Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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. We have no operating cash flows, 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 12 months includes the following:
|
·
|
|
Evaluating the results of the Fatala-1 exploration well
|
|
·
|
|
Gain acceptance for the application for the 2-year appraisal period over the entire concession and initiate the appraisal drilling program
|
|
·
|
|
Consider financing alternatives and other measures to pursue our exploration objectives offshore Guinea.
|
Analysis of changes in financial position
Our current assets decreased by $8.9 million from $11.6 million on June 30, 2016 compared to $2.7 million on June 30, 2017. The decrease in current assets is primarily due to cash used for general and administrative expenditures, including costs incurred on legal matters in addition to a decrease in prepaid expenses by $1.3 million.
Our long-term assets consists of property and equipment and has remained at $51,000 on June 30, 2017 and June 30, 2016, respectively.
Our current liabilities increased $3.0 million, from $1.7 million on June 30, 2016 compared to $4.7 million on June 30, 2017 due to increased spending for the Fatala-1 exploration well.
Our long-term liabilities increased $2.0 million, from $0 on June 30, 2016 to $2.0 million on June 30, 2017. This increase was due to the inception of a derivative liability relating to warrants on preferred and common stock.
Results of Operations
Based on the factors discussed below, the net loss for the year ended June 30, 2017, decreased by $1.3 million, to a net loss of $21.5 million or $(1.06) per basic and diluted share in 2017 from a net loss of $22.8 million, or $(1.09) per basic and diluted share in 2016.
Reportable segments
We have one reportable segment: our international oil and gas exploration activities in Guinea conducted through our subsidiary SCS.
Comparison for Fiscal Years 2017 and 2016
Revenues.
There were no revenues for the years ended June 30, 2017 and 2016.
Depreciation
. Depreciation decreased 56% or $61,000 from fiscal 2016 to fiscal 2017. Depreciation expense was $48,000 and $109,000 in the years ended June 30, 2017 and 2016, respectively. The decrease is primarily attributed to no asset additions in the current year and a portion of assets used in the prior year being fully depreciated in the current year.
General, Administrative and Other Operating Expenses
. Our general, administrative and other operating expenses were $12.3 million and $8.4 million for the years ended June 30, 2017 and 2016, respectively. This represents an increase of 47% or $3.9 million from fiscal 2016 to fiscal 2017. The $3.9 million increase in expense was attributable mainly to an increase in Houston general and administrative contractor expense by $4.2 million due to increased operations in Guinea. Included in the increase is salary expense by $0.6 million due to increased staff at the corporate office as well as increased expense for travel and other employee expenses by $0.5 million.
Full-Cost ceiling test write-down
. During fiscal year ended June 30, 2017, we had a full-cost ceiling test write-down of $13.3 million due to uncertainties surrounding the ability of the Company to continue operations and following the determination of non-commerciality of the Fatala-1 well ultimately fully impaired unproven oil and gas properties. During fiscal year ended June 30, 2016, we fully impaired our unproved oil and gas properties, which totaled $14.3 million.
Loss from Operations
. Primarily as a result of the increase in general and administrative expenses of $3.9 million, offset by the decrease in the full-cost ceiling test write-down of $1.0 million, our loss from operations increased by $2.9 million from $22.8 million for the year ended June 30, 2016 to $25.7 million for the year ended June 30, 2017.
Other Income (expense)
. Other income increased by $4.2 million due to net gain on legal matters of $3.5 million and gain on warrant liability of $0.7 million.
Liquidity and Capital Resources
General
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
2017
|
|
2016
|
Net cash used in operating activities
|
|
$
|
(10,328)
|
|
$
|
(8,027)
|
Net cash used in investing activities
|
|
|
(5,086)
|
|
|
(20)
|
Net cash provided by financing activities
|
|
|
7,541
|
|
|
—
|
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(7,873)
|
|
|
(8,047)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
10,327
|
|
|
18,374
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
2,454
|
|
$
|
10,327
|
Operating Activities
Net cash used in operating activities for the year ended June 30, 2017 was $10.3 million compared to $8.0 million for the year ended June 30, 2016. The increase in cash used in operating activities is primarily attributable to a decrease in prepaid expenses by $1.1 million and stock issued for settlement of $1.3 million.
Investing Activities
Net cash used in investing activities for the year ended June 30, 2017 was $5.1 million compared to $20 thousand in the year ended June 30, 2016. Increase in cash used was due to investments in oil and gas properties.
Financing Activities
Net cash provided by financing activities for the year ended June 30, 2017 was $7.5 million compared to $0 for the year ended June 30, 2016. The increase in cash provided by financing activities is primarily attributed to the issuance of common stock, preferred stock and warrants for $7.2 million and proceeds from the exercise of stock options and other items of $0.2 million.
Liquidity
On June 30, 2017, we had $2.5 million in unrestricted cash and $4.7 million in current liabilities. On November 14, 2017, we had $0.7 million in unrestricted cash and $9.9 million in current liabilities. We plan to use our existing cash to fund our general corporate needs and our expenditures associated with the Concession.
We will need to raise further capital to pay off existing obligations and to develop and implement the appraisal program, if it is approved by the Government of the Republic of Guinea, which would likely include some additional exploration wells.
Our costs related to the items referred to above and any additional expenses, or any negative outcomes, could adversely affect our liquidity and financial condition and results of operations. Absent cash inflows, we will exhaust our current available liquidity within the next three months. The timing and amount of our cash outflows are dependent on a number of factors. As a result, absent cash inflows, there is substantial doubt as to whether we will have adequate capital resources to meet our current obligations as they become due and therefore be able to continue as a going concern. Our auditors have noted this concern in their opinion on our audited financial statements for the fiscal year ended June 30, 2017. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that we will be successful in carrying out our plans to obtain additional cash resources. If we are unable to obtain additional cash resources, we will not be able to continue operations.
Our ability to meet our current obligations as they become due over the next three months, and to be able to continue exploration, will depend on obtaining additional resources through sales of additional interests in the Concession, equity or debt financings, or through other means, and the resumption of petroleum operations, although no assurance can be given that any of these actions can be completed.
Contractual Commitments and Obligations
Disclosure of Contractual Obligations as of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period ($thousands)
|
|
|
|
|
|
Less than 1
|
|
|
|
|
|
|
|
More than 5
|
Contractual Obligations (1):
|
|
Total
|
|
year
|
|
1-3 years
|
|
3-5 years
|
|
years
|
Operating Lease Obligations
|
|
$
|
1,114
|
|
$
|
399
|
|
$
|
715
|
|
$
|
—
|
|
$
|
—
|
|
(1)
|
|
We are subject to certain commitments under the PSC as discussed in Item 1 above.
|
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those estimates that may have a significant effect on our financial condition and results of operations. Our significant accounting policies are disclosed in Note 1 to our Consolidated Financial Statements. The following discussion of critical accounting policies addresses those policies that are both important to the portrayal of our financial condition and results of operations and require significant judgment and estimates. We base our estimates and judgment on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Oil and Gas Properties
We account for oil and natural gas producing activities using the full-cost method of accounting as prescribed by the SEC. Accordingly, all costs incurred in the acquisition, exploration, and development of oil and natural gas properties,
including the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized. All selling, general and administrative corporate costs unrelated to drilling activities are expensed as incurred. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change, or to the extent that the sale proceeds exceed our capitalized costs. Depletion of evaluated oil and natural gas properties is computed on the units of production method based on proved reserves. The net capitalized costs of proved oil and natural gas properties are subject to a full cost ceiling limitation in which the costs are not allowed to exceed their related estimated future net revenues discounted at 10%, net of tax considerations. In accordance with SEC release 33-8995, prices based on the preceding 12-months’ average price based on closing prices on the first day of each month, or prices defined by existing contractual arrangements, are used in deriving future net revenues discounted at 10%, net of tax. The application of the full-cost method of accounting for oil and gas properties generally results in higher capitalized costs and higher depreciation, depletion and amortization rates compared to the successful efforts method of accounting for oil and gas properties.
Costs Excluded
Costs associated with unevaluated properties are excluded from amortization until evaluated. We review our unevaluated properties at the end of each quarter to determine whether the costs incurred should be transferred to the amortization base.
We assess unproved property on a quarterly basis for possible impairment or reduction in value. We assess properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term under our concession; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. We assess our unproved properties on a country-by-country basis. During any period in which these factors indicate impairment, the adjustment is recorded through earnings of the period. As of March 31, 2016, based on our impairment assessment, we fully impaired the $14.3 million of unproved oil and gas properties. During the year ended June 30, 2017, we incurred a full-cost ceiling test write-down of $13.3 million and at June 30, 2017, we had no capitalized costs associated with our Guinea operations.
Environmental Obligations and Other Contingencies
Management makes judgments and estimates in accordance with applicable accounting rules when it establishes reserves for environmental remediation, litigation and other contingent matters. Provisions for such matters are charged to expense when it is probable that a liability has been incurred and reasonable estimates of the liability can be made. Estimates of environmental liabilities are based on a variety of matters, including, but not limited to, the stage of investigation, the stage of the remedial design, evaluation of existing remediation technologies, and presently enacted laws and regulations. In future periods, a number of factors could significantly change our estimate of environmental remediation costs, such as changes in laws and regulations, or changes in their interpretation or administration, revisions to the remedial design, unanticipated construction problems, identification of additional areas or volumes of contaminated soil and groundwater, and changes in costs of labor, equipment and technology. Consequently, it is not possible for management to reliably estimate the amount and timing of all future expenditures related to environmental or other contingent matters and actual costs may vary significantly from our estimates.
Share-Based Compensation
We follow ASC 718 which requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). ASC 718 also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. We account for non-employee share-based awards based upon the provisions of ASC 505-50, “Equity-Based Payments to Non-Employees.”
Off-Balance Sheet Transactions
The
Company did not engage in any "off-balance sheet arrangements" (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of June 30, 2017.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our functional currency is the US dollar. We had, prior to their closures, some foreign currency exchange rate risk resulting from our in-country offices in Guinea and the United Kingdom and from certain costs in our drilling program. US dollars are accepted in Guinea and many of our purchases and purchase obligations, such as our office lease in Guinea, were denominated in US dollars. However, our costs for labor, supplies, and fuel could have increased if the Guinea Franc, the Euro, or the Pound Sterling significantly appreciated 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 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data information required hereunder is included in this report as set forth in the "Index to Financial Statements" on page F-1.
HYPERDYNAMICS CORPORATION
Index to Financial Statements
TABLE OF CONTENTS
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Hyperdynamics Corporation (the “Company” or “our”), including the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Internal control over financial reporting includes the controls themselves, monitoring (including internal auditing practices), and actions taken to correct deficiencies as identified.
Internal control over financial reporting has inherent limitations and may not prevent or detect misstatements. The design of an internal control system is also based in part upon assumptions and judgments made by management about the likelihood of future events, and there can be no assurance that an internal control will be effective under all potential future conditions. Therefore, even those systems determined to be effective can provide only reasonable, not absolute, assurance with respect to the financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2017. In making this assessment, management used the criteria for internal control over financial reporting described in Internal Control — Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operating effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Company’s Board of Directors. Based on this assessment, management has concluded that, as of June 30, 2017, the Company’s internal control over financial reporting was ineffective. During the fiscal year 2017, the Company has experienced turnover in its accounting group and as of June 30, 2017, it lacked a sufficient number of competent accounting personnel. This material weakness in our internal controls over financial reporting had a material adverse impact on our quarterly and annual financial close process and reporting. The Company is in the process of remediating this weakness by adding additional competent accounting personnel.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Hyperdynamics Corporation
We have audited the accompanying consolidated balance sheets of Hyperdynamics Corporation and subsidiaries (the "Company") as of June 30, 2017 and 2016, and the related consolidated statements of operations, shareholders' (deficit) equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting as of June 30, 2017. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting as of June 30, 2017. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hyperdynamics Corporation and subsidiaries as of June 30, 2017 and 2016, and the results of their consolidated operations and their consolidated cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the working capital deficit and stockholders’ deficit, along with the absence of cash inflows, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/ Hein & Associates LLP
Houston, Texas
November 15, 2017
HYPERDYNAMICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Number of Shares and Per Share Amounts)
|
|
|
|
|
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Restricted cash
|
|
$
|
75
|
|
$
|
—
|
Unrestricted cash and cash equivalents
|
|
|
2,454
|
|
|
10,327
|
Prepaid expenses
|
|
|
35
|
|
|
1,294
|
Other current assets
|
|
|
110
|
|
|
6
|
Total current assets
|
|
|
2,674
|
|
|
11,627
|
Property and equipment, net of accumulated depreciation of $2,109 and $2,075
|
|
|
51
|
|
|
51
|
Unproved oil and gas properties excluded from amortization (Full-Cost method)
|
|
|
—
|
|
|
—
|
Total long-term assets
|
|
|
51
|
|
|
51
|
Total assets
|
|
$
|
2,725
|
|
$
|
11,678
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
4,682
|
|
$
|
1,743
|
Total current liabilities
|
|
|
4,682
|
|
|
1,743
|
|
|
|
|
|
|
|
Warrants derivative liability
|
|
|
2,030
|
|
|
—
|
Total Liabilities
|
|
|
6,712
|
|
|
1,743
|
|
|
|
|
|
|
|
Commitments and contingencies (
Note 8
)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Shareholders' (deficit) equity
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 20,000,000 authorized, 1,951 and 1,791 shares issued and outstanding as of June 30, 2017 and -0- issued and outstanding on June 30, 2016
|
|
|
—
|
|
|
—
|
Common stock, $0.001 par value, 87,000,000 shares authorized; 27,405,283 and 21,046,591 shares issued and outstanding as of June 30, 2017 and June 30, 2016, respectively
|
|
|
175
|
|
|
169
|
Additional paid-in capital
|
|
|
325,355
|
|
|
317,757
|
Accumulated deficit
|
|
|
(329,517)
|
|
|
(307,991)
|
Total shareholders' (deficit) equity
|
|
|
(3,987)
|
|
|
9,935
|
Total liabilities and shareholders' (deficit) equity
|
|
$
|
2,725
|
|
$
|
11,678
|
The accompanying notes are an integral part of these consolidated financial statements.
HYPERDYNAMICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Number of Shares and Per Share Amounts)
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2017
|
|
2016
|
Costs and expenses:
|
|
|
|
|
|
|
Depreciation
|
|
$
|
48
|
|
$
|
109
|
General, administrative and other operating
|
|
|
12,323
|
|
|
8,406
|
Full-Cost ceiling test write-down
|
|
|
13,316
|
|
|
14,331
|
Loss from operations
|
|
|
25,687
|
|
|
22,846
|
Other income (expense):
|
|
|
|
|
|
|
Gain on settlement agreement
|
|
|
4,764
|
|
|
—
|
Cost of legal settlement
|
|
|
(1,308)
|
|
|
—
|
Unrealized gain on change in warrants derivative liability
|
|
|
705
|
|
|
—
|
Total other income (expense)
|
|
|
4,161
|
|
|
—
|
Loss before income tax
|
|
|
(21,526)
|
|
|
(22,846)
|
Income tax
|
|
|
—
|
|
|
—
|
Net loss
|
|
|
(21,526)
|
|
|
(22,846)
|
Non-cash preferred dividend
|
|
|
(1,511)
|
|
|
—
|
Net loss available to common stockholders
|
|
$
|
(23,037)
|
|
$
|
(22,846)
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$
|
(1.06)
|
|
$
|
(1.09)
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
21,765,985
|
|
|
21,046,591
|
The accompanying notes are an integral part of these consolidated financial statements.
HYPERDYNAMICS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY
(In Thousands, Except Number of Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,526)
|
|
|
(21,526)
|
Amortization of fair value of stock options
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
190
|
|
|
—
|
|
|
190
|
Exercise of stock options
|
|
183,492
|
|
|
—
|
|
—
|
|
|
—
|
|
|
121
|
|
|
—
|
|
|
121
|
Stock issued in lieu of cash bonuses
|
|
536,091
|
|
|
—
|
|
—
|
|
|
—
|
|
|
57
|
|
|
—
|
|
|
57
|
Stock issued for legal settlement
|
|
600,000
|
|
|
1
|
|
—
|
|
|
—
|
|
|
1,307
|
|
|
—
|
|
|
1,308
|
Stock issued for services
|
|
567,859
|
|
|
1
|
|
—
|
|
|
—
|
|
|
999
|
|
|
—
|
|
|
1,000
|
Common stock issued, net of fees
|
|
4,335,625
|
|
|
4
|
|
—
|
|
|
—
|
|
|
3,606
|
|
|
—
|
|
|
3,610
|
Preferred stock issued, net of fees, discount, and preferred dividends of $1,511 associated with the beneficial conversion feature
|
|
—
|
|
|
—
|
|
1,951
|
|
|
—
|
|
|
1,238
|
|
|
—
|
|
|
1,238
|
Conversion of preferred stock
|
|
135,625
|
|
|
—
|
|
(160)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Other
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
80
|
|
|
—
|
|
|
80
|
Balance, June 30, 2017
|
|
27,405,283
|
|
$
|
175
|
|
1,791
|
|
$
|
—
|
|
$
|
325,355
|
|
$
|
(329,517)
|
|
$
|
(3,987)
|
The accompanying notes are an integral part of these consolidated financial statements.
tested
HYPERDYNAMICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2017
|
|
2016
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(21,526)
|
|
$
|
(22,846)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
—
|
|
|
—
|
Gain on legal settlement
|
|
|
(4,079)
|
|
|
—
|
Depreciation
|
|
|
48
|
|
|
109
|
Loss on disposal of fixed assets
|
|
|
1
|
|
|
—
|
Full-Cost ceiling test write-down
|
|
|
13,316
|
|
|
14,331
|
Unrealized gain on change in warrants derivative liability
|
|
|
(705)
|
|
|
—
|
Stock based compensation
|
|
|
190
|
|
|
353
|
Stock issued in lieu of cash bonuses
|
|
|
57
|
|
|
—
|
Stock issued for settlement
|
|
|
1,308
|
|
|
—
|
Cost of equity issuance for warrants
|
|
|
244
|
|
|
—
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
(Increase) decrease in Prepaid expenses
|
|
|
1,259
|
|
|
(124)
|
(Increase) decrease in Other current assets
|
|
|
(104)
|
|
|
75
|
Increase (decrease) in Accounts payable and accrued expenses
|
|
|
(337)
|
|
|
75
|
Net cash used in operating activities
|
|
|
(10,328)
|
|
|
(8,027)
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(49)
|
|
|
—
|
Increase in restricted cash
|
|
|
(75)
|
|
|
—
|
Proceeds from sale of 50% interest to SAPETRO
|
|
|
4,100
|
|
|
—
|
Investment in oil and gas properties
|
|
|
(9,062)
|
|
|
(20)
|
Net cash used in investing activities
|
|
|
(5,086)
|
|
|
(20)
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Common stock issued, net of stock issuance cost of $664
|
|
|
5,666
|
|
|
—
|
Preferred stock issued, net of stock issuance cost of $308
|
|
|
1,643
|
|
|
—
|
Other
|
|
|
111
|
|
|
—
|
Proceeds from exercise of stock options
|
|
|
121
|
|
|
—
|
Net cash provided by financing activities
|
|
|
7,541
|
|
|
—
|
|
|
|
|
|
|
|
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(7,873)
|
|
|
(8,047)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
10,327
|
|
|
18,374
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
2,454
|
|
$
|
10,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
|
|
|
|
|
|
|
Capital expenditures in accounts payable at June 30, 2017
|
|
$
|
3,276
|
|
$
|
—
|
Stock issued to Pacific Drilling in lieu of cash
|
|
$
|
1,000
|
|
$
|
—
|
Investor warrants issued as part of equity offerings (reduction to equity)
|
|
$
|
2,492
|
|
$
|
—
|
The accompanying notes are an integral part of these consolidated financial statements.
HYPERDYNAMICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
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’s branch located in Conakry, Guinea, 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 Corporation Ltd. 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 June 30, 2017, we had $2.5 million in unrestricted cash and $4.7 million in accounts payable and accrued expense liabilities. As of the date of this
filing, the Company’s trade accounts payable and accrued expenses substantially exceeded our cash balances. We have
no other material commitments other than ordinary operating costs. Our net working capital will not be sufficient to meet our corporate needs and Concession related activities for the year ending June 30, 2018. As of the date of this filing, our substantial working capital deficit, stockholders’ deficit and absence of cash inflows raise substantial doubt about our ability to continue as a going concern.
We are currently pursuing several avenues to raise funds including the signing of a share purchase agreement for the sale of greater than 50% of our stock to CLNG for $6 million (See Note 9). These funds are not sufficient to pay off all of our existing trade debts, therefore, we have engaged in settlement discussions with our creditors. If we are successful in negotiating a settlement with our existing trade creditors, and if we complete the sale of our stock to CLNG, we will be able to pay down a substantial portion of our existing trade debts.
If the transaction with CLNG closes,
the net proceeds will not be sufficient to cover current operating expenses and, if the two-year appraisal period in Guinea for which we have applied is granted, will not be sufficient to fund operations for the appraisal program. To meet any capital and operational needs over the next twelve months, the company will have to raise additional funds through farm-out, debt, or equity financings, which may not be available on acceptable terms to us or at all.
On August 15, 2016, we entered into a Settlement and Release Agreement with Dana Petroleum, PLC (“Dana”), a subsidiary of the Korean National Oil Corporation, and Tullow Guinea Ltd. (“Tullow”) (the “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 which is based upon $50,000 per million barrels upon declaration of the certified commercial reserves of the Fatala-1 well, if it resulted 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. The extension well is the Fatala-1 well. 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 $165.0 million 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. 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 approximately $0.25 million 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 $0.2 million.
We also agreed to allocate up to a maximum total budget of $120,000 for the actual travel and operating expenses incurred by Guinea for its participation in the management and administration of the Concession, subject to our review of receipts and limited to reimbursement of actual costs. The unused portion of this budget is now estimated to be $22,000. Finally, we agreed that we would make available for the benefit of Guinea a virtual data room containing all seismic data in our possession relating to relinquished areas. We would not be agents of or work on behalf of Guinea, but would provide, at the request of Guinea during the PSC Extension Period, access to the virtual data room to interested third parties.
On March 30, 2017, we entered into the Farm-out Agreement with SAPETRO. 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 Farm-out Agreement. The Presidential Decree was signed on April 21, 2017 approving the assignment of 50% of SCS' participating interest in the Guinea concession to SAPETRO, and confirmed the two companies' rights to explore for oil and gas on our 5,000-square-kilometer Concession offshore the Republic of Guinea. The contract required that drilling operations in relation to the obligation well Fatala-1 (the "Extension Well") were to begin no later than May 30, 2017 and provided that additional exploration wells may be drilled within the exploration period at the companies' option.
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 joint and several liability to the Government of Guinea in respect to the PSC.
SAPETRO and SCS further agreed that if SCS were unable to pay its share of any Fatala-1 well costs, SAPETRO could elect to pay for a portion of SCS's Fatala-1 well costs such amount so long as SCS is not in default of either the PSC or the Farmout Agreement. In case SAPETRO had made such payments for a share of SCS's costs of, SCS would have been obligated to assign to SAPETRO a 2% participating interest in the Concession for each $1 million of SCS's costs paid by SAPETRO.
On May 21, 2017, drilling operations commenced upon the Pacific Scirocco drillship entering Guinean continental shelf waters.
The Farmout Agreement was completed between the SCS and SAPETRO on June 2, 2017. Pursuant to the terms of the Farmout Agreement, SCS assigned and transferred to SAPETRO 50% of its 100% gross participating interest in the PSC and executed a Joint Operating Agreement. Upon closing, SAPETRO (i) reimbursed SCS its proportional share of past costs associated with the preparations for the drilling of the Fatala-1 well which amounted to $4.4 million, and (ii) agreed to pay its participating interest's share of future costs in the Concession.
On June 5, 2017, SCS received $4.1 million from SAPETRO in accordance with a Preliminary Closing Statement delivered by SCS, thus completing closing of the Farm-out Agreement and the assignment to SAPETRO of the 50%
participating interest in the PSC, the parties executed a Joint Operating Agreement governing the conduct of operations, and Hyperdynamics executed a parent guaranty of SCS's obligations as required by the Farm-out Agreement. On June 12, 2017, we delivered to SAPETRO a Final Adjustment Statement with the final calculation of past costs incurred by SCS in the amount of $0.7 million. After final review done by SAPETRO the Final Adjustment Statement was submitted to SAPETRO, under which SAPETRO paid to SCS $0.3 million.
On July 12, 2017, we obtained a letter from the Director General of the National Office of Petroleum of Guinea stating that in the event of an oil discovery at the end of the drilling of the Fatala-1 well, the government would have no objection to granting an additional period of two years to enable us to carry out the work of appraisal on the Concession.
On August 11, 2017, the actual drilling of the Fatala well commenced. The drilling operations were completed following a non-commercial discovery on September 8,
2017, and the Fatala-1 well was plugged and abandoned.
We are awaiting the decision of the Government of Guinea on our appraisal application. There can be no assurance that such application will be approved, or if it is, that it will be on terms acceptable to us. If the Government of Guinea does not approve our appraisal period application, the PSC will have terminated by its terms on September 21, 2017.
As more fully described in
Note 6
, 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 1% Series A Convertible Preferred Stock, with a stated value of $1,040 per share (“Stated Value”), and (ii) a warrant (the “Series A 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) the Series A Investor Warrants to purchase an aggregate of 435,073 shares of common stock.
The Company received an aggregate of approximately $2.0 million in gross cash proceeds, before deducting placement agent fees and expenses, legal, accounting and other fees and expenses, in connection with the sale of the Units in the Series A Offering. Katalyst Securities, LLC was engaged by the Company as placement agent (the “Placement Agent”) for the Series A Offering, on a reasonable best effort basis. We paid the Placement Agent a total of $0.2 million of cash fees and issued to the Placement Agent or its designees warrants (the “Placement Agent Warrants”) to purchase an aggregate of 51,650 shares of common stock.
On June 5, 2017, we held a closing of a private placement offering
(the "Common Unit Offering") of an aggregate of
4,335,625
Units of our securities, at a purchase price of $1.46 per Unit. Each "Unit" consisted of (i) one share of our common stock, and (ii) a warrant (the "Common Unit Investor Warrant") to purchase three quarters (3/4) of a share of the Company's common stock, exercisable for two years from issuance, at an exercise price of $1.825 per whole share (subject to adjustment in certain circumstances). At the closing, we issued to the subscribers an aggregate of: (i) 4,335,625 shares of common stock and (ii) Common Unit Investor Warrants to purchase an aggregate of 3,251,726 shares of common stock. The Company received an aggregate of approximately $
6.3 million
in gross cash proceeds, before deducting placement agent fees and expenses, legal, accounting and other fees and expenses, in connection with the sale of the Units. The Company engaged
Katalyst Securities, LLC as Placement Agent for the Common Unit Offering, on a reasonable best effort basis. At that closing, we paid the Placement Agent $0.6 million of cash fees and issued to the Placement Agent or its designees warrants (“Common Unit Placement Agent Warrants’) to purchase an aggregate of 303,502 shares of common stock.
On October 8, 2017, SAPETRO and Hyperdynamics agreed to a settlement of all of SAPETRO’s remaining obligations under the PSC and JOA for a payment to us of $4,924,000.
Principles of Consolidation
The accompanying 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 (“SEC”).
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. Significant estimates and assumptions underlying these financial statements include:
|
·
|
|
estimates in the calculation of share-based compensation expense,
|
|
·
|
|
estimates in the value of our warrants derivative liability,
|
|
·
|
|
estimates made in our income tax calculations,
|
|
·
|
|
estimates in the assessment of current litigation claims against the company, and
|
|
·
|
|
estimates and assumptions involved in our assessment of unproved oil and gas properties for impairment.
|
We are subject 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 years presented, we maintained all of our cash in bank deposit accounts which, at times, exceed the federally insured limits.
Oil and Gas Properties
Full-Cost Method
We account for oil and natural gas producing activities using the full-cost method of accounting as prescribed by the SEC. Accordingly, all costs incurred in the acquisition, exploration, and development of oil and natural gas properties, including the costs of abandoned properties, dry holes, geophysical costs and annual lease rentals are capitalized. All selling, general and administrative corporate costs unrelated to drilling activities are expensed as incurred. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of capitalized costs to proved reserves would significantly change, or to the extent that the sale proceeds exceed our capitalized costs. Depletion of evaluated oil and natural gas properties would be computed on the units of production method based on proved reserves. The net capitalized costs of proved oil and natural gas properties are subject to quarterly impairment tests.
Costs Excluded from Amortization
Costs associated with unproved properties are excluded from amortization until it is determined whether proved reserves can be assigned to the properties. We review our unproved properties at the end of each quarter to determine whether the costs incurred should be transferred to the amortization base.
We assess unproved property on a quarterly basis for possible impairment or reduction in value. We assess properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term under our concession; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. We assess our unproved properties on a country-by-country basis. During any period in which these factors indicate an impairment, the adjustment is recorded through earnings of the period.
Full-Cost Ceiling Test
At the end of each quarterly reporting period, the capitalized costs less accumulated amortization and deferred income taxes shall not exceed an amount equal to the sum of the following items: (i) the present value of estimated future net revenues of oil and gas properties (including future development and abandonment costs of wells to be drilled) using prices based on the preceding 12-months’ average price based on closing prices on the first day of each month, or prices defined by existing contractual arrangements, discounted at 10%, (ii) the cost of properties not being amortized, and (iii) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, less related income tax effects (“Full-Cost Ceiling Test”).
The calculation of the Full-Cost Ceiling Test is based on estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production, timing, and plan of development. The accuracy of any reserves estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing, and production subsequent to the date of the estimate may justify revision of such estimates. Accordingly, reserves estimates are often different from the quantities of oil and natural gas that are ultimately recovered. We have no proved reserves. We recognized a $13.3 million and $14.3 million Full-Cost Ceiling test write-down in the years ended June 30, 2017 and June 30, 2016, respectively.
Property and Equipment, other than Oil and Gas
Property and equipment are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, generally three to five years.
Income Taxes
We account for income taxes in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carryforwards. Valuation allowances are provided when recovery of deferred tax assets is not considered likely.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. As of June 30, 2017 and 2016, the Company has unrecognized tax benefits totaling $5.5 million.
Our policy is to recognize potential accrued interest and penalties related to unrecognized tax benefits within income tax expense. For the years ended June 30, 2017 and 2016, we did not recognize any interest or penalties in our consolidated statements of operations, nor did we have any interest or penalties accrued on our consolidated balance sheets at June 30, 2017 and 2016 relating to unrecognized benefits.
The tax years 2011-2016 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which we are subject.
Stock-Based Compensation
ASC 718, “Compensation-Stock Compensation” requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). We measure the cost of employee services received in exchange for an award based on the grant-date fair value of the award. We account for non-employee share-based awards based upon ASC 505-50, “Equity-Based Payments to Non-Employees.”
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 a 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, if any, were excluded from the computation of dilutive net loss per common share for the years ended June 30, 2017, and 2016, respectively, as their effects are antidilutive due to our net loss for those periods.
Stock options to purchase approximately 1.1 million common shares at an average exercise price of $3.19 were outstanding at June 30, 2017. Using the treasury stock method, had we had net income, approximately 25 thousand common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the year ended June 30, 2017.
Stock options to purchase approximately 1.0 million common shares at an average exercise price of $7.43 were outstanding at June 30, 2016. Using the treasury stock method, had we had net income, approximately 25 thousand common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the year ended June 30, 2016.
There were 1,791 Series A Preferred Stock units that were convertible at June 30, 2017. Using the treasury stock method, had we had net income, approximately 1,545,776 common shares attributable to our outstanding Series A Preferred Stock would have been included in the fully diluted earnings per share for the year ended June 30, 2017. There were no Series A Preferred Stock Units outstanding at June 30, 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 8
for more information on legal proceedings.
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.
|
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 derivative liability was determined using the Binomial 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, April, and June 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. Such down-round provisions were triggered upon issuance of our common shares in June 2017 and the exercise price of investor warrants associated with preferred stock was adjusted down accordingly and reflected in fair value measurement of such warrants as of June 30, 2017. These warrants are considered derivative liabilities and as such, are recorded at fair value at date of issuance and at each reporting date. The change in the fair value of derivative instruments during the period is recorded in earnings as “Other income (expense) — Gain (loss) on change in warrants derivative liability.” As such, we recorded an unrealized gain on the change in value of warrants derivative liability of $0.7 million to account for the change in fair value of our derivative liability compared to amount at issuance. We had no warrant derivative liability as of June 30, 2016.
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 June 30, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
Value at
|
|
Fair Value Measurement at June 30, 2017
|
|
|
June 30, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Warrants derivative liability
|
|
$
|
2,030
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,030
|
Summary information regarding the warrant derivative liability
as of June 30, 2017 (in thousands):
|
|
|
Warrant Derivative Liability
|
Warrant derivative liability as of June 30, 2016
|
$ -
|
Liabilities incurred
|
2,735
|
Unrealized gain
|
(705)
|
Warrant derivative liability as of June 30, 2017
|
$ 2,030
|
The following describes some of the key inputs into our fair value model as it relates to valuation of warrants.
Expected Volatility
The expected stock price volatility for the Company’s common stock was estimated by taking the average of the observed volatility of industry peers based on daily price observations. Industry peers consist of several public companies in the Company’s industry. 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 Binomial Option Pricing Model.
Foreign currency gains and losses from current operations
In accordance with ASC Topic 830,
Foreign Currency Matters
, the functional currency of our international subsidiaries is the U.S. Dollar. Gains and losses from foreign currency transactions arising from operating assets and liabilities are included in general, administrative and other operating expense, have not been significant.
New Accounting Pronouncements
In July 2017, the FASB issued Update No. 2017-11—
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain
Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. The Company has determined that Investor Warrants and Placement Agent Warrants issued in fiscal year 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 Company is in the process of evaluating this new update and whether to early adopt this amendment.
In August 2014, the FASB issued ASU No. 2014-15 “Presentation of Financial Statements:
Going Concern (Subtopic 205-40)” which provides guidance on determining when and how to disclose
going-
concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a
going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a
going concern.” The guidance applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter. The adoption of ASU 2014-15 did not have a material effect on the Company’s Consolidated Financial Statements and has been disclosed in this Form 10-K. Please refer to Note 1in reference to management’s discussion regarding the conclusion about substantial doubt of the Company’s ability to continue as a going concern and management’s plans for remediation.
Subsequent Events
The Company evaluated all subsequent events from June 30, 2017 through the date of issuance of these financial statements. See
Note 9
.
2. PROPERTY AND EQUIPMENT
A summary of property and equipment as of June 30, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
(in thousands)
|
|
Useful Life
|
|
2017
|
|
2016
|
Computer equipment and software
|
|
3 years
|
|
$
|
1,319
|
|
$
|
1,285
|
Office equipment and furniture
|
|
5 years
|
|
|
307
|
|
|
307
|
Leasehold improvements
|
|
3 years
|
|
|
534
|
|
|
534
|
Total Cost
|
|
|
|
|
2,160
|
|
|
2,126
|
Less - Accumulated depreciation
|
|
|
|
|
(2,109)
|
|
|
(2,075)
|
|
|
|
|
$
|
51
|
|
$
|
51
|
We review assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As of June 30, 2017 and 2016, there were no impairments of property and equipment.
3. INVESTMENT IN OIL AND GAS PROPERTIES
Investment in oil and gas properties consists entirely of our Guinea Concession in offshore West Africa. We owned a 37% participating interest in our Guinea Concession prior to the relinquishment of a 40% share owned by Tullow and a 23% interest owned by Dana. On June 2, 2017, we completed the sale of a 50% gross interest to SAPETRO.
On September 19, 2017, SAPETRO notified us that it did not wish to participate in the application for the two-year appraisal program and formally withdrew from the Joint Operating Agreement (“JOA”) and PSC on September 20, 2017. On the basis of a five-meter calculated hydrocarbon pay zone encountered in the Fatala-1 well, we applied for a two-year appraisal period on a 100% basis on September 19, 2017 and we are awaiting the decision of the Government of Guinea on our appraisal application. If the Government of Guinea does not approve our appraisal period application, the PSC will have terminated by its terms on September 21, 2017.
Guinea Concession
We have been conducting exploration work related to offshore Guinea since 2002. On September 22, 2006, we entered into the PSC with Guinea. Under that agreement, we were granted certain exclusive contractual rights to explore and exploit offshore oil and gas reserves, if any, off the coast of Guinea. We refer to the rights to the offshore area subject to the Concession as the "Contract Area."
On March 25, 2010, we entered into the First PSC Amendment with Guinea. In May 2010, the government of Guinea issued a Presidential Decree approving the PSC, as amended by the First PSC Amendment. The First PSC Amendment clarified that we retained a Contract Area of approximately 25,000 square kilometers or 30% of the original Contract Area under the PSC. The First PSC Amendment required that an additional 25% of the retained Contract Area be relinquished by September 21, 2013 as part of the renewal of the second exploration period. As of June 30, 2016, the Contract Area was 18,750 square kilometers. Under the terms of the First PSC Amendment, the first exploration period ended and the second exploration period began on September 21, 2010. The second exploration period ran until September 2013, at which point it was renewed to September 2016.
The First PSC Amendment required the drilling of an exploration well, which had to be commenced by year-end 2011 and drilled to a minimum depth of 2,500 meters below seabed. This requirement was satisfied with the drilling of the Sabu-1 well which was commenced during October of 2011 and reached the minimum depth of 2,500 meters below the seabed in February of 2012. It also required the acquisition of at least 2,000-square kilometers of 3D seismic data which was satisfied by the 3,600-square kilometer seismic acquisition in 2010-2011. To satisfy the September 2013-2016 work requirement, the Consortium is required to commence drilling of an additional exploration well by the end of September 2016, to a minimum depth of 2,500 meters below seabed. We spent approximately $200 million fulfilling work obligations under the PSC through fiscal 2016.
Under the First PSC Amendment, Guinea may participate in development of any discovery at a participating interest of up to 15% of costs being carried for its share. The cost of that carry is to be recovered out of 62.5% of Guinea's share of cost and profit oil. It also required the establishment of an annual training budget for the benefit of Guinea's oil industry personnel, and obligated the Consortium to pay an annual surface tax of $2.00 per square kilometer on the retained Concession acreage. The First PSC Amendment further provided that should the Guinea government note material differences between provisions of the First PSC Amendment and international standards or the Petroleum Code, the parties will renegotiate the relevant articles.
On September 15, 2016, we executed the Second PSC Amendment in which we received a one (1) year extension to the second exploration period of the PSC to September 21, 2017 and confirmed that we are the holder of a 100% interest in the Concession following the official withdrawal by Tullow and Dana on August 15, 2016. The Second PSC Amendment became effective upon the receipt of a Presidential Decree on September 22, 2016.
We executed a Second Amendment to the PSC ("Second PSC Amendment") on September 15, 2016, and received a Presidential Decree on September 22, 2016 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 a projected commencement date of May 2017 and 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 were 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 to Guinea.
For the purposes of calculation for this clause (Article 4 of the PSC), however, only costs spent for services and goods provided in Guinea were to be taken into account until the drilling rig to be used in the drilling of the Extension Well is located in the territorial waters of the Republic of Guinea.
Additionally, we agreed to limit the cost recovery pool to that date to our share of expenditures in the PSC since 2009 (estimated to be approximately $165,000,000 net to our interest). 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 $221,000.
We also agreed to allocate up to a maximum total budget of $120,000 for the actual travel and operating expenses incurred by Guinea for its participation in the management and administration of the Concession, subject to our review of receipts and limited to reimbursement of actual costs. The unused portion of this budget is now estimated to be $22,000. Finally, we agreed that we would make available for the benefit of Guinea a virtual data room containing all seismic data in our possession relating to relinquished areas. We would not be agents of or work on behalf of Guinea, but would provide, at the request of Guinea during the PSC Extension Period, access to the virtual data room to interested third parties.
On March 30, 2017, we entered into the Farm-out Agreement with SAPETRO. 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 Farm-out Agreement. The Presidential Decree was signed on April 21, 2017 approving the assignment of 50% of SCS' participating interest in the Guinea concession to SAPETRO, and confirmed the two companies' rights to explore for oil and gas on our 5,000-square-kilometer Concession offshore the Republic of Guinea. The contract required that drilling operations in relation to the obligation well Fatala-1 (the "Extension Well") were to begin no later than May 30, 2017 and provided that additional exploration wells may be drilled within the exploration period at the companies' option.
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 joint and several liability to the Government of Guinea in respect to the PSC.
SAPETRO and SCS further agreed that if SCS were unable to pay its share of any Fatala-1 well costs, SAPETRO could elect to pay for a portion of SCS's Fatala-1 well costs such amount so long as SCS is not in default of either the PSC or the Farmout Agreement. In case SAPETRO had made such payments for a share of SCS's costs of, SCS would have been obligated to assign to SAPETRO a 2% participating interest in the Concession for each $1 million of SCS's costs paid by SAPETRO.
On May 21, 2017, drilling operations commenced upon the Pacific Scirocco drillship entering Guinean continental shelf waters.
The Farmout Agreement was completed between the SCS and SAPETRO on June 2, 2017. Pursuant to the terms of the Farmout Agreement, SCS assigned and transferred to SAPETRO 50% of its 100% gross participating interest in the PSC and executed a Joint Operating Agreement. Upon closing, SAPETRO (i) reimbursed SCS its proportional share of past costs associated with the preparations for the drilling of the Fatala-1 well which amounted to $4.4 million, and (ii) agreed to pay its participating interest's share of future costs in the Concession.
On June 5, 2017, SCS received $4.1 million from SAPETRO in accordance with a Preliminary Closing Statement delivered by SCS, thus completing closing of the Farm-out Agreement and the assignment to SAPETRO of the 50% participating interest in the PSC, the parties executed a Joint Operating Agreement governing the conduct of operations, and Hyperdynamics executed a parent guaranty of SCS's obligations as required by the Farm-out Agreement. On June 12, 2017, we delivered to SAPETRO a Final Adjustment Statement with the final calculation of past costs incurred by SCS in the amount of $0.7 million. After final review done by SAPETRO the Final Adjustment Statement was submitted to SAPETRO, under which SAPETRO paid to SCS $0.3 million.
On July 12, 2017, we obtained a letter from the Director General of the National Office of Petroleum of Guinea stating that in the event of an oil discovery at the end of the drilling of the Fatala-1 well, the government would have no objection to granting an additional period of two years to enable us to carry out the work of appraisal on the Concession.
On August 11, 2017, the actual drilling of the Fatala well commenced. The drilling operations were completed on September 8,
2017 and the Fatala-1 well was plugged and abandoned.
We applied to the government of Guinea for a two-year appraisal program of the Concession pursuant to Article 3.7 of our PSC on a 100% basis following SAPETRO’s vote by notice not to participate in the appraisal application. SAPETRO formally exited from the JOA and the PSC on September 20, 2017.
We are awaiting the decision of the Government of Guinea on our appraisal application. There can be no assurance that such application will be approved, or if it is, that it will be on terms acceptable to us. If the Government of Guinea does not approve our appraisal period application, the PSC will have terminated by its terms on September 21, 2017.
After recovery cost of operations, revenue will be split as outlined in the table below:
|
|
|
|
|
|
Daily
production (b/d)
|
|
Guinea
Share
|
|
Contractor Share
|
|
From 0 to 2,000
|
|
25
|
%
|
75
|
%
|
From 2,001 to 5,000
|
|
30
|
%
|
70
|
%
|
From 5,001 to 100,000
|
|
41
|
%
|
59
|
%
|
Over 100,001
|
|
60
|
%
|
40
|
%
|
The Guinea Government may elect to take a 15% working interest in any exploitation area.
Accounting for oil and gas property and equipment costs
We follow the “Full-Cost” method of accounting for oil and natural gas property and equipment costs. Under this method, internal costs incurred that are 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 April 1, 2013 when Tullow became the operator. 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 results and available geological and geophysical information. If petroleum operations are not commenced soon, our ability to obtain additional financing and our financial condition will be adversely affected, which will likely impact our ability to conduct exploration. No reserves have been attributed to the concession.
We exclude capitalized costs of unproved oil and gas properties from amortization until evaluated. Geological and geophysical information pertaining to the Guinea concession was collected and evaluated and no reserves have been attributed to the Concession. In February 2012, we completed the drilling of the Sabu-1 well, which was determined to be non-commercial. As a result, we evaluated certain geological and geophysical related costs in unproved properties along with the drilling costs of the Sabu-1 well totaling $116.8 million and determined that these properties were subject to the Full-Cost Ceiling Test. As we have no proved reserves to include in the Full-Cost Ceiling Test, the entire $116.8 million resulted in a Full-Cost Ceiling Test write-down of our unproved oil and gas properties. At June 30, 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 had been exhausted. In fiscal year 2017, we impaired unproven oil and gas properties due to uncertainties surrounding the ability of the Company to continue operations and following the determination of non-commerciality of the Fatala-1 well ultimately fully impaired unproven oil and gas properties.
The following table provides detail of total capitalized costs for our Guinea Concession as of June 30, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
Oil and Gas Properties:
|
|
|
|
|
|
|
Unproved oil and gas Properties
|
|
$
|
—
|
|
$
|
—
|
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of June 30, 2017 and 2016 include the following (in thousands):
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
Accounts payable – trade
|
|
$
|
4,010
|
|
$
|
1,361
|
Other Accrued
|
|
|
672
|
|
|
382
|
|
|
$
|
4,682
|
|
$
|
1,743
|
5. INCOME TAXES
Federal Income taxes are not currently due since Hyperdynamics has had losses since inception. Components of deferred tax assets as of June 30, 2017 and 2016 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Current deferred tax assets:
|
|
|
|
|
|
|
Other current deferred tax assets
|
|
$
|
—
|
|
$
|
—
|
Total current temporary differences
|
|
|
—
|
|
|
—
|
Less: valuation allowance
|
|
|
—
|
|
|
—
|
Net current deferred tax assets
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
Non-current deferred tax assets
|
|
|
|
|
|
|
Stock compensation
|
|
$
|
2,470
|
|
$
|
2,464
|
Property and Equipment
|
|
|
15
|
|
|
69
|
Oil and gas properties
|
|
|
13,582
|
|
|
21,504
|
Capital loss
|
|
|
144
|
|
|
144
|
Other
|
|
|
111
|
|
|
—
|
Total non-current deferred tax assets
|
|
$
|
16,322
|
|
$
|
24,181
|
Non-current deferred tax liabilities
|
|
|
|
|
|
|
Property and Equipment
|
|
|
—
|
|
|
—
|
Net operating losses
|
|
|
40,281
|
|
|
36,138
|
|
|
|
56,603
|
|
|
60,319
|
Less: valuation allowance
|
|
|
(56,603)
|
|
|
(60,319)
|
Net non-current deferred tax assets (liabilities)
|
|
$
|
—
|
|
$
|
—
|
Deferred tax assets have been fully reserved due to determination that it is more likely than not that the Company will not be able to realize the benefit from them. In accordance with generally accepted accounting principles, no deferred income tax asset has been recognized for the $130 million excess of the income tax basis in SCS, the Company’s Cayman Island operating subsidiary, over the book basis of the subsidiary. This potential tax benefit will only be fully realized if the subsidiary or the Concession is sold at a taxable gain, subject to potential tax limitations.
Hyperdynamics has U.S. net operating loss carryforwards of approximately $127.4 million at June 30, 2017. The U.S. net operating losses contain excess tax benefits related to stock compensation in the amount of $2.2 million which have not been included in the financial statements.
Internal Revenue Code Section 382 restricts the ability to use these carryforwards whenever an ownership change, as defined, occurs. Hyperdynamics incurred such an ownership change on January 14, 1998 and again on June 30, 2001. As a result of the first ownership change, Hyperdynamics’ use of net operating losses as of January 14, 1998, of $0.9 million, is restricted to $0.2 million per year. The availability of losses from that date through June 30, 2001 of $3.3 million is restricted to $0.8 million per year.
The Company underwent a restructuring during fiscal 2012 that removed approximately $13.3 million of net operating losses from the U.S. consolidated tax return. It is unlikely that the entity where these net operating losses reside will ever generate U.S. taxable income sufficient to utilize any of these losses. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on the results of operations or financial position of the Company. The U.S. net operating loss carryforwards expire from 2020 to 2035.
The difference between the statutory tax rates and our effective tax rate is primarily due to the valuation allowance applied against our deferred tax assets generated by net operating losses. A reconciliation of the actual taxes to the U.S. statutory tax rate for the years ended June 30, 2017 and 2016 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Income tax (benefit) at the statutory federal rate (35%)
|
|
$
|
(7,534)
|
|
$
|
(7,996)
|
Increase (decrease) resulting from nondeductible stock compensation
|
|
|
38
|
|
|
56
|
Foreign Rate Differential
|
|
|
(330)
|
|
|
914
|
Disallowed foreign capital loss
|
|
|
12,136
|
|
|
—
|
Derivative loss
|
|
|
(247)
|
|
|
35
|
Other, net
|
|
|
(323)
|
|
|
—
|
Change in valuation allowance
|
|
|
(3,740)
|
|
|
6,991
|
Net income tax expense
|
|
$
|
—
|
|
$
|
—
|
The following table summarizes the activity related to our gross unrecognized tax benefits from July 1, 2015 to June 30, 2017 (in thousands):
|
|
|
|
|
|
Federal, State and
|
|
|
Foreign Tax
|
|
|
(In thousands)
|
Balance at July 1, 2015
|
|
$
|
5,485
|
Additions to tax positions related to the current year
|
|
|
—
|
Additions to tax positions related to prior years
|
|
|
—
|
Statute expirations
|
|
|
—
|
Balance at June 30, 2016
|
|
$
|
5,485
|
Additions to tax positions related to the current year
|
|
|
—
|
Additions to tax positions related to prior years
|
|
|
—
|
Statute expirations
|
|
|
—
|
Balance at June 30, 2017
|
|
$
|
5,485
|
The total unrecognized tax benefits that, if recognized, would affect our effective tax rate was $5,485,000 for the years ended June 30, 2017 and June 30, 2016.
We file income tax returns, including tax returns for our subsidiaries, with federal, state, local, and foreign jurisdictions. Our tax returns are subject to routine compliance review by the taxing authorities in the jurisdictions in which we file tax returns in the ordinary course of business. We consider the United States to be our most significant tax jurisdiction; however, the taxing authorities in Guinea may audit various tax returns. We currently have no ongoing federal or state audits. The normal statute of limitations for tax returns being available for IRS audit is three years from the filing date of the return. However, net operating losses are subject to adjustment upon utilization of the loss to offset taxable income regardless of when the net operating loss was generated. Therefore, all of our historic losses are subject to adjustment until they are utilized or expire. We do not believe there will be any decreases to our unrecognized tax benefits within the next twelve months.
6. SHAREHOLDERS’ EQUITY
Preferred Stock issuances
Series A Preferred Stock Offering
On March 17, 2017, we held the first closing of the Series A Offering of 680 Units of our securities, at a purchase price of $1,000 per Unit and on March 28, 2017, we consummated a second closing of the Series A Offering and issued and sold an additional 511 Units of our securities, at a purchase price of $1,000 per Unit. On April 18, 2017, we consummated a third closing of the Series A Offering and issued and sold additional 710 Units of our securities, at a purchase price of $1,000 per Unit. On April 26, 2017, we consummated a fourth closing of the Series A Offering and
issued and sold additional 50 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, and (ii) the Series A Investor Warrant.
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 by the Subscribers.
The Company received an aggregate of approximately $2.0 million in gross cash proceeds, before deducting placement agent fees and expenses, legal, accounting and other fees and expenses, in connection with the sale of the Units. The Company used the net proceeds of approximately $1.6 million 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) Series A 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 an aggregate of (i) 511 Units of Series A Preferred Stock and (ii) Series A Investor Warrants to purchase an aggregate of 113,953 shares of common stock. At the April 18, 2017 closing, we issued to the Subscribers an aggregate of (i) 710 shares of Series A Preferred Stock and (ii) Series A 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) Series A Investor Warrants to purchase an aggregate of 11,150 shares of Common Stock.
Subscribers in the Offering had 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, which we filed on May 1, 2017 and amended on May 18, 2017, June 7, 2017, and June 20, 2017. See
Note 9
for the subscriber option exercises.
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 $1.0 million 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 PSC, as amended, that secures the repayment of indebtedness of the Company or any of its subsidiaries for money borrowed.
The Company engaged Katalyst Securities, LLC 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 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. 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. At the March 28, 2017 closing, $45,990 of cash fees were paid and Placement Agent Warrants to purchase an aggregate of 13,528 shares of common stock were issued to the Placement Agent or its designees. In conjunction with the April 18, 2017 and April 26, 2017 closing, we paid the Placement Agent $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. The Placement Agency Agreement between the Company and the Placement Agent contains customary representations, warranties and covenants of and indemnifications by the parties.
Series A Investor Warrants – Series A Offering
The exercise price is subject to weighted average anti-dilution provisions. The Series A 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 Series A investor warrants is estimated to be $0.1 million as of June 30, 2017. The following are weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
|
|
|
Expected term (in years)
|
|
1.75
|
|
Expected volatility%
|
|
75
|
%
|
Risk-free interest rate%
|
|
1.34
|
%
|
Expected dividend yield%
|
|
—
|
%
|
Placement Agent Warrants – Series A Offering
As part of the placement agent’s fees, the Placement Agent received warrants to purchase 51,650 shares of the Company’s stock at the exercise price of $3.00 per share in connection with these four closings of the Series A Offering. 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 Series A warrants issued to the placement agent to be $15,029 as of June 30, 2017. The fair value of placement agent warrants which was not material at the issuance date, was considered part of total equity issuance cost and allocated between reduction to additional paid-in capital and expense based on relative values of investor warrants and preferred stock relative to proceeds from issuance.
The Series A Placement Agent Warrants were valued using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
|
|
|
Expected term (in years)
|
|
1.75
|
|
Expected volatility%
|
|
75
|
%
|
Risk-free interest rate%
|
|
1.34
|
%
|
Expected dividend yield%
|
|
—
|
%
|
The Series A 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.
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
For the March 17, 2017 and the March 28, 2017 closing of the Series A Offering, 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 reduction (the “Discount”) assigned to the beneficial conversion feature was limited to the amount of the proceeds allocated to the convertible instrument. A total of $1.2 million was recorded as the Discount to 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.
For the April 18, 2017 and the April 26, 2017 closing of the Series A Offering, 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 $1.46 to $1.75 per share on the Commitment Dates was greater than the effective conversion price of $0.80 to $0.87 per share of common stock, representing a beneficial conversion feature of $0.5 million in aggregate. A total of $0.7 million was recorded as the Discount to 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 S-1 Registration Statement (SEC File No. 333-217577) that we filed on May 1, 2017 and subsequently amended on May 18, 2017, June 7, 2017, and June 20, 2017, and which was declared effective by the SEC on June 22, 2017, triggered the full amortization of the beneficial conversion feature for the quarter and year ended June 30, 2017. Accordingly, a preferred dividend of $1.5 million was recorded as a reduction to additional paid in capital since the Company has no retained earnings.
Common Stock issuances
Shares issued for services
In consideration for the Drilling Contract Amendment and taking into account certain significant costs incurred by Pacific Scirocco while waiting for SCS to agree terms of the Farm-out Agreement with SAPETRO and the Third Amendment to the Production Sharing Contract between SCS and the Government of the Republic of Guinea, the Company agreed to issue to Pacific Drilling Operations a number of shares of our common stock equal to $1.0 million divided by the volume-weighted average price for the ten trading days preceding the date of the agreement, which was June 2, 2017. Under this agreement the issuance price was calculated at $1.761 per share, and 567,859 unregistered shares of our common stock were delivered to Pacific Drilling Operations within 10 business days.
Conversion of Series A Preferred Stock
During the year ended June 30, 2017, a total of 135,625 shares of common stock were issued upon the conversion of 160 shares of Series A Preferred Stock.
Common Unit Offering
On June 5, 2017, the Company held a first closing of the Common Unit Offering of 4,335,625 Units of our securities, at a purchase price of $1.46 per Unit.
The Company received an aggregate of approximately
$
6.3 million in gross cash proceeds, before deducting placement agent fees and expenses, legal, accounting and other fees and expenses, in connection with the sale of the Units.
Katalyst Securities, LLC, was engaged by the Company as Placement Agent for the Common Unit 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, 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 contained in the Units sold in the Common Unit Offering, at the exercise price of $1.825 per share (the "Common Unit Placement Agent Warrants"). We also agreed to reimburse the Placement Agent for certain expenses related to the Common Unit Offering. We paid the Placement Agent a total of $0.6 million of cash fees and issued to the Placement Agent or its designees Common Unit Placement Agent Warrants to purchase an aggregate of 303,502 shares of common stock.
Investor Warrants - Common Unit Offering
As part of the Common Unit Offering, each "Unit" consisted of (i) one share of our common stock, and (ii) (the Common Unit Investor Warrant to purchase three quarters (
3
/
4
) of a share of our common stock, exercisable for two years from issuance, at an exercise price of $1.825 per whole share (subject to adjustment in certain circumstances).
We entered into subscription agreements (the “Subscription Agreements”) for the Units with certain accredited investors (as such term is defined in the Rule 501 under the Securities Act). The Subscription Agreements contained customary representations and warranties of the Company and the subscribers, and indemnification of the Company and the Placement Agent by the subscribers.
At that closing, we issued to the subscribers an aggregate of: (i) 4,335,625 shares of common stock and (ii) Common Unit Investor Warrants to purchase an aggregate of 3,251,726 shares of common stock.
The exercise price is subject to weighted average anti-dilution provisions. The Common Unit Investor Warrants are exercisable at any time at the option of the holder until the second annual anniversary of the common unit closing of the financing which was June 5, 2017.
The fair value of the Common Unit Investor Warrants is estimated to be $1.7 million as of June 30, 2017. The following are weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
|
|
|
Expected term (in years)
|
|
1.93
|
|
Expected volatility%
|
|
76
|
%
|
Risk-free interest rate%
|
|
1.37
|
%
|
Expected dividend yield%
|
|
—
|
%
|
Placement Agent Warrants – Common Unit Offering
As part of the placement agent’s fees, the Placement Agent received Common Unit Placement Agent Warrants to purchase 303,502 shares of the Company’s stock at the exercise price of $1.825 per share. The exercise price is subject to weighted average anti-dilution provisions. These placement agent warrants are exercisable at any time at the option of the holder until the second annual anniversary of the closing of the common unit offering which was June 5, 2017.
The Company estimated the fair value of the warrants issued to the placement agent to be $161,410 as of June 30, 2017. The fair value of warrants at issuance date of $201,000 was considered part of total equity issuance cost and allocated between reduction to additional paid-in capital and expense based on relative values of investor warrants and common stock relative to proceeds from issuance.
The Common Unit Placement Agent Warrants were valued using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
|
|
|
Expected term (in years)
|
|
1.93
|
|
Expected volatility%
|
|
76
|
%
|
Risk-free interest rate%
|
|
1.37
|
%
|
Expected dividend yield%
|
|
—
|
%
|
The Common Unit Investor Warrants and the Common Unit 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.
Registration Rights
The Series A Registration Rights Agreement
In connection with the Series A Offering, we entered into the Series A Registration Rights Agreement with each of the subscribers for the Series A Preferred Stock and the holders of the Series A Placement Agent Warrants, which required the Company to file a Registration Statement with the SEC by May 1, 2017, 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) and (ii) all shares of common stock issued or issuable upon exercise of the Series A Investor Warrants (including any Series A 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 our commercially reasonable efforts to cause the Registration Statement to be declared effective no later than July 29, 2017. On May 1, 2017, we filed a registration statement in compliance with the agreement, which became effective on June 22, 2017.
We also granted to the holders of these registrable shares certain "piggyback" registration rights until two years after the effectiveness of the Registration Statement.
If the Registration Statement ceases to be effective or otherwise cannot be used for a period specified in the Series A 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.
We have agreed to use our commercially reasonable efforts to keep such Registration Statement effective until the earliest of (a) the date that is two years from the date it is declared effective by the SEC, (b) the date on which all the securities registered thereunder have been transferred other than to certain permitted assignees, and (c) the date as of which all of the selling stockholders may sell all of the securities registered hereunder without restriction pursuant to Rule 144 (including, without limitation, volume restrictions) and without the need for current public information required by Rule 144(c)(1) or Rule 144(i)(2), if applicable.
Pursuant to comments received from the staff of the SEC reflecting SEC staff policy, we were not permitted to include in such Registration Statement up to 12,573,598 as the number of shares that may be issuable upon conversion of the up to 3,000 shares of Series A Preferred Stock that may be issued pursuant to the Subscriber Option, up to 669,000 shares that may be issuable upon exercise of the Series A Investor Warrants that may be issued pursuant to the Subscriber Option, and up to 79,420 shares that may be issuable upon exercise of Series A Placement Agent Warrants that may be issued to the placement agent for the Series A Convertible Preferred Stock and its designees in connection with exercises of the Subscriber Option. (Such 12,573,598 shares represent the number of shares that would become issuable upon conversion of all of such shares of Series A Preferred Stock at a price of $0.25 per share, the current "floor" on the conversion price of the Series A Preferred Stock.) The Series A Registration Rights Agreement provides that in this circumstance, we are not liable for the payment of the monetary penalties described above with respect to those shares.
The Common Unit Registration Rights Agreement
In connection with the Common Unit Offering, we entered into a Registration Rights Agreement (the "Common Unit Registration Rights Agreement") with each of the subscribers of the common stock Units and the holders of the Common Unit Placement Agent Warrants, which requires the Company to file a Registration Statement with the SEC within 45 calendar days after the final closing of the Common Unit Offering, registering for resale (i) all shares of common stock sold in the Common Unit Offering, and (ii) all shares of common stock issued or issuable upon exercise of the Common Unit Investor Warrants and the Common Unit Placement Agent Warrants, and to use our commercially reasonable efforts to cause the Registration Statement to be declared effective no later than 90 calendar days after the filing deadline. The 567,859 unregistered shares of common stock issued to Pacific Drilling Operations as described above will
also be included in this registration. The Company filed a registration statement on Form S-1 with the SEC on July 27, 2017 (SEC File No. 333-219495), which has not yet been declared effective.
We also granted to the holders of these 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.
We have agreed to use our commercially reasonable efforts to keep the Registration Statement effective until the earliest of (a) the date that is two years from the date it is declared effective by the SEC, (b) the date on which all the securities registered thereunder have been transferred other than to certain permitted assignees, and (c) the date as of which all of the selling stockholders may sell all of the securities registered hereunder without restriction pursuant to Rule 144 (including, without limitation, volume restrictions) and without the need for current public information required by Rule 144(c)(1) or Rule 144(i)(2), if applicable.
Exercise of Stock Options
During the twelve months ended June 30, 2017 there were a total of 183,492 shares of common stock issued upon the exercise of stock options. There were no stock options or warrants exercised during 2016.
Awards issued in lieu of cash bonus
During the twelve months ended June 30, 2017, there were a total of 536,091 shares of common stock issued in lieu of cash bonuses.
Stock issued for settlement
On December 31, 2016, the Company entered into a settlement agreement with the plaintiffs (See
Note 8
) whereby Hyperdynamics issued to the plaintiffs a total of 600,000 shares of common stock. The shares of common stock were issued on February 2, 2017.
7. 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 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 grants of shares of common stock, restricted stock or incentive stock options and/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 granted under this 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 June 30, 2017, there were 267,912 shares remaining 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 grants 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.
Additionally, 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 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 grant 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 as we do not have traded options. The expected term calculation for stock options is based on the simplified method as described in the Securities and Exchange Commission Staff Accounting Bulletin number 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 grant for an instrument with a maturity that is commensurate with the expected term of the stock options. The dividend yield rate of zero is based on the fact that we have never paid cash dividends on our common stock and we do not 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 years ended June 30:
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Number of options granted
|
|
|
498,500
|
|
|
183,860
|
Compensation expense recognized
|
|
$
|
189,880
|
|
$
|
352,653
|
Compensation cost capitalized
|
|
|
—
|
|
|
—
|
Weighted average grant-date fair value of options outstanding
|
|
$
|
1.37
|
|
$
|
5.03
|
The following table details the significant assumptions used to compute the fair market values of employee and director stock options granted during the years ended June 30:
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Risk-free interest rate
|
|
0.9 - 1.86
|
%
|
0.36 - 1.01
|
%
|
Dividend yield
|
|
0
|
%
|
0
|
%
|
Volatility factor
|
|
109 - 157
|
%
|
109 - 148
|
%
|
Expected life (years)
|
|
2.9 - 4.80
|
|
0.5 - 2.875
|
|
Summary information regarding employee stock options issued and outstanding under all plans as of June 30, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
Weighted
|
|
Aggregate
|
|
remaining
|
|
|
|
|
Average Share
|
|
intrinsic
|
|
contractual life
|
|
|
Options
|
|
Price
|
|
value
|
|
(years)
|
Options outstanding at July 1, 2015
|
|
1,181,954
|
|
$
|
8.76
|
|
$
|
8,327
|
|
3.14
|
Granted
|
|
183,860
|
|
|
1.40
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited
|
|
(39,175)
|
|
|
4.21
|
|
|
|
|
|
Expired
|
|
(309,642)
|
|
|
10.71
|
|
|
|
|
|
Options outstanding at June 30, 2016
|
|
1,016,997
|
|
$
|
7.43
|
|
$
|
—
|
|
3.39
|
Granted
|
|
498,500
|
|
|
1.37
|
|
|
|
|
|
Exercised
|
|
(183,492)
|
|
|
0.66
|
|
|
|
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
|
|
|
Expired
|
|
(221,840)
|
|
|
9.64
|
|
|
|
|
|
Options outstanding at June 30, 2017
|
|
1,110,165
|
|
$
|
3.19
|
|
$
|
—
|
|
3.56
|
Options exercisable at June 30, 2017
|
|
740,915
|
|
$
|
4.05
|
|
$
|
—
|
|
2.94
|
Options outstanding and exercisable as of June 30, 2017
|
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable as of June 30, 2017
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Exercisable
|
Exercise Price
|
|
Shares
|
|
Remaining Life
|
|
Number of Shares
|
$
|
0.41
|
-
|
4.00
|
|
57,915
|
|
1
|
year
|
57,915
|
$
|
0.41
|
-
|
4.00
|
|
136,296
|
|
2
|
years
|
136,296
|
$
|
0.41
|
-
|
4.00
|
|
226,720
|
|
3
|
years
|
226,720
|
$
|
0.41
|
-
|
4.00
|
|
112,610
|
|
4
|
years
|
33,360
|
$
|
0.41
|
-
|
4.00
|
|
478,500
|
|
5
|
years
|
188,500
|
$
|
4.01
|
-
|
10.00
|
|
24,000
|
|
1
|
year
|
24,000
|
$
|
4.01
|
-
|
10.00
|
|
4,062
|
|
2
|
years
|
4,062
|
$
|
4.01
|
-
|
10.00
|
|
7,000
|
|
3
|
years
|
7,000
|
$
|
10.01
|
-
|
20.00
|
|
17,500
|
|
4
|
years
|
17,500
|
$
|
20.01
|
-
|
30.00
|
|
28,500
|
|
4
|
years
|
28,500
|
$
|
30.01
|
-
|
40.00
|
|
13,312
|
|
4
|
years
|
13,312
|
$
|
40.01
|
-
|
50.00
|
|
3,750
|
|
4
|
years
|
3,750
|
|
|
|
|
|
1,110,165
|
|
|
|
740,915
|
Options outstanding and exercisable as of June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Exercisable
|
Exercise Price
|
|
Shares
|
|
Remaining Life
|
|
Number of Shares
|
$
|
0.42
|
-
|
4.00
|
|
71,250
|
|
1
|
year
|
71,250
|
$
|
0.42
|
-
|
4.00
|
|
78,855
|
|
2
|
years
|
78,855
|
$
|
0.42
|
-
|
4.00
|
|
197,390
|
|
3
|
years
|
197,390
|
$
|
0.42
|
-
|
4.00
|
|
348,954
|
|
4
|
years
|
333,963
|
$
|
0.42
|
-
|
4.00
|
|
82,610
|
|
5
|
year
|
—
|
$
|
4.01
|
-
|
10.00
|
|
97,938
|
|
1
|
years
|
97,938
|
$
|
4.01
|
-
|
10.00
|
|
9,000
|
|
2
|
years
|
9,000
|
$
|
4.01
|
-
|
10.00
|
|
4,062
|
|
3
|
years
|
4,062
|
$
|
4.01
|
-
|
10.00
|
|
18,250
|
|
4
|
year
|
18,250
|
$
|
10.01
|
-
|
20.00
|
|
1,875
|
|
1
|
years
|
1,875
|
$
|
10.01
|
-
|
20.00
|
|
28,750
|
|
4
|
years
|
28,750
|
$
|
20.01
|
-
|
30.00
|
|
1,250
|
|
1
|
year
|
1,250
|
$
|
20.01
|
-
|
30.00
|
|
—
|
|
2
|
years
|
—
|
$
|
20.01
|
-
|
30.00
|
|
31,000
|
|
4
|
years
|
31,000
|
$
|
30.01
|
-
|
40.00
|
|
16,250
|
|
1
|
year
|
16,250
|
$
|
30.01
|
-
|
40.00
|
|
25,813
|
|
5
|
years
|
25,813
|
$
|
40.01
|
-
|
50.00
|
|
—
|
|
1
|
year
|
—
|
$
|
40.01
|
-
|
50.00
|
|
3,750
|
|
5
|
years
|
3,750
|
|
|
|
|
|
1,016,997
|
|
|
|
919,396
|
At June 30, 2017, there was $457 thousand of unrecognized compensation costs related to non-vested share based compensation arrangements granted to employees under the plans. During 2017, a total of 226,860 options, with a weighted average grant date fair value of $0.89 per share, vested in accordance with the underlying agreements. Unvested options at June 30, 2017 totaled 369,250 with a weighted average grant date fair value of $4.05, an amortization period of one to two years and a weighted average remaining life of 4.23 years. At June 30, 2016, there was $31 thousand of unrecognized compensation costs related to non-vested share based compensation arrangements granted to employees under the plans. During 2016, a total of 449,904 options, with a weighted average grant date fair value of $1.10 per share, vested in accordance with the underlying agreements. Unvested options at June 30, 2016 totaled 97,601 with a weighted average grant date fair value of $5.50, an amortization period of one to two years and a weighted average remaining life of 4.91 years.
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. Such awards do not grant any rights as a shareholder of the company until a certificate for the vested shares of common stock has been issued. During the year ended June 30, 2017, we granted 401,146 shares of restricted stock awards with a fair value of $0.6 million. There were none outstanding at June 30, 2016. Summary information regarding employee restricted stock issued and outstanding under the 2010 Plan as of June 30, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Restricted Stock
|
|
Average Share
|
|
|
Shares
|
|
Price
|
Restricted Stock outstanding at June 30, 2016
|
|
—
|
|
$
|
—
|
Granted
|
|
401,146
|
|
|
1.51
|
Vested
|
|
—
|
|
|
—
|
Forfeited
|
|
—
|
|
|
—
|
Restricted Stock outstanding at June 30, 2017
|
|
401,146
|
|
$
|
1.51
|
Warrants
The exercise price of the warrants may be adjusted in the case of stock splits, stock dividends or combinations of shares, or in the event the Company issues rights, options or warrants to all holders of the Company’s common stock with an exercise or purchase price less than the volume weighted average price of the Company’s shares on the record date. The warrants are not considered to be indexed to our common stock and therefore are considered a derivative. The fair value of the warrants was determined using the Binomial Option Pricing Model.
Summary information regarding common stock warrants issued and outstanding as of June 30, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
Weighted
|
|
Aggregate
|
|
remaining
|
|
|
|
|
Average
|
|
intrinsic
|
|
contractual
|
|
|
Warrants
|
|
Share Price
|
|
value
|
|
life(years)
|
Outstanding at year ended June 30, 2016
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
—
|
Granted
|
|
4,041,951
|
|
|
1.98
|
|
|
—
|
|
1.91
|
Exercised
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Expired
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding at year ended June 30, 2017
|
|
4,041,951
|
|
$
|
1.98
|
|
$
|
—
|
|
1.91
|
Warrants outstanding and exercisable as of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
Exercisable
|
Exercise
|
|
Number of
|
|
|
|
Number of
|
Price
|
|
Shares
|
|
Remaining Life
|
|
Shares
|
$
|
1.83
|
|
3,555,228
|
|
1.93
|
years
|
3,555,228
|
$
|
3.00-3.04
|
|
486,723
|
|
1.71-1.82
|
years
|
486,723
|
|
|
|
4,041,951
|
|
|
|
4,041,951
|
8. 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. Litigation is subject to inherent uncertainties, and an adverse result in any such matters could occur that could harm our business, financial condition or results of operation, including significant monetary damages or limitations on our ability to engage in our business activities. Although we have director and officer insurance, in case such claims arise it may not apply to or fully cover any liabilities we may incur as a result of these lawsuits.
The following are descriptions of certain concluded legal proceedings in which we were involved that have historical significance in relation to the discussions herein under "Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere, and are included for reference purposes.
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 ("First JOA") in the United States District Court for the Southern District of Texas and before the AAA against Tullow for their failure to meet their obligations under the First 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 First 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 is 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 were 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 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 subsequently 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 by the Consortium in preparation for the initial drilling of the Fatala-1 well, and agreed to pay net cash of $0.7 million to us. We also agreed to pay Dana a success fee which is based upon $50,000 per million barrels upon declaration of the certified commercial reserves of the Fatala-1 well, if it results in a discovery.
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, allege 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 its 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, the Company issued 600,000 shares of its common stock to the hedge funds named in the settlement 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, the majority of operating leases will be renewed or replaced by other leases.
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 as of June 30, 2017 (in thousands):
|
|
|
|
Years ending June 30:
|
|
|
|
2018
|
|
$
|
—
|
2019
|
|
|
399
|
2020
|
|
|
406
|
2021
|
|
|
309
|
Total minimum payments required
|
|
$
|
1,114
|
Rent expense included in loss from operations for the years ended June 30, 2017 and 2016 was $0.6 million and $0.4 million, respectively in each year.
9.
SUBSEQUENT EVENTS
Submission of Matters to a Vote of Security Holders
On July 11, 2017, the Company filed a proxy statement pursuant to section 14(a) of the Securities Exchange Act of 1934. The notice of consent solicitation was t
o amend the Company’s Certificate of Incorporation, as amended to effect a reverse stock split (the "Reverse Stock Split") of the Company's common stock at a ratio within a range between one-for-two (1:2) and one-for-six (1:6) (the "Split Ratio"), with the exact Split Ratio to be determined within that range by the Board of Directors in its sole discretion, and with such Reverse Stock Split to be effective at such date and time, if at all, as determined by the board of directors in its sole discretion.
As of August 10, 2017, the Company has received written consents from holders representing 72.3% of the voting power of its common stock outstanding as of July 7, 2017, the record date in favor of the Reverse Stock Split and terminated the consent solicitation period. As of the July 7, 2017, 27,510,636 shares of the Company’s common stock were outstanding. The final vote tabulation was as follows:
|
|
|
|
|
|
Votes For — 72.3%
|
|
Votes
Against — 10.5%
|
|
Abstentions — 0.3%
|
|
19,879,984
|
|
2,878,387
|
|
71,651
|
|
No other proposals were presented in this consent solicitation statement. The written consents by the requisite number of the Company stock entitled to vote for this proposal granted the board of directors the ultimate authority to determine the exact Reverse Split Ratio and to effectuate the Reverse Stock Split, if at all, at such date and time when the board of directors determines, in its sole discretion, it to be in the best interests of the Company and its stockholders.
On July 12, 2017, the Company obtained a letter from the Director General of the National Office of Petroleum of Guinea stating that in the event of an oil discovery at the end of the drilling of the Fatala-1 well, the government would have no objection to granting an additional period of two years to enable us to carry out the work of appraisal on the Concession.
On August 11, 2017 actual drilling on the Fatala-1 well commenced. Drilling operations were completed on September 8, 2017.
On September 19, 2017, SAPETRO notified us that it did not wish to participate in the application for the two-year appraisal program and subsequently withdrew from the JOA and the PSC on September 20, 2017. We applied for an appraisal period on a 100% basis on September 19, 2017 according to Article 3.7 in our PSC that provides that in
case there is a Petroleum Discovery during the Extension Period and there is insufficient time to carry out the appraisal works of said discovery, an appropriate representative of the Government of Guinea has the authority to grant an extension for two additional years.
We are awaiting the decision of the Government of Guinea on our appraisal application.
On November 2, 2017, the Company executed an agreement to issue and sell 40 million shares of its common stock at a price of $0.15 per share (for a total purchase price of $6,000,000) to CLNG Limited (Hong Kong) (“CLNG”) or its affiliate (the “Buyer”). CLNG is a private investment company involved in global energy and mineral projects. The closing of the sale is subject to (i) the completion of satisfactory due diligence by each party of the other, (ii) waiver by holders of our Series A Convertible Preferred Stock of their right of first refusal, (iii) negotiation of reductions in our outstanding current liabilities satisfactory to CLNG, and (iv) satisfaction of other customary closing conditions. If this purchase is completed, the Buyer will own approximately 53% of our outstanding common stock, which would result in a change in control of the Company. If the transaction closes, the Buyer has informed the Company that it intends, as majority stockholder, to appoint representatives who will form a majority of Hyperdynamics’ board of directors, but no specific agreement has yet been entered into in this respect. The stock purchase agreement provides that Ray Leonard will remain President, Chief Executive Officer and a director of the Company, and Jason Davis will remain Chief Financial Officer, subject to the discretion of the board and resolutions of the stockholders. There can be no assurance that the Company’s due diligence of the Buyer will be acceptable to the Company, that the Buyer’s due diligence of the Company will be acceptable to the Buyer,
that all holders of our Series A Convertible Preferred Stock will waive their right of first refusal, that we will successfully negotiate reductions in our outstanding current liabilities satisfactory to CLNG,
or that the stock purchase agreement will close.
Closing of Additional Private Placement Offerings
Series A Preferred Stock
Under the terms of the Subscription Agreement for the Series A Offering, Subscribers were given 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 of the Series A Offering.
On August 2, 2017, we consummated a closing of the Subscriber Option. At this closing, we issued to the Subscribers that exercised their Subscriber Option an aggregate of (i) 756 shares of Series A Preferred Stock and (ii) Series A Investor Warrants to purchase an aggregate of 168,588 shares of common stock.
The Company received an aggregate of $756,000 in gross cash proceeds, before deducting placement agent fees and expenses, and other fees and expenses, in connection with the sale of these additional Units. The Company used the net proceeds of $687,890 from the sale of the additional Series A 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 closing, we paid to the Placement Agent $68,040 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 20,014 shares of common stock.
Pursuant to the Registration Rights Agreement we entered with the Subscribers and the holders of the Placement Agent Warrants, we agreed to register for resale the shares of common stock issuable upon conversion of the Series A Preferred Stock and upon exercise of the Series A Investor Warrants and the Placement Agent Warrants issued pursuant to the Subscriber Option.
From July 1, 2017 to the filing of this Form 10-K, there have been a total of 1,952 units of Series A Preferred Stock converted into 1,825,934 shares of the Company’s common stock.
Common Unit Offering
Between July 17, 2017 and September 1, 2017, we held five additional closings of the Common Unit Offering and issued and sold 6,135,968 Units of our securities, at a purchase price of $1.46 per Unit. The Units were sold to certain accredited investors (as such term is defined in the Rule 501 under the Securities Act (the “Subscribers”) pursuant to subscription agreements for the Units (the “Subscription Agreements”) between the Company and the Subscribers. The Subscription Agreements contained customary representations and warranties by the Company and by the Subscribers. At these closings, we issued to the Subscribers an aggregate of (i) 6,135,968 shares of common stock and (ii) Investor Warrants to purchase an aggregate of 4,601,992 shares of common stock.
The Company received an aggregate of $8,958,413 in gross cash proceeds, before deducting placement agent fees and expenses, and other fees and expenses, in connection with the sale of the Units. The Company used the net proceeds of $7,619,724 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.
Pursuant to the Placement Agency Agreement dated June 5, 2017, as amended, between the Company and Katalyst Securities, LLC as the “Placement Agent, engaged by the Company, on a reasonable best effort basis for the Common Unit Offering, 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, except for the purchase of Units by certain Subscribers referred to by the Company, in which case, the Company has agreed to pay to the Placement Agent (and any sub agent), a cash commission of 4% of the gross purchase price paid by these referred Subscribers, 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 contained in the Units sold in the Offering, at the exercise price of $1.825 per share (the “Placement Agent Warrants”). At these closings, we paid the Placement Agent $576,265 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 429,544 shares of common stock.
Pursuant to the Registration Rights Agreement, we entered with the Subscribers and the holders of the Placement Agent Warrants, we agreed to register for resale the shares of common stock issuable upon exercise of the Common Unit Investor Warrants and the Common Unit Placement Agent Warrants.
Settlement with SAPETRO
Subsequent to SAPETRO’s formal notice of withdrawal from the PSC and JOA on September 20, 2017, on October 8, 2017, we agreed to a settlement of all of SAPETRO’s remaining obligations under the PSC and JOA for a payment to us of $4,924,000.
The majority of the payment of $4,924,000 made by SAPETRO as well as the majority of the net proceeds from the Series A Preferred Unit and Common Unit offerings from July 1, 2017 to the date of this filing have been spent on the drilling operations associated with the Fatala-1 exploration well and general and administrative costs, resulting in substantial working capital deficit as of the filing date.
Related Party Transactions
In July 2017, Ray Leonard purchased 51,370 Units in our Common Unit Offering, for a purchase price of $75,000. Jason D. Davis purchased 34,248 Units in our Common Unit Offering, for a purchase price of $50,001.24.
10. RELATED PARTY TRANSACTIONS
Paolo G. Amoruso and David W. Wesson continued, after year end, to provide services to the Company as independent consultants pursuant to Consulting Agreements entered into on June 30, 2016, extending through September 30, 2016. Under the Consulting Agreements, Mr. Amoruso received a consulting fee of $30,000 per month and Mr. Wesson received a consulting fee of $25,000 per month. After September 30, 2016, Mr. Wesson continued to provide services as a contractor, respectively, to the Company on an hourly basis pursuant to engagement agreements depending on the needs of the Company. Mr. Amoruso, through his law firm, Paolo G Amoruso PLLC, entered into an engagement agreement with the Company on October 1, 2016 to provide outside counsel services depending on the needs of the Company.
On June 30, 2016, the Company also entered into Transition Agreements with Messrs. Amoruso and Wesson. Mr. Amoruso and Mr. Wesson agreed in the Transition Agreements that they are not entitled to any payments under their former employment agreements.
Pursuant to his Transition Agreement, Mr. Amoruso received payments of $150,000 on July 15, 2016, $50,000 on August 15, 2016, and $300,000 on September 15, 2016; provided, if the Company and Mr. Amoruso entered into a new employment agreement as Vice President, General Counsel and Corporate Secretary prior to September 15, 2016, Mr. Amoruso would not be entitled to the September 15, 2016 payment of $300,000. Mr. Amoruso and the Company did not enter into a new employment agreement. In addition, Mr. Amoruso received an award of non-qualified stock options to acquire 36,875 shares of the Company's common stock with an exercise price equal to the closing price on June 30, 2016.
Pursuant to his Transition Agreement, Mr. Wesson received payments of $150,000 on July 15, 2016, August 15, 2016, and September 15, 2016. In addition, Mr. Wesson received an award of non-qualified stock options to acquire 34,375 shares of the Company's common stock with an exercise price equal to the closing price on June 30, 2016.
In March 2017, Ray Leonard, our President and Chief Executive Officer and a director, purchased 50 Units in our Series A Offering, described above under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Series A Preferred Stock Offering" above, for a purchase price of $50,000.
In June 2017:
|
"
|
|
Gary D. Elliston, our director, purchased 34,247 Units in our Common Unit Offering, described above under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Common Unit Offering" above, for a purchase price of $50,000.
|
|
"
|
|
Ray Leonard purchased 68,494 Units in our Common Unit Offering, for a purchase price of $100,000.
|
|
"
|
|
William O. Strange, our director, purchased 34,247 Units in our Common Unit Offering, for a purchase price of $50,000.
|
|
"
|
|
Jason D. Davis, our Interim Chief Financial Officer and Secretary, purchased 34,247 Units in our Common Unit Offering, for a purchase price of $50,000.
|
|
"
|
|
Pacific Drilling Operations Limited, the parent of Pacific Scirocco, and a beneficial owner of more than 5% of our outstanding shares of common stock, purchased 2,739,727 Units in the Common Unit Offering for a purchase price of $4,000,000.
|
|
"
|
|
Pacific Drilling Operations also received 567,859 shares of common stock in connection with the amendment to our Offshore Drilling Contract as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview" above.
|
In July 2017:
|
"
|
|
Ray Leonard purchased 51,370 Units in our Common Unit Offering, for a purchase price of $75,000.
|
|
"
|
|
Jason D. Davis purchased 34,248 Units in our Common Unit Offering, for a purchase price of $50,001.24
|
11. QUARTERLY RESULTS (UNAUDITED)
Shown below are selected unaudited quarterly data for the years ended June 30, 2017 and 2016 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
25
|
|
$
|
10
|
|
$
|
7
|
|
$
|
6
|
General, administrative and other operating
|
|
|
3,966
|
|
|
3,006
|
|
|
3,380
|
|
|
1,971
|
Full impairment of unproved oil and gas properties
|
|
|
—
|
|
|
2,028
|
|
|
—
|
|
|
11,288
|
Profit (Loss) from operations
|
|
|
(3,991)
|
|
|
(5,044)
|
|
|
(3,387)
|
|
|
(13,265)
|
Gain (loss) on legal settlement
|
|
|
5,135
|
|
|
(371)
|
|
|
—
|
|
|
—
|
Cost of legal settlement
|
|
|
—
|
|
|
(1,308)
|
|
|
—
|
|
|
—
|
Gain on derivative liability
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
705
|
Net Profit (Loss)
|
|
|
1,144
|
|
|
(6,723)
|
|
|
(3,387)
|
|
|
(12,560)
|
Non-cash preferred dividends
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,511)
|
Net Profit (Loss) available to common stockholders
|
|
|
1,144
|
|
|
(6,723)
|
|
|
(3,387)
|
|
|
(14,071)
|
Basic and diluted loss per common share:
|
|
$
|
0.05
|
|
$
|
(0.31)
|
|
$
|
(0.16)
|
|
$
|
(0.64)
|
x`
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
28
|
|
$
|
28
|
|
$
|
27
|
|
$
|
26
|
General, administrative and other operating
|
|
|
1,877
|
|
|
1,829
|
|
|
3,266
|
|
|
1,434
|
Full impairment of unproved oil and gas properties
|
|
|
—
|
|
|
—
|
|
|
14,331
|
|
|
—
|
Loss from operations
|
|
|
(1,905)
|
|
|
(1,857)
|
|
|
(17,624)
|
|
|
(1,460)
|
Net loss
|
|
|
(1,905)
|
|
|
(1,857)
|
|
|
(17,624)
|
|
|
(1,460)
|
Basic and diluted loss per common share:
|
|
$
|
(0.09)
|
|
$
|
(0.09)
|
|
$
|
(0.84)
|
|
$
|
(0.07)
|
The sum of the individual quarterly net loss per share amounts may not agree with year-to-date net loss per share as each quarterly computation is based on the weighted average number of common shares outstanding during that period. In addition, certain potentially dilutive securities were not included in any of the quarterly computations of diluted net loss per share because to do so would have been antidilutive. For the second quarterly results, $1.3 million was reclassed from general, administrative and other operating to full impairment of unproved oil and gas properties.
12. SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Estimates of reserve quantities and related standardized measure of discounted net cash flows are estimates only, and are not intended to reflect realizable values or fair market values of reserves. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise than producing oil and gas properties. Additionally, the price of oil has been very volatile and downward changes in prices can significantly affect quantities that are economically
recoverable. Accordingly, estimates are expected to change as future information becomes available and these changes may be significant.
Proved reserves are estimated reserves of crude oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment and operating methods.
The standardized measure of discounted future net cash flows are computed by applying average price for the year (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses. The estimated future net cash flows are then discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows.
Capitalized Costs Related to Oil and Gas Activities
Aggregate capitalized costs relating to our crude oil and natural gas producing activities, including asset retirement costs and related accumulated depreciation, depletion & amortization are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
Republic
of
|
|
|
|
|
|
States
|
|
Guinea
|
|
Total
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
Unproved properties
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Proved properties
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
Less accumulated DD&A
|
|
|
—
|
|
|
—
|
|
|
—
|
Net capitalized costs
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
Unproved properties
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Proved properties
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
Less accumulated DD&A
|
|
|
—
|
|
|
—
|
|
|
—
|
Net capitalized costs
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Costs Incurred in Oil and Gas Activities
Costs incurred in connection with our crude oil and natural gas acquisition, exploration and development activities are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
Republic of
|
|
|
|
|
|
States
|
|
Guinea
|
|
Total
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
Property acquisition:
|
|
|
|
|
|
|
|
|
|
Unproved
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Exploration
|
|
|
—
|
|
|
13,316
|
|
|
13,316
|
Development
|
|
|
—
|
|
|
—
|
|
|
—
|
Total costs incurred
|
|
$
|
—
|
|
$
|
13,316
|
|
$
|
13,316
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
Property acquisition:
|
|
|
|
|
|
|
|
|
|
Unproved
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Exploration
|
|
|
—
|
|
|
—
|
|
|
—
|
Development
|
|
|
—
|
|
|
—
|
|
|
—
|
Total costs incurred
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Proved Reserves
We do not hold any proved reserves as of June 30, 2017 and 2016.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. 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. 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. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective due to the lack of a sufficient number of competent accounting personnel.
Our management is responsible for establishing and monitoring internal control over financial reporting. Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2017. In making this assessment, management used the criteria for internal control over financial reporting described in Internal Control — Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operating effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Company’s Board of Directors. Based on this assessment, management has concluded that, as of June 30, 2017, the Company’s internal control over financial reporting was ineffective. During the fiscal year 2017, the Company has experienced turnover in its accounting group and as of June 30, 2017, it lacked a sufficient number of competent accounting personnel. This material weakness in our internal controls over financial reporting had a material adverse impact on our quarterly and annual financial close process and reporting. The Company is in the process of remediating this weakness by adding additional competent accounting personnel.
Item 9B. Other Information.
None.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
The following table sets forth the name, age, and positions and offices with us of each of our directors and executive officers as of the date of this Report. Each of our directors was re-elected for a one-year term at our Annual Meeting held on April 19, 2017. There are no family relationships between or among any of the directors and our executive officers. Should a vacancy arise on the Board of Directors between Annual Meetings, such vacancy would be filled based on a majority vote of the Board of Directors. Our Board maintains an Audit Committee, a Compensation, Nominating and Corporate Governance Committee, and a Government Relations Committee.
|
|
|
|
|
Name
|
|
Position
|
|
Age
|
Raymond C. Leonard
|
|
Director, President and CEO
|
|
64
|
Ian Norbury*
|
|
Director and Non‑Executive Chairman
|
|
66
|
Patricia N. Moller*
|
|
Director
|
|
73
|
William O. Strange*
|
|
Director
|
|
74
|
Fred S. Zeidman*
|
|
Director
|
|
71
|
Gary D. Elliston*
|
|
Director
|
|
64
|
Jason D. Davis
|
|
Interim Chief Financial Officer
|
|
45
|
*
Independent Director
Ray Leonard
Ray Leonard was appointed to the Board of Directors and as CEO and President in July 2009. Mr. Leonard served as the Vice President of Eurasia & Exploration for Kuwait Energy Company from December 2006 to June 2009. From January 2005 to November 2006, Mr. Leonard served as the Senior Vice President of International Exploration and Production of MOL Plc. Mr. Leonard also served as Vice President of Exploration & New Ventures for YUKOS, Russia's second largest oil company, based in Moscow, Russia, from February 2001 to December 2004. Prior to joining YUKOS, Leonard held the title of Vice President of Exploration with First International Oil from July 1998 to January 2001. Previously, Mr. Leonard spent 19 years with Amoco, where he began his career as a geologist and was later promoted to Vice President of Resource Acquisitions. During his tenure at Amoco, he held a three-year assignment as Division Geologist in West Africa. Mr. Leonard holds a Master of Arts in Geology from the University of Texas-Austin and a Bachelor of Science in Geosciences from the University of Arizona.
In addition to the professional and educational background and experience described above, the following experience, qualifications, attributes and/or skills led the Board of Directors to conclude that Mr. Leonard should serve as a director:
Leadership Experience—Mr. Leonard has held numerous roles in key executive management positions during the course of his career, including Vice President of Exploration for YUKOS and First International Oil, and Senior Vice President of Exploration and Production for MOL.
Industry Experience—Mr. Leonard has worked in the Oil & Gas industry his entire career in various Exploration and Production companies and has also been a featured speaker at numerous international forums on world oil reserves and future industry trends.
Ian Norbury
Ian Norbury joined the Board of Directors in January 2013. Mr. Norbury was appointed Chairman of the Board in April 2015. Mr. Norbury is a Director of Energy Software Information and Analytics Limited, a UK firm, which is the holding company for Hannon Westwood. Prior to joining Hannon Westwood in 2003, Mr. Norbury held various positions with Amerada Hess International since 1985, most recently as Executive Manager, Exploration with responsibility for
worldwide exploration performance, including West Africa. He previously held senior geologist positions with Conoco and Amoco. Mr. Norbury earned his B.Sc. in Geology and Geography at the University of London.
In addition to the professional and educational background and experience described above, the following experience, qualifications, attributes and/or skills led the Board of Directors to conclude that Mr. Norbury should serve as a director:
Leadership Experience—Mr. Norbury has held various key executive positions such as executive manager of exploration at Amerada Hess International and has held the position of CEO with Hannon Westwood.
Industry Experience—Mr. Norbury has worked in the Oil & Gas industry his entire career in various Exploration and Production companies and consultancy firms.
Patricia N. Moller
Patricia N. Moller was appointed to the Board of Directors in November 2015. Ms. Moller served as the United States Ambassador to the Republic of Guinea from 2009 to 2012 and to the Republic of Burundi from March 2006 until 2009. From April 1987 to March 2006, she served in various capacities in the U.S. Department of State, including as a Foreign Service Officer and management officer. Ms. Moller retired from the Department of State in 2012, and subsequently served as
Charge d'Affaires
to both the Kingdom of Morocco and to Romania in 2013. Ms. Moller received several awards in honor of her service within the U.S. government, including the Robert C. Frasure Award (2011), the Presidential Meritorious Service Award (2009) and the Leamon Hunt Award (1999), among others. She received a Bachelor of Arts degree from the University of Tampa in 1974.
In addition to the professional and educational background and experience described above, the following experience, qualifications, attributes and/or skills led the Board of Directors to conclude that Ms. Moller should serve as a director:
Leadership Experience—Ms. Moller has held several high-level positions within the U.S. government, including as Ambassador to the Republic of Guinea.
William O. Strange
William O. Strange was appointed to the Board of Directors in November 2010. Mr. Strange was an audit partner with Deloitte & Touche LLP prior to his retirement in May 2005. He joined the international accounting firm in 1964 and became a partner in 1976. During his 41 years with Deloitte & Touche LLP, he specialized in audits of SEC registrants for a variety of publicly traded energy clients in the areas of exploration and production, petrochemicals, pipelines, and oil services. Since 2005, he has been engaged in independent financial and accounting consulting services. Mr. Strange is a graduate of the University of Oklahoma and lives in Houston. He is on the Audit Committee of the Presbytery of the New Covenant, the governing body for Presbyterian Churches in the Gulf Coast area. He has served as the President of the Petroleum Club of Houston and as a member of the Major Cases Committee of the Texas State Board of Public Accountancy. In January 2014, he was elected Treasurer of Habitat for Humanity Northwest Harris County, and was additionally elected to its Board of Directors in January 2015.
In addition to the professional and educational background and experience described above, the following experience, qualifications, attributes and/or skills led the Board of Directors to conclude that Mr. Strange should serve as a director:
Leadership Experience—Mr. Strange worked over 41 years for Deloitte & Touche LLP, including 29 years as an audit partner. While at Deloitte & Touche LLP, most of his clients were in the energy industry, including many exploration and production companies, and he spent the vast majority of his time working on clients that reported to the SEC. He has also lived overseas and understands foreign operations.
Financial Experience—In addition to his over 41 years at Deloitte & Touche LLP, Mr. Strange was considered a Senior Technical Partner at Deloitte & Touche LLP. He has extensive knowledge of energy industry economics and business methods. He has worked with more than 20 audit committees of public company clients and has a deep understanding of the best practices of audit committees.
Fred S. Zeidman
Fred S. Zeidman was appointed to our Board of Directors in December 2009. Mr. Zeidman has been the Chairman of Gordian Group LLC, a U.S. investment bank specializing in complex and distressed financial advisory work, since January 2015. In March 2008, Mr. Zeidman was appointed Interim President of Nova Biosource Fuels, Inc. ("Nova"), a publicly traded biodiesel technology company, and served in that position until the company's acquisition in November 2009 and has served as a Nova director since June 2007. From August 2009 through November 2009, Mr. Zeidman was appointed Chief Restructuring Officer for Transmeridian Exploration, Inc. and served in that position until its sale in November 2009. Mr. Zeidman has been Bankruptcy Trustee of AremisSoft Corp since 2004.
Mr. Zeidman currently serves as Chairman Emeritus of the University of Texas Health Science System Houston, he serves as interim Chief Financial Officer of the Texas Heart Institute, and is a director of Lucas Energy Inc., Straight Path Communications Inc. and Petro River Oil. Mr. Zeidman served as Chairman of the United States Holocaust Memorial Council from March 2002 through September 2010. Mr. Zeidman served on the board of Compact Power, Inc., an energy storage systems company from November 2007 to November 2009. Mr. Zeidman has served on the board of Prosperity Bank for 30 years. He also served as CEO, President and Chairman of the Board of Seitel Inc., an oil field services company, from June 2002 until its sale in February 2007. Mr. Zeidman served as a Managing Director of the law firm Greenberg Traurig, LLP from July 2003 to December 2008.
In addition to the professional and educational background and experience described above, the following experience, qualifications, attributes and/or skills led the Board of Directors to conclude that Mr. Zeidman should serve as a director:
Leadership Experience—Mr. Zeidman has served in numerous roles of executive and directorship responsibility, including serving on the board of Prosperity Bank for 30 years and acting as Chairman of the United States Holocaust Memorial Council.
Financial Experience—Mr. Zeidman has a Master's in Business Administration degree and was the Chief Restructuring Officer for Transmeridian Exploration.
Gary D. Elliston
Gary D. Elliston was appointed to our Board of Directors in November 2015. Mr. Elliston has been the senior founding partner of DeHay & Elliston, L.L.P., a registered limited liability legal partnership, since August 1992, and specializes in litigation. He is licensed to practice before the United States Supreme Court, Texas Supreme Court, U.S. District Courts for the Northern, Southern, Western and Eastern Districts of Texas, and the U.S. Court of Appeals Fifth Circuit. He is also licensed in New York, West Virginia, Illinois and Oklahoma. He graduated cum laude from Howard Payne University in 1975 and cum laude from Southern Methodist University Law School in 1978. In 2007, he received an Honorary Doctorate of Humanities from Howard Payne University.
In addition to the professional and educational background and experience described above, the following experience, qualifications, attributes and/or skills led the Board of Directors to conclude that Mr. Elliston should serve as a director:
Leadership Experience—Mr. Elliston is the senior founding partner of DeHay & Elliston, L.L.P. In addition, he has previously served on the Board of Trustees for Howard Payne University, a private university located in Brownwood, Texas, and the Board of Regents for Baylor University, a private university located in Waco, Texas.
Executive Officers
Ray Leonard
Ray Leonard, 64, President and Chief Executive Officer is also a director of the Company. Mr. Leonard has been the Company's Chief Executive Officer and President since December 2009. Information about his professional background is discussed in the section above regarding the Board of Directors.
Jason D. Davis
Jason D. Davis, 45, rejoined the Company as Interim Chief Financial Officer and Corporate Secretary on June 6, 2017. Mr. Davis first joined the Company in June 2009 as the Company's Chief Financial Officer and subsequently held the position of Vice President of Finance and Treasurer from August 2010 to December 2014. Mr. Davis is a licensed certified public accountant and has served in various financial positions for several companies, including as the Chief Financial Officer of CASA Exploration from May 2015 to May 2017, the Controller at Particle Drilling Technologies, Inc. from June 2006 to June 2009, the Manager of SEC Reporting at Texas Genco, LLC from August 2005 to June 2006, and Assistant Controller at Isolagen, Inc. from March 2004 to August 2005. Mr. Davis also served as the interim Chief Financial Officer for Particle Drilling Technologies, Inc. from January 2009 to June 2009. Mr. Davis began his career with Deloitte & Touche LLP, where he worked from 1997 until 2003. He received his BBA in Accountancy and Taxation from the University of Houston in 1997.
Shareholder Communications
Stockholders and others who wish to communicate with the Board or any particular Director, including the Independent Director presiding over executive session meetings of Independent Directors, or with any executive officer of the Company, may do so by writing to our Corporate Secretary, Jason D. Davis, 12012 Wickchester Lane, Suite 475, Houston, Texas 77079.
All such correspondence is reviewed by the Secretary's office, which logs the material for tracking purposes. The Board has asked the Secretary's office to forward to the appropriate Director(s) all correspondence, except for personal grievances, items unrelated to the functions of the Board, business solicitations, advertisements and materials that are profane.
Board Meetings During Fiscal Year 2017
The Board of Directors held fifteen meetings during the fiscal year ended June 30, 2017.
Board Committees
Committee Assignments
The table below reflects the composition of the committees of the Board.
|
|
|
|
|
|
|
Name of Director
|
|
Audit
Committee
|
|
Compensation,
Nominating, and
Corporate Governance
Committee
|
|
Government
Relations
Committee
|
Patricia N. Moller
|
|
|
|
|
|
Chair
|
Raymond C. Leonard
|
|
|
|
|
|
Member
|
Ian Norbury*
|
|
Member
|
|
|
|
|
William O. Strange
|
|
Chair
|
|
Member
|
|
|
Fred S. Zeidman
|
|
Member
|
|
Chair
|
|
Member
|
Gary D. Elliston
|
|
|
|
Member
|
|
|
*
Chairman of the Board.
The Audit Committee of the Company reviews the adequacy of systems and procedures for preparing the financial statements and the suitability of internal financial controls. The Audit Committee also reviews and approves the scope and performance of the Company's independent registered public accounting firm. Messrs. Norbury, Strange, and Zeidman are the members of the Audit Committee and our board of directors has determined that all three are considered an audit committee financial expert as defined 407(d)(5)(ii) of Regulation S-K. All committee members are independent directors.
The Audit Committee has a written charter, which the Audit Committee reviews periodically to assess its adequacy. On September 9, 2015, the Audit Committee adopted a revised Audit Committee charter, which is available at the Company's website at www.hyperdynamics.com. During the year ended June 30, 2017, the Audit Committee met six times.
The Compensation, Nominating, and Corporate Governance Committee reviews the performance of the Company's executive personnel and develops and makes recommendations to the Board of Directors with respect to executive compensation policies. The Compensation, Nominating, and Corporate Governance Committee is empowered by the Board of Directors to establish and administer the executive compensation programs of the Company. The details of the processes and procedures for the consideration and determination of executive and director compensation are described in the section entitled "Executive Compensation—Compensation Discussion and Analysis." The objectives of the Compensation, Nominating, and Corporate Governance Committee are to attract and retain key individuals who are important to the continued success of Hyperdynamics and to provide strong financial incentives, at reasonable cost to stockholders, for senior management to enhance the value of the stockholders' investment.
The members of the Compensation, Nominating, and Corporate Governance Committee are Messrs. Elliston, Strange, and Zeidman. Mr. Zeidman is the Chair of the Compensation, Nominating, and Corporate Governance Committee. All committee members are independent. During the year ended June 30, 2017, the Compensation, Nominating, and Corporate Governance Committee met one time. The Compensation, Nominating, and Corporate Governance Committee adopted a written charter on September 9, 2015, which is available at the Company's website at
www.hyperdynamics.com
.
Though neither the Board of Directors nor the Compensation, Nominating, and Corporate Governance Committee has a formal policy concerning diversity, the Board of Directors values diversity on the Board and believes diversity should be considered in the director identification and nominating process.
The members of our Government Relations Committee are Messrs. Leonard and Zeidman and Ms. Moller. Mr. Zeidman and Ms. Moller are independent. Ms. Moller is the Chair of the Government Relations Committee. During the year ended June 30, 2017, the Governmental Relations Committee met four times. The Government Relations Committee does not have a charter.
Director Independence
Our common stock is traded on the OTCQX and is not listed on a national securities exchange. Nevertheless, we use SEC Rule 10A-3 and the rules of The Nasdaq Stock Market in determining whether a director is independent in the capacity of director and in the capacity as a member of a board committee. In determining director independence, we have not relied on any exemptions from any rule's definition concerning director independence.
We currently have six directors, five of whom are deemed independent directors. The Board of Directors has determined that the following directors qualify as independent: Ian Norbury, Chairman of the Board; Patricia N. Moller; William O. Strange; Fred S. Zeidman; and Gary D. Elliston (collectively, the "Independent Directors").
Director Nominees
Our stockholders may propose director nominees for consideration by the Company's Compensation, Nominating, and Corporate Governance Committee by submitting to our Secretary at 12012 Wickchester Lane, Suite 475, Houston, Texas 77079, a completed and signed questionnaire with respect to the background and qualification of such nominee and a representation and agreement (in the form provided by the Secretary of the Company upon written request) in accordance with Article I, Section 10 of our Amended and Restated Bylaws. Our Compensation, Nominating, and Corporate Governance Committee will consider consistent with the committee's charter and our Corporate Governance Guidelines all director nominees properly submitted by our stockholders in accordance with our Amended and Restated Bylaws. Stockholders who wish to nominate candidates for election to our Board of Directors at our Annual Meeting of Stockholders must follow the procedures outlined in "Stockholder Proposals" set forth below and our Amended and Restated Bylaws.
Executive Sessions of Independent Directors
Our Independent Directors meet in regularly scheduled executive sessions without management present. Ian Norbury, the Chairman of our Board of Directors, is the presiding Independent Director at these executive sessions.
Board Leadership Structure and Risk Oversight
Board of Directors Leadership Structure.
Our Board of Directors has no fixed policy with respect to the separation of the offices of Chairman of the Board of Directors and Chief Executive Officer. Our Board retains the discretion to make this determination on a case-by-case basis from time to time as it deems to be in the best interests of the Company and our stockholders at any given time. The Board currently believes that separating the positions of Chief Executive Officer and Chairman is the best structure to fit the Company's needs. This structure ensures a greater role for the Independent Directors in the oversight of the Company and active participation of the Independent Directors in setting agendas and establishing priorities and procedures for the work of the Board. As described above, the Audit Committee and the Compensation, Nominating, and Corporate Governance Committee are comprised entirely of Independent Directors. The Board also believes that this structure is preferred by a significant number of the Company's stockholders.
Board of Directors Risk Oversight.
The Board's role in the Company's risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the Company, including operational, financial, legal and regulatory, and strategic and reputational risks. The full Board (or the appropriate committee in the case of risks that are under the purview of a particular committee) receives these reports from the appropriate "risk owner" within the organization to enable it to understand our risk identification, risk management and risk mitigation strategies. When a committee receives the report, the Chairman of the relevant committee reports on the discussion to the full Board during the next Board meeting. This enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.
Audit Committee Report
The Audit Committee has reviewed and discussed the audited financial statements with management. The Audit Committee has discussed with the independent auditors the matters required to be discussed by Auditing Standard No.
1301: Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board. The Audit Committee has received the written disclosures and the letter from the independent accountants required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the Audit Committee concerning independence, and has discussed with the independent accountant the independent accountant's independence. Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017, for filing with the SEC.
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Members of the Audit Committee:
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/s/ WILLIAM O. STRANGE
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/s/ IAN NORBURY
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/s/ FRED S. ZEIDMAN
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the
SEC and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, and written representations from certain reporting persons, we believe that during fiscal year ended June 30, 2017, all such persons filed on a timely basis all reports required by Section 16(a) of the Exchange Act, except as follows:
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Number of transactions
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Failure to File
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Name
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Number of Late Reports
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not Reported on a Timely Basis
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a Required Form
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Raymond C. Leonard
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2
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2
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None
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Ian Norbury
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None
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None
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None
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Patricia Moller
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None
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None
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None
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William O. Strange
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None
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None
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None
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Fred S. Zeidman
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None
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None
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None
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Gary D. Elliston
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None
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None
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None
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Jason D. Davis
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3
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3
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None
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Sergey Alekseev
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3
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3
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3
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Pacific Drilling Operations Limited
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None
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None
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None
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Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and our directors and officers. We will provide without charge a copy of our Code of Business Conduct and Ethics upon request. Such request should be directed in writing to our Corporate Secretary, Jason Davis, Hyperdynamics Corporation, 12012 Wickchester Lane, Suite 475 Houston, TX 77079, voice: (713) 353-9400, fax: (713) 353-9421. Our Code of Business Conduct and Ethics is available on our website at www.hyperdynamics.com.
Item 11.
Executive Compensation.
Compensation Discussion and Analysis
Our compensation discussion and analysis for the fiscal year ended June 30, 2017, discusses the compensation for our Principal Executive Officer ("PEO"), who is our President and Chief Executive Officer, Ray Leonard; as well as disclosure for Jason Davis and Sergey Alekseev, as well as David W. Wesson and Paolo G. Amoruso, who, pursuant to Item 402 of Regulation S-K, would have been deemed to be named executive officers except that they were not serving as officers at the end of the Company's fiscal year ended June 30, 2017 (individually, each a "Named Executive Officer" or "NEO," and collectively, our "Named Executive Officers" or "NEOs"). Both Messrs. Wesson and Amoruso provided services to the Company as independent consultants pursuant to Consulting Agreements entered into on June 30, 2016 through September 30, 2016, having resigned their employment positions in advance of the expiration of their employment agreements. The Company engaged Mr. Amoruso through his law firm beginning on October 1, 2016 to provide services as requested by the Company from time to time.
The Company's 10-K for the fiscal year that ended on June 30, 2016 included disclosures for David W. Wesson and Paolo G. Amoruso, who, pursuant to Item 402 of Regulation S-K, would have been deemed to be named executive officers except that they were not serving as officers at the end of the Company's prior fiscal year.
These officers are also reflected in the Summary Compensation Table below and discussed further in the accompanying narrative thereto. In this compensation discussion and analysis, the terms "we" and "our" refer to Hyperdynamics Corporation, and not the Compensation, Nominating, or Corporate Governance Committee.
Compensation Overview, Objectives, and Elements
We are a small, early-stage company in the oil and gas exploration industry and our operations in the last several years have focused on oil and gas exploration in our Concession offshore the coast of the Republic of Guinea in West Africa, identifying additional prospects that may contain oil or gas and identifying other oil & gas companies to farm-out participating interests in the Concession. We have accomplished this with a small team of management individuals with significant industry experience. We have designed our compensation program to attract and retain these highly experienced individuals, who have competing opportunities at more established companies, as well as to motivate and reward these individuals for the successful execution of our business plan.
The Compensation, Nominating and Corporate Governance Committee of the Board of Directors reviews the performance of our executives and develops and makes recommendations to the Board of Directors with respect to executive compensation policies. The Compensation, Nominating and Corporate Governance Committee is empowered by the Board of Directors to establish and administer our executive compensation programs. The members of the Compensation, Nominating and Corporate Governance Committee are Messrs. Elliston, Strange, and Zeidman. Mr. Zeidman is the Chair of the Compensation, Nominating and Corporate Governance Committee. All committee members are independent.
Because of the uniqueness of our business and operations, the Compensation, Nominating and Corporate Governance Committee has concluded that we do not have a single group of peer or comparison companies for purposes of traditional benchmarking and percentile targeting and, as such, the Compensation, Nominating and Corporate Governance Committee does not use traditional benchmarking or percentile targeting against a stated peer group in setting compensation. Rather than looking to a single peer or comparison group of companies, our compensation practice concerning our executives is to review compensation on a position-by-position basis and determine the particular skill set required to be successful at the Company for the particular position in question. The skill set necessarily varies among positions but may include: executive management experience at oil and gas enterprises; offshore experience and technical expertise; international experience; experience growing and maturing a company; relevant financial and commercial experience; and relevant compliance and legal experience. As a result, the Compensation, Nominating and Corporate Governance Committee's determinations in setting compensation are often qualitative and subjective, depending on the executive's position.
The details of the processes and procedures for the consideration and determination of executive compensation are described below.
What are the objectives of our executive officer compensation program?
The objectives of the Compensation, Nominating and Corporate Governance Committee in determining executive compensation are to: (1) attract and retain key individuals who are important to the continued success of Hyperdynamics, and (2) provide strong financial incentives, at reasonable cost to the stockholders, for senior management to enhance the value of the stockholders' investment.
What is our executive officer compensation program designed to reward?
Our compensation program is designed to reward individuals for the achievement of our business goals and to foster continuity of management by encouraging key individuals to maintain long-term careers with Hyperdynamics.
What are the elements of our executive officer compensation program and why do we provide each element?
The elements of compensation that the Compensation, Nominating and Corporate Governance Committee uses to accomplish these objectives include: (1) base salaries, (2) bonuses, and (3) long-term incentives in the form of stock and stock options. From time to time, we also provide perquisites to certain executives and health and life insurance to all employees. The elements of compensation that we offer help us to attract and retain our officers. The specific purpose of each element of compensation is outlined below.
Base Salaries
We provide fixed annual base salaries as consideration for each executive's performance of his or her job duties. Salaries are set based on level of responsibility, skills, knowledge, experience, and contribution to Hyperdynamics' business.
Bonuses
Annual cash bonuses are typically awarded to our executives as a variable compensation component. Bonuses are based on goals and objectives for each executive. Each executive is given a target bonus percentage. The Chief Executive Officer recommends a bonus amount to the Compensation, Nominating and Corporate Governance Committee.
Our historic policy has been to set such executive's bonus in a range of 50% to 100% of that executive's annual base salary with a target of 75% of the executive's annual base salary. The Compensation, Nominating and Corporate Governance Committee or the Board of Directors at large approves annual bonuses for our executives. Such approval usually occurs during the month of June of the fiscal year that concludes at the end of that month. Our President and Chief Executive Officer, Ray Leonard, has specific performance-related goals and targets usually set by the Compensation, Nominating and Corporate Governance Committee in the month of June (prior to the commencement of the applicable fiscal year). The following June (at the end of the fiscal year) the Compensation, Nominating and Corporate Governance Committee evaluates the Chief Executive Officer's performance against those goals and targets and recommends a bonus amount to the Board of Directors following that evaluation.
In June 2016, the Board of Directors revised Hyperdynamics' Bonus Policy to make all annual bonuses completely performance-based upon the achievement of pre-established targets.
Long-term Incentives
We can provide long-term incentives in the form of stock and stock options. Our practice has been to provide stock options as our preferred form of long-term incentives. Long-term incentives are a component of variable compensation because the amount of income ultimately earned is dependent upon and varies with our common stock price over the term of the option. The stock option awards tie a portion of executive compensation to the stock price and, accordingly, our financial and operating results. We do not use a formula to determine stock and stock option awards to executives. Stock option awards are not designed to be tied to yearly results. We view stock option awards as a means to encourage equity ownership by executives and, thus, to generally align the interests of the executives with the stockholders.
Our 2010 Plan authorizes the Compensation, Nominating and Corporate Governance Committee to award stock options, restricted stock, and stock registered under a Form S-8 registration statement to officers and other key employees. The Compensation, Nominating, and Corporate Governance Committee implements this authority by awarding stock options designed to align the interests of all senior executives to those of stockholders. This is accomplished by awarding stock options, which change in value based upon the market price of Hyperdynamics' common stock, on a systematic basis.
The actual amount of long-term incentives that each of our executives is eligible to receive is established by that executive's employment agreement.
Our policy has been to make such executive's long-term incentive award in the form of stock options. The number of shares underlying the stock options is typically set at 25% of the dollar amount of that executive's annual cash bonus. For example, if an executive's annual cash bonus was $150,000, a stock option to purchase 37,500 shares of our common stock would be granted. The Compensation, Nominating, and Corporate Governance Committee or Board of Directors usually approves long-term incentive grants during the month of June of the fiscal year that concludes at the end of that month.
We report the estimated fair value of our stock option grants, as determined for accounting purposes in accordance with ASC 718, using either the Black-Scholes option pricing model or a Monte Carlo model, in the Summary Compensation Table and the Grants of Plan-Based Awards Table. The amount reflected for accounting purposes does not reflect whether the executive has or will realize a financial benefit from the awards. Because stock option awards are made at a price equal to or above the market price on the date of grant, stock options have no intrinsic value at the time of grant. We believe the potential appreciation of the option awards over the stock price provide motivation to executives.
Perquisites
Perquisites are determined on a case-by-case basis by the Compensation, Nominating and Corporate Governance Committee.
How do we determine the amount for each element of executive officer compensation?
Our policy is to provide compensation packages that are competitively reasonable and appropriate for our business needs. We consider such factors as: competitive compensation packages as negotiated with our officers; evaluations of the President and Chief Executive Officer and other executive officers; achievement of performance goals and milestones as additional motivation for certain executives; officers' ability to work in relationships that foster teamwork among our executive officers; officers' individual skills and expertise, and labor market conditions. We did not engage a third-party compensation consultant during the fiscal years ended June 30, 2015 or 2016.
During the fiscal years ended June 30, 2015, and 2016, total executive compensation consisted of base salary, bonuses and option awards. Generally, the option awards for executives are negotiated in the executive's contract, with an exercise price based on the market price on the award date. Special option awards are also issued to employees on a case-by-case basis during the year for significant achievement. Because of the simplicity of the compensation package, there is very little interaction between decisions about the individual elements of compensation.
Administration of Executive Compensation
The Compensation, Nominating and Corporate Governance Committee reviews and approves corporate goals and objectives relevant to compensation of the NEOs, evaluates the NEOs' performance, and sets their compensation. In determining compensation policies and procedures, the Compensation, Nominating and Corporate Governance Committee considers the results of stockholder advisory votes on executive compensation and how the votes have affected executive compensation decisions and policies.
The Compensation, Nominating and Corporate Governance Committee or Board of Directors usually sets annual salaries during the month of December of the fiscal year that ends the following June 30th and usually approves the payment of annual bonuses and the award of long-term incentives during the month of June of the fiscal year that concludes at the end of that month.
Chief Executive Officer Involvement in Compensation Decisions
The Chief Executive Officer makes recommendations to the Compensation, Nominating and Corporate Governance Committee concerning the employment packages of all subordinate officers. Neither the Chief Executive Officer nor any other Company officer or employee attends periodic executive sessions of the Compensation, Nominating and Corporate Governance Committee.
How compensation or amounts realizable from prior compensation are considered?
The amount of past compensation generally does not affect current year considerations because bonuses and long-term incentives are awarded for each individual fiscal year's job performance. As part of its ongoing review process, the
Compensation, Nominating and Corporate Governance Committee regularly evaluates our compensation programs to ensure they meet changing business needs and support alignment with stockholders' interests.
Tax Considerations
Our compensation plans are designed generally to ensure full tax deductibility of compensation paid under the plans.
This includes compliance with Section 162(m) of the Internal Revenue Code, which limits our tax deduction for an executive's compensation to $1 million, unless certain conditions are met. For the fiscal year ended June 30, 2016, the full amount of all compensation provided to all executives was tax deductible to the Company.
Timing, Award Date, and Exercise Price for Stock Option Awards
Our policy is to award stock options upon hiring of the employee and on a case-by-case basis throughout the year. Stock option exercise prices are the closing price on the date of grant. We also have made certain awards based on the completion of performance criteria.
Analysis of Variations in Individual NEOs Compensation
Each NEO's compensation is detailed in the Summary Compensation Table below and discussed further in the accompanying narrative thereto. For those NEOs who have employment agreements, each such agreement is described under the caption "Narrative Disclosure to Summary Compensation Table."
2017 Compensation Decisions for Our Named Executive Officers
Described below are the details of the processes and procedures for the consideration and determination of executive compensation for fiscal year 2017.
Summary Compensation Table
The following table shows the salaries, bonuses, incentive awards, retirement benefits and other compensation relating to fiscal years ended June 30, 2017 and June 30, 2016 for our PEO and our two most highly compensated executive officers, other than our PEO, pursuant to paragraph (m)(2)(iii) of Item 402 of SEC Regulation S-K. Columns for which there was no compensation have been omitted.
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Stock
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Option
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Grants
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Awards
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All Other
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Salary
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Bonus
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($)
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($)
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Compensation
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Total
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Name & Principal Position
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Year
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($)
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($)
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(e)(1)
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(f)(1)
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($)(2)
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($)
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Raymond C, Leonard,
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2017
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350,000
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—
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151,000
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—
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—
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501,000
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President and CEO(2)
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2016
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400,000
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50,000
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42,000
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—
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—
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492,000
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Jason D. Davis,
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2017
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19,792
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—
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7,786
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63,040
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—
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90,618
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Interim Chief Financial Officer(5)
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2016
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—
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—
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—
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—
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—
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—
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Sergey Alekseev(6),
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2017
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279,170
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—
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113,250
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37,894
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—
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430,314
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Former Chief Financial Officer
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2016
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—
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—
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—
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—
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—
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—
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David W. Wesson,
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2017
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—
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—
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—
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—
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—
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—
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Former Chief Financial Officer
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2016
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268,250
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—
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—
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5,836
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—
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274,086
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Paolo G. Amoruso,
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2017
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—
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—
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—
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—
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—
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—
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Former Vice President of Legal Affairs
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2016
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288,000
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—
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—
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6,260
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—
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294,260
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(1)
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These amounts reflect the aggregate grant date fair value, computed in accordance with FASB ASC Topic 718, for options awarded in the last two fiscal years ended June 30, 2017 and 2016. For a description of the assumptions used for purposes of determining award date fair value, see Note 8 to the financial statements for the fiscal year ended
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June 30, 2017 included in this Report. Regardless of the value on the grant date, the actual value that may be recognized by the executives will depend on the market value of the Company's common stock on a date in the future when a stock option is recognized.
Includes a $60,000 bonus pursuant to a Retention Bonus Agreement Mr. Amoruso signed on June 30, 2014 with the Company. Mr. Amoruso received half of the Retention Bonus on June 30, 2014, and the second half in January 2015.
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(2)
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In order to minimize cash compensation payments during the fiscal year, the Company decided to reduce salaries by half for all employees from March 2017 through May 2017. The amount withheld from Mr. Leonard's salary was $50,000 and will be paid in the future.
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(3)
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The amounts noted above for Mr. Wesson reflect the compensation for his service as our Vice President, Chief Financial Officer and our Principal Financial and Accounting Officer for the fiscal year ended June 30, 2016. Mr. Wesson continued to provide services to the Company as an independent consultant pursuant to a Consulting Agreement entered into on June 30, 2016, having resigned his employment positions in advance of the expiration of his Employment Agreement. Mr. Wesson entered into a separate engagement agreement with the Company for services as requested from time to time. (See "Certain Relationships and Related Party Transactions").
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(4)
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The amounts noted above for Mr. Amoruso reflect the compensation for his service as our Vice President of Commercial and Legal Affairs and Corporate Secretary for the fiscal year ended June 30, 2016. Mr. Amoruso continued to provide services to the Company as an independent consultant through September 30, 2016 pursuant to a consulting agreement entered into on June 30, 2016, having resigned his employment positions in advance of the expiration of his Employment Agreement. The Company engaged Mr. Amoruso through his law firm, Paolo G Amoruso PLLC, beginning on October 1, 2016 to provide services as requested by the Company from time to time. (See "Certain Relationships and Related Party Transactions").
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(5)
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Mr. Davis was appointed Interim Chief Financial Officer on June 6, 2017. The total compensation reflects the 24 days in the fiscal year ended June 30, 2017. Mr. Davis' annual salary is $275,000.
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(6)
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Mr. Alekseev was appointed Chief Financial Officer on April 19, 2017 and resigned from the position on June 6, 2017. The total compensation reflects compensation earned during the entire fiscal year Mr. Alekseev was employed with the Company. Mr. Alekseev's annual salary is $300,000. In order to minimize cash compensation payments during the fiscal year, the Company decided to reduce salaries by half for all employees from March 2017 through May 2017. The amount withheld from Mr. Alekseev's salary was $25,000 and will be paid in the future.
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Narrative Disclosure to Summary Compensation Table
Ray Leonard,
President and Chief Executive Officer
We entered into a three-year employment agreement with Ray Leonard, our current Chief Executive Officer, President and Director effective as of July 22, 2009, as amended, effective December 11, 2009. On September 10, 2012, effective as of July 23, 2012, we entered into an amended and restated employment agreement with Mr. Leonard. The agreement, as amended and restated, has a one-year term that is automatically extended for successive one-year periods following the end of the initial one-year term, unless otherwise terminated by delivery of written notice by either party prior to May 31 of each period. The agreement provides that Mr. Leonard will serve as our President and Chief Executive Officer. Mr. Leonard's current base salary is $400,000, which is subject to annual adjustments, at the discretion of the Board of Directors, but in no event shall the Company pay Mr. Leonard a base salary less than that set forth above, or any increased base salary later in effect, without the consent of Mr. Leonard.
In June 2015, the Board of Directors approved the annual base salary for Mr. Leonard for fiscal year 2016 (to be effective July 1, 2015) of $400,000, which represents no increase in Mr. Leonard's salary in 2015.
Additionally, pursuant to his employment agreement, Mr. Leonard is eligible to receive incentive compensation, as may be adopted and approved by the Compensation, Nominating and Corporate Governance Committee from time to time and is entitled to participate in any incentive compensation plan ("ICP") applicable to Mr. Leonard's position, as may be
adopted by us from time to time and in accordance with the terms of such plan(s). Mr. Leonard's cash bonus award opportunity is 100% of his base salary with a minimum of 50% and a maximum of 200% and shall be subject to such other terms, conditions and restrictions as may be established by the Board of Directors or the Compensation, Nominating and Corporate Governance Committee.
Mr. Leonard is also entitled to receive stock options in an amount equal to 50% of the number of dollars of the cash award, as adjusted for the July 1, 2013 reverse stock split.
Annually, Mr. Leonard develops a proposed set of current year performance metrics that are subject to review and approval by the Board of Directors and/or the Compensation, Nominating and Corporate Governance Committee and the achievement of which are evaluated by the Committee in making annual cash bonus payments and long-term incentive awards. Since the inception of Mr. Leonard's employment, the metrics for his bonus award have been based on annual objectives related to advancing our exploration activities, achieving funding from equity capital raises, participation in the Concession, and/or stock price appreciation. The Compensation, Nominating, and Corporate Governance Committee approved that the bonus would be determined by allocating 50% of the amount to the stock price, 25% to securing funding and addressing our "going concern" status, and 25% to operations, with each component to be reviewed by the Committee.
In June 2017, in order to minimize cash compensation payments, the Board of Directors offered all employees restricted stock as bonuses. As part of the annual review of Mr. Leonard's performance during the 2017 fiscal year, on June 30, 2017, Mr. Leonard received and we issued him 100,000 shares of our restricted common stock.
In June 2016, in order to minimize cash compensation payments, the Board of Directors offered all employees an election to receive their bonuses through an increased stock component and a lower cash component. As part of the annual review of Mr. Leonard's performance during the 2016 fiscal year, on June 30, 2016, Mr. Leonard elected to receive and we issued him 100,000 shares of our common stock and $50,000 in lieu of paying Mr. Leonard his incentive bonus amount of $200,000 and 50,000 associated stock option grants.
Finally, Mr. Leonard will receive certain standard benefits, including reimbursement in accordance with our standard policies and procedures of business and business-related business expenses and dues and fees to industry and professional organizations, four weeks of paid vacation each calendar year, and participation by Mr. Leonard and his spouse and dependents in all benefits, plans and programs available to our executive employees.
Jason D. Davis, Interim Chief Financial
Officer
On June 6, 2017, we entered into an agreement with Mr. Davis, which provided for a base salary of $275,000.
Mr. Davis also participated in the Company's ICP, and had an annual cash target award (the "ICP Bonus Award") opportunity under the ICP of 75% of his base salary with a minimum of 50% and a 100% maximum. In June 2017, in order to minimize cash compensation payments, the Board of Directors offered all employees restricted stock as bonuses. As part of the annual review of Mr. Davis' performance during the 2017 fiscal year, on June 30, 2017, Mr. Davis received and we issued to him 5,156 shares of our restricted common stock.
Sergey Alekseev, Former Chief Financial
Officer
On April 19, 2017, we entered into an agreement with Mr. Alekseev, to provide for a base salary of $300,000.
Mr. Alekseev also participated in the Company's ICP, and had an annual cash target award (the "ICP Bonus Award") opportunity under the ICP of 75% of his base salary with a minimum of 50% and a maximum of 100%. In June 2017, in order to minimize cash compensation payments, the Board of Directors offered all employees restricted stock as bonuses. As part of the annual review of Mr. Alekseev's performance during the 2017 fiscal year, on June 30, 2017, Mr. Alekseev received and we issued him 75,000 shares of our restricted common stock.
David W. Wesson,
Former V.P., Principal Financial and Accounting Officer
In setting fiscal year 2016 annual salary for Mr. Wesson in June 2015, the Compensation, Nominating and Corporate Governance Committee and Board of Directors reviewed and evaluated his individual performance, experience level and level of responsibility, among other factors. Based on the recommendation of Mr. Leonard, the Board of Directors decided to increase the salary for Mr. Wesson, reflected in the Summary Compensation Table above.
Mr. Wesson also participated in the Company's ICP, and had an annual cash target award (the "ICP Bonus Award") opportunity under the ICP of 75% of his base salary with a minimum of 50% and a maximum of 100%. The performance metrics for the ICP Bonus Award for the Mr. Wesson mirrored the metrics of our Chief Executive Officer as approved by our Compensation, Nominating, and Corporate Governance Committee in May 2015. In addition to the ICP Bonus Award, Mr. Wesson received an annual award of options to purchase shares of our common stock under our equity incentive plan then in effect in an amount equal to 25% of the number of dollars of the cash award.
Upon termination of the initial term of the employment agreement, on June 30, 2016, we entered into a consulting agreement with Mr. Wesson pursuant to the terms of which he will provide services to the Company as an independent consultant (See "Certain Relationships and Related Party Transactions").
Paolo G. Amoruso,
Former Vice President of Legal Affairs and Secretary
In setting the fiscal year 2016 annual salary for Mr. Amoruso in June 2015, the Compensation, Nominating and Corporate Governance Committee and the Board of Directors reviewed and evaluated his individual performance, experience level and level of responsibility, among other factors. Based on the recommendation of Mr. Leonard, the Board of Directors decided to increase the salary for Mr. Amoruso, as reflected in the Summary Compensation Table above.
Mr. Amoruso also participated in the Company's ICP, and had an annual cash target award (the "ICP Bonus Award") opportunity under the ICP of 75% of his base salary with a minimum of 50% and a maximum of 100%. The performance metrics for the ICP Bonus Award for Mr. Amoruso mirrored the metrics of our Chief Executive Officer as approved by our Compensation, Nominating, and Corporate Governance Committee in May 2015. In addition to the ICP Bonus Award, Mr. Amoruso received an annual award of options to purchase shares of our common stock under our equity incentive plan then in effect in an amount equal to 25% of the number of dollars of the cash award.
Upon termination of the initial term of the employment agreement, on June 30, 2016, we entered into a consulting agreement with Mr. Amoruso pursuant to the terms of which he will provide services to the Company as an independent consultant (See "Certain Relationships and Related Party Transactions").
Potential Payments upon Termination or Change-In-Control
The Employment Agreement with Mr. Leonard may be earlier terminated by us in the event of his death or inability to perform, or for cause, including material breach of his duties involving fraud. Mr. Leonard may terminate the Employment Agreement for good reason, including a material reduction in his reporting responsibilities or a change of more than 75 miles in the location of his principal place of employment. Either we or Mr. Leonard may terminate the employment agreement without cause or without good reason.
If we terminate Mr. Leonard without cause, or if Mr. Leonard terminates for good reason, or upon expiration of the employment term due to our notice to terminate, then Mr. Leonard will be entitled to receive one year's base salary, his bonus award at the target level for the performance period in effect on the employment termination date, and full vesting of all stock options and restricted stock awards held by him with a 12-month period to exercise (or the expiration of the award term, if that occurs sooner).
Retirement Plans, Perquisites and Other Personal Benefits
During the fiscal year ended June 30, 2016, no executive officer received any perquisites.
Plan-Based Awards
The following table lists awards of plan-based stock options for the 2017 fiscal year for our PEO and our two most highly compensated executive officers other than our principal executive officer.
AWARDS OF PLAN-BASED STOCK OPTIONS IN FISCAL YEAR—2017
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All Other
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Option
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Awards:
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Exercise or
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Award Date
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Number of
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Base Price
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Fair Value
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Securities
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of Option
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of
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Underlying
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Awards
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Stock &
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Action
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Award
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Threshold
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Target
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Maximum
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Options
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($/Share)
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Options
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Name
|
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Date
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Date
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($)
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($)
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($)
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(#)
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($)
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($)
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Raymond C. Leonard
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—
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—
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—
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—
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—
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—
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—
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—
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Jason Davis
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6/6/2017
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6/6/2017
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40,000
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1.64
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63,040
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Sergey Alekseev
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7/7/2016
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7/7/2016
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—
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—
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—
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20,000
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0.41
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3,394
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4/19/2017
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4/19/2017
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30,000
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1.70
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34,530
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The following table lists all equity awards outstanding on the last day of the fiscal year ended June 30, 2017 to each of the executives named in the Summary Compensation Table.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
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Option Awards
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Stock Awards
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Market
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Value of
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No. of
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Shares or
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No. of
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No. of
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Shares or
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Units of
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Securities
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Securities
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Units of
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Stock
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Underlying
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Underlying
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Stock
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That
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Unexercised
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Unexercised
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Option
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That Have
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Have
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Options
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Options
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Exercise
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Option
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Not
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Not
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Exercisable
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Unexercisable
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Price
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Expiration
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Vested
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Vested
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Name
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(#)
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(#)
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($/Share)
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Date
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(#)
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($)
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Raymond C. Leonard
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18,750
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—
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3.60
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6/25/2018
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—
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—
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Raymond C. Leonard
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50,000
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—
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3.25
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6/30/2019
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—
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—
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Raymond C. Leonard
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34,522
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—
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0.90
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6/30/2020
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—
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—
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Jason Davis
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—
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40,000
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1.64
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6/6/2022
|
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40,000
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60,400
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Sergey Alekseev
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30,000
|
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—
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1.70
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4/19/2022
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—
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—
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Director Compensation for Fiscal Year Ended June 30, 2017
The following table sets forth compensation amounts for our Directors for the fiscal year ended June 30, 2017.
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Fees
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Earned or
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Stock
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Option
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All Other
|
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|
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Paid in Cash
|
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Grants
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Awards
|
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Compensation
|
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Total
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Name
|
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($)
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|
($)
|
|
($)
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|
($)
|
|
($)
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Raymond C. Leonard(1)
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—
|
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—
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—
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—
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—
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William O. Strange(2)
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61,250
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—
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72,850
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—
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125,350
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Patricia Moller(2)
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47,250
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—
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122,065
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—
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162,565
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Fred S. Zeidman(2)
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57,750
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—
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72,850
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—
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122,350
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Ian Norbury(2)
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64,250
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—
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72,850
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—
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128,350
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Gary D. Elliston(2)
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49,000
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—
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72,850
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—
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114,850
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(1)
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We do not provide additional compensation to employees who also serve as directors for their service on the Board of Directors. All compensation paid to Mr. Leonard is reflected above separately in the Summary Compensation Table.
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(2)
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During the fiscal year ended June 30, 2017, each of Directors Norbury, Strange, Zeidman, Moller and Elliston received five-year options to purchase 50,000 shares of common stock, with 50% vesting on December 30, 2017 and 50% vesting on June 30, 2018. In addition, Ms. Moller received five-year options to purchase 50,000 shares of common stock, with 50% vesting on March 22, 2017 and 50% vesting on September 22, 2018
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Director Compensation Arrangements
The current compensation program for our Independent Directors consists of the following:
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·
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Cash compensation consisting of quarterly payments, as applicable, of: (i) $11,000 for services as a director, (ii) $5,000 for service as the Chairman of the Board or Chair of the Audit Committee, (iii) $2,500 for service as a member of the Audit Committee or Chair of the Government Relations Committee, (iv) $1,500 for service as a member of the Compensation, Nominating, and Corporate Governance Committee or Government Relations Committee, and (v) $3,000 for service as the Chair of the Compensation, Nominating, and Corporate Governance Committee.
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·
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An annual award, pursuant to our 2010 Equity Incentive Plan, of options to purchase shares of our common stock. The options are to be awarded on or about July 1st of each year, have an exercise price equal to the then current closing price of our common stock, vest 50% six months from the award date and vest the remaining 50% on the first anniversary of the award date. The options have a five-year term.
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Director Stock Option Awards
The Board of Directors awarded stock options to our directors on June 30, 2017, as reflected in the table below. The awards were made pursuant to our 2010 Equity Incentive Plan. The options have an exercise price of $1.51 per share, which was the closing price of our common stock on June 30, 2017, have a term of five years from the date of award, and
vest 50% on December 30, 2017 and 50% on June 30, 2018. The following table sets forth the number of shares of our common stock underlying the options awarded to each of our Independent Directors during the fiscal year 2017:
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Shares of Common
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Stock Underlying
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Options Awarded for
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Fiscal Year Ended
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Name of Director
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June 30, 2017
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Patricia Moller
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100,000
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Ian Norbury
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50,000
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William O. Strange
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50,000
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Fred S. Zeidman
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50,000
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Gary D. Elliston
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50,000
|
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information as of November 14, 2017 (the "Determination Date") with respect to the beneficial ownership of shares of common stock by (1) each person known to us that owns beneficially more than 5% of the outstanding shares of common stock, (2) each of our directors, (3) each of our executive officers, and (4) all of our executive officers and directors as a group. As of the Determination Date, we had 35,572,445 shares of common stock outstanding. Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. In computing the number of shares beneficially owned by a person or group and the percentage ownership of that person or group, shares of our common stock subject to options currently exercisable or exercisable within 60 days after the Determination Date are deemed outstanding, but are not deemed outstanding for purposes of computing the percentage ownership of any other person. The address of each director and officer named in the below table is c/o Hyperdynamics Corporation, 12012 Wickchester Lane, Suite 475 Houston, TX 77079.
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Name of Beneficial
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Number of Shares
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Percent
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Owner
|
|
of Common Stock
|
|
of
|
|
|
Beneficially Owned
|
|
Class
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BlackRock, Inc.(1)
|
|
1,844,576
|
(1)
|
5.2%
|
Pacific Drilling Operations Limited(2)
|
|
7,759,644
|
(2)
|
20%
|
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|
|
|
|
Directors and Executive Officers:
|
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|
|
|
Raymond C. Leonard
|
|
807,301
|
(3)
|
2.3%
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Ian Norbury
|
|
98,000
|
(4)
|
*
|
Patricia N. Moller
|
|
65,000
|
(5)
|
*
|
William O. Strange
|
|
157,808
|
(6)
|
*
|
Fred S. Zeidman
|
|
95,875
|
(7)
|
*
|
Gary D. Elliston
|
|
445,808
|
(8)
|
1.3%
|
Jason D. Davis
|
|
125,023
|
(9)
|
|
Directors and Executive Officers as a group (6 persons)
|
|
1,794,815
|
|
4.9%
|
|
(1)
|
|
This amount is based on ownership reported by BlackRock, Inc., as of December 31, 2016, in a Schedule 13G filed with the SEC. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
|
|
(2)
|
|
Consists of 4,677,450 shares of Common Stock and warrants to purchase 3,082,194 shares of Common Stock. The address of Pacific Drilling Operations Limited is 11700 Katy Freeway, Suite 175, Houston, TX 77079.
|
|
(3)
|
|
This amount includes: (a) 577,294 shares of Common Stock; (b) options to purchase 103,272 shares of Common Stock and (c) a warrant to purchase 126,735 shares of Common Stock.
|
|
(4)
|
|
This amount includes: 3,000 shares of Common Stock and options to purchase 95,000 shares of Common Stock.
|
|
(5)
|
|
This amount includes: no shares of Common Stock and options to purchase 65,000 shares of Common Stock.
|
|
(6)
|
|
This amount includes: 38,372 shares of Common Stock, warrants to purchase 25,686 shares of Common Stock and options to purchase 93,750 shares of Common Stock.
|
|
(7)
|
|
This amount includes: 1,375 shares of Common Stock and options to purchase 94,500 shares of Common Stock.
|
|
(8)
|
|
This amount includes: 390,122 shares of Common stock (all pledged as security), warrants to purchase 25,686 shares of Common stock and options to purchase 30,000 shares of Common Stock.
|
|
(9)
|
|
This amount includes: 73,655 shares of Common Stock and warrants to purchase 51,372 shares of Common Stock.
|
The Company has entered into a stock purchase agreement with CLNG to raise $6,000,000 through the sale of 40,000,000 shares of the Company’s common stock
.
If the stock purchase agreement with CLNG closes, of which there can be no assurance, CLNG or its affiliate will own approximately 53% of our then outstanding common stock and will have effective control of the Company.
There are no other existing arrangements known to the Company the operation of which may at a subsequent date result in a change in control of the Company.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Conflicts of Interest
We have a conflict of interest policy governing transactions involving related parties. In accordance with the policy, transactions involving related parties must be pre-approved by the Audit Committee, which is comprised of Independent Directors.
Related Persons Transactions
Paolo G. Amoruso and David W. Wesson continued, after year end, to provide services to the Company as independent consultants pursuant to Consulting Agreements entered into on June 30, 2016, extending through September 30, 2016. Under the Consulting Agreements, Mr. Amoruso received a consulting fee of $30,000 per month and Mr. Wesson received a consulting fee of $25,000 per month. After September 30, 2016, Mr. Wesson continued to provide services as a contractor, respectively, to the Company on an hourly basis pursuant to engagement agreements depending on the needs of the Company. Mr. Amoruso, through his law firm, entered into an engagement agreement with the Company on October 1, 2016 to provide outside counsel services depending on the needs of the Company.
On June 30, 2016, the Company also entered into Transition Agreements with Messrs. Amoruso and Wesson. Mr. Amoruso and Mr. Wesson agreed in the Transition Agreements that they are not entitled to any payments under their former employment agreements.
Pursuant to his Transition Agreement, Mr. Amoruso received payments of $150,000 on July 15, 2016, $50,000 on August 15, 2016, and $300,000 on September 15, 2016; provided, if the Company and Mr. Amoruso entered into a new employment agreement as Vice President, General Counsel and Corporate Secretary prior to September 15, 2016, Mr. Amoruso would not be entitled to the September 15, 2016 payment of $300,000. Mr. Amoruso and the Company did not enter into a new employment agreement. In addition, Mr. Amoruso received an award of non-qualified stock options to acquire 36,875 shares of the Company's common stock with an exercise price equal to the closing price on June 30, 2016.
Pursuant to his Transition Agreement, Mr. Wesson received payments of $150,000 on July 15, 2016, August 15, 2016, and September 15, 2016. In addition, Mr. Wesson received an award of non-qualified stock options to acquire 34,375 shares of the Company's common stock with an exercise price equal to the closing price on June 30, 2016.
In March 2017, Ray Leonard, our President and Chief Executive Officer and a director, purchased 50 Units in our Series A Offering, described above under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Activities" above, for a purchase price of $50,000.
In June 2017:
|
·
|
|
Gary D. Elliston, our director, purchased 34,247 Units in our Common Unit Offering, described above under "Management's Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources
—Financing Activities
" above, for a purchase price of $50,000.
|
|
·
|
|
Ray Leonard purchased 68,494 Units in our Common Unit Offering, for a purchase price of $100,000.
|
|
·
|
|
William O. Strange, our director, purchased 34,247 Units in our Common Unit Offering, for a purchase price of $50,000.
|
|
·
|
|
Jason D. Davis, our Interim Chief Financial Officer and Secretary, purchased 34,247 Units in our Common Unit Offering, for a purchase price of $50,000.
|
|
·
|
|
Pacific Drilling Operations Limited, the parent of Pacific Scirocco, and a beneficial owner of more than 5% of our outstanding shares of common stock, purchased 2,739,727 Units in the Common Unit Offering for a purchase price of $4,000,000.
|
|
·
|
|
Pacific Drilling Operations also received 567,859 shares of common stock in connection with the amendment to our Offshore Drilling Contract as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview" above.
|
In July 2017:
|
·
|
|
Ray Leonard purchased 51,370 Units in our Common Unit Offering, for a purchase price of $75,000.
|
|
·
|
|
Jason D. Davis purchased 34,248 Units in our Common Unit Offering, for a purchase price of $50,001.24.
|
In August 2017:
|
·
|
|
Ray Leonard purchased 34,247 Units in our Common Unit Offering, for a purchase price of $50,000.62.
|
|
·
|
|
Pacific Drilling Operations purchased 1,369,864 Units in our Common Unit Offering for a purchase price of $2,000,001.44.
|
Corporate Governance Guidelines
We have adopted a set of Corporate Governance Guidelines that provide the framework for the governance of the Company and reflect the Board of Directors' belief that sound corporate governance policies and practices provide an essential foundation for the Board in fulfilling its oversight responsibilities. Our Corporate Governance Guidelines are available at the Company's website at
www.hyperdynamics.com
.
Item 14.
Principal Accounting Fees and Services
Audit, Audit-related and Other Fees
Aggregate fees for professional services rendered to the Company by Hein & Associates LLP for the years ended June 30, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
2017
|
|
2016
|
Audit Fees
|
|
$
|
253,375
|
|
$
|
142,128
|
Audit‑related fees
|
|
|
—
|
|
|
—
|
Tax fees
|
|
|
—
|
|
|
—
|
All other fees
|
|
|
—
|
|
|
—
|
Total
|
|
$
|
253,375
|
|
$
|
142,128
|
Audit Committee Pre-Approval
Our Audit Committee Charter provides that either (i) the Audit Committee shall pre-approve all auditing and non-auditing services of the independent auditor, subject to de minimis exceptions for audit, review or attest services that are approved by the Audit Committee prior to completion of the audit; or (ii) the engagement of the independent auditor be entered into pursuant to pre-approved policies and procedures established by the Audit Committee, provided that the policies and procedures are detailed as to the particular services and the Audit Committee is informed of each service. The Audit Committee pre-approved 100% of the Company's certifying accountants' fees for audit services in fiscal years 2016 and 2017. Except as indicated above, there were no fees other than audit fees for years 2016 and 2017, and the auditors engaged performed all the services described above with their full-time permanent employees.
Part IV
Item 15. Exhibits, Financial Statement Schedules
The following exhibits are filed (or furnished) with this Report.
The agreements included (or incorporated by reference) as exhibits to this registration statement, may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:
|
|
|
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
|
|
|
|
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
|
|
|
|
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
|
|
|
|
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
|
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.
|
|
|
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)
|
|
|
|
4.6
|
|
Form of Common Stock Purchase Warrant issued to investors and to placement agent and its designees in the June 2017 Private Placement Offering of Common Stock Units (27)
|
|
|
|
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)
|
|
|
|
|
|
|
Exhibit
Number
|
|
Description
|
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)
|
|
|
|
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)
|
|
|
|
|
|
|
Exhibit
Number
|
|
Description
|
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 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
|
|
Farm-out 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)
|
|
|
|
|
|
|
Exhibit
Number
|
|
Description
|
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 (25)
|
|
|
|
10.44
|
|
Amendment No 1 to Offshore Drilling Contract No. PSO 2, April 15, 2017 (26)
|
|
|
|
10.45
|
|
Assignment and Assumption of Contract, April 15, 2017 (26)
|
|
|
|
10.46
|
|
Form of Subscription Agreement for the June 2017 Private Placement Offering of Common Stock Units (27)
|
|
|
|
10.47
|
|
Form of Registration Rights Agreement for the June 2017 Private Placement Offering of Common Stock Units (27)
|
10.48
|
|
Termination, Settlement and Release Agreement dated October 6, 2017, between SCS Corporation Ltd. and South Atlantic Petroleum Ltd. (28)
|
|
|
|
14.1
|
|
Code of Ethics (29)
|
|
|
|
21.1
|
*
|
Subsidiaries of the Registrant
|
|
|
|
23.1
|
*
|
Consent of Hein & Associates LLP
|
|
|
|
31.1
|
*
|
Certification of Chief 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 Chief 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 Chief 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)
|
|
|
|
99.1
|
|
Letter, dated July 12, 2017, from the Director General of ONAP of the Republic of Guinea granting an extension to the Company's appraisal rights in the Fatala-1 well (30)
|
|
|
|
101
|
*
|
Interactive Data Files of Financial Statements and Notes
|
|
|
|
Exhibit
Number
|
|
Description
|
|
|
|
101.ins
|
*
|
Instant Document
|
|
|
|
101.sch
|
*
|
XBRL Taxonomy Schema Document
|
|
|
|
101.cal
|
*
|
XBRL Taxonomy Calculation Linkbase Document
|
|
|
|
101.def
|
*
|
XBRL Taxonomy Definition Linkbase Document
|
|
|
|
101.lab
|
*
|
XBRL Taxonomy Label Linkbase Document
|
|
|
|
101.pre
|
*
|
XBRL Taxonomy Presentation Linkbase Document
|
*
Filed herewith
†
Management
contracts
or compensatory
plans
or
arrangements.
|
(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
10
-K filed on
September 13
, 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 August 17, 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
|
|
(25)
|
|
Incorporated by reference to
corresponding Exhibit to Form 10-Q filed May 24, 2017
|
|
(26)
|
|
Incorporated by reference to
corresponding Exhibit to
Form
8-K
filed
May 26, 2017
|
(27)
Incorporated by reference to corresponding Exhibit to Amendment No. 2 to Registration Statement (SEC File No. 333-217577) on Form S-1, filed June 7, 2017
(28)
Incorporated by reference to corresponding Exhibit to Form 8-K filed October 13, 2017
(29) Incorporated by reference to corresponding Exhibit to Form 8-K filed July 18, 2017.
(30) Incorporated by reference to corresponding Exhibit to Form 8-K filed July 18, 2017
FINANCIAL STATEMENT SCHEDULES
The financial statement schedules required by this item are set forth in the notes to our financial statements set forth on page F-1.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Princi
|
|
|
|
HYPERDYNAMICS CORPORATION
|
|
|
|
|
November 15, 2017
|
/s/ Ray Leonard
|
|
|
|
|
|
Ray Leonard
|
|
|
President, CEO and Director
Principal Executive Officer
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
|
|
November 15, 2017
|
/s/ Ian Norbury
|
|
|
|
|
|
Ian Norbury
|
|
|
Non-Executive Chairman and Director
|
|
|
|
|
November 15, 2017
|
/s/ Ray Leonard
|
|
|
|
|
|
Ray Leonard
|
|
|
President, CEO and Director
|
|
|
|
|
November 15, 2017
|
/s/ William Strange
|
|
|
|
|
|
William Strange
|
|
|
Director
|
|
|
|
|
November 15, 2017
|
/s/ Fred Zeidman
|
|
|
|
|
|
Fred Zeidman
|
|
|
Director
|
|
|
|
|
November 15, 2017
|
/s/ Gary Elliston
|
|
|
|
|
|
Gary Elliston
|
|
|
Director
|
|
|
|
|
November 15, 2017
|
/s/ Patricia Moller
|
|
|
|
|
|
Patricia Moller
|
|
|
Director
|
|
|
|
|
November 15, 2017
|
/s/ Jason Davis
|
|
|
|
|
|
Jason Davis
|
|
|
Interim Chief Financial Officer
Principal Financial and Accounting Officer
|
|
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