loss
                  from operations
              
              
              (161
              )
              
              (688
              )
              
              (536
              )
              
              (1,385
              )Expenditures
                  for long-lived assets
              
              
              29
              
              
              280
              
              
              4
              
              
              313
  9
 *Table
            of Contents*
 
 Geographical
        Information
 
 All
        revenues are currently derived from domestic sources. All long-lived assets
        are
        located in the USA, except for our oil and gas exploration and exploitation
        rights, which are located offshore Guinea, West Africa.
 
 Louisiana
        Operations ("HYDR")
 
 Revenue
        for the three months ended September 30, 2006 and 2005 derived from oil and
        gas
        production and totaled $325,000 and $87,000, respectively. The increase of
        271%
        or $236,000 is due to a significant decrease in well downtime.
 
 Lease
        Operating Costs for the three months ended September 30, 2006 and 2005 was
        $91,000 and $216,000, respectively. The decrease of 58%, or $125,000, is
        due to
        upgraded technology and improved procedures resulting in higher operating
        efficiency and lower costs.
 
 Severance
        Taxes for the three months ended September 30, 2006 and 2005 was $39,000
        and
        $9,000, respectively. The increase of 321% or $30,000 is due to an increase
        in
        oil revenues.
 
 Other
        Operational Cost for the three months ended September 30, 2006 and 2005 was
        $165,000 and $464,000, respectively. The decrease of 54% or $236,000 is
        attributable to improved efficiency in other operational costs and a decrease
        in
        work over requirements.
  Our
        depreciation, amortization and depletion for oil and gas properties for the
        three months ended September 2006 and September 2005 was $22,000 and $24,000
        respectively.
 
 Selling,
        General and Administrative expenses for the three months ended September
        30,
        2006 and 2005 was $146,000 and $92,000, respectively, representing an increase
        of $54,000 or 58%. The main factors contributing to the increase are: an
        increase 480% or $48,000 in legal expenses from $10,000 to $58,000 in 2006
        stemming from various lawsuits; an increase of 117% or $16,000 in salaries
        and
        payroll taxes; an increase in bad debt expense from $1,000 to $31,000 in
        2006 due to an establishment of a reserve for bad debt on uncollectible working
        interest billing. We also experienced a decrease in rent expense due to lower
        lease payments on our new office and decrease in other administrative
        expenses.
 
 We
        realized a gain on sale of fixed assets for $8,000 and $0 for the quarters
        ended
        September 30, 2006 and 2005, respectively.
 
 Our
        Loss
        from operations for the three months ended September 30, 2006 from this segment
        was ($137,000) in comparison to ($688,000) in September 2005. The decrease
        of
        402% or $551,000 is due to the factors discussed above.
 
 Our
        expenditure for long lived assets in the three months ended September 2006
        was
        $12,000 compared to $295,000 in September 2005. The decrease of $283,000
        is
        attributable to a significant reduction in capital improvements on gas
        production facilities and gas gathering system.
 
 Guinea
        and Seismic Data Management ("SCS")
 
 We
        had no
        revenues during the three months ended September 30, 2006 and 2005. We signed
        a
        Production Sharing Contract (PSC) with the Republic of Guinea on September
        22,
        2006 and are currently focusing on our drilling and exploration plans in
        the
        concession delineated in the PSC.
 
 We
        have
        processed a portion of some 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.
 
 Selling,
        General and Administrative expenses for the three months ended September
        30,
        2006 and 2005 was $532,000 and $145,000. The increase of 266% or $387,000
        is
        attributable to consulting and travel expenses relating to the Guinea concession
        and a decrease in legal, rent and other administrative costs.
 
 Depreciation
        and amortization on administrative properties for the three months ended
        September 2006 and 2005 was $3,000 and $7,000 respectively. The decrease
        is due
        to the fact that most of our computer and software assets have been fully
        depreciated.
 
 Based
        on
        the factors discussed above, our loss from operations for the three months
        ended
        September 2006 from this segment was ($545,000) and ($161,000) at the end
        of
        September 2005.
 
 Expenditures
        for long lived assets for the three months ended September 2006 and 2005
        was
        $8,000 and $29,000 respectively. The decrease is attributable to reduction
        in
        equipment acquisitions.
  10
 *Table
            of Contents*
  Corporate
        Overhead
 
 Revenue
        was $0 for both three months ended September 30, 2006 and 2005. We do not
        actively pursue revenues in this segment.
 
 Selling,
        General and Administrative expense for the three months ended September 30,
        2006
        and 2005 was $1,310,000 and $530,000 respectively. The increase of 145% or
        $780,000 is attributable to the following: 1) new employee hire and increase
        in
        officer salaries and payroll taxes of $51,000; 2) increase in D&O, Medical
        and other insurance expenses of $8,000; 3) retaining of public relations
        company
        at a cost of $32,000; 4) increase in stock based compensation expense of
        $841,000. 5) Increase in edgarization fees related to SEC reporting and
        registration of private placement of 5.1 million shares with the American
        Stock
        Exhange of $53,000; 6) increase in professional expenses of $19,000; and
        7) an
        increase in office supplies other administrative expenses of $23,000. We
        also
        experienced a decrease of $247,000 based on 1) office rent and utilities
        of  $32,000; 2) consulting and other fees of $210,000 and travel and other
        administrative costs of $5,000.
 
 Depreciation
        and amortization on administrative properties for the three months ended
        September 2006 and 2005 was $4,000 and $5,000 respectively.
 
 Based
        on
        the factors discussed above, our loss from operations for the three months
        ended
        September 30, 2006 and 2005 was ($1,314,000) and ($536,000), respectively,
        an
        increase 145% or ($778,000).
 
 Our
        expenditures for long lived assets for the three months ended September 30,
        2006
        and 2005 was $136,000 and $4,000, respectively. The increase due to acquisitions
        of fixed assets and leasehold improvements related to our move to new office
        space in August 2006.
 
 **Liquidity
        and Capital Resources**
 
 Our
        ratio
        of current assets to current liabilities (current ratio) was 1.30 to 1 at
        September 30, 2006, 1.04 to 1 at June 30, 2006 and .25 to 1 at September
        30,
        2005. Our current ration continues to improve as we raise capital to fund
        our
        ongoing operations and reduce our net cash used in operating activities.
        We
        currently have sufficient funds on hand to fund our cash operating requirements
        for the next twelve months and fund our increased operations in Guinea.
 
 We
        have a
        contractual requirement during the second exploration period in the PSC to
        invest an estimated $10,000,000 in drilling at least one exploratory well
        offshore Guinea. The second exploration period expires sometime during the
        later
        part of this decade depending on initial periods and extension provisions.
        Although we have several years to complete this work, we wish to initiate
        a
        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 to support at least the minimum required
        drilling program; 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.
  Our
        cash
        from operations was a deficit this last year based on our asset appreciation
        based plan. We have taken 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 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 service
        revenues. As mentioned in the business section of this annual report we are
        pursuing domestic production to give us income enough to first pay our overhead
        as we move forward and then second to enhance the returns available to our
        shareholders as we move forward into future drilling programs.
  We
        will
        be able to fund our increased commitments in Guinea through the use of available
        funds and proceeds from issuances of common stock.
 In
          November pursuant to an equity line of credit 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.
          The
          agreement limits the number of shares to be registered under the financing
          agreement to 8,400,000 shares without a shareholder vote. This insures
          that the
          number of shares to be issued will not exceed 20% of the outstanding common
          stock as is required by the rules of the American Stock Exchange. Thus,
          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 made
          5 puts
          on the Dutchess equity line of credit since February 2006 in the aggregate
          amount of $967,100. As of November 19, 2006, the remaining amount available
          for
          us to draw down on the Dutchess equity line of credit was
          $19,032,900.
  Because
        SCS has significant work requirements to accomplish in order to drill
        exploration wells, we are beginning to look at more than one option to raise
        additional funds. Management is confident in its ability to raise additional
        capital under more conventional financing structures such as an underwritten
        secondary financing, but also believes we will be able to secure oil and
        gas
        working interest partners to fund and carry significant portions of the capital
        investment burden.
  11
 *Table
            of Contents*
  We
        have
        been successful in raising our necessary capital and management is very
        confident in our ability to continue to raise capital. Based on our relatively
        low overhead in comparison to the rather large task at hand, the lion’s share of
        all capital raised is going to improve our drilling prospects.
 
 In
        addition, we expect to exploit our leases in Louisiana by operating numerous
        low
        volume wells that produce 20 barrels a day or less. We believe the relatively
        high price of oil will help make these wells more economically viable. We
        are
        currently in the process of completing the wells so that they are capable
        of
        production. We announced on May 10, 2005 that we have completed 10 out of
        a
        planned 14 wells for our first lease in La Salle Parish, Louisiana. As of
        November 2006, we are in the final phase of efforts to complete the gas
        gathering system on this first lease. This will allow us to start selling
        gas.
        Once we determine our flow rates and statistics we will be better able to
        assess
        the impact of these activities upon our revenue.
  Because
        of the geological features of this lease and our oil production to date,
        we
        consider this an attractive prospect for oil and gas investors. Therefore,
        we
        have made the decision to sell working interest units in this lease. We can
        sell
        up to a total amount of $2,695,000 (representing 49% working interest). If
        we
        sold the entire 49% working interest that is being offered in this lease,
        we
        would net up to $2,156,000 of cash proceeds, after marketing costs. As of
        November 10, 2006, we have sold 35 units, resulting in gross proceeds of
        $1,925,000 and net proceeds of $1,540,000. When completed, this sale of working
        interest will replenish our cash without the need for additional capital
        financing at this time.
 
 Because
        our subsidiary, SCS Corporation (“SCS”) is looking to increase its exploration
        activities, we are beginning to look at more than one option to raise additional
        funds. 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 are formulating plans and moving forward towards drilling our
        first exploration well offshore West Africa. We feel that we can successfully
        finance such a work program either ourselves through an equity financing
        plan,
        through 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.
 
 We
        have a
        capital lease obligation of $4,998 financing certain electrical equipment
        in our
        data center and another obligation of $12,884 financing the purchase of land
        and
        a building in La Salle Parish, Louisiana. We also have a contingent $350,000
        note payable that is payable with 25% of the profits of SCS Corporation.
        We have
        the right to pay this note off using common stock.
 
 Additionally,
        in conjunction with our purchase of HYD, we entered into three notes payable
        to
        two individuals totaling $856,000. The notes are to be paid quarterly over
        the
        five years ended June 30, 2009. Payments will be due only if HYD has a net
        income according to accounting principles generally accepted in the United
        States of America. Payment amount will be 25% of the net income for the period,
        unless there was a net loss in previous period(s). If there is a net loss,
        subsequent net income must completely offset the losses before any amounts
        are
        due. After the loss is offset, payment of 25% of the remaining net income
        will
        be due.
  We
        could
        obtain additional capital also upon the exercise of other previously issued
        in
        the money outstanding warrants and options for common stock. If all outstanding
        warrants and options that are currently in the money were exercised, the
        company
        would receive approximately $5,000,000 in cash proceeds from such additional
        capital investment.
 
 **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. A lso
        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.
  12
 *Table
            of Contents*
  **Item3.**
              **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 no significant changes in the our internal
        controls or in other factors that could significantly affect these controls
        subsequent to the date of their evaluation, including any corrective actions
        with regard to significant deficiencies and material weaknesses.
  There
        have been no changes in our internal control over financial reporting identified
        in connection with the evaluation required by Rule 13a-14(b) or Rule 15d-14(b)
        that occurred during our last fiscal quarter that has materially affected,
        or is
        reasonably likely to materially affect, our internal control over financial
        reporting.
 
 
 **PartII**  **Other
        Information**
 
 **Item**1.****
              **Legal
                  Proceedings**
 
 **Dixon
        Financial Services.**
  In
        2001,
        we were named as a defendant in a lawsuit styled Dixon Financial Services,
        Ltd.
        v. Fidelity Transfer Company, Erin Oil Exploration, Inc., Bill Knollenberg,
        Ron
        Bearden, R.F. Bearden Associates, Inc., James Chang, Nick H. Johnson, Riley
        L.
        Burnett, Jr., Johnson, Burnett & Chang, L.L.P., Greenberg, Peden, Siegmyer
& Oshman, P.C., George Siegmyer and Hyperdynamics Corporation; Cause No.
        2001-06263; In the 215th Judicial District Court of Harris County,
        Texas.
 This
        suit
        alleged breach of contract for failure to deliver share certificates in the
        name
        of Dixon Financial Services for 574,500 shares of our stock which were held
        in a
        nominee name. In 2000, The Erin Oil Exploration parties, including their
        attorneys, brought suit against us, wrongfully claiming that the shares were
        subject to their claims against other persons and obtained a temporary
        restraining order preventing the transfer of the shares. Fidelity Transfer,
        as
        our transfer agent, refused to transfer the shares to Dixon because of the
        restraining order. We set aside the temporary restraining order as to the
        shares
        and the shares were not subject to a later temporary injunction. However,
        legal
        counsel for the Erin Oil parties wrongfully asserted to Fidelity Transfer
        that
        the shares were subject to the injunction and Fidelity Transfer refused to
        transfer the shares to Dixon Financial for a period of at least three months
        during which the share price dropped from more than $6.00 a share to slightly
        more than $1.00 per share. We and Dixon Financial brought claims against
        the
        Erin Oil parties and their legal counsel for their wrongful conduct. The
        Erin
        Oil legal counselasserted a litigation privilege under Texas law. The Erin
        Oil
        parties and their legal counsel filed motions for summary judgment asserting
        the
        litigation privilege as a bar to liability. The trial court granted all such
        motions for summary judgment.
 
 Fidelity
        Transfer asserted that it was not subject to jurisdiction in Texas and we
        determined that Fidelity Transfer was not currently solvent for purposes
        of any
        judgment against it in this matter. Fidelity Transfer is no longer a party
        to
        this lawsuit at this time, but we have a formal agreement allowing us to
        pursue
        recovery against Fidelity Transfer at a later time.
 
 At
        the
        end of April 2005, we and Dixon Financial entered into an agreement to settle
        and resolve this litigation. The agreement provides, among other things,
        that
        since the claims of both Dixon Financial and us against the Erin Oil parties
        and
        their legal counsel are similar, that we will bear the cost of appealing
        the
        summary judgments granted to the Erin Oil parties on the litigation privilege
        defense to liability. The agreement further provides that we agree to a judgment
        in the amount of $2,015,264 for the failure to deliver the shares into the
        name
        of Dixon Financial. However, Dixon Financial has agreed that it will not
        abstract or otherwise seek to enforce the agreed judgment, except in the
        event
        that the appeal is unsuccessful or the Erin Oil parties are determined not
        to be
        liable for any other reason. If the appeal is unsuccessful, we and Dixon
        Financial have agreed that we will pay the sum of $240,000 payable in the
        amount
        of $10,000 per month for a period of 24 months. This agreement is subject
        to
        court approval. We reasonably believe that our liability, if any, will not
        arise
        prior to September 2007. In the event that the appeal is successful, we will
        not
        be obligated to pay any amount of money other than legal fees and expenses.
        If
        the appeal is successful, we will seek to recover our damages and costs from
        the
        Erin Oil parties and their legal counsel. The Erin Oil parties' legal counsel
        has insurance which has been providing a defense and which may pay for any
        liability awarded against the Erin Oil parties' counsel.
  13
 *Table
            of Contents*
 
 The
        proposed agreed judgment described above was submitted to the court in May
        2005.
        As of September 25, 2006, the Court entered an order in June 2006 severing
        some
        of the Erin Oil parties from the main case so that the summary judgments
        entered
        in favor of those parties could be appealed. That appeal is proceeding. The
        remainder of the case is set for trial on the issue of damages in December
        2006.
        Once judgment is entered in the main case, we will seek to combine the appeals
        in the same court of appeals for resolution. An opinion from the court of
        appeals on the appealed issues is not anticipated prior to September 2007.
 
 **Wellington,
        LLC.**
 
 On
        April
        9, 2001, we were named as a defendant in a lawsuit styled Wellington, LLC
        vs.
        Hyperdynamics Corporation et al. Civil Action# 18811-NC, The Court of Chancery
        of Delaware.
 
 The
        Plaintiff claims that we did not carry out conversion of Series A preferred
        stock to common stock. On August 9, 2002 Plaintiff, Defendant, and their
        respective counsels executed an “Agreement for Transfer of Claims in Delaware
        Action to Georgia. Subsequently, the lawsuit was moved in its entirety to
        Atlanta, Georgia to be litigated under the lawsuit discussed below. Under
        the
        agreement, the Plaintiff in the Delaware action, Wellington, LLC. would become
        the Defendant in Atlanta. During the fiscal year ended June 30, 2004, the
        Court
        of Chancery of Delaware dismissed the Delaware case.
 
 On
        November 5, 2001, we filed a lawsuit styled Hyperdynamics Corporation,
        Plaintiff, v. J.P. Carey Securities, Inc., J.P. Carey Asset Management LLC,
        Joseph C. Canouse, John C. Canouse, James P. Canouse, Jeffrey Canouse,
        Southridge Capital Management LLC, Stephen Hicks a/k/a Steve Hicks, Thomson
        Kernaghan & Co., Limited, Mark Valentine, Talya Davies, Cache Capital (USA),
        L.P., Carpe Diem, Carpe Diem LTD., Wellington, LLC, Minglewood Capital, LLC,
        Falcon Securities, LTD, Navigator Management LTD., David Sims, and Citco
        Trustees (Cayman) Limited, Defendants; and Wellington LLC,
        Counterclaim/Third-Party Plaintiff, v. Hyperdynamics Corporation, a Delaware
        corporation, Kent Watts, Michael Watts, Robert Hill, Harry J. Briers, DJX,
        Ltd.,
        a Belize corporation, and Does 1-10, Counterclaim/Third-Party Defendants,
        Civil
        Action File No. 2001CV44988, In The Superior Court of Fulton County, State
        of
        Georgia.
 
 We
        filed
        our First Amended Complaint against Defendants on September 12, 2002 in which
        we
        presented thirteen counts for Causes of Action against defendants including
        “Violations of Georgia Racketeer Influenced and Corrupt Organizations” (RICO)
        Act (O.C.G.A. SS 16-14-1, ET SEO).
 
 We
        believe that more than one of the Defendants worked together to create the
        appearance of providing initial long term financing ($3,000,000) and additional
        financing commitments (up to additional $5,000,000), all from reputable sources,
        while the Defendants' real plan was to manipulate our stock through
        contractually prohibited short selling and multiple breaches of the
        contractually agreed to selling covenants.
 
 We
        are
        subject to counterclaims in this Georgia litigation. The counterclaimants
        allege
        that Hyperdynamics and its Officers and Directors breached their fiduciary
        duties to shareholders and committed other tortuous acts. We intend to continue
        to vigorously pursue damages and defend all counterclaims. Discovery is being
        primarily focused on jurisdictional issues at this time. During the litigation
        we have made numerous claims of discovery abuse resulting in certain defendants
        and defense attorney's involved being sanctioned by the court. They have
        filed
        for sanctions against us as well. The court dismissed all non-Georgia
        defendants. We have filed a notice of appeal of that ruling. **** As
        of
        September 30, 2006, no ruling has occurred.
 
 **USOil
        Corporation.**
 
 On
        July
        29, 2005, our wholly owned subsidiary filed a lawsuit styled SCS Corporation,
        Plaintiff v. USOil Corporation, Defendant; Cause No. 2005-49205; in the 333rd
        Judicial District Court of Harris County, Texas. With regard to our contract
        with USOil for a 100% farmout of the December 2002 Production Sharing Agreement
        between USOil and the Republic of Guinea, we allege breach of contract, fraud,
        negligent misrepresentation, and we seek a declaratory judgment and damages
        of
        over $12,000,000 and lost profits which we believe can easily exceed hundreds
        of
        millions of dollars. Early responses from the defendant indicated a general
        denial, that the 2002 PSA had been terminated by the government of Guinea,
        and a
        claim that we owe them $1,600,000. We have added two defendants, Dinesh Shukla
        andJoseph R. Delawa. The suit remains in discovery at the date of filing
        this
        10K.
  14
 *Table
            of Contents*
  **Trendsetter
        Investors, LLC**
 
 On
        March
        8, 2006, a lawsuit was filed against us styled Trendsetter Investors, LLC,
        Plaintiff vs. Hyperdynamics Corporation, Trendsetter Production Co., Kent
        Watts,
        Michael Watts, Christopher Watts and Harry Briers, Defendants; Civil Action
        No.
        H 06-0746; in the United States District Court for the Southern District
        of
        Texas, Houston Division.
 
 The
        Plaintiff alleges Fraud or Deceit in the Sale of Securities, Common Law Fraud,
        Fraud by Omission and Control Person Liability. Plaintiff seeks unspecified
        monetary damages. We deny all their allegations and are vigorously defending
        ourselves. We have filed a motion to dismiss on behalf of all defendants.
        The
        case is currently stayed by the Court pending a ruling on these motions to
        dismiss. We believe this plaintiff's shareholders are one and the same as
        the
        members of a control group (the "Manning Group") led by Mr. Jack Manning.
        Manning is a Houston based attorney and has been a supporter of Hyperdynamics
        Corporation in the past. In private equity deals since April of 2003, he
        and his
        group have purchased common stock in the price range of $.15 to $.80 per
        share.
        We believe that the Manning Group through the circumstances surrounding the
        Trendsetter LLC working interest investment, has an agenda to unjustly enrich
        themselves through our securities. We are considering counter claims against
        Trendsetter LLC and each member of the Manning Group. We have significant
        concerns that they collectively have or have had over 10% of our common stock
        and they have been acting in concert, making them an undisclosed affiliate
        group. As of September 30,2006, the suit is in discovery.
 
 **Manning,
        Moore, Long**
 
 On
        May 5,
        2006 a lawsuit was served styled Jack Manning, Sue Manning, Stephen Moore
        and
        Geoffrey Long, Plaintiffs versus Hyperdynamics Corporation and Kent Watts,
        defendants. The suit was filed in the 189th District Court of Harris County,
        Texas with cause no. 2006-22135. The Plaintiff alleges they had the pre-emptive
        right to invest in Hyperdynamics Corporation's common stock. We deny all
        their
        allegations and will vigorously defend ourselves and are evaluating all possible
        counter claim actions. We believe this lawsuit is tied to the Trendsetter
        LLC
        litigation discussed above, and is a part of their groups' concerted attack
        on
        the company as a strategy to receive undue enrichment in the form of our
        common
        stock. We have exchanged the first round of written discovery and intend
        to
        conduct additional discovery, including depositions.
 
 Of
        far
        more importance to us is that this group may have been or is now acting together
        in concert since as far back as April 2003 when they funded a bridge loan
        and
        collectively invested and purchased 2,878,969 shares of common stock. At
        that
        time there was approximately 27,000,000 shares of common stock outstanding.
        This
        would have given them greater than 10% of the outstanding common stock of
        the
        company. In review of our records, during the period of time between October
        of
        2003 through approximately the end of March of 2004, this group dramatically
        increased their holdings of Hyperdynamics Corporation's common stock. Based
        on
        concerted actions since then, we are seriously evaluating all corroborating
        information concerning the possibility that their group is an undisclosed
        affiliate of Hyperdynamics Corporation. As of September 30,2006, the suit
        is in
        discovery.
 
 **Item2.**
              **Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds**
  In
        July
        2006, we issued options to purchase 40,000 shares of common stock to three
        employees as compensation. These options have an exercise price of $2.08
        per
        share and expire in two years. 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 transaction 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.
 
 In
        August
        2006, we issued an option to purchase 40,000 shares of common stock to an
        employee as compensation. This option has an exercise price of $2.20 per
        share
        and expires in three years. This transaction was made in reliance upon
        exemptions from registration under Section 4(2) of the Securities Act. Each
        certificate issued for unregistered securities contained a legend stating
        that
        the securities have not been registered under the Securities Act and setting
        forth the restrictions on the transferability and the sale of the securities.
        No
        underwriter participated in, nor did we pay any commissions or fees to any
        underwriter, in these transactions. These transaction 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.
  15
 *Table
            of Contents*
  In
        October 2006, we issued an option to purchase 25,000 shares of common stock
        to
        an employee as compensation. This option has an exercise price of $2.88 per
        share and expires in three years. This transaction was made in reliance upon
        exemptions from registration under Section 4(2) of the Securities Act. Each
        certificate issued for unregistered securities contained a legend stating
        that
        the securities have not been registered under the Securities Act and setting
        forth the restrictions on the transferability and the sale of the securities.
        No
        underwriter participated in, nor did we pay any commissions or fees to any
        underwriter, in these transactions. These transaction 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.
 
 In
        October 2006, we issued options to purchase 40,000 shares of common stock
        to
        three employees as compensation. These options have an exercise price of
        $2.74
        per share and expire in two years. 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 transaction 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.
 
 In
        October 2006, we issued an option to purchase 40,000 shares of common stock
        to
        an employee as compensation. This option has an exercise price of $2.74 per
        share and expires in three years. This transaction was made in reliance upon
        exemptions from registration under Section 4(2) of the Securities Act. Each
        certificate issued for unregistered securities contained a legend stating
        that
        the securities have not been registered under the Securities Act and setting
        forth the restrictions on the transferability and the sale of the securities.
        No
        underwriter participated in, nor did we pay any commissions or fees to any
        underwriter, in these transactions. These transaction 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.
 
 **Item6**
              **Exhibits**
 
 Exhibit
        31.1 - Certification of Chief Executive Officer of
        Hyperdynamics Corporation required by Rule 13a-14(1) or Rule 15d-14(a) of
        the
        Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
        Sarbanes-Oxley Act of 2002.
 
 Exhibit
        31.2 - Certification of Chief Financial Officer of
        Hyperdynamics Corporation required by Rule 13a-14(1) or Rule 15d-14(a) of
        the
        Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
        Sarbanes-Oxley Act of 2002.
 
 Exhibit
        32.1 - Certification of Chief Executive Officer of
        Hyperdynamics Corporation pursuant to Section 906 of the Sarbanes-Oxley Act
        of
        2002 and Section 1350 of 18 U.S.C. 63.
 
 Exhibit
        32.2 - Certification of Chief Financial Officer of
        Hyperdynamics Corporation pursuant to Section 906 of the Sarbanes-Oxley Act
        of
        2002 and Section 1350 of 18 U.S.C. 63.
  16
 *Table
            of Contents*
  **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 Officer
 
 Dated:
        November 20, 2006
 
 
 By:
                /s/
              Steven
                  M. PlumbSteven
                  M. Plumb,Chief
                  Financial Officer
 
 Dated:
        November 20, 2006
  17