10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

xQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:

For the quarterly period ended March 31, 2017

or

oTransition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:

For the transition period from         to        

Commission file number: 001-32490

HYPERDYNAMICS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	87-0400335
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

12012 Wickchester Lane, Suite 475

Houston, Texas 77079

(Address of principal executive offices, including zip code)

713-353-9400

(Registrant’s principal executive office telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company x
		(Do not check if a smaller reporting company)	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  YES o  NO x

As of May 18, 2017, 21,871,658 shares of common stock, $0.001 par value, were outstanding.

Table of Contents

Part I. Financial Information
Item 1.      Unaudited Consolidated Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2017 and June 30, 2016	3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2017 and 2016	4
Condensed Consolidated Statement of Shareholders’ Equity for the period from July 1, 2015 to March 31, 2017	5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2017 and 2016	6
Notes to Condensed Consolidated Financial Statements	7
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.     Quantitative and Qualitative Disclosures about Market Risks	26
Item 4.     Controls and Procedures	26
Part II. Other Information
Item 1. Legal Proceedings	27
Item 1A. Risk Factors	28
Item 6.     Exhibits	29
Signatures	33

2

HYPERDYNAMICS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Number of Shares and Par Value)

(Unaudited)

	March 31, 2017			June 30, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	591		$	10,327
Prepaid expenses	322			1,294
Deposits and other current assets	110			6
Total current assets	1,023			11,627
Property and equipment, net of accumulated depreciation of $2,104 and $2,075	53			51
Unproved oil and gas properties excluded from amortization (Full-Cost Method)	4,653			—
	4,706			51
Total assets	$	5,729		$	11,678
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	2,169		$	1,743
Total current liabilities	2,169			1,743
Warrants derivative liability	205			—
Total Liabilities	2,374			1,743
Commitments and contingencies (Note 6)	—			—
Shareholders’ equity:
Preferred stock, $0.001 par value; 20,000,000 authorized, 1,191 and -0- shares issued and outstanding as of March 31, 2017 and June 30, 2016, respectively	—			—
Common stock, $0.001 par value, 87,000,000 shares authorized; 21,840,146 and 21,046,591 shares issued and outstanding as of March 31, 2017 and June 30, 2016, respectively	170			169
Additional paid-in capital	320,142			317,757
Accumulated deficit	(316,957		)	(307,991		)
Total shareholders’ equity	3,355			9,935
Total liabilities and shareholders’ equity	$	5,729		$	11,678

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HYPERDYNAMICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Number of Shares and Per Share Amounts)

(Unaudited)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2017			2016			2017			2016
Costs and expenses:
Depreciation	$	7		$	27		$	42		$	83
General, administrative and other operating	3,380			3,266			11,627			6,972
Full-cost ceiling test write-down	—			14,331			753			14,331
Loss from operations	(3,387		)	(17,624		)	(12,422		)	(21,386		)
Gain on settlement agreement	—			—			4,764			—
Cost of legal settlement	—			—			(1,308		)	—
Loss before income tax	(3,387		)	(17,624		)	(8,966		)	(21,386		)
Income tax	—			—			—			—
Net loss	$	(3,387	)	$	(17,624	)	$	(8,966	)	$	(21,386	)
Basic and diluted loss per share	$	(0.16	)	$	(0.84	)	$	(0.42	)	$	(1.02	)
Weighted average shares outstanding — basic and diluted	21,113,632			21,046,591			21,277,232			21,046,591

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

HYPERDYNAMICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In Thousands, Except Number of Shares)

(Unaudited)

						Additional
	Common Stock			Preferred Stock		Paid-in			Accumulated
	Shares	Amount		Shares	Amount	Capital			Deficit			Total
Balance, July 1, 2015	21,046,591	$	169	—	—	$	317,404		$	(285,145	)	$	32,428
Net loss	—	—		—	—	—			(22,846		)	(22,846		)
Amortization of fair value of stock options	—	—		—	—	353			—			353
Balance, June 30, 2016	21,046,591	$	169	—	—	$	317,757		$	(307,991	)	$	9,935
Net loss	—	—		—	—	—			(8,966		)	(8,966		)
Exercise of stock options	58,610	—		—	—	64			—			64
Stock issued in lieu of cash bonus	134,945	—		—	—	57			—			57
Amortization of fair value of stock options	—	—		—	—	146			—			146
Stock Issued for Settlement	600,000	1		—	—	1,307			—			1,308
Preferred Stock Issuance	—	—		1,191	—	1,191			—			1,191
Beneficial conversion feature (discount)	—	—		—	—	(1,009		)	—			(1,009		)
Beneficial conversion feature	—	—		—	—	1,009			—			1,009
Discount (investor warrants and other)	—	—		—	—	(230		)	—			(230		)
Other	—	—		—	—	47			—			47
Cost of issuance of preferred stock	—	—		—	—	(197		)	—			(197		)
Balance, March 31, 2017	21,840,146	170		1,191	—	320,142			(316,957		)	3,355

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HYPERDYNAMICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Nine Months Ended March 31,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(8,966	)	$	(21,386	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on legal settlement	(4,078		)	—
Depreciation	42			83
Loss on disposal of fixed assets	1			—
Full cost ceiling test write-down	753			14,331
Internal costs written off to general, administrative and other	1,275			—
Stock based compensation	146			280
Stock issued in lieu of cash bonuses	57			—
Stock issued for settlement	1,308			—
Changes in operating assets and liabilities:
(Increase) decrease in Accounts receivable — joint interest	—			(28		)
Decrease in Prepaid expenses	972			886
(Increase) decrease in Deposits and other current assets	(104		)	2
Increase (decrease) in Accounts payable and accrued expenses	426			435
Net cash used in operating activities	(8,168		)	(5,397		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(45		)	(1		)
Investment in unproved oil and gas properties	(2,568		)	(20		)
Net cash used in investing activities	(2,613		)	(21		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock issued	1,191			—
Offering costs	(210		)	—
Proceeds from exercise of stock options	64			—
Net cash provided by financing activities	1,045			—
DECREASE IN CASH AND CASH EQUIVALENTS	(9,736		)	(5,418		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	10,327			18,374
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	591		$	12,956

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

HYPERDYNAMICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

General Overview

Hyperdynamics Corporation (“Hyperdynamics,” the “Company,” “we,” “us,” and “our”) is a Delaware corporation formed in March 1996. Hyperdynamics has two wholly-owned subsidiaries, SCS Corporation Ltd (“SCS”), a Cayman corporation, and HYD Resources Corporation (“HYD”), a Texas corporation. Through SCS, Hyperdynamics focuses on oil and gas exploration offshore the coast of West Africa. Our exploration efforts are pursuant to a Hydrocarbon Production Sharing Contract, as amended (the “PSC”).  We refer to the rights granted under the PSC as the “Concession.” We began operations in oil and gas exploration, seismic data acquisition, processing, and interpretation in late fiscal 2002.

As used herein, references to “Hyperdynamics,” “Company,” “we,” “us,” and “our” refer to Hyperdynamics Corporation and our subsidiaries, including SCS. The rights in the Concession offshore Guinea are held by SCS.

Status of our Business, Liquidity and Going Concern

We have no source of operating revenue and there is no assurance when we will, if ever.

On March 31, 2017 we had $0.6 million in cash, and $2.2 million in accounts payable and accrued expense liabilities, all of which are current liabilities.  Our net working capital will not be sufficient to meet our corporate needs and Concession related activities for the quarter ending June 30, 2017.  We are currently pursuing several avenues to raise funds.  We have no other material commitments other than ordinary operating costs and commitments relating to the PSC.

As of the date of filing, the Company’s trade accounts payable and accrued expenses exceeded its cash balances.

Following the execution of Amendment No. 1 to the PSC in March 2010 (the “First PSC Amendment”) and the receipt of a Presidential Decree in May 2010, we closed on a sale of a 23% gross interest in the Concession to Dana Petroleum, PLC (“Dana”), a subsidiary of the Korean National Oil Corporation. In December 2012, we closed a sale of a 40% gross interest to Tullow Guinea Ltd. (“Tullow”), and Tullow became the Operator on April 1, 2013.

Pursuant to the terms of sale between Tullow and us, Tullow paid us $26.0 million in cash and Tullow agreed to pay our entire participating interest share of expenditures associated with joint operations in the Concession up to a gross expenditure cap of $100.0 million incurred during the period of our carried interest while drilling the initial exploratory well that began on September 21, 2013. Tullow also agreed to pay our participating interest share of future costs for the drilling of an appraisal well following the initial exploration well, if drilled, up to an additional gross expenditure cap of $100.0 million.

A planned deepwater exploration well of the Concession during the first half of calendar 2014 was delayed by Tullow upon declaration of Force Majeure in March of 2014 based on the mere existence of the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) investigations pursuant to the Foreign Corrupt Practices Act of the United States (“FCPA Investigations”).  Tullow withdrew its Force Majeure declaration in May of 2014, but did not resume petroleum operations citing the continued existence of the FCPA Investigations and the Ebola outbreak in Guinea.

The DOJ investigation ended in May 2015, the SEC investigation ended in September 2015, and the World Health Organization declared Guinea Ebola free on December 29, 2015. Notwithstanding the resolution of the FCPA Investigations, Dana insisted on further specific title assurances from the Government of Guinea.  Continued failure to resume petroleum operations by both Tullow and Dana in December 2015 forced us to file legal actions under our Joint Operating Agreement.

On August 15, 2016, we entered into a Settlement and Release Agreement with Tullow and Dana (“Settlement Agreement”) that returned to us 100% of the interest under the PSC, long-lead item property useful in the drilling of an exploratory well, and $0.7 million in cash, in return for a mutual release of all claims. We also agreed to pay Dana a success fee based upon the certified reserves of the Fatala-1 well if it results in a discovery.

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We executed a Second Amendment to the PSC (“Second PSC Amendment”) with the Government of Guinea on September 15, 2016, and received a Presidential Decree that gave us a one year extension to the second exploration period of the PSC to September 22, 2017 (“PSC Extension Period”) and became the designated Operator of the Concession.

In addition to clarifying certain elements of the PSC, we agreed in the Second PSC Amendment to drill one exploratory well to a minimum depth of 2,500 meters below the seabed within the PSC Extension Period (the “Extension Well”) with the option of drilling additional wells. Fulfillment of this work obligations exempts us from the expenditure obligations during the PSC Extension Period.

In turn, we retained an area equivalent to approximately 5,000 square kilometers in the Guinea offshore waters and took on the obligation to provide the Government of Guinea: (1) A parent company guarantee for the well obligation, (2) monthly progress reports and a reconciliation of budget to actual expenditures, (failure to provide the reports and assurances on a timely basis could result in a notice of termination with a 30 day period to cure), and (3) certain guarantees.

Additionally, we agreed to limit the cost recovery pool to date to our share of expenditures in the PSC since 2009 (estimated to be approximately $165,000,000 net to our interest) and began to move into the territory of Guinea the long lead items we received in the Settlement Agreement that are currently stored in Takoradi, Ghana. The movement of approximately $1.6 million of the $4.1 million of equipment was started on January 29, 2017 and was completed on February 5, 2017. The balance of the material still in Ghana will be moved at a later date. Finally, we agreed to allocate and administer a training budget during the PSC Extension Period for the benefit of the Guinea National Petroleum Office of $250,000 in addition to any unused portion of the training program under Article 10.3 of the PSC. The unused portion of the training program is now estimated to be approximately $400,000.

In mid-January 2017 we requested and received a notification letter dated January 24, 2017 from the General Director of the National Petroleum Office of the Republic of Guinea, informing us that the Republic of Guinea granted a postponement of our obligation to provide a mutually acceptable security of $5.0 million to February 20, 2017 (originally required by no later than January 21, 2017) as well as a clarification regarding the timing of the security under Article 4.2 of the Second PSC Amendment until the work on the Fatala-1 well is completed. On March 1, 2017, the Republic of Guinea issued a reservation of rights letter asserting that we did not satisfy our obligation to deposit mutually acceptable security of $5.0 million.

Following the signing of a Tri-Party Protocol on March 10, 2017 (the “Protocol”), with Guinea and South Atlantic Petroleum Limited (“SAPETRO”), a Nigerian independent oil company, we executed a Farmout Agreement (“Farmout Agreement”) with SAPETRO on March 30, 2017. Under the terms of the Farmout Agreement, upon closing, SAPETRO will receive a 50% participating interest in the PSC in exchange for its commitment to pay 50% of the expenditures associated with the Concession, including the drilling of the upcoming Fatala-1 well, (the minimum work program under the PSC). Further, SAPETRO agreed to reimburse us for half of the costs previously incurred in preparing for the well since the approval of the Second PSC Amendment. The approximate total amount of such costs is estimated to be $8-10 million depending on the timing of the closing of the Farmout Agreement.

As more fully described in Note 8, on April 12, 2017 SCS, SAPETRO and Guinea executed a Third Amendment to the PSC (the “Third PSC Amendment”) that was subject to the receipt of a Presidential Decree and the closing of the Farmout Agreement. We received a Presidential Decree on April 21, 2017. The Third PSC Amendment approves the assignment of 50% of SCS’ participating interest in the Guinea concession to SAPETRO and confirms the two companies’ rights to explore for oil and gas on a 5,000-square-area of our Concession offshore the Republic of Guinea. It further requires that drilling operations in relation to the Extension Well are to begin no later than May 30, 2017 and amends the security instrument requirements initially agreed under the Second PSC Amendment. In turn, we agreed SAPETRO would put in place a US $5 million security instrument within 30 days from the date of the Presidential Decree.

On May 20, 2017 we entered into Amendment No.1 to the Offshore Drilling Contract with a subsidiary of Pacific Operations Drilling Limited (“Pacific Amendment”) on May 20, 2017.  The Pacific Amendment clarifies the use of the Pacific Scirocco drill ship for the upcoming drilling program offshore Guinea and provides for Special Mobilization and Standby Rate (“SMSR”) of $100,000 per day to apply at moment the drill ship enters Guinea territorial waters.  It further provides that SMSR ends the later of when Pacific Sirocco receives from SCS a 28 day notice for drilling commencement or July 17, 2017. In consideration for the extension of the Pacific Sirocco Contract and reduction of the costs associated with it, we agreed with Pacific Scirocco Limited (“Pacific”) to issue and deliver to Pacific a number of shares of our Common Stock equal to $1,000,000 at a 10 day average market price preceding the date of the agreement to issue the shares.

The Pacific Sirocco drillship entered Guinea shelf waters as provided by the terms of the Third PSC Amendment on May 21, 2017, which is within the 30 days from the Presidential Decree signing date. It relieves SAPETRO and SCS from an obligation to place a $5 million security instrument with the Government of Guinea. Subsequent to arrival of the Pacific Sirocco in Guinea waters, SCS begins mobilization of additional equipment, materials and supplies on the rig to prepare for spudding the Fatala 1 well, which constitutes the commencement of the drilling operations before May 30, 2017 as required by the Third PSC Amendment.

In addition, SCS and SAPETRO separately agreed on April 12, 2017, that SCS’s “sufficient financing for the Obligation Well Costs” as defined in the Farmout Agreement will be $15 million in “cash and committed financing to the satisfaction of SAPETRO acting reasonably” in addition to costs already incurred. SAPETRO and SCS further agreed that SAPETRO may elect to pay for a portion of SCS’s Fatala-1 well costs so long as SCS is not in default of either the PSC or the Farmout Agreement and requires credit support. In case SAPETRO makes such payments for a share of SCS’s costs of, SCS shall assign to SAPETRO 2% of its participating interest in the Concession for each $ 1 million of SCS’s costs paid by SAPETRO.

8

As more fully described in Note 7 and Note 8, between March 17 and April 26, 2017, we held four closings of a private placement offering (the “Series A Offering”) of an aggregate of 1,951 Units of our securities, at a purchase price of $1,000 per Unit. Each “Unit” consisted of (i) one share of the Company’s Series A Convertible Preferred Stock, with a Stated Value of $1,040 per share, and (ii) a warrant (the “Investor Warrant”) to purchase 223 shares of the Company’s common stock, exercisable from issuance until March 17, 2019, at an exercise price of $3.50 per share (subject to adjustment in certain circumstances). At the closings, we issued to the subscribers an aggregate of: (i) 1,951 Units of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 435,073 shares of common stock with an exercise price of $3.50 per share.

The Company received an aggregate of $1,951,000 in gross cash proceeds, before deducting placement agent fees and expenses, and legal, accounting and other fees and expenses, in connection with the sale of the Units. We paid the Placement Agent a total of $175,555 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 51,650 shares of common stock.

The delays have adversely affected our ability to date to explore the Concession and reduced the attractiveness of the Concession to prospective industry participants and financing parties. We have no source of operating revenue, and there is no assurance when we will, if ever. We have no operating cash flows, and absent cash inflows we will not have adequate capital resources to meet our current obligations as they become due, and therefore there is substantial doubt about our ability to continue as a going concern. Our ability to meet our current obligations as they become due and to be able to continue exploration, will depend on obtaining additional resources through sales of additional interests in the Concession, equity or debt financial offerings, or through other means. If we further farm-out additional interests in the Concession, our percentage will decrease. If we enter into equity or debt offerings, the terms of any such arrangements, if made, may not be advantageous and will be dilutive to our shareholders. Our need for additional funding may also be affected by the uncertainties involved with resumption of petroleum operations and the planned exploratory well.

No assurance can be given that any of these actions can be completed.

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Hyperdynamics and its direct and indirect wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report filed with the SEC on Form 10-K for the year ended June 30, 2016.

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 ended June 30, 2016, as reported in the Form 10-K, have been omitted.

Use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses at the balance sheet date and for the period then ended.  We believe our estimates and assumptions are reasonable; however, such estimates and assumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially from such estimates. The following assumptions underlying these financial statements include:

·estimates in the calculation of share-based compensation expense,

·estimates in valuation of warrants derivative liability,

·estimates made in our income tax calculations,

·estimates in the assessment of current litigation claims against the Company,

·estimates and assumptions involved in our assessment of unproved oil and gas properties for impairment, and

·estimates and assumptions involved in our fair market value assessment of the well construction equipment received in the August 15, 2016 Settlement Agreement with Tullow and Dana.

We are subject, from time to time, to legal proceedings, claims, and liabilities that arise in the ordinary course of business. We accrue for losses when such losses are considered probable and the amounts can be reasonably estimated.

9

Cash and cash equivalents

Cash equivalents are highly liquid investments with an original maturity of three months or less.  For the periods presented, we maintained all of our cash in bank deposit accounts which, at times, exceed the federally insured limits.

Earnings per share

Basic loss per common share has been computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. In period of earnings, diluted earnings per common share are calculated by dividing net income available to common shareholders by weighted-average common shares outstanding during the period plus weighted-average dilutive potential common shares.  Diluted earnings per share calculations assume, as of the beginning of the period, exercise of stock options and warrants using the treasury stock method.

All potential dilutive securities, including potentially dilutive options, warrants and convertible securities were excluded from the computation of dilutive net loss per common share for the three and nine month periods ended March 31, 2017 and 2016, respectively, because their effects in the computation are antidilutive due to our net loss for those periods.

Stock options to purchase approximately 1.2 million common shares at an average exercise price of $4.06 were outstanding at March 31, 2017. Using the treasury stock method, had we had net income, approximately 1,158 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the three-month period ended March 31, 2017 while approximately 1,173 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the nine-month period ended March 31, 2017.

Stock options to purchase approximately 1.2 million common shares at an average exercise price of $ 5.67 were outstanding at March 31, 2016. Using the treasury stock method, had we had net income, approximately 1,182 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the three-month period ended March 31, 2016 while approximately 958 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the nine-month period ended March 31, 2016.

Contingencies

We are subject to legal proceedings, claims and liabilities. We accrue for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred.  See Note 6 for more information on legal proceedings and settlements.

Fair Value Measurements

The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurements and enhance disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:

· Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

· Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

· Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

As discussed in Note 2, we determined a fair value of the well construction equipment material (Level 3 fair value measurement) that we received at the time of our legal settlement with Tullow and Dana. The fair value estimate was based on the combination of cost and market approaches taking into consideration a number of factors, which included but were not limited to the original cost and the condition of the material and demand for steel and tubulars at the time of measurement.  As discussed further below the fair value of the warrants was determined using the Black Scholes option-pricing model. The warrants derivative liability is carried on the balance sheet at its fair value. Significant Level 3 inputs used to calculate the fair value of the warrants include expected volatility, risk-free interest rate and expected dividends.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  The Company has determined that Investor Warrants and Placement Agent Warrants issued in March 2017 qualify as derivative financial instruments.  These warrant agreements include provisions designed to protect holders from a decline in the stock

10

price (‘down-round’ provision) by reducing the exercise price of warrants in the event we issue equity shares at a price lower than the exercise price of the warrants.  As a result of this down-round provision, these warrants are considered derivative liabilities and as such, are recorded at fair value at date of issuance and at each reporting date.  Change in fair value of derivative instruments during the period are recorded in earnings as “Other income (expense) — Gain (loss) on warrants derivative liability.” The change in fair value between preferred stock issuance dates in March 2017 and March 31, 2017 was immaterial.

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2017 (in thousands).

	Carrying Value at		Fair Value Measurement at March 31, 2017
	March 31, 2017		Level 1		Level 2		Level 3
Warrants derivative liability	$	205	$	—	$	—	$	205

The following describes some of the key inputs into our fair value model as it relates to valuation of warrants.

Expected Volatility

As the Company’s stock has been extremely volatile during 2016-2017 as a result of uncertainty surrounding the Company’s target spud date, the expected stock price volatility for the Company’s common stock was estimated by taking the average of the observed volatility of daily returns of the Company’s stock and the historic price volatility for industry peers based on daily price observations. Industry peers consist of several public companies in the Company’s industry which were the same as the comparable companies used in the common stock valuation analysis. The Company intends to continue to consistently apply this process using the same or similar public companies until a statistically significant amount of historical information regarding the volatility of its own share price becomes available, or unless circumstances change such that the identified companies are no longer similar to the Company, in which case, more suitable companies whose share prices are publicly available would be used in the calculation.

Risk-Free Interest Rate

The risk-free interest rate is based on the zero-coupon U.S. Treasury notes.

Expected Dividend Yield

The Company does not anticipate paying any dividends on the Common Stock in the foreseeable future and, therefore, uses an expected dividend yield of zero in the Black-Scholes option-valuation model.

2. INVESTMENT IN OIL AND GAS PROPERTIES

Investment in oil and gas properties consists entirely of our Concession in offshore the Republic of Guinea in West Africa. We previously owned a 37% participating interest in our Guinea Concession on June 30, 2016. As part of our settlement with Tullow and Dana, we received their respective 40% and 23% participating interests in the Concession.  Following execution of a Second Amendment to the PSC (“Second PSC Amendment”) on September 15, 2016 and receipt of a Presidential Decree on September 21, 2016 we held a 100% ownership of the Concession. On March 30, 2017, we executed a Farmout Agreement with SAPETRO. Under the terms of the Farmout Agreement, upon closing of the transaction SAPETRO will receive a 50% participating interest in the PSC in exchange for its commitment to pay 50% of the expenditures associated with the Concession.

In addition to clarifying certain elements of the PSC, we agreed in the Second PSC Amendment to drill one exploratory well to a minimum depth of 2,500 meters below the seabed within the PSC Extension Period (the “Extension Well”) with the option of drilling additional wells. Fulfillment of the work obligations exempts us from the expenditure obligations during the PSC Extension Period.

In turn, we retained an area equivalent to approximately 5,000 square kilometers in the Guinea offshore waters and are obliged to provide the Government of Guinea: (1) A parent company guarantee for the well obligation, (2) monthly progress reports and a reconciliation of budget to actual expenditures, (failure to provide the reports and assurances on a timely basis could result in a notice of termination with a 30-day period to cure), and (3) certain guarantees.

Additionally, we agreed to limit the cost recovery pool to date to our share of expenditures in the PSC since 2009 (estimated to be approximately $165,000,000 net to our interest) and begin to move into the territory of Guinea the long lead items we received in the Settlement Agreement that are currently stored in Takoradi, Ghana for the drilling of the Extension Well in 2017. The movement of approximately $1.6 million of the $4.1 million of equipment was started on January 29, 2017 and was completed on February 5, 2017.

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The balance of the material still in Ghana will be moved at a later date. Finally, we agreed to allocate and administer a training budget during the PSC Extension Period for the benefit of the Guinea National Petroleum Office of $250,000 in addition to any unused portion of the training program under Article 10.3 of the PSC. The unused portion of the training program is now estimated to be approximately $400,000.

The closing of the Farmout Agreement with SAPETRO is subject to several conditions, including, but not limited to: (i) the receipt of the requisite approvals and consents of the government of the Republic of Guinea, (ii) if required by the Government of Guinea, security in respect of each party’s participating share of the drilling costs, and (iii) subject to the satisfaction of SAPETRO acting reasonably, SCS having obtained cash or committed financings in the amount of up to $15 million to enable it to meet its obligations related to the Fatala-1 well. At closing, SAPETRO and SCS will deliver mutual parent guarantees to secure the obligations under the Farmout Agreement and a joint operating agreement governing the conduct of operations. Each party to the Farmout Agreement may waive certain conditions in whole or in part at any time.

The parties have agreed to close on or before May 31, 2017, unless the Farmout Agreement is previously terminated due to parties’ failure to satisfy the closing conditions, by mutual agreement of the parties, or if either party receives final, unappealable written notice from the Government of Guinea stating that it will not approve the transfer of the farm-in interest, or on certain other conditions.

As more fully described in Note 8, on April 12, 2017 SCS, SAPETRO and Guinea executed a Third Amendment to the PSC (the “Third PSC Amendment”) approving the assignment of a 50% interest in the Concession, subject to the receipt of a Presidential Decree as well as the closing of the Farmout Agreement. We received a Presidential Decree on April 21, 2017.

We follow the “Full-Cost” method of accounting for oil and natural gas property and equipment costs. Under this method, internal costs incurred that were directly identified with exploration, development, and acquisition activities undertaken by us for our own account, and which were not related to production, general corporate overhead, or similar activities, are capitalized. Capitalization of internal costs was discontinued on April 1, 2013 when Tullow became the Operator of the Concession. Following receipt of the Presidential Decree after the signing of the Second Amendment of the PSC on September 15, 2016 we resumed the role of Operator of the Concession and thus capitalization of certain internal, project related costs resumed. For the three and nine-month periods ended March 31, 2017, we capitalized $0.5 million and $2.0 million of such costs, respectively.

Capitalized internal costs of approximately $0.2 million from the quarter ended September 30, 2016 were written off and recorded as Full-cost ceiling test write-down expenses, and capitalized internal costs of approximately $ 1.3 million in the quarter ended December 31, 2016 were written off and recorded as General, administrative and other operating costs.

Geological and geophysical costs incurred that are directly associated with specific unproved properties are capitalized in “Unproved properties excluded from amortization” and evaluated as part of the total capitalized costs associated with a prospect. The cost of unproved properties not being amortized is assessed to determine whether such properties have been impaired. In determining whether such costs should be impaired, we evaluate current drilling plans and drilling results and available geological and geophysical information. No reserves have been attributed to the Concession.

The following table provides detail of total capitalized costs for the Concession which remain unproved and unevaluated and are excluded from amortization as of March 31, 2017 and June 30, 2016 (in thousands):

	March 31, 2017		June 30, 2016
Oil and Gas Properties:
Unproved properties not subject to amortization	$	4,653	$	—

During the nine-month period ended March 31, 2017, our oil and gas property balance increased by $4.7 million as a result of the fair value of the material received in our settlement with Tullow and Dana. The fair value of the material, for the most part well construction material, at the time of the settlement was approximately $4.4 million, of which we reduced by approximately $0.4 million during the second quarter of fiscal year 2017 based on additional information that we determined reduced the original fair market value. We engaged an independent outside party with expertise in valuing oil and gas equipment to conduct an appraisal and provide a fair valuation determination for our initial recording and reporting purposes.

During the quarter ended December 31, 2016 we impaired $0.8 million of unproved oil and gas property costs capitalized during the second quarter ($0.5 million) and first quarter ($0.3 million) and the internal costs described above. That impairment assessment was based on our liquidity position, and the possibility that we may not reach an agreement with the Government of Guinea regarding the requirement under the PSC to provide a mutually acceptable security of $5.0 million, and the possibility that the Government of Guinea may at any time and without prior notice terminate our Concession.

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As of June 30, 2016, at the close of our last fiscal year we fully impaired the $14.3 million of previously capitalized unproved oil and gas property costs. That impairment assessment was based on the continued impasse with Tullow and Dana to resume petroleum operations and drill the next exploration obligation well, which needed to be commenced at that time by the end of September 2016, as well as our inability at the time to get interim injunctive relief from the American Arbitration Association requiring Tullow and Dana to join with SCS in the negotiation of an acceptable amendment to the PSC and to agree to a process that would result in the execution of the amendment which we hoped would have led to the resumption of petroleum operations.  Thus, we believed all legal measures to require Tullow and Dana to drill the planned exploration well had been exhausted.

3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses as of March 31, 2017 and June 30, 2016 include the following (in thousands):

	March 31, 2017		June 30, 2016
Accounts payable — trade and oil and gas exploration activities	$	1,793	$	1,361
Accounts payable — legal costs	278		61
Accrued payroll	98		321
	$	2,169	$	1,743

4. SHARE-BASED COMPENSATION

On February 18, 2010, at our annual meeting of stockholders, the board of directors and stockholders approved the 2010 Equity Incentive Plan (the “2010 Plan”). Prior to the 2010 stockholder meeting, we had two stock award plans: The Stock and Stock Option Plan, which was adopted in 1997 (“1997 Plan”) and the 2008 Restricted Stock Award Plan (“2008 Plan”). In conjunction with the approval of the 2010 Plan at the annual meeting, the 1997 Plan and the 2008 Plan were terminated as of February 18, 2010. Subsequently, on February 17, 2012, the 2010 Plan was amended to increase the maximum shares issuable under the 2010 Plan and again on January 27, 2016, at our annual meeting of stockholders, the stockholders approved amending the 2010 Plan to increase the number of shares available for issuance by 750,000 shares.

The 2010 Plan provides for the awards of shares of common stock, restricted stock units or incentive stock options or nonqualified stock options to purchase our common stock to selected employees, directors, officers, agents, consultants, attorneys, vendors and advisors of ours’ or of any parent or subsidiary thereof. Shares of common stock, options, or restricted stock can only be awarded under the 2010 Plan within 10 years from the effective date of February 18, 2010. A maximum of 2,000,000 shares are issuable under the 2010 Plan and at March 31, 2017, 783,460 shares remained available for issuance.

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

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

Stock Options

The fair value of stock option awards is estimated using the Black-Scholes valuation model. For market-based pricing of stock option awards, those options where vesting terms are dependent on achieving a specified stock price, the fair value was estimated using a Black-Scholes option pricing model with inputs adjusted for the probability of the vesting criteria being met and the median expected term for each award as determined by utilizing a Monte Carlo simulation. Expected volatility is based solely on historical volatility of our common stock over the period commensurate with the expected term of the stock options. We rely solely on historical volatility because we do not have options that are traded. The expected term calculation for stock options is based on the simplified method as described in the Securities and Exchange Commission Staff Accounting Bulletin No. 107.

We use this method because we do not have sufficient historical information on exercise patterns to develop a model for expected term. The risk-free interest rate is based on the U. S. Treasury yield in effect at the time of award for an instrument with a maturity that is commensurate with the expected term of the stock options. The dividend yield rate of 0% is based on the fact that we have never paid cash dividends on our common stock and we do not expect to pay cash dividends on our common stock during the expected term of the options.

The following table provides information about options during the nine months ended March 31, 2017 and 2016:

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	2017		2016
Number of options awarded	199,618		30,000
Compensation expense recognized	$	146,000	$	280,000
Weighted average award-date fair value of options outstanding	$	4.06	$	5.67

The following table details the significant assumptions used to compute the fair values of employee and director stock options awarded during the nine-month periods ended March 31, 2017 and 2016:

	2017		2016
Risk-free interest rate	1.81	%	1.23	%
Dividend yield	0	%	0	%
Volatility factor	109	%	109	%
Expected life (years)	4.92		2.88

Summary information regarding employee and director stock options issued and outstanding under all plans as of March 31, 2017 is as follows:

	Options		Weighted Average Exercise Price	Weighted average remaining contractual term (years)	Aggregate intrinsic value
Options outstanding at July 1, 2016	1,016,997		5.03	3.19	—
Awarded	199,618		1.06
Exercised	(58,610	)	0.90
Forfeited	—		—
Expired	—		—
Options outstanding at March 31, 2017	1,158,005		4.06	2.29	396,462
Options exercisable at March 31, 2017	938,300		4.70	1.85	304,759

Options outstanding and exercisable as of March 31, 2017
Exercise Price		Outstanding Number of Shares	Remaining Life	Exercisable Number of Shares
$	0.40 – 4.00	245,525	Less than 1 year	225,525
$	0.40 – 4.00	57,916	1 year	57,916
$	0.40 – 4.00	136,296	2 years	136,296
$	0.40 – 4.00	256,720	3 years	256,720
$	0.40 – 4.00	241,110	4 years	41,405
$	4.01 – 10.00	118,188	Less than 1 year	118,188
$	4.01 – 10.00	4,062	1 year	4,062
$	4.01 – 10.00	7,000	3 years	7,000
$	10.00 – 20.00	13,125	Less than 1 year	13,125
$	10.00 – 20.00	17,500	3 years	17,500
$	20.00 – 30.00	2,500	Less than 1 year	2,500
$	20.00 – 30.00	28,500	3 years	28,500
$	30.00 – 40.00	12,500	Less than 1 year	12,500
$	30.00 – 40.00	13,313	3 years	13,313
$	40.00 – 48.72	3,750	3 years	3,750
		1,158,005		938,300

At March 31, 2017, there were $137 thousand of unrecognized compensation costs related to non-vested share based compensation arrangements awarded to employees and directors under the plans. During the nine months ended March 31, 2017, a total of 76,404 options, with a weighted average award date fair value of $0.85 per share, vested in accordance with the underlying agreements. Unvested options March 31, 2017 totaled 219,705 with a weighted average award date fair value of $0.42, an amortization period of one year and a weighted average remaining life of 1 year.

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Restricted Stock

The fair value of restricted stock awards classified as equity awards is based on the Company’s stock price as of the date of grant. During the year ended June 30, 2015, all such awards were forfeited. No new grants have been issued, and none are outstanding at March 31, 2017.

5. INCOME TAXES

Federal income taxes are not due as we have had losses since inception. Our effective tax rate for the nine-month periods ended March 31, 2017 and 2016 is 0%. This rate is lower than the U.S. statutory rate of 35% primarily due to the valuation allowance applied against our net deferred tax assets.

6. COMMITMENTS AND CONTINGENCIES

LITIGATION AND OTHER LEGAL MATTERS

While there are currently no pending legal proceedings to which we are a party (or that are to our knowledge contemplated by governmental authorities) that we believe will have individually or in the aggregate, a material adverse effect on our business, financial condition or operating results, from time to time we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business or otherwise. We review the status of on-going proceedings and other contingent matters with legal counsel.  Liabilities for such items are recorded if and when it is probable that a liability has been incurred and when the amount of the liability can be reasonably estimated. If we are able to reasonably estimate a range of possible losses, an estimated range of possible loss is disclosed for such matters in excess of the accrued liability, if any. Liabilities are periodically reviewed for adjustments based on additional information.

Iroquois Lawsuit

On May 9, 2012, a lawsuit was filed in the Supreme Court of the State of New York against us and all of our directors. The plaintiffs, five hedge funds, including Iroquois Master Fund Ltd., that invested in us in early 2012, alleged that we breached an agreement with the plaintiffs, and that we and the directors made certain negligent misrepresentations relating to our drilling operations. Among other claims, the plaintiffs alleged that we misrepresented the status of our drilling operations and the speed with which the drilling would be completed. The plaintiffs advanced claims for breach of contract and negligent misrepresentation and sought damages in the amount of $18.5 million plus pre-judgment interest. On June 19, 2013, the court dismissed the negligent misrepresentation claim, but declined to dismiss the breach of contract claim. On August 12, 2013, the plaintiffs filed an amended complaint. That complaint named only us and sought recovery for alleged breaches of contract.

On December 31, 2016 we entered into a settlement agreement with the five hedge funds in this lawsuit. Under the terms of the settlement agreement, Hyperdynamics would issue to the plaintiffs a total of 600,000 new shares of common stock, and it would cause a payment to be made of $1.35 million in cash that would be covered under our directors’ and officers’ insurance policy. The plaintiffs are restricted from selling the shares of common stock before April 1, 2017 under the terms of the agreement.   On January 11, 2017, a payment of $1.35 million was made by the insurance underwriters of the Company’s directors’ and officers’ insurance policy to the hedge funds in the Iroquois lawsuit on behalf of the Company. On January 26, 2017, an order to approve the settlement agreement was entered in the Supreme Court of the State of New York, New York County and subsequently approved by the Court on the same day.

On February 2, 2017, the Company issued 600,000 shares of its common stock to the hedge funds named in the settlement agreement.

Shareholder Lawsuits

Beginning on March 13, 2014, two lawsuits styled as class actions were filed in the U.S. District Court for the Southern District of Texas against us and several then-current officers of the Company alleging that the Company made false and misleading statements that artificially inflated the Company’s stock prices.  The lawsuits alleged, among other things, that the Company misrepresented its compliance with the Foreign Corrupt Practices Act and anti-money laundering statutes and that it lacked adequate internal controls.  The lawsuits sought damages based on Sections 10(b) and 20 of the Securities Exchange Act of 1934, although the specific amount of damages was not specified.

Both of the March 2014 lawsuits were dismissed voluntarily.  One was dismissed during the quarter ended September 30, 2016 and the second on October 6, 2016.

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Tullow and Dana Legal Actions

On January 11, 2016, we filed legal actions against members of the Consortium under the Joint Operating Agreement governing the oil and gas exploration rights offshore Guinea (“JOA”) in the United States District Court for the Southern District of Texas and before the American Arbitration Association (“AAA”) against Tullow for their failure to meet their obligations under the JOA. On January 28, 2016, the action in the Federal District Court was voluntarily dismissed by us and refiled in District Court in Harris County, Texas. On February 8, 2016 Tullow and Dana removed the case to Federal District Court.

On February 2, 2016, SCS filed an Application for Emergency Arbitrator and Interim Measures of Protection and requested the following relief: (a) expedite discovery prior to the constitution of the arbitral tribunal; (b) provide that the time period permitted by the parties’ arbitration agreement for the selection of the arbitrators and the filing of any responsive pleadings or counterclaims be accelerated; (c) require Tullow, as the designated operator under the JOA, to maintain existing “well-planning activities”; (d) require Tullow to undertake and complete certain planning activities; and (e) require Tullow and Dana to join with SCS in completing the negotiation of an acceptable amendment to the PSC and to agree to a process that will result in the execution of the amendment.

With the exception of limited relief regarding discovery and agreement by Tullow to maintain certain well plan readiness, the Emergency Arbitrator ruled on February 17, 2016, that SCS was not entitled to the emergency injunctive relief it requested.  Further, the Emergency Arbitrator enjoined all parties to the dispute from pursuing parallel District Court proceedings. On February 12, 2016, the case was voluntarily stayed by us.

The AAA action sought (1) a determination that Tullow and Dana was in breach of their contractual obligations and (2) the damages caused by the repeated delays in well drilling caused by the activities of Tullow and Dana.  We determined to bring the legal actions only after it became apparent that Tullow and Dana would not move forward, despite many opportunities to do so, with petroleum operations.   SCS believed that it had exhausted all of its options for the pursuit of legal measures to require Tullow and Dana to drill the planned exploration well.

On August 15, 2016, we entered into a Settlement and Release Agreement with Tullow and Dana (“Settlement and Release”) with respect to our dispute in arbitration. Under the Settlement and Release, we released all claims against Tullow and Dana and Tullow and Dana (i) issued to the Government of Guinea a notice of withdrawal from the Concession and PSC effective immediately, (ii) transferred their interest in the long lead items of well construction material previously purchased in preparation for the initial drilling of the Fatala well, and agreed to pay net cash of $686,570 to us. The net cash received was recorded as a part of the gain on the legal settlement. We also agreed to pay Dana a success fee based upon the certified reserves of the Fatala well if it results in a discovery of commercially producible oil and gas reserves.

The $4.8 million gain on legal settlement also includes the estimated fair value of $4.1 million for the well construction material we received from Tullow as a part of our Settlement and Release Agreement.

Operating Leases

We lease office space under long-term operating leases with varying terms. Most of the operating leases contain renewal and purchase options. We expect that in the normal course of business, most of the operating leases will be renewed or replaced by other similar leases.

During the nine-month period ended March 31, 2017 and as a part of our program to begin drilling operations in Guinea, we entered into a lease for in-country offices and nearby apartments.  The leases are for six months with options to renew as necessary and collectively cost about $30 thousand per month.

The following is a schedule by years of minimum future rental payments required under operating leases that have initial or remaining non-cancellable lease terms in excess of one year (in thousands):

Years ending June 30:
2017	$	377
2018	399
2019	406
2020	309
2021 and thereafter	—
Total minimum payments required	$	1,491

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Rent expense included in loss from operations for the three-month periods ended March 31, 2017 and 2016 was $ 0 .3 million and $0.1 million respectively.  Rent expense included in loss from operations for the nine-month periods ended March 31, 2017 and 2016 was $0.5 million and $0.3 million respectively.

7. SHAREHOLDERS’ EQUITY

Series A Preferred Stock

On March 17, 2017 we held the closing of a private placement offering (the “Offering”) of 680 Units of preferred stock securities, at a purchase price of $1,000 per Unit and on March 28, 2017, we consummated a second closing of the Offering and issued and sold an additional 511 Units of its securities, at a purchase price of $1,000 per Unit.  Each “Unit” consisted of (i) one share of the Company’s 1% Series A Convertible Preferred Stock, par value $0.001 per share, with a Stated Value of $1,040 per share (the “Series A Preferred Stock”), and (ii) a warrant (the “Investor Warrant”) to purchase 223 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), exercisable from issuance until two years after the date of the initial closing of March 17, 2017 at an exercise price of $3.50 per share (subject to adjustment in certain circumstances).

We entered into subscription agreements for the Units (the “Subscription Agreements”) with certain accredited investors (as such term is defined in the Rule 501 under the Securities Act of 1933, as amended (the “Securities Act”)) (the “Subscribers”).  The Subscription Agreements contained customary representations and warranties of the Company and the Subscribers, and indemnification of the Company and the Placement Agent (as defined below) by the Subscribers.

The Company received an aggregate of $1,191,000 in gross cash proceeds, before deducting placement agent fees and expenses, and legal, accounting and other fees and expenses, in connection with the sale of the Units. The Company expects to use the net proceeds of $981,737 from the sale of the Units for general corporate purposes and to further its business interests in the Republic of Guinea, including, but not limited to the drilling of an exploration well on the Company’s offshore Concession.

At the March 17, 2017 closing, we issued to the Subscribers an aggregate of: (i) 680 units of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 151,640 shares of Common Stock and at the March 28, 2017 closing we issued to the Subscribers (as defined below) an aggregate of (i) 511 units of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 113,953 shares of Common Stock.

Subscribers in the Offering have an option (the “Subscriber Option”) to purchase their pro rata share of up to an aggregate of $3,000,000 in additional Units following the effective date of the registration statement registering for resale the shares of Common Stock issuable upon conversion of the Series A Preferred Stock and exercise of the Investor Warrants and Placement Agent Warrants (as defined below), which we filed on May 1, 2017 and amended on May 18, 2017.

On March 17, 2017, the Company filed a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (the “Certificate of Designations”) with the Secretary of State of the State of Delaware, authorizing, and establishing the voting powers, designations, preferences, limitations, restrictions and relative rights of, the Series A Preferred Stock. The Certificate of Designations was adopted by resolution of the Company’s Board of Directors pursuant to the Company’s Certificate of Incorporation, as amended, which vests in the Company’s Board of Directors with the authority to provide for the authorization and issuance of one or more series of preferred stock of the Company within the limitations and restrictions set forth therein.   The Certificate of Designations contains the following key terms:

·Each holder of Series A Preferred Stock is entitled to receive dividends payable on the Stated Value of such Series A Preferred Stock at the rate of 1% per annum, which shall be cumulative and be due and payable in Common Stock on the applicable conversion date or in cash in the case of a redemption of the Series A Preferred Stock by the Company.

·Shares of Series A Preferred Stock are redeemable, in whole or in part, at the option of the Company, in cash, at a price per share equal to 115% of the Stated Value plus 115% of accrued but unpaid dividends.

·In the event of any liquidation, dissolution or winding up of the Company, holders of Series A Preferred Stock will be entitled to receive, out of assets available therefor, an amount equal to 115% of the Stated Value of their shares plus 115% of any accrued but unpaid dividends.

·The Series A Preferred Stock is convertible at the option of the holder, in whole or in part, into shares of Common Stock at any time after the earlier of (i) the date the Registration Statement is declared effective by the SEC or (ii) six months after the date of the closing.  If no conversion has taken place within nine months after the date of the closing, the Series A Preferred Stock, plus any accrued but unpaid dividends, will automatically convert into shares of Common Stock.

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·The conversion price per share of Common Stock in either event is the lesser of (i) $2.75 per share (subject to adjustment in certain circumstances), or (ii) 80% of the lowest closing price during 21 consecutive trading days ending on the trading day immediately prior to the conversion date, subject to a floor of $0.25 per share (which floor is subject to “full ratchet” adjustment in certain circumstances if we issue Common Stock (or Common Stock equivalents) in the aggregate amount of not less than $1,000,000 at a price below $0.25 per share of Common Stock, and to proportionate adjustment in certain other circumstances).

·Except in certain limited circumstances affecting the rights of the holders of Series A Preferred Stock or as required by law, holders of the Series A Preferred Stock will not have voting rights.

·Until the date that is six months following the date of the closing, the Company will not authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation senior to the Series A Preferred Stock, without the consent of holders of no less than 66 2 / 3 % of the then-outstanding shares of Series A Preferred Stock.

We also agreed in the Subscription Agreements that until the date that is 12 months following the closing, we will not create or allow to be created any security interest, lien, charge or other encumbrance on any of our or our subsidiaries’ rights under or interests in the Hydrocarbon Production Sharing Contract between SCS Corporation Ltd. and the Republic of Guinea, dated September 22, 2006, as amended to date or hereafter, that secures the repayment of indebtedness of the Company or any of its subsidiaries for money borrowed.

Katalyst Securities, LLC (the “Placement Agent”), a U.S. registered broker-dealer, was engaged by the Company as placement agent for the Offering, on a reasonable best effort basis.  We agreed to pay to the Placement Agent (and any sub agent) a cash commission of 9% of the gross purchase price paid by the Subscribers for the Units (including for Units that may be issued upon exercise of the Subscriber Option), and to issue to the Placement Agent (and any sub agent) warrants to purchase a number of shares of Common Stock equal to 7% of the number of shares of Common Stock initially issuable upon conversion of the shares of Series A Preferred Stock at a fixed price of $2.75 per share contained in the Units sold in Offering (including Units that may be issued upon exercise of the Subscriber Option), at the exercise price of $3.00 per share (the “Placement Agent Warrants”).

We also agreed to reimburse the Placement Agent for certain expenses related to the Offering.  At the March 17, 2017 closing, we paid the Placement Agent $61,200 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 18,002 shares of Common Stock as well as $45,990 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 13,528 shares of Common Stock for the March 28, 2017 closing.  The Placement Agency Agreement between the Company and the Placement Agent contains customary representations, warranties and covenants of and indemnifications by the parties.

Investor Warrants

As part of its Series A convertible preferred stock financing , on March 17, 2017 closing, we issued to the Subscribers an aggregate of: (i) 680 units of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 151,640 shares of Common Stock and at the March 28, 2017 closing we issued to the Subscribers (as defined below) an aggregate of (i) 511 units of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 113,953 shares of Common Stock. The exercise price is subject to weighted average anti-dilution provisions. The investor warrants are exercisable at any time at the option of the holder until the second annual anniversary of the first closing of the financing which was March 17, 2017.

The combined fair value of the investor warrants at first and second closing of the financing was estimated to be $181,931, which also approximates fair value as of March 31, 2017.The following are weighted average assumptions:

	Three  Months Ended  March 31, 2017
Expected term (in years)	1.96
Expected volatility%	130	%
Risk-free interest rate%	2.39	%
Expected dividend yield%	0.0	%

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The fair value of the investor warrants of $181,931 was recorded as warrants derivative liability in the accompanying balance sheets as of March 31, 2017 and June 30, 2016. Change in the fair value of the warrants is recognized in the condensed consolidated statements of operations. The change in fair value for the three months ended March 31, 2017 was immaterial.

Placement Agent Warrants

As part of the placement agent’s fees, Katalyst Securities, received warrants to purchase 31,529 shares of the Company’s stock at the exercise price of $3.00 per share. The exercise price is subject to weighted average anti-dilution provisions. The placement agent warrants are exercisable at any time at the option of the holder until the second annual anniversary of the first closing of the financing which was March 17, 2017.

The Company estimated the aggregate fair value of the warrants issued to the placement agent to be $22,985, which also approximates its fair value at March 31, 2017. This value was considered part of total equity issuance cost of $232,078 and allocated between reduction to additional paid-in capital and a charge to general administrative and other operating costs of $35,451 based on relative values of investor warrants and preferred stock relative to proceeds from issuance.

The placement agent warrants were valued using the following weighted average assumptions:

	Three  Months Ended  March 31, 2017
Expected term (in years)	1.96
Expected volatility%	130	%
Risk-free interest rate%	2.39	%
Expected dividend yield%	0.0	%

The Investor Warrants and the Placement Agent Warrants have provisions for the “weighted average” adjustment of their exercise price in the event that we issue shares of Common Stock (or Common Stock equivalents) for a consideration per share less than the exercise price then in effect, subject to certain exceptions.

In connection with the Offering, we also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with each of the Subscribers and the holders of the Placement Agent Warrants, which requires the Company to file a Registration Statement with the SEC within 45 days after the closing, registering for resale (i) all shares of Common Stock issued or issuable upon conversion of the Series A Preferred Stock (including any shares of Series A Preferred Stock issued pursuant to the Subscriber Option described above), and (ii) all shares of Common Stock issued or issuable upon exercise of the Investor Warrants (including any Investor Warrants issued pursuant to the Subscriber Option described above) and the Placement Agent Warrants (including any that may be issued upon exercise of the Subscriber Option), and to use its commercially reasonable efforts to cause the Registration Statement to be declared effective no later than 135 days after the closing.  We also granted to the holders of the registrable shares certain “piggyback” registration rights until two years after the effectiveness of the Registration Statement.

If the Registration Statement is not filed with, or declared effective by, the SEC within the specified deadlines set forth above, or the Registration Statement ceases to be effective or otherwise cannot be used for a period specified in the Registration Rights Agreement, or trading of the Common Stock on the Company’s principal market is suspended or halted for more than three consecutive trading days (each, a “Registration Event”),  monetary penalties payable by the Company to the holders of registrable shares that are affected by such Registration Event will commence to accrue at a rate equal to 12% per annum of the purchase price paid for each Unit purchased, for the period that such Registration event continues, but not exceeding in the aggregate 5% of such purchase price.

On March 28, 2017, we also entered into an amendment to the Subscription Agreements (the “Amendment”) with Subscribers that purchased the Units in the initial closing of the Offering on March 17, 2017, and with the Subscribers in this closing, to expand the scope of a right of first refusal contained in the Subscription Agreement.  As so amended, the Subscription Agreement provides that if, following the termination of the Offering and prior to December 17, 2017, the Company determines to offer for sale or to accept an offer to purchase any additional shares of common stock or securities convertible into or exercisable or exchangeable for shares of common stock (subject to certain limitations and adjustments described therein) for consideration consisting of cash and/or outstanding debt of the Company, each Subscriber who previously purchased Units in the Offering will have an option to purchase such Subscriber’s pro rata share of such securities on the same terms and conditions on which such securities are proposed to be issued, exercisable on the terms set forth in the Subscription Agreement.

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Beneficial Conversion Feature

The Company determined that the conversion feature in the Preferred Stock represented a beneficial conversion feature. The fair value of the common stock ranging from $ 1.60 to 1.75 per share on the Commitment Dates was greater than the effective conversion price of $ 0.47 per share of common stock, representing a beneficial conversion feature of $ 2.6 million in aggregate. Since the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the convertible instrument, the amount of the discount assigned to the beneficial conversion feature was limited to the amount of the proceeds allocated to the convertible instrument.  Accordingly, $1,009,069 was recorded as a reduction (the discount) to the additional paid-in capital. The Discount resulting from the allocation of value to the beneficial conversion feature is required to be amortized on a non-cash basis from the issuance date over a six-month period, or fully amortized upon an accelerated date of redemption or conversion, and recorded as a preferred dividend. The preferred dividend was immaterial to this quarter ended March 31, 2017.  The preferred dividend when recorded will be charged against additional paid-in capital since no retained earnings were available.

8. SUBSEQUENT EVENTS

Third PSC Amendment and Presidential Decree

On April 12, 2017 SCS, SAPETRO and Guinea executed a Third Amendment to the PSC (the “Third PSC Amendment”) that was subject to the receipt of a Presidential Decree and the closing of the Farmout Agreement. We received a Presidential Decree on April 21, 2017 approving the assignment of 50% of our participating interest in the Guinea concession to SAPETRO, and it confirms the two companies’ rights to explore for oil and gas on our 5,000-square-kilometer Concession offshore the Republic of Guinea. The contract requires that drilling operations in relation to the obligation well Fatala-1 (the “Extension Well”) are to begin no later than May 30, 2017 and provides that additional exploration wells may be drilled within the exploration period at the companies’ option.

The Third PSC Amendment further reaffirms clear title of SAPETRO and SCS to the Concession as well as amends the security instrument requirements under the PSC. SCS and SAPETRO agreed to a US $5 million security instrument to be put in place within 30 days from the date of the Presidential Decree.

In addition on April 12, 2017 SCS and SAPETRO separately agreed that SCS’s “sufficient financing for the Obligation Well Costs” as defined in the Farmout Agreement was to be set at $15 million in “cash and committed financing to the satisfaction of SAPETRO acting reasonably” in addition to costs already incurred. Further, SAPETRO and SCS agreed that, subject to Closing, SAPETRO may elect to pay for a portion of SCS’s Fatala-1 well costs so long as SCS is not in default of either the PSC or the Farmout Agreement and requires credit support. In case SAPETRO makes such payments for a share of SCS’s costs of, SCS shall assign to SAPETRO 2% of its participating interest in the Concession for each $1 million of SCS’s costs paid by SAPETRO.

The Pacific Sirocco drillship entered Guinea shelf waters as provided by the terms of the Third PSC Amendment on May 21, 2017, which is within the 30 days from the Presidential Decree signing date. It relieves SAPETRO and SCS from an obligation to place a $5 million security instrument with the Government of Guinea. Subsequent to arrival of the Pacific Scirocco in Guinea waters, SCS begins mobilization of additional equipment, materials and supplies on the rig to prepare for spudding the Fatala 1 well, which constitutes the commencement of the drilling operations before May 30, 2017 as required by the Third PSC Amendment.

Prior to that, on May 20, 2017 we entered into Amendment No.1 to the Offshore Drilling Contract with a subsidiary of Pacific Operations Drilling Limited (“Pacific Amendment”).  The Pacific Amendment clarifies the use of the Pacific Scirocco drill ship for the upcoming drilling program offshore Guinea and provides for Special Mobilization and Standby Rate (“SMSR”) of $100,000 per day  to apply at moment the drill ship enters Guinea territorial waters.  It further provides that SMSR ends the later of when Pacific Sirocco receives from SCS a 28 day notice for drilling commencement or  July 17, 2017. In consideration for the extension of the Pacific Sirocco Contract and reduction of the costs associated with it, we agreed with Pacific Scirocco Limited (“Pacific”) to issue and deliver to Pacific a number of shares of our Common Stock equal to $1,000,000 at a 10 day average market price preceding the date of the agreement to issue the shares.

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Closing of Additional Private Placement Offering

On April 18, 2017, we consummated a third closing of a private placement offering (the “Offering”) and issued and sold additional 710 Units of securities, at a purchase price of $1,000 per Unit. On April 26, 2017, we consummated a fourth closing of the Offering and issued and sold additional 50 Units of securities at a purchase price of $1,000 per Unit.   (See Note 7 — Shareholders’ Equity — Series A Preferred Stock) Each “Unit” consisted of (i) one share of the Company’s 1% Series A Convertible Preferred Stock, par value $0.001 per share, with a Stated Value of $1,040 per share (the “Series A Preferred Stock”), and (ii) a warrant (the “Investor Warrant”) to purchase 223 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), exercisable from issuance until two years after the date of the initial closing of March 17, 2017, at an exercise price of $3.50 per share (subject to adjustment in certain circumstances).  At the April 18, 2017 closing, we issued to the Subscribers an aggregate of (i) 710 shares of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 158,330 shares of Common Stock. At the April 26, 2017 closing, we issued to the Subscribers an aggregate of (i) 50 shares of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 1,150 shares of Common Stock.

We received an aggregate of $760,000 in gross cash proceeds, before deducting placement agent fees and expenses, and legal, accounting and other fees and expenses, in connection with the April 18, 2017 and April 26, 2017 sale of the Units.   We expect to use the net proceeds of $661,441 from the sale of the Units for general corporate purposes and to further our business interests in the Republic of Guinea, including, but not limited to, the drilling of an exploration well on our offshore Concession.

In conjunction with the April 18, 2017 and April 26, 2017 closing, we paid Katalyst Securities $68,400 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 20,120 shares of Common Stock.

Investor Warrants and Placement Agent Warrants will be recorded as additional derivative liabilities.

We filed a Registration Statement on Form S-1 with the Securities and Exchange Commission on May 1, 2017 in connection with common shares that preferred stock is convertible into and warrants exercisable for. On May 18, 2017, we filed an amended Registration Statement on Form S-1/A.

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

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Report contains “forward-looking statements” within the meaning of Section 27 A of the Securities Act of 1933, as amended, and Section 21 E of the Securities Exchange Act of 1934, as amended.  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.  Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “plan,” “project,” “anticipate,” “estimate,” “believe,” or “think.” Forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.  We assume no duty to update or revise our forward-looking statements based on changes in plans or expectations or otherwise.

As used herein, references to “Hyperdynamics,” “Company,” “we,” “us,” and “our” refer to Hyperdynamics Corporation and our subsidiaries.

Overview

Our corporate mission is to provide energy for the future by exploring for, developing new, and re-establishing pre-existing sources of energy.  Our primary focus is the advancement of exploration work in Guinea.  We have no source of operating revenue, and there is no assurance when we will, if ever.  Our operating cash flows are negative, and we will require substantial additional funds, through additional participants, securities offerings, or through other means, to fulfill our business plans.

Our operating plan within the next twelve months includes the following:

·Drill the exploration well in Guinea.

·Consider financing alternatives and other measures to raise funds to pursue our exploration objectives offshore Guinea.

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Following the execution of Amendment No. 1 to the PSC in March 2010 (the “First PSC Amendment”) and the receipt of a Presidential Decree in May 2010, we sold a 23% gross interest in the Concession to Dana Petroleum, PLC (“Dana”), a subsidiary of the Korean National Oil Corporation. In December 2012, we closed a sale of a 40% gross interest to Tullow Guinea Ltd. (“Tullow”), and Tullow became the Operator on April 1, 2013. A planned exploration well in 2014 was initially delayed by Tullow and thereafter by the Ebola epidemic. Continued failure to resume petroleum operations by both Tullow and Dana in 2015 forced us to file legal actions under our Joint Operating Agreement. On August 15, 2016, we entered into a Settlement and Release Agreement with Tullow and Dana (“Settlement Agreement”) that returned to us 100% of the interest under the PSC, long-lead item property useful in the drilling of an exploratory well, and $0.7 million in cash, in return for a mutual release of all claims. We also agreed to pay Dana a success fee based upon the certified reserves of the Fatala-1 well if it results in a discovery.

We executed a Second Amendment to the PSC (“Second PSC Amendment”) on September 15, 2016, and received a Presidential Decree that gave us a one year extension to the second exploration period of the PSC to September 22, 2017 (“PSC Extension Period”) and became the designated Operator of the Concession.

In addition to clarifying certain elements of the PSC, we agreed in the Second PSC Amendment to drill one exploratory well to a minimum depth of 2,500 meters below the seabed within the PSC Extension Period (the “Extension Well”) with the option of drilling additional wells. Fulfillment of the work obligations exempts us from the expenditure obligations during the PSC Extension Period.In turn, we retained an area equivalent to approximately 5,000 square kilometers in the Guinea offshore waters and agreed to provide the Government of Guinea: (1) A parent company guarantee for the Extension Well obligation, (2) monthly progress reports and a reconciliation of budget to actual expenditures, (failure to provide the reports and assurances on a timely basis could result in a notice of termination with a 30 day period to cure), and (3) certain guarantees.

Additionally, we agreed to limit the cost recovery pool to date to our share of expenditures in the PSC since 2009 (estimated to be approximately $165,000,000 net to our interest) and began to move into the territory of Guinea the long lead items we received in the Settlement Agreement that are currently stored in Takoradi, Ghana. The movement of approximately $1.6 million of the $4.1 million of equipment was started on January 29, 2017 and was completed on February 5, 2017. The balance of the material still in Ghana will be moved at a later date. Finally, we agreed to allocate and administer a training budget during the PSC Extension Period for the benefit of the Guinea National Petroleum Office of $250,000 in addition to any unused portion of the training program under Article 10.3 of the PSC. The unused portion of the training program is now estimated to be approximately $400,000.

On March 10, 2017, we entered into a Tri Party Protocol (“Protocol”) with South Atlantic Petroleum Limited (“SAPETRO”), a privately held Nigerian oil and gas exploration and production company, and the Government of Guinea agreeing to commence operations for the Fatala-1 well no later than May 30, 2017, and that SAPETRO and SCS will make all reasonable efforts to negotiate and finalize all transaction documents for SAPETRO’s entry into the project in conformity with the PSC and submit for the approval of the Government of Guinea no later than April 10, 2017. The Government of Guinea in turn agreed to provide adequate assurances in relation to the validity of the existing PSC and amendments to enable SCS and SAPETRO to enter into the transaction documents and obtain all necessary Government approvals and to mobilize the requisite resources in the form of contracts, funds and personnel to spud and accomplish drilling operations in respect of the Fatala well and subsequent exploration wells. It was further agreed that upon completion of the transaction documents and receipt of the requisite approvals by the Government of Guinea, SAPETRO will provide the $5 million Security Instrument as required by the terms of the Second PSC Amendment.

On March 30, 2017, SCS entered into a Farmout Agreement (the “Farmout Agreement”) with SAPETRO, pursuant to the terms of which, and subject to certain conditions therein, SCS will assign and transfer to SAPETRO 50% of its 100% gross participating interest in the PSC and the joint operating agreement. Pursuant to the terms of the Farmout Agreement, upon closing, SAPETRO will (i) reimburse SCS its proportional share of past costs associated with the preparations for the drilling of the Fatala-1 well, and (ii) pay its participating interest’s share of future costs in the Concession. Currently the total amount of costs spent by SCS after the date of the Second PSC Amendment in relation to the preparation of drilling of the Fatala-1 well is estimated at $8-10 million depending on the timing of the completion of the Farmout Agreement and upon approval of the Guinea government.

The closing of the Farmout Agreement with SAPETRO is subject to several conditions, including, but not limited to: (i) the receipt of the requisite approvals and consents of the government of the Republic of Guinea, (ii) if required by the Government of Guinea, security in respect of each party’s participating share of the drilling costs, and (iii) subject to the satisfaction of SAPETRO acting reasonably, SCS having obtained cash or committed financings in the amount of up to $ 15 million to enable it to meet its obligations related to the Fatala-1 well. At closing, SAPETRO and SCS will deliver mutual parent guarantees to secure the obligations under the Farmout Agreement and a joint operating agreement governing the conduct of operations. Each party to the Farmout Agreement may waive certain conditions in whole or in part at any time.

The parties have agreed to close on or before May 31, 2017, unless the Farmout Agreement is previously terminated due to parties’ failure to satisfy the closing conditions, by mutual agreement of the parties, or if either party receives final, unappealable written notice from the Government of Guinea stating that it will not approve the transfer of the farm-in interest, or on certain other conditions.

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On April 12, 2017 SCS, SAPETRO and Guinea executed a Third Amendment to the PSC (the “Third PSC Amendment”) that was subject to the receipt of a Presidential Decree and the closing of the Farmout Agreement. We received a Presidential Decree on April 21, 2017 approving the assignment of 50% of SCS’ participating interest in the Guinea concession to SAPETRO, and it confirms the two companies’ rights to explore for oil and gas on our 5,000-square-kilometer Concession offshore the Republic of Guinea.

The Third PSC Amendment further reaffirmed clear title of SAPETRO and SCS to the Concession as well as amended the security instrument requirements under the PSC. SCS and SAPETRO agreed to a US $5 million security instrument to be put in place within 30 days from the date of the Presidential Decree. The security instrument is to be released at such time that the drilling rig to be used in the drilling of the extension well is located in the shelf waters of the Republic of Guinea, including its territorial waters. Pursuant to the terms of the Protocol, SAPETRO agreed to provide the $5 million security instrument upon Government of Guinea approval to enter the Concession and completion of the Farmout Agreement. SCS and SAPETRO agreed to joint and several liability to the Government of Guinea in respect to the PSC.

The Third Amendment requires that drilling operations in relation to the obligation well Fatala-1 (the “Extension Well”) are to begin no later than May 30, 2017 and provides that additional exploration wells may be drilled within the exploration period at the companies’ option. The Pacific Sirocco drillship entered Guinea shelf waters as provided by the terms of the Third PSC Amendment on May 21, 2017. Subsequent to arrival of the Pacific Sirocco in Guinea waters, SCS begins mobilization of, additional equipment, material and supplies of on the rig to prepare for spudding the Fatala 1 well, which constitutes the commencement of the drilling operations before May 30, 2017 as required by the Third PSC Amendment.

In addition on April 12, 2017 SCS and SAPETRO separately agreed that SCS’s “sufficient financing for the Obligation Well Costs” as defined in the Farmout Agreement was to be set at $15 million in “cash and committed financing to the satisfaction of SAPETRO acting reasonably” in addition to costs already incurred. Further, SAPETRO and SCS agreed that, subject to Closing, SAPETRO may elect to pay for a portion of SCS’s Fatala-1 well costs so long as SCS is not in default of either the PSC or the Farmout Agreement and requires credit support. In case SAPETRO makes such payments for a share of SCS’s costs of, SCS shall assign to SAPETRO 2% of its participating interest in the Concession for each $1 million of SCS’s costs paid by SAPETRO.

Between March 17 and April 26, 2017, we held four closings of a private placement offering (the “Series A Offering”) of an aggregate of 1,951 Units of our securities, at a purchase price of $1,000 per Unit. Each “Unit” consisted of (i) one share of the Company’s Series A Preferred Stock, with a Stated Value of $1,040 per share, and (ii) a warrant (the “Investor Warrant”) to purchase 223 shares of the Company’s common stock, exercisable from issuance until March 17, 2019, at an exercise price of $3.50 per share (subject to adjustment in certain circumstances). At the closings, we issued to the subscribers an aggregate of: (i) 1,951 shares of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 435,073 shares of common stock.

The Company received an aggregate of $1,951,000 in gross cash proceeds, before deducting placement agent fees and expenses, and legal, accounting and other fees and expenses, in connection with the sale of the Units. We paid the Placement Agent a total of $175,555 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 51,650 shares of common stock.

On May 20, 2017 we entered into Amendment No.1 to the Offshore Drilling Contract with a subsidiary of Pacific Operations Drilling Limited (“Pacific Amendment”) on May 20, 2017.  The Pacific Amendment clarifies the use of the Pacific Scirocco drill ship for the upcoming drilling program offshore Guinea and provides for Special Mobilization and Standby Rate (“SMSR”) of $100,000 per day  to apply at moment the drill ship enters Guinea territorial waters.  It further provides that SMSR ends the later of when Pacific Sirocco receives from SCS a 28 day notice for drilling commencement or  July 17, 2017. In consideration for the extension of the Pacific Sirocco Contract and reduction of the costs associated with it, we agreed with Pacific Scirocco Limited (“Pacific”) to issue and deliver to Pacific a number of shares of our Common Stock equal to $1,000,000 at a 10 day average market price preceding the date of the agreement to issue the shares.

Our current capital resources are not sufficient to cover our financial commitments required to meet the exploration activity in the Concession. We are working to close the Farmout Agreement with SAPETRO as well as seeking funding through additional sales of interest in the Concession, from equity or debt or other financial instruments.

As a result and absent cash inflows, we do not have adequate capital resources to meet our current obligations as they become due. Our ability to meet our current obligations as they become due over the next quarter and twelve months and to be able to continue with our operations will depend on obtaining additional resources through sales of additional interests in the Concession, issuing equity or debt securities, or through other means, and the resumption of petroleum operations.

Failure to comply with  any material obligations of the PSC subjects us to risk of loss of the Concession.

No assurance can be given that any of these actions can be completed.

Results of Operations

Based on the factors discussed below the net loss attributable to common shareholders for the three months ended March 31, 2017 decreased $14.2 million to a net loss of $3.4 million, or $0.16 per share, from a net loss of $17.6 million, or $0.84 per share for the three months ended March 31, 2016. Net loss attributable to common shareholders for the nine months ended March 31, 2017 decreased $12.4 million to a net loss of $9.0 million, or $0.42 per share, from a net loss of $21.4 million, or $1.02 per share for the nine months ended March 31, 2016.

The decrease in net loss attributable to common shareholders for the current fiscal year three-month period is primarily the result of the full-cost ceiling test write-down of $14.3 million recorded during the quarter ended March 31, 2016.

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The decrease in net loss attributable to common shareholders for the current fiscal year nine-month period is primarily the result of the full-cost ceiling test write-down of $14.3 million recorded during the nine-month period ended March 31, 2016 and partially offset by an increase in general and administrative costs incurred on resuming operatorship of our Guinea Concession.

Series A Preferred Stock Offering

Subscribers in the Series A Offering have an option (the “Subscriber Option”) to purchase, at the same purchase price of $1,000 per Unit, their pro rata share of up to an aggregate of $3,000,000 in additional Units following the effective date of the registration statement registering for resale the shares of common stock issuable upon conversion of the Series A Preferred Stock and exercise of the Investor Warrants and Placement Agent Warrants (as defined below), which we have agreed to file as described below (the “Registration Statement”).

We also agreed in the Subscription Agreements that until March 17, 2018, we will not create or allow to be created any security interest, lien, charge or other encumbrance on any of our or our subsidiaries’ rights under or interests in the PSC that secures the repayment of indebtedness of the Company or any of its subsidiaries for money borrowed.

Katalyst Securities, LLC (the “Placement Agent”), a U.S. registered broker-dealer, was engaged by the Company as placement agent for the Series A Offering, on a reasonable best effort basis. We agreed to pay to the Placement Agent (and any sub agent) a cash commission of 9% of the gross purchase price paid by the Subscribers for the Units (including for Units that may be issued upon exercise of the Subscriber Option), and to issue to the Placement Agent (and any sub agent) warrants to purchase a number of shares of common stock equal to 7% of the number of shares of common stock initially issuable upon conversion of the shares of Series A Preferred Stock (convertible at a fixed price of $2.75 per share) contained in the Units sold in Series A Offering (including Units that may be issued upon exercise of the Subscriber Option), at the exercise price of $3.00 per share (the “Placement Agent Warrants”). We also agreed to reimburse the Placement Agent for certain expenses related to the Series A Offering. We paid the Placement Agent a total of $175,555 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 51,650 shares of common stock in connection with closings between March 17 and April 26, 2017.

The Investor Warrants and the Placement Agent Warrants have provisions for the “weighted average” adjustment of their exercise price in the event that we issue shares of common stock (or common stock equivalents) for a consideration per share less than the exercise price then in effect, subject to certain exceptions.

In connection with the Series A Offering, we also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with each of the Subscribers and the holders of the Placement Agent Warrants.

Reportable segments

We have one reportable segment: our international operations in Guinea conducted through our subsidiary SCS. SCS is engaged in oil and gas exploration activities pertaining to offshore Guinea.

Three months ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Revenues .  There were no revenues for the three months ended March 31, 2017 and 2016.

Depreciation .   Depreciation on property and equipment decreased 74% or $20 thousand from the fiscal 2016 period to the fiscal 2017 period. Depreciation expense was $7,400 and $27,700 in the three months ended March 31, 2017 and 2016, respectively. The decrease is primarily attributed to assets in service in the prior year became fully depreciated early in the current year.

General, Administrative and other Operating Expenses .  Our general, administrative and other operating expenses were $3.4 million and $3.3 million for the three months ended March 31, 2017 and 2016, respectively. This represents an increase of 3.5% or $0.1 million from the fiscal 2016 period to the fiscal 2017 period. The general and administrative costs remained steady.

Full-cost ceiling test write-down. There were no full-cost ceiling write-downs in the three months ended March 31, 2017 compared to the $14.3 million write-down in the three months ended March 31, 2016. As of March 31, 2016, based on our impairment

assessment, we fully impaired the $14.3 million of unproved oil and gas properties. This impairment assessment was based on the

continued impasse by our members of the Consortium to resume petroleum operations and drill the next exploration obligation

well, which needed to be commenced by the end of September 2016, and our inability to get interim injunctive relief from the

American Arbitration Association requiring Tullow and Dana to join with SCS in the negotiation of an acceptable amendment to the

PSC and to agree to a process that would result in the execution of the amendment which we hoped would have led to the

resumption of petroleum operations. Thus, we believed all legal measures to require Tullow and Dana to drill the planned exploration

well have been exhausted. Despite this impairment, we continued to pursue any avenues with the members of the Consortium and

the Government of Guinea in order to begin drilling activities in our Concession prior to the end of the Concession in

September 2016.

Loss from Operations .  As a result of the factors discussed above, our loss from operations decreased by $14.2 million from $17.6 million in the three months ended March 31, 2016 to $3.4 million for the three months ended March 31, 2017.

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Nine months ended March 31, 2017 Compared to Nine Months Ended March 31, 2016

Revenues .  There were no revenues for the nine months ended March 31, 2017 and 2016.

Depreciation.  Depreciation on property and equipment decreased 49% or $41 thousand from the fiscal 2016 period to the fiscal 2017 period. Depreciation expense was $42 thousand and $83 thousand in the nine months ended March 31, 2017 and 2016, respectively. The decrease is primarily attributed to only a small amount of asset additions and related modest depreciation in the current year whereas a large portion of the assets in service in the prior year became fully depreciated early in the current year.

General, Administrative and Other Operating Expenses.  Our general, administrative and other operating expenses were $11.6 million and $7 million for the nine months ended March 31, 2017 and 2016, respectively. This represents an increase of 67% or $4.6 million from the fiscal 2016 period to the fiscal 2017 period. The increase in expense was attributable to an increase in general and administrative costs incurred on resuming operatorship of our Guinea Concession. An increase of approximately $3.8 million was related to contract and professional services needed for the resumption of becoming operator on the Guinea Concession.  In addition, salaries and benefits increased approximately $700 thousand due to staff additions.

Full-cost ceiling test write-down. During the period ended March 31, 2017 we impaired $0.8 million of unproved oil and gas property costs capitalized. That impairment assessment was based on our liquidity position, and the possibility that we may not reach an agreement with the Government of Guinea regarding the requirement under the PSC to provide a mutually acceptable security of $5.0 million and the possibility that the Government of Guinea may at any time and without prior notice terminate our Concession.

Gain and cost on legal settlements.  The $4.8 million gain on legal settlement with Tullow and Dana includes a cash payment from Tullow to us of $686,570 and the fair value of $4.1 million for the well construction material we received from Tullow as a part of our Settlement and Release Agreement.

We recognized a $1.3 million cost of the Iroquois legal case based on a settlement agreement at the end of December whereby we would issue 600,000 shares of company stock which we valued based on the settlement date at $2.18 per share.  The common stock was issued on February 2, 2017.

In deciding to settle we considered the possibility that the plaintiffs’ claims for breach of contract and negligent misrepresentation could have result in a judgment that could have awarded damages in amounts ranging from $4.0 million to $18.5 million plus pre-judgment interest. Because we are seeking equity investment and project partners among many oil companies management decided to pursue the settlement option, eliminate this legal risk for the Company and thus improve the Company’s attractiveness as a joint venture partner or as an investment in its stock.

Loss from Operations.  As a result of the factors discussed above, our loss from operations decreased by $9.0 million from $21.4 million in the nine months ended March 31, 2016 to $12.4 million for the nine months ended March 31, 2017.

Liquidity and Capital Resources

General

	Nine Months Ended March 31,
Cash (used) provided, net	2017			2016
Net cash used in operating activities	$	(8,168	)	(5,397	)
Net cash used in investing activities	(2,613		)	(21	)
Net cash provided by financing activities	1,045			—
Decrease in cash and cash equivalents	(9,736		)	(5,418	)
Cash and cash equivalents at Beginning of period	10,327			18,374
End of period	$	591		12,956

Operating Activities

Net cash used in operating activities for the nine months ended March 31, 2017 was $8.2 million compared to $5.4 million for the nine months ended March 31, 2016. The increase in cash used in operating activities is primarily attributable to the increase in general, administrative and other operating costs, partially offset by changes in working capital during the periods, and the $0.7 million in cash received from the legal settlement with Tullow and Dana.

Investing Activities

Net cash used in investing activities for the nine months ended March 31, 2017 was $2.6 million compared to $21 thousand used in

the nine months ended March 31, 2016. The increase primarily relates to oil and gas property costs incurred by the Company in

resumption of the prospect development as operator of the Guinea Concession.

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Financing Activities

There were $64 thousand of cash proceeds provided by financing activities during the nine months ended March 31, 2017 as a result of the exercise of stock options. 

Between March 17 and April 26, 2017, we held four closings of a private placement offering (the “Series A Offering”) of an aggregate of 1,951 Units of our securities, at a purchase price of $1,000 per Unit. Each “Unit” consisted of (i) one share of the Company’s Series A Preferred Stock, with a Stated Value of $1,040 per share, and (ii) a warrant (the “Investor Warrant”) to purchase 223 shares of the Company’s common stock, exercisable from issuance until March 17, 2019, at an exercise price of $3.50 per share (subject to adjustment in certain circumstances). At the closings, we issued to the subscribers an aggregate of: (i) 1,951 shares of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 435,073 shares of common stock.   The Company received an aggregate of $1,951,000 in gross cash proceeds, before deducting placement agent fees and expenses, and legal, accounting and other fees and expenses, in connection with the sale of the Units.

There was no cash provided by financing activities during the nine months ended March 31, 2016.

Liquidity

As of March 31, 2017 and the date of this filing, the Company’s trade accounts payable and accrued expenses exceeded its cash balances.

Our current capital resources are not sufficient to cover our financial commitments required to meet the exploration activity in the Concession. We are working to close the Farmout Agreement with SAPETRO as well as seeking funding through additional sales of interest in the Concession, from equity or debt or other financial instruments.

As a result, and absent cash inflows, we do not have adequate capital resources to meet our current obligations as they become due, and therefore there is substantial doubt about our ability to continue as a going concern. Our ability to meet our current obligations as they become due over the next quarter and twelve months and to be able to continue with our operations will depend on obtaining additional resources through sales of additional interests in the Concession, issuing equity or debt securities, or through other means, and the resumption of petroleum operations.

No assurance can be given that any of these actions can be completed.

Capital Expenditures

During the first nine months of fiscal 2017, we incurred an additional $2.6 million on unproved oil and gas properties and $45 thousand for property, plant and equipment. This compares to the first nine months of fiscal 2016, where we spent $20 thousand on unproved oil and gas properties.

In the legal settlement with Tullow and Dana, we also received long lead items of well construction material previously purchased by the Consortium in preparation for the initial drilling of the Fatala-1 well. The fair market value at the date of settlement, taking into account the condition of the material and then current pricing among other factors, was determined to be $4.1million. This part of the settlement was a non-cash transaction and was recorded as an oil and gas property asset addition and a gain on legal settlement.

Item 3. Quantitative and Qualitative Disclosures about Market

Our functional currency is the US dollar. Prior to the closure of our office in the United Kingdom, we had some foreign currency exchange rate risk related to the Pound Sterling. Subject to the receipt of adequate funding, we are in the process of opening an office in Conakry, Guinea to supervise drilling activities. US dollars are accepted in Guinea and many of our purchases and purchase obligations, such as our office lease in Guinea, are denominated in US dollars. However, our costs for labor, supplies, and fuel could increase if the Guinea Franc significantly appreciates against the US dollar. We did not hedge the exposure to currency rate changes. We do not believe our exposure to market risk to be material.

Item 4. Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2017. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.

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Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of March 31, 2017 our PEO and PFO concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Our management, including the PEO and PFO, identified a material weakness in our internal control over financial reporting that occurred during our fiscal quarter ended March 31, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. The departure of our previous Principal Accounting Officer had a material adverse impact on our quarterly financial close process and reporting causing our filing of this Form 10-Q to be late. The Company is in the process of remedying this weakness by adding additional accounting personnel.

Part II Other Information

Item 1. Legal Proceedings

From time to time, we and our subsidiaries are involved in business disputes. We are unable to predict the outcome of such matters when they arise. Currently pending proceedings, in our opinion, will not have a material adverse effect upon our consolidated financial statements. The following are the only legal proceedings with material developments during the three and nine-month periods ended March 31, 2017.

Iroquois and Shareholder Lawsuits

On December 31, 2016, we entered into a settlement agreement with the five hedge funds in the Iroquois lawsuit.  Under the terms of the settlement agreement, we issued to the plaintiffs a total of 600,000 new shares of common stock, and it would cause a payment to be made of $1.35 million in cash covered under our directors’ and officers’ insurance policy. The plaintiffs are restricted from selling the shares of common stock before April 1, 2017 under the terms of the agreement.

On January 26, 2017, an order to approve the settlement agreement was entered in the Supreme Court of the State of New York, New York County and subsequently approved by the Court on the same day.

On January 11, 2017, a payment of $1.35 million was made by the insurance underwriters of the Company’s directors’ and officers’ insurance policy to the hedge funds in the Iroquois lawsuit on behalf of the Company.  On February 2, 2017, we issued 600,000 shares of our common stock to the hedge funds named in the settlement agreement.

Beginning on March 13, 2014, two lawsuits styled as class actions were filed in the U.S. District Court for the Southern District of Texas against the Company and several then-current officers of the Company alleging that the Company made false and misleading statements that artificially inflated its stock prices. The lawsuits alleged, among other things, that the Company misrepresented its compliance with the Foreign Corrupt Practices Act and anti-money laundering statutes and that it lacked adequate internal controls.  The lawsuits sought damages based on Sections 10(b) and 20 of the Securities Exchange Act of 1934, although the specific amount of damages was not specified.

Both of the March 2014 lawsuits were dismissed voluntarily. One was dismissed during the quarter ended September 30, 2016 and the second was dismissed on October 6, 2016.

Tullow and Dana Legal Actions

On January 11, 2016, we filed legal actions against members of the Consortium under the Joint Operating Agreement governing the oil and gas exploration rights offshore Guinea (“JOA”) in the United States District Court for the Southern District of Texas and before the American Arbitration Association (“AAA”) against Tullow for their failure to meet their obligations under the JOA. On January 28, 2016, the action in the Federal District Court was voluntarily dismissed by us and refiled in District Court in Harris County, Texas. On February 8, 2016 Tullow and Dana removed the case to Federal District Court.

On February 2, 2016, SCS filed an Application for Emergency Arbitrator and Interim Measures of Protection and requested the following relief: (a) expedite discovery prior to the constitution of the arbitral tribunal; (b) provide that the time period permitted by the parties’ arbitration agreement for the selection of the arbitrators and the filing of any responsive pleadings or counterclaims be accelerated; (c) require Tullow, as the designated operator under the JOA, to maintain existing “well-planning activities”; (d) require Tullow to undertake and complete certain planning activities; and (e) require Tullow and Dana to join with SCS in completing the negotiation of an acceptable amendment to the PSC and to agree to a process that will result in the execution of the amendment.

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With the exception of limited relief regarding discovery and agreement by Tullow to maintain certain well plan readiness, the Emergency Arbitrator ruled on February 17, 2016, that SCS was not entitled to the emergency injunctive relief it requested.  Further, the Emergency Arbitrator enjoined all parties to the dispute from pursuing parallel District Court proceedings. On February 12, 2016, the case was voluntarily stayed by us.

The AAA action sought (1) a determination that Tullow and Dana was in breach of their contractual obligations and (2) the damages caused by the repeated delays in well drilling caused by the activities of Tullow and Dana.  We determined to bring the legal actions only after it became apparent that Tullow and Dana would not move forward, despite many opportunities to do so, with petroleum operations.   SCS believed that it had exhausted all of its options for the pursuit of legal measures to require Tullow and Dana to drill the planned exploration well.

On August 15, 2016, we entered into a Settlement and Release Agreement with Tullow and Dana (“Settlement and Release”) with respect to our dispute in arbitration. Under the Settlement and Release, we released all claims against Tullow and Dana and Tullow and Dana (i) issued to the Government of Guinea a notice of withdrawal from the Concession and PSC effective immediately, (ii) transferred their interest in the long lead items of well construction material previously purchased in preparation for the initial drilling of the Fatala well, and agreed to pay net cash of $686,570 to us. The net cash received was recorded as a part of the gain on the legal settlement. We also agreed to pay Dana a success fee based upon the certified reserves of the Fatala well if it results in a discovery of commercially producible oil and gas reserves.

The $4.8 million gain on legal settlement also includes the estimated fair value of $4.1 million for the well construction material we received from Tullow as a part of our Settlement and Release Agreement.

Item 1A. Risk Factors

We executed a Farmout Agreement with SAPETRO that includes a number of conditions that must be met prior to closing.

Our Farmout Agreement contains a number of financial and other conditions that must be met prior to closing. While SCS and SAPETRO separately agreed on April 12, 2017 that SCS’s “sufficient financing for the Obligation Well Costs” as defined in the Farmout Agreement is $15 million in “cash and committed financing to the satisfaction of SAPETRO acting reasonably” in addition to costs already incurred, we are uncertain of our ability to raise those funds in order to close on the Farmout Agreement. Should closing on the Farmout Agreement not occur in the near future, we risk being unable to meet our obligations under the PSC and a loss of the Concession.

We require additional financing to meet our general and administrative obligations and in order to fulfill our PSC commitments. We are currently not in a position to predict when, if ever, we will be able to meet those obligations.

Absent cash inflows, we will not have adequate capital resources to meet our current obligations as they become due and therefore there is substantial doubt about our ability to continue as a going concern. Our ability to meet our obligations will depend on obtaining additional funding through sales of additional interests in the Concession, issuing equity or debt securities, or through other means, which we currently pursue.  No assurance can be given that any of these actions can be completed.

The Concession offshore Guinea is our principal asset and we do not have the funds necessary to fulfill our obligations under the PSC, as amended, and our ability to obtain additional financing is likely dependent upon raising funds through the issuance of corporate equity or debt instruments and/or reaching farm-in agreements with prospective partner(s) who will share the costs of the exploration program for the Concession area.  There is no assurance that we will be successful in raising the funds or acquiring the partners in the time needed to execute the program required in the PSC Second Amendment.

We operate in the Republic of Guinea, a country which is a high-risk jurisdiction for corruption that could impair our ability to do business in the future or result in significant fines or penalties.

Following the settlements with Tullow and Dana, we resumed the role of operator of the prospect in the Republic of Guinea a country where corruption has been known to exist.  There is a risk of violating either the US Foreign Corrupt Practices Act, laws or legislation promulgated pursuant to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or Guinea anti-corruption regulations that generally prohibit the making of improper payments to foreign officials for the purpose of obtaining or keeping business.

The Republic of Guinea is largely a cash-based society and that creates additional internal control and related risks.  We have been subject to FCPA investigations by the Department of Justice and Securities and Exchange Commission into how we obtained or retained the original Concession and spent approximately $12.8 million in legal fees in working with the US Government. Those matters were resolved in 2015, but should the DOJ, the SEC, or the Republic of Guinea open additional investigations regarding prior or current activities in the Republic Guinea or elsewhere, we do not have the financial ability to bear the cost of additional investigations and are unable to predict whether we will be able to raise the funds to properly defend the Company.

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Item 6. Exhibits and Reports on Form 8-K

Exhibit Number		Description
3.1		Certificate of Incorporation, as amended through November 29, 2016(1)
3.2		Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock(2)
3.3		Amended and Restated Bylaws(3)
4.1		Form of Common Stock Certificate(4)
4.2		Form of Common Stock Purchase Warrant issued to investors on February 1, 2012(5)
4.4		Form of Common Stock Purchase Warrant issued to investors in the March-April, 2017, Private Placement Offering of Series A Convertible Preferred Stock(2)
4.5		Form of Common Stock Purchase Warrant issued to placement agent and its designees in the March-April, 2017, Private Placement Offering of Series A Convertible Preferred Stock(2)
10.1		Hydrocarbon Production Sharing Contract (PSA) between SCS Corporation and the Republic of Guinea, dated September 22, 2006(6)
10.2		Amendment No. 1 to the Hydrocarbons Production Sharing Contract between SCS Corporation and the Republic of Guinea, dated March 25, 2010(7)
10.3		Amendment No. 2 to the Hydrocarbon Production Sharing Contract (Original French version), dated September 21, 2016(8)
10.4		Amendment No. 2 to the Hydrocarbon Production Sharing Contract (English translation), dated September 21, 2016(8)
10.5	†	Amended and Restated Employment Agreement between Hyperdynamics and Ray Leonard, effective as of July 23, 2012(5)
10.6		Sale and Purchase Agreement between Hyperdynamics Corporation and Dana Petroleum (E&P) Limited, effective as of December 4, 2009(9)
10.7		Operating Agreement between SCS Corporation and Dana Petroleum (E&P) Limited, dated January 28, 2010(10)
10.8	†	2010 Equity Incentive Plan as amended(11)
10.9	†	Form of Incentive Stock Option Agreement(12)
10.10	†	Form of Non-Qualified Stock Option Agreement(12)
10.11	†	Form of Restricted Stock Agreement(12)
10.12		Contract Number: AGR/C105/10 between SCS Corporation and AGR Peak Well Management Limited for Provision of Well Construction Management Services, including LOGIC General Conditions as Appendix I(13)
10.13		Agreement for the Supply of Marine Seismic Data Application and Processing Services, dated September 20, 2011 between SCS Corporation and CGG Veritas Services SA(14)

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10.14		Form of Securities Purchase Agreement, dated January 30, 2012, between Hyperdynamics Corporation and investors in the offering(5)
10.15		Placement Agency Agreement, dated January 30, 2012, by and between Hyperdynamics Corporation and Rodman & Renshaw, LLC(5)
10.16		Purchase and Sale Agreement between SCS Corporation Ltd. and Tullow Guinea Ltd., dated November 20, 2012(15)
10.17		Joint Operating Agreement Novation and Amendment Agreement relating to the Operating Agreement for the Hydrocarbon Production Sharing Contract, offshore Guinea, between SCS Corporation Ltd., Dana Petroleum E&P Limited, and Tullow Guinea Ltd. dated December 31, 2012(16)
10.18		Parent Company Guarantee between Tullow Oil plc and SCS Corporation Ltd., dated December 31, 2012(16)
10.19		Settlement Deed between Hyperdynamics Corporation, SCS Corporation Ltd., AGR Well Management Ltd, and Jasper Drilling Private Ltd dated May 16, 2014(17)
10.20	†	Employment Agreement, Effective October 1, 2015, between Hyperdynamics Corporation and Paolo Amoruso(18)
10.21	†	Employment Agreement, Effective October 1, 2015, between Hyperdynamics Corporation and David Wesson(18)
10.22		Transition and Consulting Agreement, effective as of June 30, 2016, between Hyperdynamics Corporation and Paolo Amoruso(19)
10.23		Transition and Consulting Agreement, effective as of June 30, 2016, between Hyperdynamics Corporation and David Wesson(19)
10.24		Settlement and Release Agreement, dated as of August 15, 2016, by and among SCS Corporation Ltd., Tullow Guinea Ltd. and Dana Petroleum (E&P) Limited(19)
10.25		Presidential Decree of the Republic of Guinea, dated as of September 21, 2016 (Original French version)(8)
10.26		Presidential Decree of the Republic of Guinea, dated as of September 21, 2016 (English Translation)(8)
10.27		Drilling Services Contract, dated as of November 28, 2016, by and between Pacific Drilling Operations Limited, a wholly owned subsidiary of Pacific Drilling S.A., and SCS Corporation Ltd.(20)
10.28		Letter of Award, signed as of December 28, 2016, by and between Schlumberger Oilfield Eastern Limited and SCS Corporation Ltd.(20)
10.29		Master Service Agreement, signed as of December 28, 2016, by and between Schlumberger Oilfield Eastern Limited and SCS Corporation Ltd.(20)
10.30		Settlement Agreement, dated as of December 31, 2016, by and among Hyperdynamics Corporation and Iroquois Master Fund Ltd., et al.(20)
10.31		Notification Letter, dated as of January 24, 2017, from Mr. Diakaria Koulibaly, General Director of the National Petroleum Office of the Republic of Guinea, to SCS Corporation Ltd. (Original French language)(20)
10.32		Notification Letter, dated as of January 24, 2017, from Mr. Diakaria Koulibaly, General Director

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		of the National Petroleum Office of the Republic of Guinea, to SCS Corporation Ltd. (English language translation)(20)
10.33		Tri Party Protocol between SCS Corporation Ltd, SAPETRO and the Government of Guinea dated March 10, 2017. (English)(21)
10.34		Tri Party Protocol between SCS Corporation Ltd, SAPETRO and the Government of Guinea dated March 10, 2017. (French)(21)
10.35		Farmout Agreement, dated March 30, 2017, by and between SCS Corporation Ltd. and South Atlantic Petroleum Ltd. (including form of Joint Operating Agreement)(22)
10.36		Amendment No. 3 to the Hydrocarbon Production Sharing Contract (English translation)(23)
10.37		Amendment No. 3 to the Hydrocarbon Production Sharing Contract (Original French version)(23)
10.38		Presidential Decree (English Translation)(23)
10.39		Presidential Decree (Original French version)(23)
10.40		Form of Subscription Agreement for the March-April, 2017, Private Placement Offering of Series A Convertible Preferred Stock(2)
10.41		Form of Amendment No. 1 to Subscription Agreement for the March-April, 2017, Private Placement Offering of Series A Convertible Preferred Stock(24)
10.42		Form of Registration Rights Agreement for the March-April, 2017, Private Placement Offering of Series A Convertible Preferred Stock(2)
10.43	*	Farmor’s Financing Side Letter between SCS Corporation Limited and South Atlantic Petroleum Ltd. Dated April 12, 2017.
31.1	*	Certification of Principal Executive Officer of Hyperdynamics Corporation required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	*	Certification of Principal Financial Officer of Hyperdynamics Corporation required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	*	Certification of Principal Executive Officer of Hyperdynamics Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
32.2	*	Certification of Principal Financial Officer of Hyperdynamics Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
101.INS	*	XBRL Instance Document
101.SCH	*	XBRL Taxonomy Extension Schema Document
101.CAL	*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	*	XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB	*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith.
†Management contract or compensatory plan or arrangement

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(1)	Incorporated by reference to corresponding Exhibit to Form 10-Q filed on March 3, 2017
(2)	Incorporated by reference to corresponding Exhibit to Form 8-K filed on March 23, 2017
(3)	Incorporated by reference to corresponding Exhibit to Form 8-K filed December 28, 2011
(4)	Incorporated by reference to corresponding Exhibit to Form S-1 filed January 12, 2006, as amended
(5)	Incorporated by reference to corresponding Exhibit to Form 8-K filed on February 1, 2012
(6)	Incorporated by reference to corresponding Exhibit to Form 8-K filed September 28, 2006
(7)	Incorporated by reference to corresponding Exhibit to Form 8-K filed March 31, 2010
(8)	Incorporated by reference to corresponding Exhibit to Form 8-K filed September 22, 2016
(9)	Incorporated by reference to corresponding Exhibit to Form 8-K filed December 7, 2009
(10)	Incorporated by reference to corresponding Exhibit to Form 8-K dated January 29, 2010
(11)	Incorporated by reference to corresponding Exhibit to Form 10-Q filed on February 11, 2016
(12)	Incorporated by reference to corresponding Exhibit to Form S-8 filed June 14, 2010
(13)	Incorporated by reference to corresponding Exhibit to Form 8-K filed December 6, 2010
(14)	Incorporated by reference to corresponding Exhibit to Form 8-K filed on September 23, 2011
(15)	Incorporated by reference to corresponding Exhibit to Form 8-K filed November 21, 2012
(16)	Incorporated by reference to corresponding Exhibit to Form 8-K filed January 7, 2013
(17)	Incorporated by reference to corresponding Exhibit to Form 10-K filed September 12, 2014
(18)	Incorporated by reference to corresponding Exhibit to Form 8-K filed October 7, 2015
(19)	Incorporated by reference to corresponding Exhibit to Form 8-K filed July 6, 2016
(20)	Incorporated by reference to corresponding Exhibit to Form 10-Q filed March 3, 2017
(21)	Incorporated by reference to corresponding Exhibit to Form 8-K filed March 13, 2017
(22)	Incorporated by reference to corresponding Exhibit to Form 8-K filed April 6, 2017
(23)	Incorporated by reference to corresponding Exhibit to Form 8-K filed April 27, 2017
(24)	Incorporated by reference to corresponding Exhibit to Form 8-K filed April 3, 2017

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Signatures

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 authorized.

Hyperdynamics Corporation
(Registrant)
By:	/s/ Raymond C. Leonard
	Raymond C. Leonard
	President, Chief Executive Officer, and Principal Executive Officer

Dated: May 23, 2017

By:	/s/ Sergey Alekseev
	Sergey Alekseev
	Senior Vice President and Chief Financial Officer

Dated: May 23, 2017

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Exhibit Index

Exhibit Number	Description
10.43**	Farmor’s Financing Side Letter between SCS Corporation Limited and South Atlantic Petroleum Ltd. Dated April 12, 2017.
31.1**	Certification of Principal Executive Officer of Hyperdynamics Corporation required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2**	Certification of Principal Financial Officer of Hyperdynamics Corporation required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Principal Executive Officer of Hyperdynamics Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
32.2**	Certification of Principal Financial Officer of Hyperdynamics Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**	XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

**           Filed herewith.

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EX-10.43

Exhibit 10.43

	SOUTH ATLANTIC PETROLEUM LIMITED
	3rd, 11th & 12th Floors,	RC: 284117
	South Atlantic Petroleum Towers,
	1, Adeola Odeku Street, P.O. Box 73152, Victoria Island, Lagos, Nigeria.
	Tel: +234 (1) 903 2750, (1) 270 1906, (1) 462 3100 Fax: +234 (1) 271 9263, (1) 270 1907 E-mail: info@sapetro.com
	Website: www.sapetro.com

12th April 2017

The Chief Executive Officer

SCS Corporation Limited

12012 Wickchester Lane, Suite

Houston, TX 77079, USA

Attention: Mr. Ray Leonard

Dear Sir,

Re: Farmout Agreement — Farmor’s Financing (Side Letter)

We refer to the Farmout Agreement dated 30th March 2017 between SCS Corporation Ltd., a company registered in the Cayman Islands, a wholly owned subsidiary of Hyperdynamics Corporation (the “Farmor”), and South Atlantic Petroleum Limited (the “Farmee”) (the “Agreement”).

Capitalised terms not otherwise defined in this letter (“Side Letter”) have the meaning set out in the Agreement.

Section 2.1(e) of the Agreement (the “Financing Condition”) provides that, as a condition precedent to the occurrence of the Trigger Date:

Farmor shall have obtained and maintained as of April 10, 2017, (local time in the Republic of Guinea), to the satisfaction of Farmee acting reasonably, sufficient cash or committed financings to enable it to meet its obligations to pay for its Participating Interest share of the Obligation Well Costs.

Pursuant to Section 2.2 of the Agreement, Farmee is entitled, by written notice to Farmor, to waive the condition set out in Section 2.1(e) in whole or in part at any time

Following discussions with Farmor regarding Farmor’s progress in satisfying the Financing Condition, the Farmor has informed the Farmee that there is the possibility that the Farmor may not satisfy the Financing Condition within the required timeframe.

To enable the  Agreement to subsist and allow for the Trigger Date to occur on satisfaction of the other conditions set forth in the Agreement, the Farmee hereby informs the Farmee that if, in the opinion of the Farmee, the Farmor has obtained and maintained by 10 April 2017 substantial but not sufficient cash or committed financings to enable it to meet its obligations to pay for its Participating Interest share of the

Directors: General T.Y Danjuma GCON (Non-Executive Chairman), Senator Daisy Danjuma (Executive Vice Chairman),

Dale Rollins (Managing Director), Mrs Gloria Atta, Mrs Hannatu Gentles, Dr Thomas John, Mr Bernard Longe.

Obligation Well Costs, Farmee may elect to waive the Financing Condition in part, subject to the following further conditions:

1.Farmor shall have obtained and maintained before the Closing Date, to the satisfaction of Farmee acting reasonably, sufficient cash or committed financings to enable it to meet its obligations to pay for its Participating Interest share of the Obligation Well Costs.  This shall be a condition precedent to the occurrence of the Trigger Date;

2.For the purpose of paragraph 1 above, sufficient financing shall mean at least $15,000,000 (fifteen million United State Dollars) in cash, committed financings to the satisfaction of the Farmee acting reasonably, and/or expenditure by Farmor from the 1st of April 2017 relating to the drilling of the Obligation Well, but excluding any expenditure incurred by the Farmor between 15th September 2016 and 31st  March 2017.

3.Subject to Closing, Farmee shall have the right but not the obligation to pay for any of the Farmor’s Participating Interest share of the Obligation Well Costs for which the Farmor is unable to pay;

4.In the event that the Farmee elects, by written notice to Farmor, to pay for any part of the Farmor’s Participating Interest share of the Obligation Well Costs pursuant to paragraph 3 above:

a.the Farmor shall not be in default under the Agreement or the JOA;

b.Farmee shall be entitled to require that the Farmor transfers a share of its Participating Interest corresponding to the amount paid by the Farmee and the Parties hereby agree that every $1,000,000 paid by Farmee pursuant to paragraph 3 above shall entitle Farmee to additional 2% interest in the Contract and JOA from Farmor’s share of Participating Interest, to be prorated accordingly;

c.In the event of any transfer of Farmor’s Participating Interest under this letter, the Parties shall sign such documents as may be necessary to effect such transfer of interests and Farmor shall submit the relevant documents to the Government to obtain Government Approval. In the event of the Government’s approval is not timely obtained or denied, Farmor shall hold the relevant Participating Interest in trust for the sole and exclusive benefit of the Farmee.

5.Farmee shall not be liable make any payment, reimburse expenditure or provide security before Closing and notwithstanding the Government granting approval before the Closing Date, SAPETRO shall not be liable for any obligation under the Agreement of the JOA until Closing.

1.Other Terms

1.1.This Side Letter is without prejudice to any rights of the Farmee under the Agreement, the Farmor Parent Company Guaranty or the Joint Operating Agreement;

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1.2.Except otherwise expressly provided the Agreement remain unchanged and shall continue in full force and effect in accordance with its terms.

1.3.If there is any inconsistency between the terms of this Side Letter and the provisions of the Agreement, the provisions of this Side Letter shall prevail.

1.4.The provisions of Article 10 (Confidentiality), Article 12 (Dispute Resolution) and Section 14.10 (Governing Law) of the Agreement shall apply to this Side Letter.

Yours sincerely,
Signed for and on behalf of SOUTH ATLANTIC PETROLEUM LIMITED
Signature:		/s/ Dale ROLLINS
Printed Name: Dale ROLLINS
Title: Managing Director
Date:	April 12, 2017
We acknowledge and agree to the above terms.
Signed for and on behalf of SCS CORPORATION LTD
Signature:		/s/ Ray LEONARD
Printed Name: Ray LEONARD
Title: Chief Executive Officer
Date:	April 12, 2017

Page 3 of 3

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Raymond C. Leonard, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Hyperdynamics Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 23, 2017

By:	/s/ Raymond C. Leonard
Raymond C. Leonard
President, Chief Executive Officer, and
Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sergey Alekseev certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Hyperdynamics Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 23, 2017

By:	/s/ Sergey Alekseev
Sergey Alekseev
Senior Vice President and
Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Hyperdynamics Corporation (Hyperdynamics), on Form 10-Q for the quarter ended March 31, 2017, as filed with the Securities and Exchange Commission (the “Report”), Raymond C. Leonard, Principal Executive Officer of Hyperdynamics, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), that to his knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of us.

Date: May 23, 2017

By:	/s/ Raymond C Leonard
Raymond C. Leonard
President, Chief Executive Officer, and
Principal Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATIONS PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Hyperdynamics Corporation (Hyperdynamics), on Form 10-Q for the quarter ended March 31, 2017, as filed with the Securities and Exchange Commission (the “Report”), David G. Gullickson, Principal Financial and Accounting Officer of Hyperdynamics, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), that to his knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of us.

Date: May 23, 2017

By:	/s/ Sergey Alekseev
Sergey Alekseev
Senior Vice President and Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Mar. 31, 2017	May 18, 2017
Document and Entity Information
Entity Registrant Name	HYPERDYNAMICS CORP
Entity Central Index Key	0000937136
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		21,871,658
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2017	Jun. 30, 2016
Current assets:
Cash and cash equivalents	$ 591	$ 10,327
Prepaid expenses	322	1,294
Deposits and other current assets	110	6
Total current assets	1,023	11,627
Property and equipment, net of accumulated depreciation of $2,097 and $2,075	53	51
Unproved oil and gas properties excluded from amortization (Full-Cost Method)	4,653
Total property and equipment and unproved oil and gas properties, net	4,706	51
Total assets	5,729	11,678
Current Liabilities:
Accounts payable and accrued expenses	2,169	1,743
Total current liabilities	2,169	1,743
Warrants derivative liability	205
Total Liabilities	2,374	1,743
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock, $0.001 par value; 20,000,000 authorized, 1,191 and -0- shares issued and outstanding as of March 31, 2017 and June 30, 2016, respectively
Common stock, $0.001 par value, 87,000,000 shares authorized; 21,840,146 and 21,046,591 shares issued and outstanding as of March 31, 2017 and June 30, 2016, respectively	170	169
Additional paid-in capital	320,142	317,757
Accumulated deficit	(316,957)	(307,991)
Total shareholders' equity	3,355	9,935
Total liabilities and shareholders' equity	$ 5,729	$ 11,678

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2017	Jun. 30, 2016
CONDENSED CONSOLIDATED BALANCE SHEETS
Property and equipment, accumulated depreciation (in dollars)	$ 2,104	$ 2,075
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued	1,191	0
Preferred stock, shares outstanding	1,191	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	87,000,000	87,000,000
Common stock, shares issued	21,840,146	21,046,591
Common stock, shares outstanding	21,840,146	21,046,591

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Costs and expenses:
Depreciation	$ 7	$ 27	$ 42	$ 83
General, administrative and other operating	3,380	3,266	11,627	6,972
Full-cost ceiling test write-down		14,331	753	14,331
Loss from operations	(3,387)	(17,624)	(12,422)	(21,386)
Gain on settlement agreement			4,764
Cost of legal settlement			(1,308)
Loss before income tax	(3,387)	(17,624)	(8,966)	(21,386)
Net loss	$ (3,387)	$ (17,624)	$ (8,966)	$ (21,386)
Basic and diluted loss per share	$ (0.16)	$ (0.84)	$ (0.42)	$ (1.02)
Weighted average shares outstanding - basic and diluted	21,113,632	21,046,591	21,277,232	21,046,591

XML

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)	Common Stock	Preferred Stock Series A Preferred	Preferred Stock	Additional Paid-in Capital Series A Preferred	Additional Paid-in Capital	Accumulated Deficit	Series A Preferred	Total
Balance at Jun. 30, 2015	$ 169,000				$ 317,404,000	$ (285,145,000)		$ 32,428,000
Balance (in shares) at Jun. 30, 2015	21,046,591
Increase (Decrease) in Shareholders' Equity
Net loss						(22,846,000)		(22,846,000)
Common stock issued for:
Amortization of fair value of stock options					353,000			353,000
Balance at Jun. 30, 2016	$ 169,000				317,757,000	(307,991,000)		9,935,000
Balance (in shares) at Jun. 30, 2016	21,046,591
Increase (Decrease) in Shareholders' Equity
Net loss						(8,966,000)		(8,966,000)
Common stock issued for:
Preferred Stock Issuance (in shares)		1,191
Stock Issued for Settlement	$ 1,000				1,307,000			1,308,000
Stock Issued for Settlement (in shares)	600,000			1,191,000			1,191,000
Exercise of stock options					64,000			64,000
Exercise of stock options (in shares)	58,610
Stock issued in lieu of cash bonus					57,000			57,000
Stock issued in lieu of cash bonus (in shares)	134,945
Amortization of fair value of stock options					146,000			146,000
Beneficial conversion feature (discount)					(1,009,000)			(1,009,000)
Beneficial conversion feature					1,009,000			1,009,000
Discount (Investor warrants and other)					(230,000)			(230,000)
Other					47,000			47,000
Cost of issuance of preferred stock					(197,000)			(197,000)
Balance at Mar. 31, 2017	$ 170,000		$ 1,191		$ 320,142,000	$ (316,957,000)		$ 3,355,000
Balance (in shares) at Mar. 31, 2017	21,840,146

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (8,966)	$ (21,386)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on legal settlement	(4,078)
Depreciation	42	83
Loss on disposal of fixed assets	1
Full-cost ceiling test write-down	753	14,331
Internal costs written off to general, administrative and other	1,275
Stock based compensation	146	280
Stock issued in lieu of cash bonuses	57
Stock issued for Settlement	1,308
Changes in operating assets and liabilities:
Increase in Accounts receivable - joint interest		(28)
Decrease in Prepaid expenses	972	886
(Increase) decrease in Deposits and other current assets	(104)	2
Decrease in Accounts payable and accrued expenses	426	435
Net cash used in operating activities	(8,168)	(5,397)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(45)	(1)
Investment in unproved oil and gas properties	(2,568)	(20)
Net cash used in investing activities	(2,613)	(21)
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock issued	1,191
Offering costs	(210)
Proceeds from exercise of stock options	64
Net cash provided by financing activities	1,045
DECREASE IN CASH AND CASH EQUIVALENTS	(9,736)	(5,418)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	10,327	18,374
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 591	$ 12,956

XML

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Mar. 31, 2017

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

General Overview

Hyperdynamics Corporation (“Hyperdynamics,” the “Company,” “we,” “us,” and “our”) is a Delaware corporation formed in March 1996. Hyperdynamics has two wholly-owned subsidiaries, SCS Corporation Ltd (“SCS”), a Cayman corporation, and HYD Resources Corporation (“HYD”), a Texas corporation. Through SCS, Hyperdynamics focuses on oil and gas exploration offshore the coast of West Africa. Our exploration efforts are pursuant to a Hydrocarbon Production Sharing Contract, as amended (the “PSC”).  We refer to the rights granted under the PSC as the “Concession.” We began operations in oil and gas exploration, seismic data acquisition, processing, and interpretation in late fiscal 2002.

As used herein, references to “Hyperdynamics,” “Company,” “we,” “us,” and “our” refer to Hyperdynamics Corporation and our subsidiaries, including SCS. The rights in the Concession offshore Guinea are held by SCS.

Status of our Business, Liquidity and Going Concern

We have no source of operating revenue and there is no assurance when we will, if ever.

On March 31, 2017 we had $0.6 million in cash, and $2.2 million in accounts payable and accrued expense liabilities, all of which are current liabilities.  Our net working capital will not be sufficient to meet our corporate needs and Concession related activities for the quarter ending June 30, 2017.  We are currently pursuing several avenues to raise funds.  We have no other material commitments other than ordinary operating costs and commitments relating to the PSC.

As of the date of filing, the Company’s trade accounts payable and accrued expenses exceeded its cash balances.

Following the execution of Amendment No. 1 to the PSC in March 2010 (the “First PSC Amendment”) and the receipt of a Presidential Decree in May 2010, we closed on a sale of a 23% gross interest in the Concession to Dana Petroleum, PLC (“Dana”), a subsidiary of the Korean National Oil Corporation. In December 2012, we closed a sale of a 40% gross interest to Tullow Guinea Ltd. (“Tullow”), and Tullow became the Operator on April 1, 2013.

Pursuant to the terms of sale between Tullow and us, Tullow paid us $26.0 million in cash and Tullow agreed to pay our entire participating interest share of expenditures associated with joint operations in the Concession up to a gross expenditure cap of $100.0 million incurred during the period of our carried interest while drilling the initial exploratory well that began on September 21, 2013. Tullow also agreed to pay our participating interest share of future costs for the drilling of an appraisal well following the initial exploration well, if drilled, up to an additional gross expenditure cap of $100.0 million.

A planned deepwater exploration well of the Concession during the first half of calendar 2014 was delayed by Tullow upon declaration of Force Majeure in March of 2014 based on the mere existence of the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) investigations pursuant to the Foreign Corrupt Practices Act of the United States (“FCPA Investigations”).  Tullow withdrew its Force Majeure declaration in May of 2014, but did not resume petroleum operations citing the continued existence of the FCPA Investigations and the Ebola outbreak in Guinea.

The DOJ investigation ended in May 2015, the SEC investigation ended in September 2015, and the World Health Organization declared Guinea Ebola free on December 29, 2015. Notwithstanding the resolution of the FCPA Investigations, Dana insisted on further specific title assurances from the Government of Guinea.  Continued failure to resume petroleum operations by both Tullow and Dana in December 2015 forced us to file legal actions under our Joint Operating Agreement.

On August 15, 2016, we entered into a Settlement and Release Agreement with Tullow and Dana (“Settlement Agreement”) that returned to us 100% of the interest under the PSC, long-lead item property useful in the drilling of an exploratory well, and $0.7 million in cash, in return for a mutual release of all claims. We also agreed to pay Dana a success fee based upon the certified reserves of the Fatala-1 well if it results in a discovery.

We executed a Second Amendment to the PSC (“Second PSC Amendment”) with the Government of Guinea on September 15, 2016, and received a Presidential Decree that gave us a one year extension to the second exploration period of the PSC to September 22, 2017 (“PSC Extension Period”) and became the designated Operator of the Concession.

In addition to clarifying certain elements of the PSC, we agreed in the Second PSC Amendment to drill one exploratory well to a minimum depth of 2,500 meters below the seabed within the PSC Extension Period (the “Extension Well”) with the option of drilling additional wells. Fulfillment of this work obligations exempts us from the expenditure obligations during the PSC Extension Period.

In turn, we retained an area equivalent to approximately 5,000 square kilometers in the Guinea offshore waters and took on the obligation to provide the Government of Guinea: (1) A parent company guarantee for the well obligation, (2) monthly progress reports and a reconciliation of budget to actual expenditures, (failure to provide the reports and assurances on a timely basis could result in a notice of termination with a 30 day period to cure), and (3) certain guarantees.

Additionally, we agreed to limit the cost recovery pool to date to our share of expenditures in the PSC since 2009 (estimated to be approximately $165,000,000 net to our interest) and began to move into the territory of Guinea the long lead items we received in the Settlement Agreement that are currently stored in Takoradi, Ghana. The movement of approximately $1.6 million of the $4.1 million of equipment was started on January 29, 2017 and was completed on February 5, 2017. The balance of the material still in Ghana will be moved at a later date. Finally, we agreed to allocate and administer a training budget during the PSC Extension Period for the benefit of the Guinea National Petroleum Office of $250,000 in addition to any unused portion of the training program under Article 10.3 of the PSC. The unused portion of the training program is now estimated to be approximately $400,000.

In mid-January 2017 we requested and received a notification letter dated January 24, 2017 from the General Director of the National Petroleum Office of the Republic of Guinea, informing us that the Republic of Guinea granted a postponement of our obligation to provide a mutually acceptable security of $5.0 million to February 20, 2017 (originally required by no later than January 21, 2017) as well as a clarification regarding the timing of the security under Article 4.2 of the Second PSC Amendment until the work on the Fatala-1 well is completed. On March 1, 2017, the Republic of Guinea issued a reservation of rights letter asserting that we did not satisfy our obligation to deposit mutually acceptable security of $5.0 million.

Following the signing of a Tri-Party Protocol on March 10, 2017 (the “Protocol”), with Guinea and South Atlantic Petroleum Limited (“SAPETRO”), a Nigerian independent oil company, we executed a Farmout Agreement (“Farmout Agreement”) with SAPETRO on March 30, 2017. Under the terms of the Farmout Agreement, upon closing, SAPETRO will receive a 50% participating interest in the PSC in exchange for its commitment to pay 50% of the expenditures associated with the Concession, including the drilling of the upcoming Fatala-1 well, (the minimum work program under the PSC). Further, SAPETRO agreed to reimburse us for half of the costs previously incurred in preparing for the well since the approval of the Second PSC Amendment. The approximate total amount of such costs is estimated to be $8-10 million depending on the timing of the closing of the Farmout Agreement.

As more fully described in Note 8, on April 12, 2017 SCS, SAPETRO and Guinea executed a Third Amendment to the PSC (the “Third PSC Amendment”) that was subject to the receipt of a Presidential Decree and the closing of the Farmout Agreement. We received a Presidential Decree on April 21, 2017. The Third PSC Amendment approves the assignment of 50% of SCS’ participating interest in the Guinea concession to SAPETRO and confirms the two companies’ rights to explore for oil and gas on a 5,000-square-area of our Concession offshore the Republic of Guinea. It further requires that drilling operations in relation to the Extension Well are to begin no later than May 30, 2017 and amends the security instrument requirements initially agreed under the Second PSC Amendment. In turn, we agreed SAPETRO would put in place a US $5 million security instrument within 30 days from the date of the Presidential Decree.

On May 20, 2017 we entered into Amendment No.1 to the Offshore Drilling Contract with a subsidiary of Pacific Operations Drilling Limited (“Pacific Amendment”) on May 20, 2017.  The Pacific Amendment clarifies the use of the Pacific Scirocco drill ship for the upcoming drilling program offshore Guinea and provides for Special Mobilization and Standby Rate (“SMSR”) of $100,000 per day to apply at moment the drill ship enters Guinea territorial waters.  It further provides that SMSR ends the later of when Pacific Sirocco receives from SCS a 28 day notice for drilling commencement or July 17, 2017. In consideration for the extension of the Pacific Sirocco Contract and reduction of the costs associated with it, we agreed with Pacific Scirocco Limited (“Pacific”) to issue and deliver to Pacific a number of shares of our Common Stock equal to $1,000,000 at a 10 day average market price preceding the date of the agreement to issue the shares.

The Pacific Sirocco drillship entered Guinea shelf waters as provided by the terms of the Third PSC Amendment on May 21, 2017, which is within the 30 days from the Presidential Decree signing date. It relieves SAPETRO and SCS from an obligation to place a $5 million security instrument with the Government of Guinea. Subsequent to arrival of the Pacific Sirocco in Guinea waters, SCS begins mobilization of additional equipment, materials and supplies on the rig to prepare for spudding the Fatala 1 well, which constitutes the commencement of the drilling operations before May 30, 2017 as required by the Third PSC Amendment.

In addition, SCS and SAPETRO separately agreed on April 12, 2017, that SCS’s “sufficient financing for the Obligation Well Costs” as defined in the Farmout Agreement will be $15 million in “cash and committed financing to the satisfaction of SAPETRO acting reasonably” in addition to costs already incurred. SAPETRO and SCS further agreed that SAPETRO may elect to pay for a portion of SCS’s Fatala-1 well costs so long as SCS is not in default of either the PSC or the Farmout Agreement and requires credit support. In case SAPETRO makes such payments for a share of SCS’s costs of, SCS shall assign to SAPETRO 2% of its participating interest in the Concession for each $ 1 million of SCS’s costs paid by SAPETRO.

As more fully described in Note 7 and Note 8, between March 17 and April 26, 2017, we held four closings of a private placement offering (the “Series A Offering”) of an aggregate of 1,951 Units of our securities, at a purchase price of $1,000 per Unit. Each “Unit” consisted of (i) one share of the Company’s Series A Convertible Preferred Stock, with a Stated Value of $1,040 per share, and (ii) a warrant (the “Investor Warrant”) to purchase 223 shares of the Company’s common stock, exercisable from issuance until March 17, 2019, at an exercise price of $3.50 per share (subject to adjustment in certain circumstances). At the closings, we issued to the subscribers an aggregate of: (i) 1,951 Units of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 435,073 shares of common stock with an exercise price of $3.50 per share.

The Company received an aggregate of $1,951,000 in gross cash proceeds, before deducting placement agent fees and expenses, and legal, accounting and other fees and expenses, in connection with the sale of the Units. We paid the Placement Agent a total of $175,555 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 51,650 shares of common stock.

The delays have adversely affected our ability to date to explore the Concession and reduced the attractiveness of the Concession to prospective industry participants and financing parties. We have no source of operating revenue, and there is no assurance when we will, if ever. We have no operating cash flows, and absent cash inflows we will not have adequate capital resources to meet our current obligations as they become due, and therefore there is substantial doubt about our ability to continue as a going concern. Our ability to meet our current obligations as they become due and to be able to continue exploration, will depend on obtaining additional resources through sales of additional interests in the Concession, equity or debt offerings, or through other means. If we further farm-out additional interests in the Concession, our percentage will decrease. If we enter into equity or debt offerings, the terms of any such arrangements, if made, may not be advantageous and will be dilutive to our shareholders. Our need for additional funding may also be affected by the uncertainties involved with resumption of petroleum operations and the planned exploratory well.

No assurance can be given that any of these actions can be completed.

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Hyperdynamics and its direct and indirect wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report filed with the SEC on Form 10-K for the year ended June 30, 2016.

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 ended June 30, 2016, as reported in the Form 10-K, have been omitted.

Use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses at the balance sheet date and for the period then ended.  We believe our estimates and assumptions are reasonable; however, such estimates and assumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially from such estimates. The following assumptions underlying these financial statements include:

· estimates in the calculation of share-based compensation expense,

· estimates in valuation of warrants derivative liability,

· estimates made in our income tax calculations,

· estimates in the assessment of current litigation claims against the Company,

· estimates and assumptions involved in our assessment of unproved oil and gas properties for impairment, and

· estimates and assumptions involved in our fair market value assessment of the well construction equipment received in the August 15, 2016 Settlement Agreement with Tullow and Dana.

We are subject, from time to time, to legal proceedings, claims, and liabilities that arise in the ordinary course of business. We accrue for losses when such losses are considered probable and the amounts can be reasonably estimated.

Cash and cash equivalents

Cash equivalents are highly liquid investments with an original maturity of three months or less.  For the periods presented, we maintained all of our cash in bank deposit accounts which, at times, exceed the federally insured limits.

Earnings per share

Basic loss per common share has been computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. In period of earnings, diluted earnings per common share are calculated by dividing net income available to common shareholders by weighted-average common shares outstanding during the period plus weighted-average dilutive potential common shares.  Diluted earnings per share calculations assume, as of the beginning of the period, exercise of stock options and warrants using the treasury stock method.

All potential dilutive securities, including potentially dilutive options, warrants and convertible securities were excluded from the computation of dilutive net loss per common share for the three and nine month periods ended March 31, 2017 and 2016, respectively, because their effects in the computation are antidilutive due to our net loss for those periods.

Stock options to purchase approximately 1.2 million common shares at an average exercise price of $4.06 were outstanding at March 31, 2017. Using the treasury stock method, had we had net income, approximately 1,158 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the three-month period ended March 31, 2017 while approximately 1,173 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the nine-month period ended March 31, 2017.

Stock options to purchase approximately 1.2 million common shares at an average exercise price of $ 5.67 were outstanding at March 31, 2016. Using the treasury stock method, had we had net income, approximately 1,182 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the three-month period ended March 31, 2016 while approximately 958 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the nine-month period ended March 31, 2016.

Contingencies

We are subject to legal proceedings, claims and liabilities. We accrue for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred.  See Note 6 for more information on legal proceedings and settlements.

Fair Value Measurements

The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurements and enhance disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:

	Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

As discussed in Note 2, we determined a fair value of the well construction equipment material (Level 3 fair value measurement) that we received at the time of our legal settlement with Tullow and Dana. The fair value estimate was based on the combination of cost and market approaches taking into consideration a number of factors, which included but were not limited to the original cost and the condition of the material and demand for steel and tubulars at the time of measurement.  As discussed further below the fair value of the warrants was determined using the Black Scholes option-pricing model. The warrants derivative liability is carried on the balance sheet at its fair value. Significant Level 3 inputs used to calculate the fair value of the warrants include expected volatility, risk-free interest rate and expected dividends.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  The Company has determined that Investor Warrants and Placement Agent Warrants issued in March 2017 qualify as derivative financial instruments.  These warrant agreements include provisions designed to protect holders from a decline in the stock price (‘down-round’ provision) by reducing the exercise price of warrants in the event we issue equity shares at a price lower than the exercise price of the warrants.  As a result of this down-round provision, these warrants are considered derivative liabilities and as such, are recorded at fair value at date of issuance and at each reporting date.  Change in fair value of derivative instruments during the period are recorded in earnings as “Other income (expense) — Gain (loss) on warrants derivative liability.” The change in fair value between preferred stock issuance dates in March 2017 and March 31, 2017 was immaterial.

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2017 (in thousands).

	Carrying Value at		Fair Value Measurement at March 31, 2017
	March 31, 2017		Level 1		Level 2		Level 3
Warrants derivative liability	$	205	$	—	$	—	$	205

The following describes some of the key inputs into our fair value model as it relates to valuation of warrants.

Expected Volatility

As the Company’s stock has been extremely volatile during 2016-2017 as a result of uncertainty surrounding the Company’s target spud date, the expected stock price volatility for the Company’s common stock was estimated by taking the average of the observed volatility of daily returns of the Company’s stock and the historic price volatility for industry peers based on daily price observations. Industry peers consist of several public companies in the Company’s industry which were the same as the comparable companies used in the common stock valuation analysis. The Company intends to continue to consistently apply this process using the same or similar public companies until a statistically significant amount of historical information regarding the volatility of its own share price becomes available, or unless circumstances change such that the identified companies are no longer similar to the Company, in which case, more suitable companies whose share prices are publicly available would be used in the calculation.

Risk-Free Interest Rate

The risk-free interest rate is based on the zero-coupon U.S. Treasury notes.

Expected Dividend Yield

The Company does not anticipate paying any dividends on the Common Stock in the foreseeable future and, therefore, uses an expected dividend yield of zero in the Black-Scholes option-valuation model.

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INVESTMENT IN OIL AND GAS PROPERTIES

9 Months Ended

Mar. 31, 2017

INVESTMENT IN OIL AND GAS PROPERTIES

INVESTMENT IN OIL AND GAS PROPERTIES

2. INVESTMENT IN OIL AND GAS PROPERTIES

Investment in oil and gas properties consists entirely of our Concession in offshore the Republic of Guinea in West Africa. We previously owned a 37% participating interest in our Guinea Concession on June 30, 2016. As part of our settlement with Tullow and Dana, we received their respective 40% and 23% participating interests in the Concession.  Following execution of a Second Amendment to the PSC (“Second PSC Amendment”) on September 15, 2016 and receipt of a Presidential Decree on September 21, 2016 we held a 100% ownership of the Concession. On March 30, 2017, we executed a Farmout Agreement with SAPETRO. Under the terms of the Farmout Agreement, upon closing of the transaction SAPETRO will receive a 50% participating interest in the PSC in exchange for its commitment to pay 50% of the expenditures associated with the Concession.

In addition to clarifying certain elements of the PSC, we agreed in the Second PSC Amendment to drill one exploratory well to a minimum depth of 2,500 meters below the seabed within the PSC Extension Period (the “Extension Well”) with the option of drilling additional wells. Fulfillment of the work obligations exempts us from the expenditure obligations during the PSC Extension Period.

In turn, we retained an area equivalent to approximately 5,000 square kilometers in the Guinea offshore waters and are obliged to provide the Government of Guinea: (1) A parent company guarantee for the well obligation, (2) monthly progress reports and a reconciliation of budget to actual expenditures, (failure to provide the reports and assurances on a timely basis could result in a notice of termination with a 30-day period to cure), and (3) certain guarantees.

Additionally, we agreed to limit the cost recovery pool to date to our share of expenditures in the PSC since 2009 (estimated to be approximately $165,000,000 net to our interest) and begin to move into the territory of Guinea the long lead items we received in the Settlement Agreement that are currently stored in Takoradi, Ghana for the drilling of the Extension Well in 2017. The movement of approximately $1.6 million of the $4.1 million of equipment was started on January 29, 2017 and was completed on February 5, 2017.

The balance of the material still in Ghana will be moved at a later date. Finally, we agreed to allocate and administer a training budget during the PSC Extension Period for the benefit of the Guinea National Petroleum Office of $250,000 in addition to any unused portion of the training program under Article 10.3 of the PSC. The unused portion of the training program is now estimated to be approximately $400,000.

The closing of the Farmout Agreement with SAPETRO is subject to several conditions, including, but not limited to: (i) the receipt of the requisite approvals and consents of the government of the Republic of Guinea, (ii) if required by the Government of Guinea, security in respect of each party’s participating share of the drilling costs, and (iii) subject to the satisfaction of SAPETRO acting reasonably, SCS having obtained cash or committed financings in the amount of up to $15 million to enable it to meet its obligations related to the Fatala-1 well. At closing, SAPETRO and SCS will deliver mutual parent guarantees to secure the obligations under the Farmout Agreement and a joint operating agreement governing the conduct of operations. Each party to the Farmout Agreement may waive certain conditions in whole or in part at any time.

The parties have agreed to close on or before May 31, 2017, unless the Farmout Agreement is previously terminated due to parties’ failure to satisfy the closing conditions, by mutual agreement of the parties, or if either party receives final, unappealable written notice from the Government of Guinea stating that it will not approve the transfer of the farm-in interest, or on certain other conditions.

As more fully described in Note 8, on April 12, 2017 SCS, SAPETRO and Guinea executed a Third Amendment to the PSC (the “Third PSC Amendment”) approving the assignment of a 50% interest in the Concession, subject to the receipt of a Presidential Decree as well as the closing of the Farmout Agreement. We received a Presidential Decree on April 21, 2017.

We follow the “Full-Cost” method of accounting for oil and natural gas property and equipment costs. Under this method, internal costs incurred that were directly identified with exploration, development, and acquisition activities undertaken by us for our own account, and which were not related to production, general corporate overhead, or similar activities, are capitalized. Capitalization of internal costs was discontinued on April 1, 2013 when Tullow became the Operator of the Concession. Following receipt of the Presidential Decree after the signing of the Second Amendment of the PSC on September 15, 2016 we resumed the role of Operator of the Concession and thus capitalization of certain internal, project related costs resumed. For the three and nine-month periods ended March 31, 2017, we capitalized $0.5 million and $2.0 million of such costs, respectively.

Capitalized internal costs of approximately $0.2 million from the quarter ended September 30, 2016 were written off and recorded as Full-cost ceiling test write-down expenses, and capitalized internal costs of approximately $ 1.3 million in the quarter ended December 31, 2016 were written off and recorded as General, administrative and other operating costs.

Geological and geophysical costs incurred that are directly associated with specific unproved properties are capitalized in “Unproved properties excluded from amortization” and evaluated as part of the total capitalized costs associated with a prospect. The cost of unproved properties not being amortized is assessed to determine whether such properties have been impaired. In determining whether such costs should be impaired, we evaluate current drilling plans and drilling results and available geological and geophysical information. No reserves have been attributed to the Concession.

The following table provides detail of total capitalized costs for the Concession which remain unproved and unevaluated and are excluded from amortization as of March 31, 2017 and June 30, 2016 (in thousands):

	March 31, 2017		June 30, 2016
Oil and Gas Properties:
Unproved properties not subject to amortization	$	4,653	$	—

During the nine-month period ended March 31, 2017, our oil and gas property balance increased by $4.7 million as a result of the fair value of the material received in our settlement with Tullow and Dana. The fair value of the material, for the most part well construction material, at the time of the settlement was approximately $4.4 million, of which we reduced by approximately $0.4 million during the second quarter of fiscal year 2017 based on additional information that we determined reduced the original fair market value. We engaged an independent outside party with expertise in valuing oil and gas equipment to conduct an appraisal and provide a fair valuation determination for our initial recording and reporting purposes.

During the quarter ended December 31, 2016 we impaired $0.8 million of unproved oil and gas property costs capitalized during the second quarter ($0.5 million) and first quarter ($0.3 million) and the internal costs described above. That impairment assessment was based on our liquidity position, and the possibility that we may not reach an agreement with the Government of Guinea regarding the requirement under the PSC to provide a mutually acceptable security of $5.0 million, and the possibility that the Government of Guinea may at any time and without prior notice terminate our Concession.

As of June 30, 2016, at the close of our last fiscal year we fully impaired the $14.3 million of previously capitalized unproved oil and gas property costs. That impairment assessment was based on the continued impasse with Tullow and Dana to resume petroleum operations and drill the next exploration obligation well, which needed to be commenced at that time by the end of September 2016, as well as our inability at the time to get interim injunctive relief from the American Arbitration Association requiring Tullow and Dana to join with SCS in the negotiation of an acceptable amendment to the PSC and to agree to a process that would result in the execution of the amendment which we hoped would have led to the resumption of petroleum operations.  Thus, we believed all legal measures to require Tullow and Dana to drill the planned exploration well had been exhausted.

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES

9 Months Ended

Mar. 31, 2017

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses as of March 31, 2017 and June 30, 2016 include the following (in thousands):

	March 31, 2017		June 30, 2016
Accounts payable — trade and oil and gas exploration activities	$	1,793	$	1,361
Accounts payable — legal costs	278		61
Accrued payroll	98		321
	$	2,169	$	1,743

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SHARE-BASED COMPENSATION

9 Months Ended

Mar. 31, 2017

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

4. SHARE-BASED COMPENSATION

On February 18, 2010, at our annual meeting of stockholders, the board of directors and stockholders approved the 2010 Equity Incentive Plan (the “2010 Plan”). Prior to the 2010 stockholder meeting, we had two stock award plans: The Stock and Stock Option Plan, which was adopted in 1997 (“1997 Plan”) and the 2008 Restricted Stock Award Plan (“2008 Plan”). In conjunction with the approval of the 2010 Plan at the annual meeting, the 1997 Plan and the 2008 Plan were terminated as of February 18, 2010. Subsequently, on February 17, 2012, the 2010 Plan was amended to increase the maximum shares issuable under the 2010 Plan and again on January 27, 2016, at our annual meeting of stockholders, the stockholders approved amending the 2010 Plan to increase the number of shares available for issuance by 750,000 shares.

The 2010 Plan provides for the awards of shares of common stock, restricted stock units or incentive stock options or nonqualified stock options to purchase our common stock to selected employees, directors, officers, agents, consultants, attorneys, vendors and advisors of ours’ or of any parent or subsidiary thereof. Shares of common stock, options, or restricted stock can only be awarded under the 2010 Plan within 10 years from the effective date of February 18, 2010. A maximum of 2,000,000 shares are issuable under the 2010 Plan and at March 31, 2017, 783,460 shares remained available for issuance.

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

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

Stock Options

The fair value of stock option awards is estimated using the Black-Scholes valuation model. For market-based pricing of stock option awards, those options where vesting terms are dependent on achieving a specified stock price, the fair value was estimated using a Black-Scholes option pricing model with inputs adjusted for the probability of the vesting criteria being met and the median expected term for each award as determined by utilizing a Monte Carlo simulation. Expected volatility is based solely on historical volatility of our common stock over the period commensurate with the expected term of the stock options. We rely solely on historical volatility because we do not have options that are traded. The expected term calculation for stock options is based on the simplified method as described in the Securities and Exchange Commission Staff Accounting Bulletin No. 107.

We use this method because we do not have sufficient historical information on exercise patterns to develop a model for expected term. The risk-free interest rate is based on the U. S. Treasury yield in effect at the time of award for an instrument with a maturity that is commensurate with the expected term of the stock options. The dividend yield rate of 0% is based on the fact that we have never paid cash dividends on our common stock and we do not expect to pay cash dividends on our common stock during the expected term of the options.

The following table provides information about options during the nine months ended March 31, 2017 and 2016:

	2017		2016
Number of options awarded	199,618		30,000
Compensation expense recognized	$	146,000	$	280,000
Weighted average award-date fair value of options outstanding	$	4.06	$	5.67

The following table details the significant assumptions used to compute the fair values of employee and director stock options awarded during the nine-month periods ended March 31, 2017 and 2016:

	2017		2016
Risk-free interest rate	1.81	%	1.23	%
Dividend yield	0	%	0	%
Volatility factor	109	%	109	%
Expected life (years)	4.92		2.88

Summary information regarding employee and director stock options issued and outstanding under all plans as of March 31, 2017 is as follows:

	Options		Weighted Average Exercise Price	Weighted average remaining contractual term (years)	Aggregate intrinsic value
Options outstanding at July 1, 2016	1,016,997		5.03	3.19	—
Awarded	199,618		1.06
Exercised	(58,610	)	0.90
Forfeited	—		—
Expired	—		—
Options outstanding at March 31, 2017	1,158,005		4.06	2.29	396,462
Options exercisable at March 31, 2017	938,300		4.70	1.85	304,759

Options outstanding and exercisable as of March 31, 2017
Exercise Price		Outstanding Number of Shares	Remaining Life	Exercisable Number of Shares
$	0.40 – 4.00	245,525	Less than 1 year	225,525
$	0.40 – 4.00	57,916	1 year	57,916
$	0.40 – 4.00	136,296	2 years	136,296
$	0.40 – 4.00	256,720	3 years	256,720
$	0.40 – 4.00	241,110	4 years	41,405
$	4.01 – 10.00	118,188	Less than 1 year	118,188
$	4.01 – 10.00	4,062	1 year	4,062
$	4.01 – 10.00	7,000	3 years	7,000
$	10.00 – 20.00	13,125	Less than 1 year	13,125
$	10.00 – 20.00	17,500	3 years	17,500
$	20.00 – 30.00	2,500	Less than 1 year	2,500
$	20.00 – 30.00	28,500	3 years	28,500
$	30.00 – 40.00	12,500	Less than 1 year	12,500
$	30.00 – 40.00	13,313	3 years	13,313
$	40.00 – 48.72	3,750	3 years	3,750
		1,158,005		938,300

At March 31, 2017, there were $137 thousand of unrecognized compensation costs related to non-vested share based compensation arrangements awarded to employees and directors under the plans. During the nine months ended March 31, 2017, a total of 76,404 options, with a weighted average award date fair value of $0.85 per share, vested in accordance with the underlying agreements. Unvested options March 31, 2017 totaled 219,705 with a weighted average award date fair value of $0.42, an amortization period of one year and a weighted average remaining life of 1 year.

Restricted Stock

The fair value of restricted stock awards classified as equity awards is based on the Company’s stock price as of the date of grant. During the year ended June 30, 2015, all such awards were forfeited. No new grants have been issued, and none are outstanding at March 31, 2017.

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INCOME TAXES

9 Months Ended

Mar. 31, 2017

INCOME TAXES

INCOME TAXES

5. INCOME TAXES

Federal income taxes are not due as we have had losses since inception. Our effective tax rate for the nine-month periods ended March 31, 2017 and 2016 is 0%. This rate is lower than the U.S. statutory rate of 35% primarily due to the valuation allowance applied against our net deferred tax assets.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Mar. 31, 2017

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

6. COMMITMENTS AND CONTINGENCIES

LITIGATION AND OTHER LEGAL MATTERS

While there are currently no pending legal proceedings to which we are a party (or that are to our knowledge contemplated by governmental authorities) that we believe will have individually or in the aggregate, a material adverse effect on our business, financial condition or operating results, from time to time we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business or otherwise. We review the status of on-going proceedings and other contingent matters with legal counsel.  Liabilities for such items are recorded if and when it is probable that a liability has been incurred and when the amount of the liability can be reasonably estimated. If we are able to reasonably estimate a range of possible losses, an estimated range of possible loss is disclosed for such matters in excess of the accrued liability, if any. Liabilities are periodically reviewed for adjustments based on additional information.

Iroquois Lawsuit

On May 9, 2012, a lawsuit was filed in the Supreme Court of the State of New York against us and all of our directors. The plaintiffs, five hedge funds, including Iroquois Master Fund Ltd., that invested in us in early 2012, alleged that we breached an agreement with the plaintiffs, and that we and the directors made certain negligent misrepresentations relating to our drilling operations. Among other claims, the plaintiffs alleged that we misrepresented the status of our drilling operations and the speed with which the drilling would be completed. The plaintiffs advanced claims for breach of contract and negligent misrepresentation and sought damages in the amount of $18.5 million plus pre-judgment interest. On June 19, 2013, the court dismissed the negligent misrepresentation claim, but declined to dismiss the breach of contract claim. On August 12, 2013, the plaintiffs filed an amended complaint. That complaint named only us and sought recovery for alleged breaches of contract.

On December 31, 2016 we entered into a settlement agreement with the five hedge funds in this lawsuit. Under the terms of the settlement agreement, Hyperdynamics would issue to the plaintiffs a total of 600,000 new shares of common stock, and it would cause a payment to be made of $1.35 million in cash that would be covered under our directors’ and officers’ insurance policy. The plaintiffs are restricted from selling the shares of common stock before April 1, 2017 under the terms of the agreement.   On January 11, 2017, a payment of $1.35 million was made by the insurance underwriters of the Company’s directors’ and officers’ insurance policy to the hedge funds in the Iroquois lawsuit on behalf of the Company. On January 26, 2017, an order to approve the settlement agreement was entered in the Supreme Court of the State of New York, New York County and subsequently approved by the Court on the same day.

On February 2, 2017, the Company issued 600,000 shares of its common stock to the hedge funds named in the settlement agreement.

Shareholder Lawsuits

Beginning on March 13, 2014, two lawsuits styled as class actions were filed in the U.S. District Court for the Southern District of Texas against us and several then-current officers of the Company alleging that the Company made false and misleading statements that artificially inflated the Company’s stock prices.  The lawsuits alleged, among other things, that the Company misrepresented its compliance with the Foreign Corrupt Practices Act and anti-money laundering statutes and that it lacked adequate internal controls.  The lawsuits sought damages based on Sections 10(b) and 20 of the Securities Exchange Act of 1934, although the specific amount of damages was not specified.

Both of the March 2014 lawsuits were dismissed voluntarily.  One was dismissed during the quarter ended September 30, 2016 and the second on October 6, 2016.

Tullow and Dana Legal Actions

On January 11, 2016, we filed legal actions against members of the Consortium under the Joint Operating Agreement governing the oil and gas exploration rights offshore Guinea (“JOA”) in the United States District Court for the Southern District of Texas and before the American Arbitration Association (“AAA”) against Tullow for their failure to meet their obligations under the JOA. On January 28, 2016, the action in the Federal District Court was voluntarily dismissed by us and refiled in District Court in Harris County, Texas. On February 8, 2016 Tullow and Dana removed the case to Federal District Court.

On February 2, 2016, SCS filed an Application for Emergency Arbitrator and Interim Measures of Protection and requested the following relief: (a) expedite discovery prior to the constitution of the arbitral tribunal; (b) provide that the time period permitted by the parties’ arbitration agreement for the selection of the arbitrators and the filing of any responsive pleadings or counterclaims be accelerated; (c) require Tullow, as the designated operator under the JOA, to maintain existing “well-planning activities”; (d) require Tullow to undertake and complete certain planning activities; and (e) require Tullow and Dana to join with SCS in completing the negotiation of an acceptable amendment to the PSC and to agree to a process that will result in the execution of the amendment.

With the exception of limited relief regarding discovery and agreement by Tullow to maintain certain well plan readiness, the Emergency Arbitrator ruled on February 17, 2016, that SCS was not entitled to the emergency injunctive relief it requested.  Further, the Emergency Arbitrator enjoined all parties to the dispute from pursuing parallel District Court proceedings. On February 12, 2016, the case was voluntarily stayed by us.

The AAA action sought (1) a determination that Tullow and Dana was in breach of their contractual obligations and (2) the damages caused by the repeated delays in well drilling caused by the activities of Tullow and Dana.  We determined to bring the legal actions only after it became apparent that Tullow and Dana would not move forward, despite many opportunities to do so, with petroleum operations.   SCS believed that it had exhausted all of its options for the pursuit of legal measures to require Tullow and Dana to drill the planned exploration well.

On August 15, 2016, we entered into a Settlement and Release Agreement with Tullow and Dana (“Settlement and Release”) with respect to our dispute in arbitration. Under the Settlement and Release, we released all claims against Tullow and Dana and Tullow and Dana (i) issued to the Government of Guinea a notice of withdrawal from the Concession and PSC effective immediately, (ii) transferred their interest in the long lead items of well construction material previously purchased in preparation for the initial drilling of the Fatala well, and agreed to pay net cash of $686,570 to us. The net cash received was recorded as a part of the gain on the legal settlement. We also agreed to pay Dana a success fee based upon the certified reserves of the Fatala well if it results in a discovery of commercially producible oil and gas reserves.

The $4.8 million gain on legal settlement also includes the estimated fair value of $4.1 million for the well construction material we received from Tullow as a part of our Settlement and Release Agreement.

Operating Leases

We lease office space under long-term operating leases with varying terms. Most of the operating leases contain renewal and purchase options. We expect that in the normal course of business, most of the operating leases will be renewed or replaced by other similar leases.

During the nine-month period ended March 31, 2017 and as a part of our program to begin drilling operations in Guinea, we entered into a lease for in-country offices and nearby apartments.  The leases are for six months with options to renew as necessary and collectively cost about $30 thousand per month.

The following is a schedule by years of minimum future rental payments required under operating leases that have initial or remaining non-cancellable lease terms in excess of one year (in thousands):

Years ending June 30:
2017	$	377
2018	399
2019	406
2020	309
2021 and thereafter	—
Total minimum payments required	$	1,491

Rent expense included in loss from operations for the three-month periods ended March 31, 2017 and 2016 was $ 0 .3 million and $0.1 million respectively.  Rent expense included in loss from operations for the nine-month periods ended March 31, 2017 and 2016 was $0.5 million and $0.3 million respectively.

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SHAREHOLDERS' EQUITY

9 Months Ended

Mar. 31, 2017

SHAREHOLDERS' EQUITY

SHAREHOLDERS' EQUITY

7. SHAREHOLDERS’ EQUITY

Series A Preferred Stock

On March 17, 2017 we held the closing of a private placement offering (the “Offering”) of 680 Units of preferred stock securities, at a purchase price of $1,000 per Unit and on March 28, 2017, we consummated a second closing of the Offering and issued and sold an additional 511 Units of its securities, at a purchase price of $1,000 per Unit.  Each “Unit” consisted of (i) one share of the Company’s 1% Series A Convertible Preferred Stock, par value $0.001 per share, with a Stated Value of $1,040 per share (the “Series A Preferred Stock”), and (ii) a warrant (the “Investor Warrant”) to purchase 223 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), exercisable from issuance until two years after the date of the initial closing of March 17, 2017 at an exercise price of $3.50 per share (subject to adjustment in certain circumstances).

We entered into subscription agreements for the Units (the “Subscription Agreements”) with certain accredited investors (as such term is defined in the Rule 501 under the Securities Act of 1933, as amended (the “Securities Act”)) (the “Subscribers”).  The Subscription Agreements contained customary representations and warranties of the Company and the Subscribers, and indemnification of the Company and the Placement Agent (as defined below) by the Subscribers.

The Company received an aggregate of $1,191,000 in gross cash proceeds, before deducting placement agent fees and expenses, and legal, accounting and other fees and expenses, in connection with the sale of the Units. The Company expects to use the net proceeds of $981,737 from the sale of the Units for general corporate purposes and to further its business interests in the Republic of Guinea, including, but not limited to the drilling of an exploration well on the Company’s offshore Concession.

At the March 17, 2017 closing, we issued to the Subscribers an aggregate of: (i) 680 units of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 151,640 shares of Common Stock and at the March 28, 2017 closing we issued to the Subscribers (as defined below) an aggregate of (i) 511 units of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 113,953 shares of Common Stock.

Subscribers in the Offering have an option (the “Subscriber Option”) to purchase their pro rata share of up to an aggregate of $3,000,000 in additional Units following the effective date of the registration statement registering for resale the shares of Common Stock issuable upon conversion of the Series A Preferred Stock and exercise of the Investor Warrants and Placement Agent Warrants (as defined below), which we filed on May 1, 2017 and amended on May 18, 2017.

On March 17, 2017, the Company filed a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (the “Certificate of Designations”) with the Secretary of State of the State of Delaware, authorizing, and establishing the voting powers, designations, preferences, limitations, restrictions and relative rights of, the Series A Preferred Stock. The Certificate of Designations was adopted by resolution of the Company’s Board of Directors pursuant to the Company’s Certificate of Incorporation, as amended, which vests in the Company’s Board of Directors with the authority to provide for the authorization and issuance of one or more series of preferred stock of the Company within the limitations and restrictions set forth therein.   The Certificate of Designations contains the following key terms:

· Each holder of Series A Preferred Stock is entitled to receive dividends payable on the Stated Value of such Series A Preferred Stock at the rate of 1% per annum, which shall be cumulative and be due and payable in Common Stock on the applicable conversion date or in cash in the case of a redemption of the Series A Preferred Stock by the Company.

· Shares of Series A Preferred Stock are redeemable, in whole or in part, at the option of the Company, in cash, at a price per share equal to 115% of the Stated Value plus 115% of accrued but unpaid dividends.

· In the event of any liquidation, dissolution or winding up of the Company, holders of Series A Preferred Stock will be entitled to receive, out of assets available therefor, an amount equal to 115% of the Stated Value of their shares plus 115% of any accrued but unpaid dividends.

· The Series A Preferred Stock is convertible at the option of the holder, in whole or in part, into shares of Common Stock at any time after the earlier of (i) the date the Registration Statement is declared effective by the SEC or (ii) six months after the date of the closing.  If no conversion has taken place within nine months after the date of the closing, the Series A Preferred Stock, plus any accrued but unpaid dividends, will automatically convert into shares of Common Stock.

· The conversion price per share of Common Stock in either event is the lesser of (i) $2.75 per share (subject to adjustment in certain circumstances), or (ii) 80% of the lowest closing price during 21 consecutive trading days ending on the trading day immediately prior to the conversion date, subject to a floor of $0.25 per share (which floor is subject to “full ratchet” adjustment in certain circumstances if we issue Common Stock (or Common Stock equivalents) in the aggregate amount of not less than $1,000,000 at a price below $0.25 per share of Common Stock, and to proportionate adjustment in certain other circumstances).

· Except in certain limited circumstances affecting the rights of the holders of Series A Preferred Stock or as required by law, holders of the Series A Preferred Stock will not have voting rights.

· Until the date that is six months following the date of the closing, the Company will not authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation senior to the Series A Preferred Stock, without the consent of holders of no less than 66 2 / 3 % of the then-outstanding shares of Series A Preferred Stock.

We also agreed in the Subscription Agreements that until the date that is 12 months following the closing, we will not create or allow to be created any security interest, lien, charge or other encumbrance on any of our or our subsidiaries’ rights under or interests in the Hydrocarbon Production Sharing Contract between SCS Corporation Ltd. and the Republic of Guinea, dated September 22, 2006, as amended to date or hereafter, that secures the repayment of indebtedness of the Company or any of its subsidiaries for money borrowed.

Katalyst Securities, LLC (the “Placement Agent”), a U.S. registered broker-dealer, was engaged by the Company as placement agent for the Offering, on a reasonable best effort basis.  We agreed to pay to the Placement Agent (and any sub agent) a cash commission of 9% of the gross purchase price paid by the Subscribers for the Units (including for Units that may be issued upon exercise of the Subscriber Option), and to issue to the Placement Agent (and any sub agent) warrants to purchase a number of shares of Common Stock equal to 7% of the number of shares of Common Stock initially issuable upon conversion of the shares of Series A Preferred Stock at a fixed price of $2.75 per share contained in the Units sold in Offering (including Units that may be issued upon exercise of the Subscriber Option), at the exercise price of $3.00 per share (the “Placement Agent Warrants”).

We also agreed to reimburse the Placement Agent for certain expenses related to the Offering.  At the March 17, 2017 closing, we paid the Placement Agent $61,200 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 18,002 shares of Common Stock as well as $45,990 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 13,528 shares of Common Stock for the March 28, 2017 closing.  The Placement Agency Agreement between the Company and the Placement Agent contains customary representations, warranties and covenants of and indemnifications by the parties.

Investor Warrants

As part of its Series A convertible preferred stock financing , on March 17, 2017 closing, we issued to the Subscribers an aggregate of: (i) 680 units of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 151,640 shares of Common Stock and at the March 28, 2017 closing we issued to the Subscribers (as defined below) an aggregate of (i) 511 units of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 113,953 shares of Common Stock. The exercise price is subject to weighted average anti-dilution provisions. The investor warrants are exercisable at any time at the option of the holder until the second annual anniversary of the first closing of the financing which was March 17, 2017.

The combined fair value of the investor warrants at first and second closing of the financing was estimated to be $181,931, which also approximates fair value as of March 31, 2017.The following are weighted average assumptions:

	Three  Months Ended  March 31, 2017
Expected term (in years)	1.96
Expected volatility%	130	%
Risk-free interest rate%	2.39	%
Expected dividend yield%	0.0	%

The fair value of the investor warrants of $181,931 was recorded as warrants derivative liability in the accompanying balance sheets as of March 31, 2017 and June 30, 2016. Change in the fair value of the warrants is recognized in the condensed consolidated statements of operations. The change in fair value for the three months ended March 31, 2017 was immaterial.

Placement Agent Warrants

As part of the placement agent’s fees, Katalyst Securities, received warrants to purchase 31,529 shares of the Company’s stock at the exercise price of $3.00 per share. The exercise price is subject to weighted average anti-dilution provisions. The placement agent warrants are exercisable at any time at the option of the holder until the second annual anniversary of the first closing of the financing which was March 17, 2017.

The Company estimated the aggregate fair value of the warrants issued to the placement agent to be $22,985, which also approximates its fair value at March 31, 2017. This value was considered part of total equity issuance cost of $232,078 and allocated between reduction to additional paid-in capital and a charge to general administrative and other operating costs of $35,451 based on relative values of investor warrants and preferred stock relative to proceeds from issuance.

The placement agent warrants were valued using the following weighted average assumptions:

	Three  Months Ended  March 31, 2017
Expected term (in years)	1.96
Expected volatility%	130	%
Risk-free interest rate%	2.39	%
Expected dividend yield%	0.0	%

The Investor Warrants and the Placement Agent Warrants have provisions for the “weighted average” adjustment of their exercise price in the event that we issue shares of Common Stock (or Common Stock equivalents) for a consideration per share less than the exercise price then in effect, subject to certain exceptions.

In connection with the Offering, we also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with each of the Subscribers and the holders of the Placement Agent Warrants, which requires the Company to file a Registration Statement with the SEC within 45 days after the closing, registering for resale (i) all shares of Common Stock issued or issuable upon conversion of the Series A Preferred Stock (including any shares of Series A Preferred Stock issued pursuant to the Subscriber Option described above), and (ii) all shares of Common Stock issued or issuable upon exercise of the Investor Warrants (including any Investor Warrants issued pursuant to the Subscriber Option described above) and the Placement Agent Warrants (including any that may be issued upon exercise of the Subscriber Option), and to use its commercially reasonable efforts to cause the Registration Statement to be declared effective no later than 135 days after the closing.  We also granted to the holders of the registrable shares certain “piggyback” registration rights until two years after the effectiveness of the Registration Statement.

If the Registration Statement is not filed with, or declared effective by, the SEC within the specified deadlines set forth above, or the Registration Statement ceases to be effective or otherwise cannot be used for a period specified in the Registration Rights Agreement, or trading of the Common Stock on the Company’s principal market is suspended or halted for more than three consecutive trading days (each, a “Registration Event”),  monetary penalties payable by the Company to the holders of registrable shares that are affected by such Registration Event will commence to accrue at a rate equal to 12% per annum of the purchase price paid for each Unit purchased, for the period that such Registration event continues, but not exceeding in the aggregate 5% of such purchase price.

On March 28, 2017, we also entered into an amendment to the Subscription Agreements (the “Amendment”) with Subscribers that purchased the Units in the initial closing of the Offering on March 17, 2017, and with the Subscribers in this closing, to expand the scope of a right of first refusal contained in the Subscription Agreement.  As so amended, the Subscription Agreement provides that if, following the termination of the Offering and prior to December 17, 2017, the Company determines to offer for sale or to accept an offer to purchase any additional shares of common stock or securities convertible into or exercisable or exchangeable for shares of common stock (subject to certain limitations and adjustments described therein) for consideration consisting of cash and/or outstanding debt of the Company, each Subscriber who previously purchased Units in the Offering will have an option to purchase such Subscriber’s pro rata share of such securities on the same terms and conditions on which such securities are proposed to be issued, exercisable on the terms set forth in the Subscription Agreement.

Beneficial Conversion Feature

The Company determined that the conversion feature in the Preferred Stock represented a beneficial conversion feature. The fair value of the common stock ranging from $ 1.60 to 1.75 per share on the Commitment Dates was greater than the effective conversion price of $ 0.47 per share of common stock, representing a beneficial conversion feature of $ 2.6 million in aggregate. Since the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the convertible instrument, the amount of the discount assigned to the beneficial conversion feature was limited to the amount of the proceeds allocated to the convertible instrument.  Accordingly, $1,009,069 was recorded as a reduction (the discount) to the additional paid-in capital. The Discount resulting from the allocation of value to the beneficial conversion feature is required to be amortized on a non-cash basis from the issuance date over a six-month period, or fully amortized upon an accelerated date of redemption or conversion, and recorded as a preferred dividend. The preferred dividend was immaterial to this quarter ended March 31, 2017.  The preferred dividend when recorded will be charged against additional paid-in capital since no retained earnings were available.

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SUBSEQUENT EVENTS

9 Months Ended

Mar. 31, 2017

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

8. SUBSEQUENT EVENTS

Third PSC Amendment and Presidential Decree

On April 12, 2017 SCS, SAPETRO and Guinea executed a Third Amendment to the PSC (the “Third PSC Amendment”) that was subject to the receipt of a Presidential Decree and the closing of the Farmout Agreement. We received a Presidential Decree on April 21, 2017 approving the assignment of 50% of our participating interest in the Guinea concession to SAPETRO, and it confirms the two companies’ rights to explore for oil and gas on our 5,000-square-kilometer Concession offshore the Republic of Guinea. The contract requires that drilling operations in relation to the obligation well Fatala-1 (the “Extension Well”) are to begin no later than May 30, 2017 and provides that additional exploration wells may be drilled within the exploration period at the companies’ option.

The Third PSC Amendment further reaffirms clear title of SAPETRO and SCS to the Concession as well as amends the security instrument requirements under the PSC. SCS and SAPETRO agreed to a US $5 million security instrument to be put in place within 30 days from the date of the Presidential Decree.

In addition on April 12, 2017 SCS and SAPETRO separately agreed that SCS’s “sufficient financing for the Obligation Well Costs” as defined in the Farmout Agreement was to be set at $15 million in “cash and committed financing to the satisfaction of SAPETRO acting reasonably” in addition to costs already incurred. Further, SAPETRO and SCS agreed that, subject to Closing, SAPETRO may elect to pay for a portion of SCS’s Fatala-1 well costs so long as SCS is not in default of either the PSC or the Farmout Agreement and requires credit support. In case SAPETRO makes such payments for a share of SCS’s costs of, SCS shall assign to SAPETRO 2% of its participating interest in the Concession for each $1 million of SCS’s costs paid by SAPETRO.

The Pacific Sirocco drillship entered Guinea shelf waters as provided by the terms of the Third PSC Amendment on May 21, 2017, which is within the 30 days from the Presidential Decree signing date. It relieves SAPETRO and SCS from an obligation to place a $5 million security instrument with the Government of Guinea. Subsequent to arrival of the Pacific Scirocco in Guinea waters, SCS begins mobilization of additional equipment, materials and supplies on the rig to prepare for spudding the Fatala 1 well, which constitutes the commencement of the drilling operations before May 30, 2017 as required by the Third PSC Amendment.

Prior to that, on May 20, 2017 we entered into Amendment No.1 to the Offshore Drilling Contract with a subsidiary of Pacific Operations Drilling Limited (“Pacific Amendment”).  The Pacific Amendment clarifies the use of the Pacific Scirocco drill ship for the upcoming drilling program offshore Guinea and provides for Special Mobilization and Standby Rate (“SMSR”) of $100,000 per day  to apply at moment the drill ship enters Guinea territorial waters.  It further provides that SMSR ends the later of when Pacific Sirocco receives from SCS a 28 day notice for drilling commencement or  July 17, 2017. In consideration for the extension of the Pacific Sirocco Contract and reduction of the costs associated with it, we agreed with Pacific Scirocco Limited (“Pacific”) to issue and deliver to Pacific a number of shares of our Common Stock equal to $1,000,000 at a 10 day average market price preceding the date of the agreement to issue the shares.

Closing of Additional Private Placement Offering

On April 18, 2017, we consummated a third closing of a private placement offering (the “Offering”) and issued and sold additional 710 Units of securities, at a purchase price of $1,000 per Unit. On April 26, 2017, we consummated a fourth closing of the Offering and issued and sold additional 50 Units of securities at a purchase price of $1,000 per Unit.   (See Note 7 — Shareholders’ Equity — Series A Preferred Stock) Each “Unit” consisted of (i) one share of the Company’s 1% Series A Convertible Preferred Stock, par value $0.001 per share, with a Stated Value of $1,040 per share (the “Series A Preferred Stock”), and (ii) a warrant (the “Investor Warrant”) to purchase 223 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), exercisable from issuance until two years after the date of the initial closing of March 17, 2017, at an exercise price of $3.50 per share (subject to adjustment in certain circumstances).  At the April 18, 2017 closing, we issued to the Subscribers an aggregate of (i) 710 shares of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 158,330 shares of Common Stock. At the April 26, 2017 closing, we issued to the Subscribers an aggregate of (i) 50 shares of Series A Preferred Stock and (ii) Investor Warrants to purchase an aggregate of 1,150 shares of Common Stock.

We received an aggregate of $760,000 in gross cash proceeds, before deducting placement agent fees and expenses, and legal, accounting and other fees and expenses, in connection with the April 18, 2017 and April 26, 2017 sale of the Units.   We expect to use the net proceeds of $661,441 from the sale of the Units for general corporate purposes and to further our business interests in the Republic of Guinea, including, but not limited to, the drilling of an exploration well on our offshore Concession.

In conjunction with the April 18, 2017 and April 26, 2017 closing, we paid Katalyst Securities $68,400 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 20,120 shares of Common Stock.

Investor Warrants and Placement Agent Warrants will be recorded as additional derivative liabilities.

We filed a Registration Statement on Form S-1 with the Securities and Exchange Commission on May 1, 2017 in connection with common shares that preferred stock is convertible into and warrants exercisable for. On May 18, 2017, we filed an amended Registration Statement on Form S-1/A.

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ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Mar. 31, 2017

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Hyperdynamics and its direct and indirect wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report filed with the SEC on Form 10-K for the year ended June 30, 2016.

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 ended June 30, 2016, as reported in the Form 10-K, have been omitted.

Use of estimates

Use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses at the balance sheet date and for the period then ended.  We believe our estimates and assumptions are reasonable; however, such estimates and assumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially from such estimates. The following assumptions underlying these financial statements include:

· estimates in the calculation of share-based compensation expense,

· estimates in valuation of warrants derivative liability,

· estimates made in our income tax calculations,

· estimates in the assessment of current litigation claims against the Company,

· estimates and assumptions involved in our assessment of unproved oil and gas properties for impairment, and

· estimates and assumptions involved in our fair market value assessment of the well construction equipment received in the August 15, 2016 Settlement Agreement with Tullow and Dana.

We are subject, from time to time, to legal proceedings, claims, and liabilities that arise in the ordinary course of business. We accrue for losses when such losses are considered probable and the amounts can be reasonably estimated.

Cash and cash equivalents

Cash and cash equivalents

Cash equivalents are highly liquid investments with an original maturity of three months or less.  For the periods presented, we maintained all of our cash in bank deposit accounts which, at times, exceed the federally insured limits.

Earnings per share

Earnings per share

Basic loss per common share has been computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. In period of earnings, diluted earnings per common share are calculated by dividing net income available to common shareholders by weighted-average common shares outstanding during the period plus weighted-average dilutive potential common shares.  Diluted earnings per share calculations assume, as of the beginning of the period, exercise of stock options and warrants using the treasury stock method.

All potential dilutive securities, including potentially dilutive options, warrants and convertible securities were excluded from the computation of dilutive net loss per common share for the three and nine month periods ended March 31, 2017 and 2016, respectively, because their effects in the computation are antidilutive due to our net loss for those periods.

Stock options to purchase approximately 1.2 million common shares at an average exercise price of $4.06 were outstanding at March 31, 2017. Using the treasury stock method, had we had net income, approximately 1,158 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the three-month period ended March 31, 2017 while approximately 1,173 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the nine-month period ended March 31, 2017.

Stock options to purchase approximately 1.2 million common shares at an average exercise price of $ 5.67 were outstanding at March 31, 2016. Using the treasury stock method, had we had net income, approximately 1,182 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the three-month period ended March 31, 2016 while approximately 958 common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the nine-month period ended March 31, 2016.

Contingencies

Contingencies

We are subject to legal proceedings, claims and liabilities. We accrue for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred.  See Note 6 for more information on legal proceedings and settlements.

Fair Value Measurements

Fair Value Measurements

The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurements and enhance disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:

	Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

As discussed in Note 2, we determined a fair value of the well construction equipment material (Level 3 fair value measurement) that we received at the time of our legal settlement with Tullow and Dana. The fair value estimate was based on the combination of cost and market approaches taking into consideration a number of factors, which included but were not limited to the original cost and the condition of the material and demand for steel and tubulars at the time of measurement.  As discussed further below the fair value of the warrants was determined using the Black Scholes option-pricing model. The warrants derivative liability is carried on the balance sheet at its fair value. Significant Level 3 inputs used to calculate the fair value of the warrants include expected volatility, risk-free interest rate and expected dividends.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  The Company has determined that Investor Warrants and Placement Agent Warrants issued in March 2017 qualify as derivative financial instruments.  These warrant agreements include provisions designed to protect holders from a decline in the stock price (‘down-round’ provision) by reducing the exercise price of warrants in the event we issue equity shares at a price lower than the exercise price of the warrants.  As a result of this down-round provision, these warrants are considered derivative liabilities and as such, are recorded at fair value at date of issuance and at each reporting date.  Change in fair value of derivative instruments during the period are recorded in earnings as “Other income (expense) — Gain (loss) on warrants derivative liability.” The change in fair value between preferred stock issuance dates in March 2017 and March 31, 2017 was immaterial.

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2017 (in thousands).

	Carrying Value at		Fair Value Measurement at March 31, 2017
	March 31, 2017		Level 1		Level 2		Level 3
Warrants derivative liability	$	205	$	—	$	—	$	205

The following describes some of the key inputs into our fair value model as it relates to valuation of warrants.

Expected Volatility

Expected Volatility

As the Company’s stock has been extremely volatile during 2016-2017 as a result of uncertainty surrounding the Company’s target spud date, the expected stock price volatility for the Company’s common stock was estimated by taking the average of the observed volatility of daily returns of the Company’s stock and the historic price volatility for industry peers based on daily price observations. Industry peers consist of several public companies in the Company’s industry which were the same as the comparable companies used in the common stock valuation analysis. The Company intends to continue to consistently apply this process using the same or similar public companies until a statistically significant amount of historical information regarding the volatility of its own share price becomes available, or unless circumstances change such that the identified companies are no longer similar to the Company, in which case, more suitable companies whose share prices are publicly available would be used in the calculation.

Risk-Free Interest Rate

Risk-Free Interest Rate

The risk-free interest rate is based on the zero-coupon U.S. Treasury notes.

Expected Dividend Yield

Expected Dividend Yield

The Company does not anticipate paying any dividends on the Common Stock in the foreseeable future and, therefore, uses an expected dividend yield of zero in the Black-Scholes option-valuation model.

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ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Mar. 31, 2017

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Schedule of liabilities measured at fair value on a recurring basis

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2017 (in thousands).

	Carrying Value at		Fair Value Measurement at March 31, 2017
	March 31, 2017		Level 1		Level 2		Level 3
Warrants derivative liability	$	205	$	—	$	—	$	205

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INVESTMENT IN OIL AND GAS PROPERTIES (Tables)

9 Months Ended

Mar. 31, 2017

INVESTMENT IN OIL AND GAS PROPERTIES

Schedule of total capitalized costs of oil and gas properties

The following table provides detail of total capitalized costs for the Concession which remain unproved and unevaluated and are excluded from amortization as of March 31, 2017 and June 30, 2016 (in thousands):

	March 31, 2017		June 30, 2016
Oil and Gas Properties:
Unproved properties not subject to amortization	$	4,653	$	—

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables)

9 Months Ended

Mar. 31, 2017

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Summary of accounts payable and accrued expenses

Accounts payable and accrued expenses as of March 31, 2017 and June 30, 2016 include the following (in thousands):

	March 31, 2017		June 30, 2016
Accounts payable — trade and oil and gas exploration activities	$	1,793	$	1,361
Accounts payable — legal costs	278		61
Accrued payroll	98		321
	$	2,169	$	1,743

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SHARE-BASED COMPENSATION (Tables)

9 Months Ended

Mar. 31, 2017

SHARE-BASED COMPENSATION

Schedule of information about options

	2017		2016
Number of options awarded	199,618		30,000
Compensation expense recognized	$	146,000	$	280,000
Weighted average award-date fair value of options outstanding	$	4.06	$	5.67

Schedule of significant assumptions used to compute the fair values of employee and director stock options awarded

	2017		2016
Risk-free interest rate	1.81	%	1.23	%
Dividend yield	0	%	0	%
Volatility factor	109	%	109	%
Expected life (years)	4.92		2.88

Summary of employee and director stock options issued and outstanding

	Options		Weighted Average Exercise Price	Weighted average remaining contractual term (years)	Aggregate intrinsic value
Options outstanding at July 1, 2016	1,016,997		5.03	3.19	—
Awarded	199,618		1.06
Exercised	(58,610	)	0.90
Forfeited	—		—
Expired	—		—
Options outstanding at March 31, 2017	1,158,005		4.06	2.29	396,462
Options exercisable at March 31, 2017	938,300		4.70	1.85	304,759

Schedule of stock options outstanding and exercisable

Options outstanding and exercisable as of March 31, 2017
Exercise Price		Outstanding Number of Shares	Remaining Life	Exercisable Number of Shares
$	0.40 – 4.00	245,525	Less than 1 year	225,525
$	0.40 – 4.00	57,916	1 year	57,916
$	0.40 – 4.00	136,296	2 years	136,296
$	0.40 – 4.00	256,720	3 years	256,720
$	0.40 – 4.00	241,110	4 years	41,405
$	4.01 – 10.00	118,188	Less than 1 year	118,188
$	4.01 – 10.00	4,062	1 year	4,062
$	4.01 – 10.00	7,000	3 years	7,000
$	10.00 – 20.00	13,125	Less than 1 year	13,125
$	10.00 – 20.00	17,500	3 years	17,500
$	20.00 – 30.00	2,500	Less than 1 year	2,500
$	20.00 – 30.00	28,500	3 years	28,500
$	30.00 – 40.00	12,500	Less than 1 year	12,500
$	30.00 – 40.00	13,313	3 years	13,313
$	40.00 – 48.72	3,750	3 years	3,750
		1,158,005		938,300

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Mar. 31, 2017

COMMITMENTS AND CONTINGENCIES

Schedule by years of minimum future rental payments required under operating leases that have initial or remaining non-cancellable lease terms in excess of one year

The following is a schedule by years of minimum future rental payments required under operating leases that have initial or remaining non-cancellable lease terms in excess of one year (in thousands):

Years ending June 30:
2017	$	377
2018	399
2019	406
2020	309
2021 and thereafter	—
Total minimum payments required	$	1,491

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SHAREHOLDERS' EQUITY (Tables)

9 Months Ended

Mar. 31, 2017

Investor Warrants

Schedule of weighted average assumptions

	Three  Months Ended  March 31, 2017
Expected term (in years)	1.96
Expected volatility%	130	%
Risk-free interest rate%	2.39	%
Expected dividend yield%	0.0	%

Placement Agent Warrants

Schedule of weighted average assumptions

	Three  Months Ended  March 31, 2017
Expected term (in years)	1.96
Expected volatility%	130	%
Risk-free interest rate%	2.39	%
Expected dividend yield%	0.0	%

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ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - General Overview (Details)	9 Months Ended
	Mar. 31, 2017 subsidiary
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Number of wholly-owned subsidiaries	2

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ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - Status of Our Business - General Information (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended	9 Months Ended
	Dec. 31, 2015	Dec. 31, 2015	Mar. 31, 2017	Jun. 30, 2016	Mar. 31, 2016	Jun. 30, 2015
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Operating revenue	$ 0	$ 0	$ 0
Cash			591	$ 10,327	$ 12,956	$ 18,374
Accounts payable and accrued expense liabilities			2,169	$ 1,743
Other commitments			$ 0

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ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - Status of Our Business - Liquidity and Going Concern (Details)															3 Months Ended	9 Months Ended
	May 20, 2017 USD ($)	Apr. 26, 2017 $ / shares shares	Apr. 26, 2017 USD ($) $ / shares	Apr. 18, 2017 $ / shares shares	Apr. 12, 2017 USD ($) km²	Mar. 30, 2017 USD ($)	Mar. 28, 2017 USD ($) $ / shares shares	Mar. 17, 2017 USD ($) shares	Mar. 01, 2017 USD ($)	Jan. 29, 2017 USD ($)	Jan. 24, 2017 USD ($)	Sep. 15, 2016 USD ($) km² item m	Aug. 19, 2016 USD ($) km² m	Aug. 15, 2016 USD ($)	Jun. 30, 2017 USD ($) item $ / shares shares	Mar. 31, 2017 USD ($) m $ / shares	Jun. 30, 2016 $ / shares	Dec. 31, 2012	Jun. 30, 2010
Status of our Business
Stated value per share | $ / shares																$ 0.001	$ 0.001
Payments of Stock Issuance Costs																$ 210,000
Series A Preferred Stock | Private Placement Offering
Status of our Business
Stated value per share | $ / shares							$ 0.001
Exercise price (in dollars per share) | $ / shares							$ 3.50
Aggregate shares of common stock issued | shares							511	680
Series A Preferred Stock | Private Placement Offering | Subsequent Event
Status of our Business
Number Of Closings Of A Private Placement Offering | item															4
Aggregate number of units issued | shares															1,951
Purchase price per unit | $ / shares															$ 1,000
Stated value per share | $ / shares		$ 0.001	$ 0.001	$ 0.001											$ 1,040
Number of shares each warrant can purchase | shares															223
Exercise price (in dollars per share) | $ / shares															$ 3.50
Aggregate cash proceeds from sale of units			$ 760,000												$ 1,951,000
Aggregate shares of common stock issued | shares		50		710											435,073
Tullow and Dana
Status of our Business
Minimum ultra deepwater depth (in meters) | m																2,000
Tullow and Dana | Settlement Agreement
Status of our Business
Ownership interest (as a percent)														100.00%
Settlement amount														$ 700,000
SAPETRO | Farm-out Agreement
Status of our Business
Ownership interest sold (as a percent)						50.00%
Subsidiary of Pacific Operations Drilling Limited | Offshore Drilling Contract | Subsequent Event
Status of our Business
Mobilization and Standby Rate ("SMSR") per day	$ 100,000
Notice for drilling commencement (in days)	28 days
Value of common stock issuable	$ 1,000,000
Average market price (in days)	10 days
Placement Agent | Series A Preferred Stock | Private Placement Offering
Status of our Business
Number of shares each warrant can purchase | shares							13,528
Payments of Stock Issuance Costs							$ 45,990	$ 61,200
Placement Agent | Series A Preferred Stock | Private Placement Offering | Subsequent Event
Status of our Business
Aggregate shares of common stock issued | shares															51,650
Payments of Stock Issuance Costs			$ 68,400												$ 175,555
Guinea concession
Status of our Business
Ownership interest (as a percent)												100.00%					37.00%
Cash proceeds from Tullow																$ 26,000,000
Gross expenditure cap																100,000,000
Threshold gross expenditure cap for well to be paid by the entity																100,000,000
Extension period for second exploration (in years)												1 year
Number of exploratory wells drilled | item												1
Depth below seabed required to be drilled of an exploration well (in meters) | m												2,500	2,500
Contract area retained (in square kilometers/square miles) | km²												5,000	5,000
Maximum period of time over which current available liquidity could be exhausted												30 days
Estimated amount to limit cost recovery to share of expenditures													$ 165,000,000
Total value of oil and gas equipment stored at Takoradi, Ghana										$ 4,100,000		$ 4,100,000
Portion of oil and gas equipment moved from Takoradi, Ghana to Guinea										$ 1,600,000		1,600,000
Agreed amount in training budget												250,000	250,000
Estimated amount of unused portion of training program													$ 400,000			400,000
Mutually acceptable security									$ 5,000,000		$ 5,000,000					$ 5,000,000
Guinea concession | Settlement Agreement
Status of our Business
Estimated amount to limit cost recovery to share of expenditures												$ 165,000,000
Guinea concession | Farm-out Agreement | Subsequent Event
Status of our Business
Contract area retained (in square kilometers/square miles) | km²					5,000
Mutually acceptable security					$ 5,000,000
Maximum Day For Security Instrument To Put In Place					30 days
Guinea concession | Tullow Guinea Ltd
Status of our Business
Ownership interest sold (as a percent)																		40.00%
Guinea concession | SAPETRO | Farm-out Agreement
Status of our Business
Ownership interest sold (as a percent)						50.00%
Sufficient financing for the Obligation Well Cost					$ 15,000,000
Guinea concession | SAPETRO | Farm-out Agreement | Subsequent Event
Status of our Business
Ownership interest (as a percent)					2.00%
Ownership interest sold (as a percent)					50.00%
Contract area retained (in square kilometers/square miles) | km²					5,000
Mutually acceptable security					$ 5,000,000
Participation interest in joint venture					50.00%
Maximum Day For Security Instrument To Put In Place					30 days
Sufficient financing for the Obligation Well Cost					$ 15,000,000
Threshold amount for additional assigned 2% participating interest					$ 1,000,000
Guinea concession | SAPETRO | Farm-out Agreement | Maximum
Status of our Business
Estimated total drilling preparation cost						$ 10,000,000
Guinea concession | SAPETRO | Farm-out Agreement | Minimum
Status of our Business
Estimated total drilling preparation cost						$ 8,000,000
Guinea concession | Dana
Status of our Business
Ownership interest (as a percent)																			23.00%

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ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - Earnings per Share (Details) - Stock options - $ / shares	3 Months Ended		9 Months Ended
	Mar. 31, 2017	Dec. 31, 2015	Mar. 31, 2017	Mar. 31, 2016
Earnings per share
Potentially dilutive securities excluded from the computation of dilutive net loss per common share			1,200,000	1,200,000
Average exercise price of common stock (in dollars per share)	$ 4.06		$ 4.06	$ 5.67
Common shares included in fully diluted earnings per share		1,182	1,173	958
If net income had been earned
Earnings per share
Common shares included in fully diluted earnings per share	1,158

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ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - Fair Value Measurements (Details) $ in Thousands	9 Months Ended
	Mar. 31, 2017 USD ($)
Weighted average assumptions:
Risk-free interest rate (as a percent)	0.00%
Expected dividend yield (as a percent)	0.00%
Level 3
Assets and liabilities measured at fair value
Warrants derivative liability	$ 205
Recurring
Assets and liabilities measured at fair value
Warrants derivative liability	$ 205

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INVESTMENT IN OIL AND GAS PROPERTIES (Details)								3 Months Ended				6 Months Ended	9 Months Ended
	Apr. 12, 2017 USD ($) km²	Mar. 01, 2017 USD ($)	Jan. 29, 2017 USD ($)	Jan. 24, 2017 USD ($)	Sep. 15, 2016 USD ($) km² m	Aug. 19, 2016 USD ($) km² item m	Jun. 30, 2016 USD ($)	Mar. 31, 2017 USD ($) bbl	Dec. 31, 2016 USD ($)	Sep. 30, 2016 USD ($)	Mar. 31, 2016 USD ($)	Dec. 31, 2016 USD ($)	Mar. 31, 2017 USD ($) bbl	Mar. 31, 2016 USD ($)	Mar. 30, 2017	Aug. 15, 2016	Jun. 30, 2010
Oil and Gas Properties:
Unproved properties not subject to amortization								$ 4,653,000					$ 4,653,000
Full impairment of unproved oil and gas properties											$ 14,331,000		753,000	$ 14,331,000
Settlement and Release Agreement with Tullow and Dana
Oil and Gas Properties:
Fair value of well construction material								4,100,000					4,100,000
Tullow Guinea Ltd | Settlement and Release Agreement with Tullow and Dana
Investments in oil and gas properties
Participation interest in joint venture																40.00%
Dana | Settlement and Release Agreement with Tullow and Dana
Investments in oil and gas properties
Participation interest in joint venture																23.00%
Guinea concession
Investments in oil and gas properties
Ownership interest in Guinea Concession (as a percent)					100.00%		37.00%
Extension period for second exploration (in years)					1 year
Number of exploratory well in extension period | item						1
Depth below seabed required to be drilled of an exploration well (in meters) | m					2,500	2,500
Contract area retained (in square kilometers/square miles) | km²					5,000	5,000
Amount receivable, if extension well not drilled						$ 46,000,000
Eligible appraisal period						2 years
Notice period for termination (in days)						30 days
Mutually acceptable security		$ 5,000,000		$ 5,000,000									5,000,000
Estimated amount to limit cost recovery to share of expenditures						$ 165,000,000
Agreed amount in training budget					$ 250,000	250,000
Estimated amount of unused portion of training program						$ 400,000							400,000
Portion of oil and gas equipment moved from Takoradi, Ghana to Guinea			$ 1,600,000		1,600,000
Total value of oil and gas equipment stored at Takoradi, Ghana			$ 4,100,000		$ 4,100,000
Capitalized costs								$ 500,000					$ 2,000,000
Reserves | bbl								0					0
Oil and Gas Properties:
Unproved properties not subject to amortization								$ 4,653,000					$ 4,653,000
Increase in property balance resulting from capitalized cost adjustment													4,700,000
Fair value of well construction material								$ 4,400,000					4,400,000
Reduction in fair value of well construction material													$ 400,000
Oil and gas property capitalized									$ 500,000	$ 300,000		$ 500,000
Full impairment of unproved oil and gas properties							$ 14,300,000		$ 800,000	$ 200,000
Guinea concession | General, Administrative And Other Operating Cost
Investments in oil and gas properties
Capitalized costs												$ 1,300,000
Guinea concession | Dana
Investments in oil and gas properties
Ownership interest in Guinea Concession (as a percent)																	23.00%
Farm-out Agreement | SAPETRO
Investments in oil and gas properties
Guinea's share of cost and profit oil (as a percent)															50.00%
Farm-out Agreement | Guinea concession | Subsequent Event
Investments in oil and gas properties
Contract area retained (in square kilometers/square miles) | km²	5,000
Mutually acceptable security	$ 5,000,000
Farm-out Agreement | Guinea concession | Subsequent Event | SAPETRO
Investments in oil and gas properties
Ownership interest in Guinea Concession (as a percent)	2.00%
Participation interest in joint venture	50.00%
Contract area retained (in square kilometers/square miles) | km²	5,000
Mutually acceptable security	$ 5,000,000

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Jun. 30, 2016
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable - trade and oil and gas exploration activities	$ 1,793	$ 1,361
Accounts payable - legal costs	278	61
Accrued payroll	98	321
Accounts payable and accrued expenses	2,169	1,743
Total current liabilities	$ 2,169	$ 1,743

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SHARE-BASED COMPENSATION - General Information (Details)	Jan. 27, 2016 shares	Feb. 18, 2010 plan	Mar. 31, 2017 shares
SHARE-BASED COMPENSATION
Number of stock award plans prior to the adoption of 2010 plan | plan		2
2010 Plan | Stock options
SHARE-BASED COMPENSATION
Increase in the number of shares available for issuance	750,000
Period within which shares of common stock, options or restricted stock can be awarded under the 2010 plan		10 years
Number of shares issuable under the plan			2,000,000
Number of shares remaining available for issuance			783,460

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SHARE-BASED COMPENSATION - Information about Options (Details) - Stock options - USD ($)	9 Months Ended	12 Months Ended
	Mar. 31, 2017	Jun. 30, 2016
Stock Options
Number of options awarded (in shares)	199,618	30,000
Compensation expense recognized	$ 146,000	$ 280,000
Weighted average award-date fair value of options outstanding (in dollars per share)	$ 4.06	$ 5.67

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SHARE-BASED COMPENSATION - Significant Assumptions (Details) - Stock options	9 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Significant assumptions used to compute the fair market values
Risk-free interest rate (as a percent)	1.81%	1.23%
Dividend yield (as a percent)	0.00%	0.00%
Volatility factor (as a percent)	109.00%	109.00%
Expected life (years)		2 years 10 months 17 days
Maximum
Significant assumptions used to compute the fair market values
Expected life (years)	4 years 11 months 1 day

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SHARE-BASED COMPENSATION - Stock Option Activity (Details) - Stock options - USD ($)	9 Months Ended	12 Months Ended
	Mar. 31, 2017	Jun. 30, 2016
Options
Outstanding at the beginning of the period (in shares)	1,016,997
Awarded (in shares)	199,618	30,000
Exercised (in shares)	(58,610)
Outstanding at the end of the period (in shares)	1,158,005	1,016,997
Options exercisable at end of period (in shares)	938,300
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 5.03
Awarded (in dollars per share)	1.06
Exercised (in dollars per share)	0.90
Outstanding at the end of the period (in dollars per share)	4.06	$ 5.03
Options exercisable at end of period (in dollars per share)	$ 4.70
Aggregate intrinsic value
Outstanding at the end of the period	$ 396,462
Options exercisable at period end	$ 304,759
Weighted average remaining contractual term (years)
Outstanding at the end of the period	2 years 3 months 15 days	3 years 2 months 9 days
Options exercisable at period end	1 year 10 months 6 days

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SHARE-BASED COMPENSATION - Options Outstanding and Exercisable (Details) - Stock options	9 Months Ended
	Mar. 31, 2017 $ / shares shares
Options outstanding and exercisable
Outstanding Number of Shares	1,158,005
Exercisable Number of Shares	938,300
Exercise price range $0.40 - $4.00, remaining life less than 1 year
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 0.40
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 4.00
Outstanding Number of Shares	245,525
Exercisable Number of Shares	225,525
Exercise price range $0.40 - $4.00, remaining life less than 1 year | Maximum
Options outstanding and exercisable
Remaining Life (in years)	1 year
Exercise price range $0.40 - $4.00, remaining life 1 year
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 0.40
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 4.00
Outstanding Number of Shares	57,916
Remaining Life (in years)	1 year
Exercisable Number of Shares	57,916
Exercise price range $0.40 - $4.00, remaining life 2 years
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 0.40
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 4.00
Outstanding Number of Shares	136,296
Remaining Life (in years)	2 years
Exercisable Number of Shares	136,296
Exercise price range $0.40 - $4.00, remaining life 3 years
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 0.40
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 4.00
Outstanding Number of Shares	256,720
Remaining Life (in years)	3 years
Exercisable Number of Shares	256,720
Exercise price range $0.40 - $4.00, remaining life 4 years
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 0.40
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 4.00
Outstanding Number of Shares	241,110
Remaining Life (in years)	4 years
Exercisable Number of Shares	41,405
Exercise price range $4.01 - $10.00, remaining life less than 1 year
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 4.01
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 10.00
Outstanding Number of Shares	118,188
Remaining Life (in years)	1 year
Exercisable Number of Shares	118,188
Exercise price range $4.01 - $10.00, remaining life 1 year
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 4.01
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 10.00
Outstanding Number of Shares	4,062
Remaining Life (in years)	1 year
Exercisable Number of Shares	4,062
Exercise price range $4.01 - $10.00, remaining life 3 years
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 4.01
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 10.00
Outstanding Number of Shares	7,000
Exercisable Number of Shares	7,000
Exercise price range $4.01 - $10.00, remaining life 3 years | Maximum
Options outstanding and exercisable
Remaining Life (in years)	3 years
Exercise price range $10.01 - $20.00, remaining life less than 1 year
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 10.00
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 20.00
Outstanding Number of Shares	13,125
Remaining Life (in years)	1 year
Exercisable Number of Shares	13,125
Exercise price range $10.01 - $20.00, remaining life 3 years
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 10.00
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 20.00
Outstanding Number of Shares	17,500
Remaining Life (in years)	3 years
Exercisable Number of Shares	17,500
Exercise price range $20.00 - $30.00, remaining life less than 1 year
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 20.00
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 30.00
Outstanding Number of Shares	2,500
Remaining Life (in years)	1 year
Exercisable Number of Shares	2,500
Exercise price range $20.00 - $30.00, remaining life 3 years
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 20.00
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 30.00
Outstanding Number of Shares	28,500
Exercisable Number of Shares	28,500
Exercise price range $20.00 - $30.00, remaining life 3 years | Maximum
Options outstanding and exercisable
Remaining Life (in years)	3 years
Exercise price range $30.00 - $40.00, remaining life 3 years
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 30.00
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 40.00
Outstanding Number of Shares	13,313
Exercisable Number of Shares	13,313
Exercise price range $30.00 - $40.00, remaining life 3 years | Maximum
Options outstanding and exercisable
Remaining Life (in years)	3 years
Exercise price range $30.00 - $40.00, remaining life less than 1 year
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 30.00
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 40.00
Outstanding Number of Shares	12,500
Remaining Life (in years)	1 year
Exercisable Number of Shares	12,500
Exercise price range $40.00 - $48.72, remaining life 3 years
Options outstanding and exercisable
Exercise Price, low end of the range (in dollars per share) | $ / shares	$ 40.00
Exercise Price, high end of the range (in dollars per share) | $ / shares	$ 48.72
Outstanding Number of Shares	3,750
Remaining Life (in years)	3 years
Exercisable Number of Shares	3,750

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SHARE-BASED COMPENSATION - Stock Options - Additional Disclosures (Details) - Stock options $ / shares in Units, $ in Thousands	9 Months Ended
	Mar. 31, 2017 USD ($) $ / shares shares
Stock Options
Unrecognized compensation costs | $	$ 137
Option vested (in shares) | shares	76,404
Weighted average award date fair value of options vested (in dollars per share) | $ / shares	$ 0.85
Unvested options outstanding (in shares) | shares	219,705
Weighted average award date fair value of unvested options outstanding (in dollars per share) | $ / shares	$ 0.42
Amortization period	1 year
Weighted average remaining life of unvested options outstanding	1 year

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SHARE-BASED COMPENSATION - Restricted Stock - General Disclosures (Details) - Unvested restricted stock awards	9 Months Ended
	Mar. 31, 2017 shares
Restricted stock
Granted (in shares)	0
Outstanding (in shares)	0

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INCOME TAXES (Details)	9 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
INCOME TAXES
Effective tax rate (as a percent)	0.00%	0.00%
Statutory federal rate (as a percent)	35.00%	35.00%

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COMMITMENTS AND CONTINGENCIES - Litigation and Other Legal Matters (Details)						3 Months Ended	9 Months Ended
	Dec. 31, 2016 USD ($) plaintiff shares	Oct. 06, 2016 lawsuit	Aug. 15, 2016 USD ($)	Mar. 13, 2014 lawsuit	May 09, 2012 USD ($) plaintiff	Sep. 30, 2016 lawsuit	Mar. 31, 2017 USD ($)	Feb. 02, 2017 shares	Jan. 11, 2017 USD ($)
LITIGATION AND OTHER LEGAL MATTERS
Gain on legal settlement							$ 4,764,000
Iroquois Lawsuit
LITIGATION AND OTHER LEGAL MATTERS
Number of plaintiffs which filed lawsuit | plaintiff					5
Damages sought					$ 18,500,000
Settlement of Iroquois Lawsuit
LITIGATION AND OTHER LEGAL MATTERS
Number of plaintiffs which filed lawsuit | plaintiff	5
Number of shares will issue to the plaintiffs | shares	600,000							600,000
Settlements in cash payable	$ 1,350,000								$ 1,350,000
Shareholder Lawsuits
LITIGATION AND OTHER LEGAL MATTERS
Number of lawsuits filed | lawsuit				2
Number of lawsuits dismissed | lawsuit		1				1
Settlement and Release Agreement with Tullow and Dana
LITIGATION AND OTHER LEGAL MATTERS
Settlement amount			$ 686,570
Gain on legal settlement							4,800,000
Fair value of well construction material							$ 4,100,000

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COMMITMENTS AND CONTINGENCIES - Operating Leases (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Operating Leases
Operating lease term (in years)			6 months
Operating lease cost per month			$ 30
2017	$ 377		377
2018	399		399
2019	406		406
2020	309		309
Total minimum payments required	1,491		1,491
Rent expense	$ 300	$ 100	$ 500	$ 300

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SHAREHOLDERS' EQUITY - Series A Preferred Stock (Details) - USD ($)			9 Months Ended
	Mar. 28, 2017	Mar. 17, 2017	Mar. 31, 2017	Jun. 30, 2016
SHAREHOLDERS' EQUITY
Preferred stock, par value (in dollars per share)			$ 0.001	$ 0.001
Common stock, par value (in dollars per share)			$ 0.001	$ 0.001
Aggregate amount of common stock			$ 170,000	$ 169,000
Payment of stock issuance costs			$ 210,000
Subscription Agreements
SHAREHOLDERS' EQUITY
Subscription agreement closing term		P12M
Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Preferred Stock Issuance (in shares)	511	680
Purchase price (in dollars per share)	$ 1,000	$ 1,000
Dividend rate (as a percent)	1.00%	1.00%
Preferred stock, par value (in dollars per share)	$ 0.001
Preferred stock, stated value (in dollars per share)	1,040
Exercise price (in dollars per share)	$ 3.50
Percentage of stated value portion of price per share		115.00%
Percentage of price per share accrued but unpaid dividends		115.00%
Percentage of consent of holders required to authorize or create any class of stock		66.67%
Private Placement Offering | Series A Preferred Stock | Subscription Agreements
SHAREHOLDERS' EQUITY
Preferred Stock Issuance (in shares)	511	680
Aggregate cash proceeds from sale of units		$ 1,191,000
Expected usage of available proceeds for general corporate purposes and other matters		981,737
Maximum value of pro rata shares to be purchased		$ 3,000,000
Placement Agent | Private Placement Offering
SHAREHOLDERS' EQUITY
Percentage of placement agent commission fee		9.00%
Placement Agent | Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Payment of stock issuance costs	$ 45,990	$ 61,200
Number of shares each warrant can purchase	13,528
Placement Agent | Placement Agent Warrants | Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Warrants issued to purchase common stock			31,529
Exercise price (in dollars per share)		$ 3.00	$ 3.00
Common Stock | Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Purchase price (in dollars per share)		$ 2.75
Lowest closing price percentage		80.00%
Number of consecutive trading days		21 days
Common Stock | Investor Warrants | Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Warrants issued to purchase common stock	223
Common stock, par value (in dollars per share)	$ 0.001
Warrant term (in years)	2 years
Common Stock | Investor Warrants | Private Placement Offering | Series A Preferred Stock | Subscription Agreements
SHAREHOLDERS' EQUITY
Warrants issued to purchase common stock	113,953	151,640
Common Stock | Placement Agent | Private Placement Offering
SHAREHOLDERS' EQUITY
Number of shares each warrant can purchase		51,650
Common Stock | Placement Agent | Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Purchase price (in dollars per share)		$ 2.75
Percentage of warrants to purchase a number of shares of common stock		7.00%
Minimum | Common Stock | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Purchase price (in dollars per share)			1.60
Minimum | Common Stock | Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Purchase price (in dollars per share)		$ 0.25
Aggregate amount of common stock		$ 1,000,000
Maximum | Common Stock | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Purchase price (in dollars per share)			$ 1.75
Maximum | Common Stock | Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Purchase price (in dollars per share)		$ 0.25

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SHAREHOLDERS' EQUITY - Investor Warrants and Placement Agent Warrants (Details) - USD ($)			3 Months Ended	9 Months Ended
	Mar. 28, 2017	Mar. 17, 2017	Mar. 31, 2017	Mar. 31, 2017	Jun. 30, 2016
SHAREHOLDERS' EQUITY
Equity issuance costs adjusted towards additional paid-in capital				$ 197,000
Weighted average assumptions:
Risk-free interest rate (as a percent)				0.00%
Expected dividend yield (as a percent)				0.00%
Registration Rights Agreement
SHAREHOLDERS' EQUITY
Registration right agreement arrangement term		P135D
Piggyback registration right term		P2Y
Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Preferred Stock Issuance (in shares)	511	680
Exercise price (in dollars per share)	$ 3.50
Investor Warrants | Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Fair value of warrants			$ 181,931	$ 181,931	$ 181,931
Weighted average assumptions:
Expected term (in years)			1 year 11 months 16 days
Expected volatility (as a percent)			130.00%
Risk-free interest rate (as a percent)			2.39%
Investor Warrants | Private Placement Offering | Common Stock | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Warrants issued to purchase common stock	223
Placement Agent Warrants | Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Accrue rate per annum of purchase price of monetary penalties payable by the company to the holders of registrable shares				12.00%
Weighted average assumptions:
Expected term (in years)			1 year 11 months 16 days
Expected volatility (as a percent)			130.00%
Risk-free interest rate (as a percent)			2.39%
Placement Agent Warrants | Private Placement Offering | Series A Preferred Stock | Maximum
SHAREHOLDERS' EQUITY
Percentage of aggregate purchase price				5.00%
Subscription Agreements | Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Preferred Stock Issuance (in shares)	511	680
Subscription Agreements | Investor Warrants | Private Placement Offering | Common Stock | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Warrants issued to purchase common stock	113,953	151,640
Placement Agent | Placement Agent Warrants | Private Placement Offering | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Warrants issued to purchase common stock			31,529	31,529
Exercise price (in dollars per share)		$ 3.00	$ 3.00	$ 3.00
Fair value of warrants			$ 22,985	$ 22,985
Equity issuance costs adjusted towards additional paid-in capital				232,078
Equity issuance costs charged to general administrative and other operating costs				$ 35,451

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SHAREHOLDERS' EQUITY - Beneficial Conversion Feature (Details)	9 Months Ended
	Mar. 31, 2017 USD ($) $ / shares
SHAREHOLDERS' EQUITY
A reduction (the discount) to the additional paid-in capital | $	$ 1,009,000
Common Stock | Series A Preferred Stock
SHAREHOLDERS' EQUITY
Conversion price (in dollars per share) | $ / shares	$ 0.47
Aggregate beneficial conversion feature | $	$ 2,600,000
A reduction (the discount) to the additional paid-in capital | $	$ 1,009,069
Amortization period for discount on beneficial conversion feature (in months)	6 months
Common Stock | Series A Preferred Stock | Minimum
SHAREHOLDERS' EQUITY
Fair value of common stock (in dollars per share) | $ / shares	$ 1.60
Common Stock | Series A Preferred Stock | Maximum
SHAREHOLDERS' EQUITY
Fair value of common stock (in dollars per share) | $ / shares	$ 1.75

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SUBSEQUENT EVENTS - Third PSC Amendment and Presidential Decree (Details)					9 Months Ended
	May 20, 2017 USD ($)	Apr. 12, 2017 USD ($) km²	Mar. 01, 2017 USD ($)	Jan. 24, 2017 USD ($)	Mar. 31, 2017 USD ($)	Mar. 30, 2017	Sep. 15, 2016 km²	Aug. 19, 2016 km²	Jun. 30, 2016
Guinea concession
SUBSEQUENT EVENTS
Contract area retained (in square kilometers/square miles) | km²							5,000	5,000
Mutually acceptable security			$ 5,000,000	$ 5,000,000	$ 5,000,000
Ownership interest (as a percent)							100.00%		37.00%
Farm-out Agreement | Guinea concession | Subsequent Event
SUBSEQUENT EVENTS
Contract area retained (in square kilometers/square miles) | km²		5,000
Mutually acceptable security		$ 5,000,000
Maximum days for security instrument to put in place		30 days
Farm-out Agreement | SAPETRO
SUBSEQUENT EVENTS
Ownership interest sold (as a percent)						50.00%
Farm-out Agreement | SAPETRO | Guinea concession
SUBSEQUENT EVENTS
Ownership interest sold (as a percent)						50.00%
Sufficient financing for the Obligation Well Cost		$ 15,000,000
Farm-out Agreement | SAPETRO | Guinea concession | Subsequent Event
SUBSEQUENT EVENTS
Ownership interest sold (as a percent)		50.00%
Contract area retained (in square kilometers/square miles) | km²		5,000
Mutually acceptable security		$ 5,000,000
Maximum days for security instrument to put in place		30 days
Sufficient financing for the Obligation Well Cost		$ 15,000,000
Ownership interest (as a percent)		2.00%
Threshold amount for additional assigned 2% participating interest		$ 1,000,000
Offshore Drilling Contract | Subsidiary of Pacific Operations Drilling Limited | Subsequent Event
SUBSEQUENT EVENTS
Mobilization and Standby Rate ("SMSR") per day	$ 100,000
Notice for drilling commencement (in days)	28 days
Value of common stock issuable	$ 1,000,000
Average market price (in days)	10 days

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SUBSEQUENT EVENTS - Closing of Additional Private Placement Offering (Details) - USD ($)						3 Months Ended	9 Months Ended
	Apr. 26, 2017	Apr. 26, 2017	Apr. 18, 2017	Mar. 28, 2017	Mar. 17, 2017	Jun. 30, 2017	Mar. 31, 2017	Jun. 30, 2016
SUBSEQUENT EVENTS
Preferred stock, par value (in dollars per share)							$ 0.001	$ 0.001
Common stock, par value (in dollars per share)							$ 0.001	$ 0.001
Payment of stock issuance costs							$ 210,000
Private Placement Offering | Series A Preferred Stock
SUBSEQUENT EVENTS
Preferred Stock Issuance (in shares)				511	680
Purchase price (in dollars per share)				$ 1,000	$ 1,000
Dividend rate (as a percent)				1.00%	1.00%
Preferred stock, par value (in dollars per share)				$ 0.001
Preferred stock, stated value (in dollars per share)				1,040
Exercise price (in dollars per share)				$ 3.50
Private Placement Offering | Series A Preferred Stock | Subsequent Event
SUBSEQUENT EVENTS
Preferred Stock Issuance (in shares)	50		710			435,073
Purchase price (in dollars per share)	$ 1,000	$ 1,000	$ 1,000
Dividend rate (as a percent)	1.00%		1.00%
Preferred stock, par value (in dollars per share)	$ 0.001	0.001	$ 0.001			$ 1,040
Preferred stock, stated value (in dollars per share)	$ 1,040	$ 1,040	$ 1,040
Exercise price (in dollars per share)						$ 3.50
Aggregate cash proceeds from sale of units		$ 760,000				$ 1,951,000
Expected usage of available proceeds for general corporate purposes and other matters		$ 661,441
Number of shares each warrant can purchase						223
Private Placement Offering | Common Stock | Series A Preferred Stock
SUBSEQUENT EVENTS
Purchase price (in dollars per share)					$ 2.75
Investor Warrants | Private Placement Offering | Common Stock | Series A Preferred Stock
SUBSEQUENT EVENTS
Warrants issued to purchase common stock				223
Common stock, par value (in dollars per share)				$ 0.001
Warrant term (in years)				2 years
Investor Warrants | Private Placement Offering | Common Stock | Series A Preferred Stock | Subsequent Event
SUBSEQUENT EVENTS
Warrants issued to purchase common stock	223	223	223
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001	$ 0.001
Warrant term (in years)	2 years		2 years
Exercise price (in dollars per share)	$ 3.50	$ 3.50	$ 3.50
Placement Agent | Private Placement Offering | Series A Preferred Stock
SUBSEQUENT EVENTS
Payment of stock issuance costs				$ 45,990	$ 61,200
Number of shares each warrant can purchase				13,528
Placement Agent | Private Placement Offering | Series A Preferred Stock | Subsequent Event
SUBSEQUENT EVENTS
Preferred Stock Issuance (in shares)						51,650
Payment of stock issuance costs		$ 68,400				$ 175,555
Placement Agent | Private Placement Offering | Common Stock
SUBSEQUENT EVENTS
Number of shares each warrant can purchase					51,650
Placement Agent | Private Placement Offering | Common Stock | Series A Preferred Stock
SUBSEQUENT EVENTS
Purchase price (in dollars per share)					$ 2.75
Placement Agent | Placement Agent Warrants | Private Placement Offering | Series A Preferred Stock
SUBSEQUENT EVENTS
Warrants issued to purchase common stock							31,529
Exercise price (in dollars per share)					$ 3.00		$ 3.00
Placement Agent | Placement Agent Warrants | Private Placement Offering | Common Stock | Series A Preferred Stock | Subsequent Event
SUBSEQUENT EVENTS
Number of shares each warrant can purchase	20,120	20,120
Subscription Agreements | Private Placement Offering | Series A Preferred Stock
SUBSEQUENT EVENTS
Preferred Stock Issuance (in shares)				511	680
Aggregate cash proceeds from sale of units					$ 1,191,000
Expected usage of available proceeds for general corporate purposes and other matters					$ 981,737
Subscription Agreements | Private Placement Offering | Series A Preferred Stock | Subsequent Event
SUBSEQUENT EVENTS
Preferred Stock Issuance (in shares)	50		710
Subscription Agreements | Investor Warrants | Private Placement Offering | Common Stock | Series A Preferred Stock
SUBSEQUENT EVENTS
Warrants issued to purchase common stock				113,953	151,640
Subscription Agreements | Investor Warrants | Private Placement Offering | Common Stock | Series A Preferred Stock | Subsequent Event
SUBSEQUENT EVENTS
Warrants issued to purchase common stock	1,150	1,150	158,330