History Hyperdynamics Corporation ("Hyperdynamics") is a Delaware corporation founded in 1996. At inception we were a value-added reseller of computer hardware and software. Our business plan was to develop into a complete service provider of integrated information technology services. During the fiscal year ended June 30, 2001, we began to offer our Integrated Technology Service Provider (ITSP) product, a bundled service offering for clients who wished to outsource their information technology department in addition to receiving internet service. We discontinued this integrated service beginning in fiscal year 2002, about a year after acquiring our subsidiary, SCS Corporation ("SCS"). When we acquired SCS, we decided to implement a dramatic change in our business plan. SCS quickly became our only operating subsidiary. In the summer of 2001, months after the SCS acquisition, we shifted instead to providing products and services targeted specifically to the oil and gas industry such as seismic data management services, customized geological workstations, and data transcription services. Additionally, SCS' management had years of experience which included both oil and gas exploration and the provision of seismic data management services to the oil and gas industry. In early 2002, SCS got the opportunity to become involved in an exploration project offshore the Republic of Guinea, West Africa ("Guinea"). Additionally in late fiscal 2004, we began exploration and production activities in Louisiana, USA through our reportable operating segment HYD Resources ("HYDR").

While working to rectify the problems with the Guinea exploration project, we focused more heavily on our Louisiana operations. In April 2004, we initiated a new company, HYD Resources Corporation ("HYDR"). HYDR owns drilling rigs, a workover rig and drilling equipment. HYDR drills oil wells in proven areas within the United States. So far all of its drilling activity has occurred in Louisiana. Our primary goal for HYDR is to cost-effectively generate domestic production revenues.

Finally, we continue to use our seismic data management or NuData(SM) services in house. In fiscal 2005, we copied all the vintage data of the Republic of Guinea from nine-track data tapes to DVD. Thus, this software continues to meet our in-house data management requirements. Our seismic data management capabilities facilitate the further analysis and use of the data acquired pursuant to the needs of our exploration work programs.

Current Focus and Direction of Business Plan

Offshore Oil and Gas Exploration and Exploitation; Production and Sharing Agreement for Exploration Territory Offshore The Republic of Guinea In early 2002, SCS management, in association with US Oil Corporation of Houston, Texas ("US Oil") began to evaluate the viability of US Oil's oil and gas concession off the coast of The Republic of Guinea, West Africa ("Guinea"). After SCS' geo-experts review of older seismic data collected from that concession, we decided that the concession provided a good business opportunity. Thus, we negotiated an agreement with US Oil to revitalize the then-dormant 1995 Production and Sharing Agreement that US Oil still had in effect with Guinea. We proposed to perform a regional seismic data acquisition across the concession using modern digital technology. US Oil agreed to the proposal and the Government of Guinea was amenable to our proposal and issued permits. SCS proceeded in 2002 to acquire one thousand kilometers of regional two-dimensional ("2D") seismic lines. In December 2002 US Oil negotiated a new Production and Sharing Agreement ("2002 PSA") with Guinea. US Oil farmed out 100% of the rights and obligations of this agreement to SCS. This 2002 PSA gives rights for exploration and production across the concession of approximately sixteen million (16,000,000) acres. In November 2003, SCS acquired another four thousand kilometers of 2D seismic. We performed our exploration work in Africa under Guinea's Hydrocarbon Development Program, which was instituted by President Lansana Conte. During fiscal 2004 we accomplished critical exploration work: a 4000 kilometer 2D seismic data shoot, the processing of the seismic data acquired, and the evaluation of that data and data that had been acquired in the past.

Until SCS began the exploration program, the geological information relating to offshore Guinea was scant. The first exploration activity in our concession area occurred in the 1970's. The technology available for data acquisition and processing at that time did not reveal geological information with great precision. The area was not considered as attractive as other areas which more clearly evidenced hydrocarbon systems using contemporaneous technology and which were easier to explore and develop. Accordingly, very little additional exploration work occurred on the concession until we began our work in 2002. The general economic environment has changed dramatically since the 1970's. Today, oil is more scarce and the price of oil is the highest it has ever been. Because of this economic fact, exploration and development is occurring in certain areas around the world that were previously not explored because the cost was perceived to exceed the potential benefits. As we now know, offshore Guinea was viewed as an area such as this for many years based on old geological and geophysical data. We conducted our surveys using modern technology which more accurately depicts the geological character of the area. The geological work that we and our vendors have performed supports our plan to begin drilling exploration wells.

The regional 2D seismic acquired in 2002 included about 1,000 kilometers of new data, which we re-evaluated during fiscal year 2004. We used the information garnered from this regional data shoot to design a more detailed 2D coverage of a 4,000 kilometer grid and we acquired the additional data. During the second, third, and fourth quarters of 2004, we completed the processing and interpretation of this additional 4,000 kilometers of seismic data. This fulfilled our work obligation under the initial exploration phase of the 2002 PSA.

The additional interpretation and analysis of this 2003 data in early 2004 kept us in full compliance with our required work under the 2002 PSA and, began our strategy to exceed minimum requirements in support of our commitment to a hydrocarbon discovery. We continued our analyses with new and better methods into late fiscal 2005. This work is continually providing us with growing evidence in the form of documented direct hydrocarbon indicators.

In fiscal 2004, after completion of the initial processing and re-processing of our newly acquired 4,000 kilometers of digital 2D data, we were able to determine, through intense detailed analysis and mapping procedures, the existence of direct hydrocarbon indicators, including many noted gas seeps sourcing from the ocean floor in our coverage area. Based on this and the other geological and geophysical analysis, we contracted TDI-Brooks International ("TDI") to perform an extensive geochemical analysis. In early August 2004, we obtained a permit from the government of Guinea and the geochemical work program began offshore Guinea on August 17, 2004. A total of fifty seven core samples were acquired and delivered back to TDI's laboratory at College Station, Texas and an analysis was completed on August 30, 2004. The results of the coring program in early fiscal 2005 added additional evidence supporting our plan to drill our first exploration wells.

In addition to the geo-chemical analysis, we had originally planned to implement a three-dimensional ("3D") survey in early 2004. We decided to defer the 3D survey because we wish to take the extra time to further analyze our data in order to design a more efficient program which would concentrate our efforts on the most prospective areas in the concession. We contracted with internationally known Petroleum Geo-Services ("PGS") to perform a third party detailed and comprehensive analysis and interpretation of all our seismic data. PGS's team of professionals began an estimated 12 week process on July 13, 2004. They presented their preliminary report to us on August 19, 2004 revealing significant corroborating evidence of hydrocarbons, but most importantly it clearly expressed agreement with our view that there is well defined working petroleum system across the concession. PGS gave us their completed report in December of 2004. This report supported our work, giving us additional corroborating evidence to go forward toward drilling. One of the main issues with regard to determining our next step was the corroborating evidence of the size of the drilling targets. This confirmed our belief that the next step should be drilling our first exploration wells as opposed to spending any more time and money on 3D seismic. Due to the size of the structures, our geo-experts determined that we would gain much more by simply spending the money to drill. In January 2005, we began looking at ways to put together drilling operations. Additionally, we stepped up our communications and negotiations with potential oil company working interest partners, drilling companies, and began work to contract drilling platforms to use to drill our exploration wells. Our geo-experts refined their work during the months of January through May 2005 and diligently focused in on four targets from shallow to medium depth water. We also developed a multi-channel strategy to drill more wells faster. The first channel is to partner with oil companies on a working interest basis. The second is to raise significant private funds and to contract directly with a drilling company and drilling platform vendors ourselves. The third strategy was to contract with turn-key offshore drilling companies whereby our geo-experts would direct the drilling operations of the contractor.

Our top corporate priority revolved around discovering commercially viable hydrocarbons offshore Guinea since December of 2002. We made progress toward this goal until June 27, 2005, when we sent a request for a drilling permit to Guinea, through USOil. The request was to obtain a permit to drill as many as four exploration wells offshore Guinea. We expected to receive the drilling permit quickly as a hydrocarbon development program was always reportedly the top priority and of the utmost importance to the country of Guinea. We received a termination letter on the letterhead of the private office of the president, purportedly written in "Agreement with the Authority". We had not received any prior deficiency notice when we received the letter. We began working diligently to rectify issue of our right to continue under the 2002 PSA. We disclosed these events in an 8-K filed on July 28, 2005.

On July 12, 2005 we received a notice from USOil as disclosed in our 8-K filed on July 28, 2005, which purported that the 2002 PSA had been canceled. We disagreed totally with their assessment and filed suit against USOil on July 29, 2005, as disclosed in the legal proceedings section hereunder. We immediately began working diligently to clear up all misunderstandings with the Government of Guinea so that we could get back to the objective of beginning drilling operations offshore Guinea. On August 26, 2005, Mr. Kent Watts, President and Chief Executive Officer, hired Mr. Famourou Kourouma as the company's new Vice President of Guinea Affairs. Mr. Kourouma, born and raised in Guinea, began working on the problem to get us back into a position to begin our drilling program since their initial contact on August 22, 2005.

He traveled to Conakry, Guinea in early September 2005 and sought a resolution of the outstanding issues precluding SCS from pursuing an exploratory drilling program. Through Mr. Kourouma's many meetings and contacts with business and government officials, including two separate meetings with the Head of State, support for our issues was sincerely expressed and a clear path was given by the Head of State to work with the Ministre Secretaire General De La Presidence De La Republique De Guinee, Son Excelence Mr. Fode Bangoura.

On Wednesday September 21, 2005, Mr. Kourouma called from Guinea and requested that he come to Conakry to prepare for a meeting with a top ranking government official. On Thursday, September 22, 2005, Kent Watts left for Guinea. He arrived in Conakry, Guinea at approximately 5:00PM on Friday, September 23, 2005.

On Tuesday, September 27, 2005, Mr. Kent Watts, CEO and Mr. Kourouma, VPGA had a private meeting with the Ministre Secretaire General De La Presidence De La Republique De Guinee, Son Excelence Mr. Fode Bangoura (hereunder referred to as the "MSG"). The meeting was held at 3:00PM at the Presidential palace in Conakry, Guinea. Our issues pertaining to being allowed to continue our work were discussed and the Minister Secretary General was extremely understanding and gracious. First and foremost, the MSG emphatically denied that any termination letter had been generated or authorized by his office. This means that the termination letter forwarded to us by USOil and reported in our 8K was a fake and not valid.

After some additional interpretive dialogue, Mr. Watts and Mr. Kourouma asked the Secretary General, "what could we report as a summary outcome of our meeting together." Mr. Kourouma reported to Mr. Watts the following substantive interpretation of the Secretary General's response.

"The Secretary General Son Excelence Mr. Fode Bangoura told us that he was pleased to discuss our issues with us and that he was very encouraged and believed that we were the right company for the work. He then said that he will begin by reviewing everything in detail tonight. Then, he will discuss the information with the minister committee and a proposal from the President will be submitted to the National Assembly for approval. Once the proposal is approved, the National Assembly will issue a legal approval (projet de lois). Then he said that he will inform us of the approval and at that time he will perform all steps necessary to allow us to continue our work. "

With this new development and pending the outcome, Hyperdynamics Corporation has significant reason to believe an amicable solution is inevitable in the very near future.

Seismic Data Management Services

On August 27, 2004 we entered into a contract with Texas Geophysical Company ("TGC") relating to their data from Northern Alaska covering an offshore area of the Alaska National Wildlife Refuge ("ANWR"). Under this contract, SCS became the sales agent and seismic data management provider for TGC's ANWR data. The State of Alaska recently opened this area for block bids for offshore oil and gas exploration and exploitation and TGC has the rights to the only 2D seismic data known to cover this area. Should oil companies license this data, SCS will perform the data processing and will earn associated service revenues and a percentage of the license fees.

Development of SCS NuData(TM) Management System

On September 13, 2002, we acquired the copyrights and all rights to the source code of the ONYX and ONYXII related conversion and transcription software. The software is instrumental in providing the technical capabilities to handle virtually any type of tape transcription and data conversion service. The ONYX software establishes a major competitive advantage for us as a primary component for our SCS NuData Management System. The ONYX software has been developed over the last five years and we are in the process of completing its latest version of the software to take full advantage of Microsoft's 32 bit Operating Systems such as Windows 2000, Windows XP and future 64 bit operating systems as technology advances. As the primary cornerstone of our NuData Management System, ONYX facilitates over 120 different tape formats including such common formats like SEG A,B,C, or D, Western Code 4.2 and 1, Geocore 4, and Tempest, to name a few. These formats are converted to the more standard SEG-Y format and then consolidated to DVD. Features of the NuData Management System in addition to the

ONYX based conversion capabilities include:

A custom and unique tape tracking system tightly monitoring and managing the transcription process and database to organize and keep track of all the data associated with a particular line or area of seismic data. Bundled services to scan well logs, maps and other related information to PDF format and consolidate such related data on the same disk or DVD as the converted seismic data.

Strong quality assurance procedures. Data sets are catalogued in the NuData database and then compared to client's database and reconciled to NuData database.

Once consolidated on DVD, there are many different data management and backup solutions available, for example, online virtual private network (VPN) access established privately or high speed transmission from Hyperdynamics transcription facility to remote sites across high bandwidth capacity connection.

While we maintain the ability to service third party companies, the primary benefit of our NuData capability is to make our exploration activities significantly more efficient.

When coupled with our extensive industry experience, the NuData Management System allows us to consolidate our seismic data in ways that save substantial amounts in future data maintenance expenses. We can dramatically enhance our accessibility and utility of our seismic data thereby enhancing our ability to find new oil and gas reserves faster and at a lower cost. In summary, the NuData Management System makes the data we manage more secure, accessible, manageable, and portable all while saving us significant time and money.

Domestic Oil Field Service and Production

On April 23, 2004, we acquired our new subsidiary, HYD Resources Corporation (HYD). HYD is a Texas corporation and is our second operating subsidiary. HYD has corporate offices located at our home office in Houston and one field office located in La Salle Parish in Louisiana. When acquired, HYD had approximately $375,000 worth of assets, the bulk of which was oil field equipment. At the time of acquisition, HYD also had no prior history of operations. HYD's president, Mr. Sam Spears, a long time oil industry operator, made some strategic purchases of additional equipment in early fiscal 2005 and we then renovated two drilling rigs and one work-over rig that are all in operation today. HYD drills oil wells in proven areas within the United States. Currently, all of its drilling activity occurred in Louisiana.

In January 2005, Hyperdynamics acquired an inactive company that from the former owners of HYD, Trendsetter Production Company (TPC). TPC is an authorized operator in the state of Louisiana. This immediately made us an oil and gas operator.

HYD's business is drilling and production services for shallow wells with relative low volume in proven areas known to historically produce oil and gas. We evaluate the performance of these two companies as a single unit, our reportable segment named HYD Resources ("HYDR").

One of HYDR's activities is the acquisition and repair of key oil field equipment. We can then use this equipment to drill for our own oil and gas production, establish production facilities, and maintain our producing wells. Because of our capabilities to drill and operate, we have obtained working interest on currently 614 acres under lease. We intend to continue to acquire oil leases in known producing areas and drill these leases to increase our own production revenues. We can acquire onshore producing leases with a very low risk and cost-effectively enhance the production of wells acquired by working over existing wells. Management expects our onshore operations to result in current income to cover its corporate overhead.

Since January 2005, we have obtained or drilled its first 21 oil wells on three separate leases. While drilling our first lease known as the J. W. Norris lease, it was determined that significant amounts of high pressure gas existed on the lease. As each well drilled continued to hit additional gas zones, the first twelve wells were left basically shut-in and it was determined that we would need to install a gas gathering system, contract with a pipeline transmission company and then execute a contract with a company to buy our gas. This process to establish a means to sell our gas began in June 2005 and we signed a contract with Tennessee Gas on September 2, 2005. We subsequently delivered our contract to sell our gas with British Petroleum on September 15, 2005. This has enabled us to install a gas gathering system and metering equipment to begin selling our natural gas reserves. Gas sales are expected to begin in October 2005. After determining that it would take some time to get established to sell natural gas, we began drilling oil wells on the Kelly lease. The first well drilled, Kelly#1 began initially with flow rates of approximately thirty barrels per day in July 2005. This increased to approximately seventy barrels per day in early August and is expected to level out at around fifty barrels per day. The company also has drilled Kelly# 2 as completed approximately at the end of August. While drilling Kelly#1 and Kelly#2, new gas zones were discovered as well. Since the gas metering equipment for the Norris lease will actually be located on the Kelly lease, we believe that drilling additional gas wells to increase gas production will be much easier and faster once the gas system is completed. With at least two more sites to place producing wells on the Kelly lease, management feels that maximum production from Norris and Kelly should be reached sometime between October and November of 2005.

Since July 1 through September 26, 2005 we sold approximately 1,943 barrels of oil and have approximately nine hundred (880) barrels in the production tanks. We are looking to begin drilling on additional leases that we have and additionally expect to obtain. During fiscal year 2006, the domestic production goals are to nominally reach seven hundred fifty (750) barrels per day of production of oil and gas equivalent.

Employees and Independent Contractors

We currently have 31 full time employees and no part time employees. Out of 31, 6 of these employees are a strict part of corporate overhead, 4 are directly associated with SCS and thus attributable to the exploration and seismic data management effort and 21are focused on the growing oil field production of HYD Resources. They are comprised of 2 management and 19 hourly employees working on well work-over, drilling, and strategic equipment renovation projects. Additionally, we use independent contractors to minimize fixed overhead. No employees are represented by a union and the Company believes that its labor relations are good.

Alliance Partnerships, Key Vendors and Technical Certifications

Hyperdynamics maintains certifications with Microsoft as a Microsoft Solution Provider and Great Plains Software as eEnterprise reseller. Our technical capabilities are more focused on vertical software development, for example, our new version of ONYX software that is the cornerstone of our NuData(SM) end-to-end seismic data services.

Oil industry related alliance partners and vendors that we have established include the following:

Spectrum Geophysical Processing Company ("Spectrum") provided professional data processing services for us. Spectrum is a member of a UK registered group of companies providing seismic data processing, non-exclusive surveys and electronic data management services to a wide range of international clients. Spectrum has its headquarters in Woking, England, with operational centers in Houston and Cairo. There are active joint ventures in Buenos Aires, Tripoli, Tehran and New Delhi. SEISMIC DATA PROCESSING operates a major processing computer hub in its Houston office using the successful combination of interactive SeisUp running on multi CPU Hewlett Packard Exemplar systems with the addition of a large PC cluster to run pre-stack time and depth migration and other CPU intensive processes. Both Spectrum's geophysicists and Spectrum's clients can interactively utilize this capacity via Tarantella servers and the internet. As pioneers of seismic trace scanning and digital reconstruction, Spectrum continues to improve its Geoscan service and product with more sophisticated reconstruction algorithms and an upgraded, interactive operating environment. Spectrum also provide tape transcription and remedial/recovery services, and have successfully completed many projects involving the copying of thousands of old tapes to new high density cartridges. NON-EXCLUSIVE SURVEYS are an important part of the group's activities. The international portfolio has recently increased with the completion of surveys offshore Oman and New Zealand. We contracted with Petroleum Geophysical Services ("PGS") to establish a strategic alignment for further seismic acquisition and independent data interpretation services. PGS is a technologically focused oilfield service company principally involved in geophysical and floating production services. PGS provides a broad range of seismic and reservoir services, including data acquisition, processing, interpretation, and field evaluation. PGS also owns and operates four floating production, storage and offloading units (FPSOs). PGS operates on a worldwide basis with headquarters in Oslo, Norway.

We engaged TDI-Brooks International ("TDI") to perform geochemical core analysis of our concession. TDI is the recognized leader in offshore surface geochemical exploration and heat flow measurement. Since 1996, TDI has collected nearly 7,000 deep water piston core sediment samples and heat flow stations for every major oil company, in areas such as the Caribbean, the Gulf of Mexico, the Mediterranean, the North Atlantic and offshore West Africa.

Key Customers

Oil production from our Louisiana properties is purchased by one customer - Plains Marketing LLC.

Research and Development

We do not expend a material amount on research and development. Cost of Compliance with Environmental Laws

Because we are engaged in extracting natural resources, our business is subject to various federal, state and local provisions regarding environmental and ecological matters. Therefore, compliance with environmental laws may necessitate significant capital outlays, affect our earnings potential, and cause material changes in our current and proposed business activities. At the present time, however, the environmental laws do not materially hinder nor adversely affect our business. Capital expenditures relating to environmental control facilities have not been material to our operations since our inception. During the fiscal year, we have done an oil well clean up. The cost of the clean up was less than $5,000. We have abided and are in compliance with the environmental law.