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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 0-16097
BAY RESOURCES LTD.
(Exact name of Registrant as specified in its charter)
Delaware 98-0079697
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(State or other jurisdiction of (IRS Employer
incorporation or organisation) Identification No.)
210 Kings Way, South Melbourne, Victoria, 3205, Australia
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 011 (613) 9234 1100
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange
on which registered
N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.0001 per share
----------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part 111 of this Form 10-K or any
amendment to this Form 10-K.
N/A
The aggregate market value based on the average bid and asked price on the
over-the-counter market of the Registrant's common stock, ("Common Stock") held
by non-affiliates of the Company was A$2,561,859 (US$1,357,785) as at September
7, 2001.
There were 6,347,089 outstanding shares of Common Stock as of June 30, 2001.
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TABLE OF CONTENTS PAGE
PART I
Item 1 Business 1
Item 2 Properties 4
Item 3 Legal Proceedings 4
Item 4 Submission of Matters to a Vote of Security Holders 4
PART II
Item 5 Market for the Registrant's Common Equity and 5
Related Stockholder Matters
Item 6 Selected Financial Data 6
Item 7 Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
Item 7A Not applicable 10
Item 8 Not applicable 10
Item 9 Not applicable 10
PART III
Item 10 Directors and Executive Officers of the Registrant 11
Item 11 Executive Compensation 12
Item 12 Security Ownership of Certain Beneficial Owners 13
and Management
Item 13 Certain Relationships and Related Transactions 14
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports 16
on Form 8-K
Signatures 17
Exhibit Index 19
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PART I
ITEM 1 BUSINESS
GENERAL
Bay Resources, Ltd., a Delaware corporation (the "Company") is currently looking
for opportunities in the mining and exploration industry in North America,
Canada and Latin America.
Over the past few years the Company's major asset has been its 24% holding in
the stock of SCNV Acquisition Corp ("SCNV"), a Delaware corporation engaged in
the research and development of high efficiency, low pollution or pollution-free
products and technologies in the energy conversion and conservation fields.
Pursuant to a Stock Purchase Agreement dated as of June 5, 1998, ("the Stock
Purchase Agreement") the Company acquired 499,701 shares in SCNV, representing
approximately 24% of the issued and outstanding share capital of SCNV, in return
for the whole of the share capital of Solmecs Corporation N.V., ("Solmecs"), a
Netherlands Antilles company which was formerly a wholly owned subsidiary of the
Company.
The Company has two wholly owned subsidiaries, Baynet International Pty Ltd and
Baynex.com.Pty Ltd, both of which are incorporated in Australia, and are
currently inactive.
In connection with the Company's future business activities, it is the policy of
the Company's Board of Directors that it will not engage in any activities the
scope and nature of which would subject the Company to registration and
reporting requirements of the Investment Company Act of 1940.
Unless otherwise indicated, all amounts in this Report are presented in
Australian Dollars ("A$"). For the convenience of the reader, the Australian
Dollar figures for the year ended June 30, 2001 have been translated into United
States Dollars ("US$) using the rate of exchange at June 30, 2001 of
A$1.00=US$0.508.
The executive offices of the Company are located at 210 Kings Way, South
Melbourne Victoria, 3205, Australia and the telephone number is +613 9234 1100
(facsimile +613 9234 1110).
The term "Company" as defined above and as used in this Report refers to Bay
Resources, Ltd. and its predecessor corporation, Bayou Oil and Gas, Inc ("Bayou
Oil") (described below), after giving effect to the reincorporation in the State
of Delaware (also described below).
HISTORY OF THE COMPANY
The Company's predecessor corporation, Bayou Oil, was incorporated under the
laws of Minnesota in 1973. From 1973 through to 1981 Bayou Oil was engaged in
the design and production of athletic equipment and it also owned rights to a
line of sportswear. These business lines were ultimately discontinued and in
March 1981 Bayou Oil entered into the oil and gas exploration business by
acquiring certain rights to oil and gas leases. These rights were not profitable
and, as a result, from 1981 through to May 1986 Bayou Oil did not engage in any
meaningful business activities or operations.
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On March 6, 1987 Bayou Oil was reincorporated in the State of Delaware, its name
was changed to Bayou International, Ltd, and the par value of the stock was
increased from US$0.01 to US$0.15 per share. In 1987 the Company acquired 54% of
the issued and outstanding capital stock of Solmecs, and in January 1992
acquired the remaining 46% of the issued and outstanding shares. At that time,
therefore, Solmecs became a wholly owned subsidiary of the Company.
On February 13, 1998, the Company incorporated a 100% owned subsidiary, Bayou
Australia Pty Ltd, a corporation incorporated under the laws of Australia.
On June 29, 1999 the Company undertook a reverse stock split on a 1:20 basis and
amended its Articles of Incorporation to amend the par value of its shares from
US$0.15 cents to US$0.0001 cents per share. On September 27, 1999 the Company
changed its name from Bayou International, Ltd to Baynet, Ltd.
In May 2000, the Company commenced work on the development of a B2B mining
portal however, little work has been undertaken in the last nine months and the
project is currently inactive.
On July 13, 2000 the Company changed the name of its subsidiary, Bayou Australia
Pty Ltd to Baynex.com.Pty Ltd. On August 21, 2000 the Company incorporated a new
wholly owned subsidiary, Baynet International Pty Ltd, a corporation
incorporated under the laws of Australia. In October 2000, the Company changed
its name to Bay Resources Ltd.
During fiscal 2001, the Company conducted a due diligence review of St. Andrew
Goldfields Ltd ("St. Andrew") with a view to taking a substantial investment in
St. Andrew. Following the conclusion of the review, the Company decided not to
proceed with the investment.
SCNV ACQUISITION CORPORATION ("SCNV")
SCNV is a Delaware corporation established in May, 1997 to select, develop and
commercially exploit proprietary technologies, in various stages of development,
invented primarily by scientists who have immigrated to Israel from and by
scientists and institutions in, Russia and other countries that formerly
comprised the Soviet Union. In furtherance of this goal, SCNV has acquired
Solmecs.
THE AGREEMENT WITH SCNV
The Stock Purchase Agreement dated June 5, 1998 between the Company, SCNV and
Solmecs required the Company to deliver to SCNV all of the issued share capital
in its wholly owned subsidiary Solmecs, in return for 499,701 shares in SCNV.
The consideration shares in SCNV represent 24% of SCNV's issued share capital as
at July 8, 1998. Simultaneously with the closing of the Solmecs Acquisition,
SCNV completed an initial public offering of common stock and warrants which
resulted in gross proceeds of approximately US$5,900,000. In connection with the
Solmecs Acquisition, Baynet converted all inter-company indebtedness from
Solmecs to Baynet (which aggregated approximately US$5,000,000) to a capital
contribution to Solmecs.
Baynet has been granted certain demand and "piggyback" registration rights with
respect to the SCNV Shares. Notwithstanding the foregoing, Baynet has agreed not
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to sell, grant options for sale of, assign or transfer any of the SCNV Shares,
for a period of 24 months from the closing of the Agreement which expired in
June 2000. Baynet has requested SCNV to take the necessary steps to register
Baynet's shareholding in SCNV.
SOLMECS CORPORATION N.V. ("SOLMECS)
Solmecs was established in 1980 to engage in the research, development and
commercialisation of products and technologies in the energy conversion field.
The technology, known as LMMHD Energy Conversion Technology (ECT) is in relation
to more efficient and less capital-intensive methods of power generation. If
commercially successful, the technology will enable more efficient conversion of
generator fuel to electrical energy by bypassing the interim conversion to
mechanical energy to drive a rotor. The process requires lower capital costs and
its higher efficiency will create less environmental pollution than conventional
electrical generation processes.
The specific form of LMMHD-ECT in which Solmecs is engaged is referred to as
OMACON (Optimised Magnetohydrodynamic Conversion). The patented technology for
the OMACON generator was originally developed by Professor Herman Branover
("Branover"), an astrophysicist who is the head of Ben-Gurion University's
centre for Magnetohydrodynamic (MHD) studies in Israel and a former Professor at
the Academy of Science in Riga, Latvia.
SEARCH FOR NEW BUSINESS OPPORTUNITIES
As a result of the sale of SCNV, the Company's only significant asset is its
investment in SCNV. The Company has no further operating business. The Board of
Directors is exploring opportunities to effect an acquisition whether by merger,
exchange or issuance of capital stock, acquisition of assets, or other similar
business combination (a "Business Combination"), which the Board believes may
have significant growth potential. As the Company competes for desirable
acquisition candidates with a large number of entities with significantly
greater financial resources and technical expertise than the Company, the
Company cannot be assured that it will succeed in its efforts to conclude a
Business Combination. If a Business Combination is effected, the success of the
Company will depend to a great extent on the operations, financial condition,
management and prospects of the entity, if any, with which the Company may merge
or which it may acquire. As the Company has no arrangement, agreement or
understanding with a particular business entity, the specific risks presented by
such business cannot be described or assessed at this time. Such business may
involve an unproven product, technology or marketing strategy, the ultimate
success of which cannot be assured and such business may be in competition with
larger, more established firms over which it will have no competitive advantage.
The Company's new business opportunity may be highly illiquid and could result
in a total loss to the Company if the opportunity is unsuccessful. Given the
Company's limited resources, it is expected that the Company may not be in a
position to diversify this risk by acquiring an interest in more than one
business.
Depending on the size and nature of the entity, if any, which may be acquired,
the Company may utilize cash, equity, debt or a combination thereof to increase
the amount of capital available for a Business Combination or to finance the
operation of the acquired business. Although the Company believes additional
capital may be required, the necessity for and the amount and nature of any
future borrowings or other financings by the Company will depend on numerous
considerations including the Company's capital requirements, its perceived
ability to service such debt and
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prevailing conditions in the financial markets and the general economy. No
assurance can be made that additional capital will be available on terms
acceptable to the Company. If the Company issues additional equity to raise
capital or to acquire a new business, the percentage of ownership of the current
shareholders could be reduced and an "ownership change" could occur for tax
purposes. An "ownership change" could adversely affect the Company's ability to
use its net operating loss carryforwards.
Although the Company is subject to regulation under the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended, management
believes the Company is not subject to regulation under the Investment Company
Act of 1940, as amended (the "Investment Company Act") insofar as the Company is
not engaged in the business of investing or trading in securities. In the event
the Company engages in business combinations which result in the Company holding
passive investment interests in a number of entities or in the event the Company
is unable to consummate a Business Combination for a substantial period of time,
the Company could be subject to regulation under the Investment Company Act. In
such event, the Company would be required to register as an investment company,
and could incur significant registration and compliance costs and would be
subject to extensive regulation
EMPLOYEES
The services of the Company's Chief Executive Officer and Chief Financial
Officer as well as clerical employees are provided to the Company on a part-time
basis pursuant to a Service Agreement dated November 25, 1988 (the "Service
Agreement") by and between the Company and A.W.I. Administration Services Pty
Limited ("AWI Admin"). AWI Admin also provides office facilities, equipment,
administration and clerical services to the Company pursuant to the Service
Agreement. The Service Agreement may be terminated by written notice from the
parties thereto.
Further detail relating to additional terms of the Service Agreement is included
in "Item 2- Properties", "Item 13- Certain Relationships and Related
Transactions" and "Item 11- Executive Compensation".
ITEM 2 PROPERTIES
The Company occupies certain executive and office facilities in Melbourne,
Victoria, Australia which are provided to it pursuant to the Service Agreement
with AWI Admin. See "Item 1- Business- Employees" and "Item 13- Certain
Relationships and Related Transactions".
The Company believes that its administrative space is adequate for its current
needs.
ITEM 3 LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party, or to
which any of its property is the subject, which the Company considers material.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is traded in the over-the-counter market. The trading for the
Common Stock has been sporadic and the market for the Common Stock can not be
classified as an established trading market.
The following table sets out the high and low bid information for the Common
Stock as reported by the National Quotation Service Bureau for each
period/quarter indicated ( in US$):
CALENDAR PERIOD HIGH BID (1) LOW BID (1)
--------------- --------- --------
1999
First Quarter 0.125 0.063
Second Quarter 0.125 0.063
Third Quarter 1.250 0.220
Fourth Quarter 1.000 1.000
2000
First Quarter -- --
Second Quarter 4.000 1.010
Third Quarter 5.000 4.000
Fourth Quarter 5.000 4.000
2001
First Quarter 5.000 4.000
Second Quarter 4.500 1.060
(1) The quotations set out herein reflect interdealer prices without retail
mark-up, mark-down or commission and may not necessarily reflect actual
transactions.
SHAREHOLDERS
As of August 31, 2001 the Company had approximately 300 shareholders of record.
DIVIDEND POLICY
It is the present policy of the Board of Directors to retain earnings for use in
the Company's business. The Company has not declared any cash dividends to the
holders of its Common Stock and does not intend to declare such dividends in the
foreseeable future
TRANSFER AGENT
The United States Transfer Agent and Registrar of the Company is The Bank of New
York.
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the Company presented below for
each of the years in the five-year period ended 30 June, 2001, and the balance
sheet data at June 30, 1997, 1998, 1999, 2000 and 2001 have been derived from
the consolidated financial statements of the Company, which financial statements
have been examined by David T. Thomson PC, independent accountants, in respect
of the years June 30, 1997, 1998, 1999, 2000 and 2001. The selected financial
data should be read in conjunction with the consolidated financial statements of
the Company for each of the years in the three-year period ended June 30, 2001,
and Notes thereto, which are included elsewhere in this Annual Report and with
"Item 7- Management's Discussion and Analysis of Financial Condition and Results
of Operations".
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CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year ended June 30
CONV.
TRANSL.
1997 1998 1999 2000 2001 2000
A$ A$ A$ A$ A$ US$
Revenues -- -- -- -- -- --
------------------------------------------------------------------------
Costs and expenses (380) (544) (488) (393) (407) (207)
------------------------------------------------------------------------
Loss from operations (380) (544) (488) (393) (407) (207)
Other income (loss) 344 7,280 -- -- (4,516) (2,292)
------------------------------------------------------------------------
Profit (loss) before income
taxes (36) 6,736 (488) (393) (4,923) (2,499)
Provision for income taxes -- -- -- -- -- --
------------------------------------------------------------------------
Net profit (loss) from
Continuing Operations (36) 6,736 (488) (393) (4,923) (2,499)
Net loss from
Discontinued Operations (1,224) (952) -- -- -- --
------------------------------------------------------------------------
Net profit (loss) (1,260) 5,784 (488) (393) (4,923) (2,499)
------------------------------------------------------------------------
A$ A$ A$ A$ A$ US$
Net profit (loss) per share
On continuing operations -- 2.87 (0.21) (0.07) (.78) (.40)
On discontinued
operations (0.03) (0.41) -- -- -- --
------------------------------------------------------------------------
(0.03) 2.46 (0.21) (0.07) (.78) (.40)
------------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
Weighted average number
of shares outstanding 46,942 2,347 2,347 5,680 6,347 6,347
------------------------------------------------------------------------
A$ A$ A$ A$ A$ US$
Total assets 1 4,518 663 51 1 1
Total liabilities 3,507 3,814 4,302 499 905 459
------------------------------------------------------------------------
Stockholders' equity
(deficiency) (3,506) 704 (3,639) (448) (904) (458)
------------------------------------------------------------------------
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FOREIGN CURRENCY TRANSLATION
The majority of the Company's administrative operations are in Australia and, as
a result, its accounts are maintained in Australian dollars. The income and
expenses of its foreign operations are translated into Australian dollars at the
average exchange rate prevailing during the period. Assets and liabilities of
the foreign operations are translated into Australian dollars at the period-end
exchange rate. The following table shows the average rates of exchange of the
Australian dollar compared with the US dollar during the periods indicated.
YEAR ENDED
JUNE 30
1997 A$1.00 = US$0.746
1998 A$1.00 = US$0.620
1999 A$1.00 = US$0.661
2000 A$1.00 = US$0.602
2001 A$1.00 = US$0.508
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 2001 VERSUS YEAR ENDED JUNE 30, 2000
Total costs and expenses have increased from A$393,000 for the year ended June
30, 2000 to A$407,000 (US$207,000) for the year ended June 30, 2001. The
increase was a net result of:
i) A decrease in interest expense from A$80,000 to A$69,000(US$35,000) as
a result of the conversion of the debt owing to Chevas Pty Ltd, a
company associated with Mr. J.I. Gutnick, President of Bay Resources
Ltd, into equity in the Company in the prior fiscal year and the full
effect of lower debt levels has been reflected in the interest cost in
the current fiscal year.
ii) A decrease in legal, accounting and professional costs from A$69,000 to
A$43,000 (US$22,000). In the prior fiscal year, substantial work was
undertaken in regard to the Company's proposed new B2B internet
activities for which there was no comparable work in the current fiscal
year.
iii) An increase in administrative costs from A$244,000 to A$295,000
(US$150,000) as a result of the work undertaken on a proposed
investment in St Andrew Goldfields Ltd whereas in the prior year, the
costs related to the proposed new business activity of the Company in
the area of B2B internet.
Accordingly, the loss from continued operations increased from A$393,000 for the
year ended June 30, 2000 to A$407,000 (US$207,000) for the year ended June 30,
2001.
During the year ended June 30, 2001 the Company recognised the permanent decline
of its investment in SCNV and recorded a loss of A$4,516,000.
The Company was not required to provide for income tax during the years ended
June 30, 2001 or 2000.
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The net loss amounted to A$4,923,000 (US$2,499,000) for the year ended June 30,
2001 compared to a net loss of A$393,000 for the year ended June 30, 2000. The
net loss per common equivalent share was A$.78 (US$.40) compared with a net loss
with a common equivalent share of A$0.07 in the prior year.
YEAR ENDED JUNE 30, 2000 VERSUS YEAR ENDED JUNE 30, 1999
Total costs and expenses have decreased from A$488,000 for the year ended June
30, 1999 to A$393,000 for the year ended June 30, 2000. The decrease was a net
result of:
i) A decrease in interest expense from A$321,000 to A$80,000 as a result
of the conversion of the debt owing to Chevas Pty Ltd, a company
associated with Mr. J.I. Gutnick, President of Bay Resources Ltd, into
equity in the Company.
ii) An increase in legal, accounting and professional costs from A$34,000
to A$69,000 as a result of work undertaken in regard to the Company's
proposed new B2B internet activities.
iii) An increase in administrative costs from A$133,000 to A$244,000 as a
result of the work undertaken in regard to the proposed new business
activity of the Company in the area of B2B internet.
Accordingly, the loss from operations decreased from A$488,000 for the year
ended June 30, 1998 to A$393,000 for the year ended June 30, 2000.
The Company was not required to provide for income tax during the years ended
June 30, 2000 or 1999.
The net loss amounted to A$393,000 for the year ended June 30, 2000 compared to
a net loss of A$488,000 for the year ended June 30, 1999. The net loss per
common equivalent share was A$0.07 compared with a net loss with a common
equivalent share of A$0.21 in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001 the Company had the short-term obligations of A$264,000
(US$134,000) consisting of accounts payable and accrued expenses.
The Company also had long-term obligations of A$641,000 (US$325,000) at June 30,
2001 which were amounts owed to Chevas Pty Ltd of which Mr. J.I. Gutnick,
President of the Company, is a Director.
The Company anticipates that it will be able to defer repayment of certain of
its short-term loan commitments until it has sufficient liquidities to enable
these loans to be repaid or other arrangements can be put in place for repayment
of these debts. Other than the arrangements noted above, the Company has not
confirmed any other arrangements for ongoing funding. As a result, the Company
may be required to raise funds by additional debt or equity offerings and or
increased revenues for operations in order to meet its cash flow requirements
during the forthcoming year of which there can be no assurance.
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CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
Certain information contained in this Form 10-K are forward-looking statements
within the meaning of the Private Securities Litigation Act of 1995 ("the Act"),
which became law in December, 1995. In order to obtain the benefits of the "safe
harbor" provisions of the Act for any such forward-looking statements, the
Company wishes to caution investors and prospective investors about significant
factors which, among others, have in some cases affected the Company's actual
results and are in the future likely to affect the Company's actual results and
cause them to differ materially from those expressed in any such forward-looking
statements. This Form 10-K contains forward-looking statements relating to
future financial results. Actual results may differ as a result of factors over
which the Company has no control, including the strength of domestic and foreign
economies, slower than anticipated completion of research and development
projects, and movements in foreign exchange rates.
IMPACT OF AUSTRALIAN TAX LAW
Australian resident corporations are subject to Australian income tax on their
non-exempt worldwide assessable income (which includes capital gains), less
allowable deductions, at the rate of 36%. Foreign tax credits are allowed where
tax has been paid on foreign source income, provided the tax credit does not
exceed 36% of the foreign source income.
Under the U.S./Australia tax treaty, a U.S. resident corporation such as the
Company is subject to Australian income tax on net profits attributable to the
carrying on of a business in Australia through a "permanent establishment" in
Australia. A "permanent establishment" is a fixed place of business through
which the business of an enterprise is carried on. The treaty limits the
Australian tax on interest and royalties paid by an Australian business to a
U.S. resident to 10% of the gross interest or royalty income unless it relates
to a permanent establishment. Although the Company considers that it does not
have a permanent establishment in Australia, it may be deemed to have such an
establishment due to the location of its administrative offices in Melbourne. In
addition the Company may receive interest or dividends from time to time.
IMPACT OF AUSTRALIAN GOVERNMENTAL, ECONOMIC, MONETARY OR FISCAL POLICIES
Although Australian taxpayers are subject to substantial regulation, the Company
believes that its operations are not materially impacted by such regulations nor
is it subject to any broader regulations or governmental policies than most
Australian taxpayers.
ITEM 7A. NOT APPLICABLE
ITEM 8. SEE ITEM 14
ITEM 9. NOT APPLICABLE
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets out certain information in relation to each person who
held a position of Director and/or executive officer of the Company during the
year ended June 30, 2001.
NAME AGE POSITION(S) HELD
Joseph Gutnick 49 Chairman of the Board
President, Chief Executive
Officer and Director.
David Tyrwhitt 63 Director.
Peter Lee 44 Director, Secretary, Chief
Financial Officer and Chief
Accounting Officer.
Marcus Solomon 38 Director
David Prentice 37 Director
(Appointed March 2001)
Dov Farkas 26 Director
(Appointed March 2001)
Ian Currie 40 Director
(resigned March 2001)
JOSEPH GUTNICK
Mr Gutnick has been the Chairman of the Board, President and Chief Executive
Officer of the Company since March, 1988. Mr Gutnick has been a Director of
numerous public listed companies in Australia specialising in the mining sector
since 1980, including Centaur Mining and Exploration Limited ("Centaur"), (whose
American Depositary Receipts are publicly traded in the United States on NASDAQ
pursuant to a sponsored ADR program), and Johnson's Well Mining N.L. ("Johnson's
Well") (whose ordinary shares, together with Centaur's, are publicly traded in
the U.S. in the over-the-counter market). Mr. Gutnick is Executive Chairman of
Tahera Corporation, a company that is listed on Toronto Stock Exchange. Mr.
Gutnick was appointed a Director of the World Gold Council in November 1999. He
is a Fellow of the Australasian Institute of Mining & Metallurgy and the
Australian Institute of Management.
DAVID TYRWHITT
Dr Tyrwhitt was appointed a Director of the Company in November, 1996. He is a
geologist, holding a Bachelor of Science and Phd degrees and has 39 years
experience in mineral exploration and management development and operation of
gold mines in Australia. Dr Tyrwhitt is a Director of several public listed
companies in Australia in the mining industry, including Centaur Mining and
Exploration Limited ("Centaur"), (whose American Depositary Receipts are
publicly traded in the United States on NASDAQ pursuant to a sponsored ADR
program), and Johnson's Well
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Mining N.L. ("Johnson's Well") (whose ordinary shares, together with Centaur's,
are publicly traded in the U.S. in the over-the-counter market).
PETER LEE
Mr Lee has been Chief Financial Officer and Chief Accounting Officer since
August, 1989 and was appointed a Director of the Company in February, 1996. Mr
Lee is a Member of the Institute of Chartered Accountants in Australia, a Fellow
of the Chartered Secretaries Australia Ltd., and holds a Bachelor of Business
(Accounting) from Royal Melbourne Institute of Technology. He has over 20 years
commercial experience and is currently General Manager Corporate and Company
Secretary of several listed public companies in Australia , including Centaur
Mining and Exploration Limited ("Centaur"), (whose American Depositary Receipts
are publicly traded in the United States on NASDAQ pursuant to a sponsored ADR
program), and Johnson's Well Mining N.L. ("Johnson's Well") (whose ordinary
shares, together with Centaur's, are publicly traded in the U.S. in the
over-the-counter market).
MARCUS SOLOMON
Mr Solomon is a partner of the legal firm Gadens Lawyers in Perth, Western
Australia where he was appointed partner in 1994 and currently heads the
National Gadens Lawyers Native Title Group. He holds a Bachelor of Laws with
First Class Honors from the University of Western Australia which includes an
Honor dissertation on fiduciary obligations in Mining Joint Ventures. Mr.
Solomon has extensive experience in resources law, property matters, general
commercial litigation and in particular, is recognized nationally as a leader in
Native Title law particularly as it affects resource projects.
DAVID PRENTICE
Mr. Prentice has over 13 years experience in the mining industry in both land
management and business development. He has extensive experience in managing the
commercial aspects of publicly listed exploration and mining companies,
including business and project analysis support (playing an active role in the
growth of companies by assisting with the identification and analysis of
potential acquisition opportunities), negotiating and managing land access and
Joint Venture agreements and managing legislative compliance (including Native
Title, Environmental and Mining legislation across Australia).
DOV FARKAS
Mr. Farkas has been responsible since January 2000 for the investor relations
activities of six public listed companies in the resources and biotechnology
fields, namely Astro Mining N.L, Autogen Limited, Bay Resources Ltd, Gutnick
Resources N.L, Johnson's Well Mining N.L and Quantum Resources Limited. Prior to
that time, Mr Farkas was employed by the Swiss commodities trading group
Glencore International AG, in the global coal trading division based in Sydney.
During this four-year period at Glencore, the coal trading division grew to
become the world's largest coal trading company.
ITEM 11. EXECUTIVE COMPENSATION.
No officer individually and no group of officers and Directors received any
compensation for their services on behalf of, or rendered to, the Company for
the fiscal year ended June 30, 2001, other than as noted below.
In accordance with the Service Agreement, the Company paid AWI Admin A$267,000
for the fiscal year ended June 30, 2001, for services rendered and facilities
provided
12
15
by AWI Admin to the Company, including the services of the Company's Chief
Executive Officer and Chief Financial Officer.
For additional information about the Service Agreement and the Consulting
Agreement see "Item 1- Business- Employees" and "Item 13- Certain Relationships
and Related Transactions".
The Board of Directors has established a policy that the Company will not
guarantee loans to, or accept notes from, officers, Directors or employees of
the Company or any members of their families unless such loans or notes are
approved by a majority of the disinterested non-employee Directors of the
Company, who shall determine that such loans may reasonably be expected to
benefit the Company.
COMPENSATION PURSUANT TO PLANS.
The Company does not directly employ any employees nor does it have any pension
or profit sharing plans and no contributions were made to any employee benefit
or health plan during the year ended June 30, 2001.
COMPENSATION TO DIRECTORS
It is the policy of the Company to reimburse Directors for reasonable travel and
lodging expenses incurred in attending Board of Directors meetings. In the year
ended June 30, 2001 the Directors were paid A$76,283 for services as a Director
of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets out, to the best of the Company's knowledge, the
numbers of shares in the Company beneficially owned as at June 30, 2001 by:
(i) each of the present Executive Officers and Directors of the Company,
(ii) each person (including any "group" as that term is defined in Section
13(d)(3) of the Securities Exchange Act) who beneficially owns more
than 5% of the Common Stock, and
(iii) all present Directors and officers of the Company as a group.
NAME NUMBER OF SHARES OWNED PERCENTAGE OF
SHARES (1)
Edensor Nominees
Pty Ltd 5,002,310 78.8%
Joseph Gutnick 5,053,960 (2)(3) 79.6%
(4)(6)(7)
Stera Gutnick 5,028,310 (4)(7) 79.2%
David Tyrwhitt -- (2) --
Peter Lee -- (2) --
13
16
Marcus Solomon -- (5) --
David Prentice -- (2) --
Dov Farkas -- (2) --
-----------------------------------------
All officers and Directors
As a group 5,053,960 79.6%
-----------------------------------------
NOTES RELATING TO ITEM 12:
(1) Based on 6,347,089 shares outstanding
(2) Does not include:
(i) 47,082 shares of Common Stock beneficially owned by Autogen,
or
(ii) 8,949 shares of Common Stock beneficially owned Gutnick
Resources NL,
or
(iii) 27,079 shares of Common Stock beneficially owned by Australian
Gold Resources Limited,
or
(iv) 1,918 shares of Common Stock beneficially owned by Quantum
Resources Limited,
or
(v) 229,489 shares of Common Stock beneficially owned by AWI
Admin,
of which companies Messrs Gutnick, Lee, Prentice, Farkas and Dr.
Tyrwhitt are officers and/or Directors, as they disclaim beneficial
ownership of those shares.
(3) Does not include 2,500 shares of Common Stock beneficially owned by the
Company.
(4) Includes 5,002,310 shares of Common Stock owned by Edensor Nominees Pty
Ltd and 26,000 shares of Common Stock owned by Pearlway Investments
Proprietary Limited, of both of which Mr Joseph Gutnick, Stera M.
Gutnick and members of their family are officers, Directors and
principal stockholders.
(5) Does not include 8,949 shares of Common Stock beneficially owned by GKR
a company of which Mr Solomon is Director however he disclaims
beneficial ownership to those shares.
(6) Joseph Gutnick is the beneficial owner of 25,650 shares of Common
Stock.
(7) Joseph Gutnick and Stera Gutnick are husband and wife.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with the Service Agreement AWI Admin provides the Company with the
services of the Company's Chief Executive Officer, Chief Financial Officer and
clerical employees, as well as office facilities, equipment, administrative and
clerical services. As compensation therefore, the Company pays AWI Admin for the
actual
14
17
costs of such facilities plus a maximum service fee of 15%. The Company paid AWI
Admin A$267,000 in respect of the Service Agreement for the fiscal year ended
June 30, 2001, A$205,029 for the fiscal year ended June 30,2000 and A$74,852 for
the fiscal year ended June 30,1999. The Service Agreement may be terminated by
written notice by either party.
Chevas Pty Ltd, a company associated with the President of the Company, Joseph
Gutnick, has provided loan funds to enable the Company to meet its liabilities
and has paid certain expenses on behalf of the Company. At June 30, 1999 the
Company had a liability to Chevas of A$4,006,027. During the 2000 fiscal year,
Chevas paid expenses totalling A$76,548 on behalf of the Company, loaned a
further A$212,000 to the Company and charged A$56,410 in interest to the Company
on the loan account. During the 2000 fiscal year, the Company issued 4,000,000
shares to Edensor Nominees Pty Ltd, a company associated with the President of
the Company, Joseph Gutnick, in lieu of repayment of the liability owing to
Chevas which amounted to A$4,076,000 at the time of the issue. During the 2001
fiscal year, chevas loaned a further A$378,630 and charged A$48,796 in interest
to the Company on the loan account. At June 30,2001, the Company owed Chevas
A$641,572.
Chevas charges interest to the Company on outstanding balances of the loan
account at the ANZ Banking Group Limited reference rate for overdrafts over
A$100,000 plus 1%. In accordance with this formula, the actual interest rate
charged during the 2001 fiscal year varied between 8.25% and 9.95%.
On January 20, 2000, the Company issued 8,000,000 options over fully paid shares
in the capital of the Company at an issue price of US$0.01 per option and an
exercise price of US$1.00 per option to Edensor. The options have a term of 5
years with a non-exercise period of 2 years subject to a further board approval
for Edensor Nominees Pty Ltd, either directly of indirectly, to exercise options
in the case of a further requirement of the Company to raise working capital. On
March 22, 2001, the Directors agreed to extend the term of the options from 5
years to 10 years.
TRANSACTIONS WITH MANAGEMENT.
The Company has a policy that it will not enter into any transaction with an
officer, Director or affiliate of the Company or any member of their families
unless the transaction is approved by a majority of the disinterested Directors
of the Company and the disinterested majority determines that the terms of the
transaction are no less favourable to the Company than the terms available from
non-affiliated third parties or are otherwise deemed to be fair to the Company
at the time authorised.
15
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.
(i) The Consolidated Financial Statements and Notes thereto listed
on the Index at page 1 of this Annual Report on Form 10-K are
filed as a part of this Annual Report.
(ii) The Financial Data schedule as required by Item 601(c) of
Regulation S-K is filed as part of this Annual Report.
(iii) The consolidated balance sheet of SCNV Acquisition Corp. and
subsidiaries as at June 30, 2001 and the related consolidated
statements of operations, cash flows and changes in
shareholders' equity for the fiscal year ended June 30, 2001
and the auditor's report thereon contained in SCNV's Annual
Report on Form 10KSB for its fiscal year ended June 30, 2001
(File No. 0-29624) are incorporated herein by reference (with
the exception of the specific information and report referred
to, no part of the SCNV Annual Report on Form 10-K is deemed a
part of this Report).
(b) EXHIBITS
The Exhibits to this Annual Report on Form 10-K are listed in the
Exhibit Index at page 19 of this Annual Report.
16
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorised.
BAY RESOURCES LTD.
(Registrant)
By: /s/ Peter J Lee
-------------------------------
Peter J Lee
Director, Secretary,
Chief Financial Officer
and Principal Financial
and Accounting Officer
Dated: September 24, 2001
17
20
FORM 10-K SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/ Joseph Gutnick
1. ................................. Chairman of the Board,
Joseph Gutnick President and Chief Executive
Officer (Principal Executive
Officer), and Director. September 24, 2001
/s/ David Tyrwhitt
2. ................................. Director. September 24, 2001
David Tyrwhitt
/s/ Marcus Solomon
3. ................................. Director. September 24, 2001
Marcus Solomon
/s/ Peter Lee
4. .................................. Director, Secretary,
Peter Lee Chief Financial Officer and
Principal Financial and
Accounting Officer. September 24, 2001
/s/ David Prentice
5. .................................. Director. September 24, 2001
David Prentice
/s/ Dov Farkas
6. ................................. Director September 24, 2001
Dov Farkas
18
21
EXHIBIT INDEX
INCORPORATED BY EXHIBIT
REFERENCE TO: NO EXHIBIT
(1) Exhibit 3.1 3.1 Certificate of Incorporation of the
Registrant.
(1) Exhibit 3.2 3.2 By-laws of the Registrant.
(2) Exhibit B 3.3 Amendment to Certificate of
Incorporation
(5) Exhibit A 3.4 Amendment to Certificate of
Incorporation
3.5 Amendment to Certificate of
Incorporation dated October 17,
2000.
(6) Exhibit 3.4
(3) Exhibit 10.5 10.4 Service Agreement dated November 25,
1988, by and between the Registrant
and AWI Administration Services Pty
Limited.
(4) Exhibit 10.5 10.5 Form of Stock Purchase Agreement
among Baynet, Solmecs and SCNV.
Exhibit 21 * List of Subsidiaries as at June 30,
2001.
*Filed herewith
FINANCIAL STATEMENTS FOR THE YEARS
ENDED JUNE 30, 2000 AND 2001.
Bay Resources, Ltd
Audited Consolidated
Financial Statements for
the Company and its
Subsidiaries for the year
ended June 30, 2000 and
audited Financial
Statements for the Company
for the year ended June 30,
2001.
(1) Registrant's Registration Statement on Form S-1 (File No. 33-14784).
(2) [Registrant's Definitive Information Statement dated June 5, 1998].
(3) [Registrant's Annual Report on Form 10-K for the fiscal year ended June
27, 1989.]
(4) [Registrant's Form 8-K filed on July 21, 1998]
(5) [Registrant's Definitive Information Statement dated August 11, 1999]
(6) [Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 2000]
19
22
BAY RESOURCES LTD, AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Consolidated Financial Statements
June 30, 2001 and 2000
(with Independent Auditor's Report)
21
23
CONTENTS
Page
Report of Independent Auditor 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-11
24
DAVID T.
THOMSON P.C. CERTIFIED PUBLIC ACCOUNTANT
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Bay Resources, Ltd
I have audited the accompanying consolidated balance sheets of Bay Resources,
Ltd (formerly Baynet Ltd and Bayou International, Ltd) (a Delaware corporation)
and Subsidiaries at June 30, 2001 and 2000 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three year period ended June 30, 2001. These consolidated financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these consolidated financial statements based on my
audits.
I conducted my audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that I plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audits provide a reasonable basis for
my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bay Resources, Ltd.
and Subsidiaries at June 30, 2001 and 2000 and the results of its operations and
its cash flows for each of three years in the period ended June 30, 2001, in
conformity with generally accepted accounting principles in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company and its subsidiaries will continue as going concerns. As
discussed in Note (6) to the consolidated financial statements, the Company and
its subsidiaries have suffered recurring losses from operations, have no net
working capital and have stockholders' deficits. These factors raise substantial
doubt as to the consolidated entity's ability to continue as a going concern.
Management's plans in regard to these matters are discussed in Note (6). The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ DAVID T. THOMSON P.C.
-------------------------
DAVID T. THOMSON P.C.
Salt Lake City, Utah
September 24, 2001
P.O. Box 571605, Murry, Utah 84157 (801) 966 9481
1
25
BAY RESOURCES, LTD. AND SUBSIDARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Consolidated Balance Sheets
June 30, 2001 and 2000
Australian Dollars Convenience
Translation
A$000's A$000's US$000's
2000 2001 2001
---- ---- ----
ASSETS
Current Assets:
Cash $2 $1 $1
---------------------------------------------
Total Current Assets 2 1 1
---------------------------------------------
Other Assets:
Investments 49 - -
Organisational Costs, net - - -
---------------------------------------------
Total Other Assets 49 - -
---------------------------------------------
Total Assets $51 $1 $1
=============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses $285 $264 $134
---------------------------------------------
Total Current Liabilities 285 264 134
Long-Term Debt 214 641 325
---------------------------------------------
Total Liabilities 499 905 459
---------------------------------------------
Stockholders' Equity (Deficit):
Common stock: $.0001 par value
25,000,000 shares authorised,
6,347,089 shares issued and outstanding 1 1 1
Less Treasury Stock, at Cost, 2,500 shares (20) (20) (10)
Additional Paid-in-Capital 25,175 25,175 12,778
Accumulated Other Comprehensive Loss (6,456) (1,989) (1,009)
Retained Deficits (19,148) (24,071) (12,218)
---------------------------------------------
Total Stockholders' Deficit (448) (904) (458)
---------------------------------------------
Total Liabilities and Stockholders' Deficit $51 $1 $1
=============================================
The accompanying notes are an integral part of these consolidated financial
statements.
2
26
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Consolidated Statements of Operations
For the years ended June 30, 2001, 2000 and 1999
Convenience
Translation
A$000' A$000' A$000' US$000's
1999 2000 2001 2001
---- ---- ---- ----
Revenues $- $- $- $-
------------------------------------------------------
Cost and expenses
Interest Expense 321 80 69 35
Legal, Accounting & Professional 34 69 43 22
Administrative 133 244 295 150
-----------------------------------------------------
488 393 407 207
-----------------------------------------------------
Loss from Operations (488) (393) (407) (207)
-----------------------------------------------------
Foreign Currency Exchange Gain (Loss) - - - -
Permanent decline of Investment - - (4,516) (2,292)
-----------------------------------------------------
- - (4,516) (2,292
-----------------------------------------------------
Profit (Loss) before Income Tax (488) (393) (4,923) (2,499)
Provision for Income Tax - - - -
-----------------------------------------------------
Net Profit (Loss) $(488) $(393) $(4,923) $(2,499)
=====================================================
Earnings (Loss) per Common Equivalent Shares
From Continuing Operations
$(.21) $(.07) $(.78) $(.40)
=====================================================
Weighted Number of Common Equivalent
Shares Outstanding 2,347 5,680 6,347 6,347
=====================================================
The accompanying notes are an integral part of these consolidated financial
statements.
3
27
BAY RESOURCES, LTD AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Consolidated Statements of Stockholders' Equity
June 30, 2001, 2000 and 1999
Accumulated
Common Treasury Retained Other
Stock Stock, at Paid-in Earnings Comprehensive
Shares Amount Cost Capital (Deficit) Loss Total
------ ------ ---- ------- --------- ---- -----
000's A$000's A$000's A$000's A$000's A$000's A$000's
Balance June 30, 1998 46,942 $9,388 $(20) $11,592 $(18,267) $(1,989) $704
Comprehensive Income
Net loss - - - - (488) - (488)
Net unrealised loss on
marketable securities - - - - - (3,855) (3,855)
------
Total Comprehensive Income
(4,343)
===============================================================================================
Balance June 30, 1999 46,942 9,388 (20) 11,592 (18,755) (5,844) (3,639)
Comprehensive Income
20 for 1 Reverse Stock Split
and par value change (44,595) (9,387) - 9,387 - - -
Issuance of 4,000,000 shares in
lieu of debt repayment 4,000 - - 4,076 - - 4,076
Sale of 8,000,000 options to
purchase common stock - - - 120 - - 120
Net loss - - - - (393) - (393)
Net unrealised loss on
marketable securities - - - - - (612) (612)
------
Total Comprehensive Income (1,005)
===============================================================================================
Balance June 30, 2000 6,347 $1 $(20) $25,175 $(19,148) $(6,456) (448)
Comprehensive Income
Net unrealised loss on
marketable securities - - - - - (49) (49)
Net loss - - - - (4,923) 4,516 (407)
----
Total Comprehensive Income (456)
-----------------------------------------------------------------------------------------------
Balance June 30, 2001 6,347 $1 $(20) $25,175 $(24,071) $(1,989) (904)
===============================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
4
28
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2001, 2000 and 1999
Convenience
Translation
A$000's A$000's A$000's US$000's
1999 2000 2001 2001
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(488) $(393) $(4,923) $(2,499)
Adjustments - - -
Foreign Currency Translation - - - -
Depreciation & Amortisation - - - -
Permanent Decline of Investment - - 4,516 2,292
Net Change In :
Organisation Cost - 1 - -
Accounts Payable and Accrued Expenses 67 (11) (21) (10)
-----------------------------------------------------
Net Cash Used in Continuing Operations (421) (403) (428) (217)
Net Cash (used in) Discontinued Operations - - - -
-----------------------------------------------------
Net Cash (used in) Operating Activities (421) (403) (428) (217)
-----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in Treasury Stock - - - -
Investments in Subsidiaries - - - -
Net Proceeds from Investments - - - -
-----------------------------------------------------
Net Cash Provided by (Used in) Investing Activities - - - -
-----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing From Affiliates 421 284 427 217
Sale of Options - 120 - -
New Borrowing - - - -
-----------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 421 404 427 217
-----------------------------------------------------
Net Increase (Decrease) in Cash - 1 (1) -
Cash at Beginning of Year 1 1 2 1
-----------------------------------------------------
Cash at End of Year $1 $2 $1 $1
=====================================================
Supplemental Disclosures
Common Stock Issued in Lieu of Debt Repayment - 4,076 - -
Interest Paid (Net Capitalised) 321 80 69 35
Income Taxes Paid - - - -
The accompanying notes are an integral part of these consolidated financial
statements.
5
29
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
(1) ORGANIZATION
Bay Resources, Ltd. ("Bay") is incorporated in the State of Delware.
The principal shareholder of Bay is Edensor Nominees Proprietary
Limited ("Edensor"), an Australian corporation. Edensor owned 78.8% of
Bay as of June 30, 2001. Bay acquired a controlling interest on
September 3, 1987 in former subsidiary, Solmecs Corporation N.V.
("Solmecs") and 100% ownership on January 2, 1992. Bay sold its
interest in Solmecs effective June 5, 1998. During fiscal 1998, Bay
incorporated a further subsidiary, Baynex.com Pty Ltd (formerly Bayou
Australia Pty Ltd), under the laws of Australia. Baynex.com has not
traded since incorporation. On August 21, 2000 the Company incorporated
a new wholly owned subsidiary, Bay International Pty Ltd, a corporation
incorporated under the laws of Australia.
(2) ACCOUNTING POLICIES
The following is a summary of the significant accounting policies
followed in connection with the preparation of the consolidated
financial statements.
(a) Consolidation
The consolidated financial statements include the accounts of
Bay and the 100% interest it holds in Baynex.com Pty Ltd and
Baynet International Pty Ltd. All significant intercompany
transactions and balances have been eliminated in
consolidation.
(b) Foreign Currency Translation
The majority of Bay's administrative operations are in
Australia and as a result its accounts are maintained in
Australian dollars. The income and expenses of its foreign
operations are translated into Australian dollars at the
average exchange rate prevailing during the period. Assets and
liabilities of the foreign operations are translated into
Australian dollars at the period-end exchange rate.
6
30
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
(2) ACCOUNTING POLICIES (Continued)
(c) Change in Name
On September 27, 1999 the Company changed its name
from Bayou International, Ltd to Baynet, Ltd and in
October 2000 changed its name to Bay Resources, Ltd.
(d) Financial Instruments
The following methods and assumptions were used by
Bay to estimate the fair values of financial
instruments as disclosed herein:
(i) Cash and Equivalents - The carrying amount
approximates fair value because of the short
period to maturity of the instruments.
(ii) Investment Securities - For both trading
securities and available-for-sale
securities, the carrying amounts approximate
fair value.
(iii) Long-term Debt - The fair value of long-term
debt is estimated based on interest rates
for the same or similar debt offered to Bay
having the same or similar remaining
maturities and collateral requirements.
(e) Investment Securities
Management determines the appropriate classification
of investment securities at the time they are
acquired and evaluates the appropriateness of such
classification at each balance sheet date. The
classification of these securities and the related
accounting policies are as follows:
(i) Trading securities are held for resale in
anticipation of short-term fluctuations in
market prices. Trading securities consisting
primarily of actively traded marketable
equity securities are stated at fair value.
Realised and unrealised gains and losses are
included in income.
(ii) Available-for-sale securities consist of
marketable equity securities not classified
as trading securities. Available-for-sale
are stated at fair value and unrealised
holding gains and losses net of the related
deferred tax effect, are reported as a
separate component of stockholders' equity.
(iii) Dividends on marketable equity securities
are recognised in income when declared.
Realised gains and losses are included in
income. Realised gains and losses are
determined on the actual cost of the
securities sold.
7
31
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
(2) ACCOUNTING POLICIES (Continued)
(f) Cash and Cash Equivalents
Bay considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash
equivalents. For the periods presented there were no cash
equivalents.
(g) Property and Equipment
Property and equipment is stated at the lower of historical
cost or market or in the case of acquisitions from related
parties at the lower of historical cost to the related party
or market. Depreciation is computed over a period covering the
estimated useful life of the applicable property and
equipment.
(h) Income Tax
Income taxes are provided on financial statement income. For
the periods presented there was no taxable income. There are
no deferred income taxes resulting from timing differences in
reporting certain income and expense items for income tax and
financial accounting purposes. Bay at this time is not aware
of any net operating losses which are expected to be realised.
(i) Earnings (loss) per share
Primary (loss) per share is computed based on the weighted
average number of common shares and common share equivalents
outstanding during the period.
(j) Convenience Translation to US$
The consolidated financial statements at June 30, 2001 have
been translated into United States dollars using the rate of
exchange of the United States dollar at June 30, 2001 (AUS
$1.00=US $0.5076). The translation was made solely for the
convenience of readers in the United States.
(k) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
8
32
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
A$000's A$000's
2000 2001
---- ----
(3) INVESTMENT SECURITIES
The following is a summary of Investment
Securities, 2000 and 2001:
Investment, Cost method
Available for Sale Securities $4,516 $4,516
Marketable Equity Securities, at cost - -
Gross Realised Loss or impairment - (4,516)
Gross Unrealised Losses (4,467) -
------------------------
Marketable Equity Securities,
at fair value $49 $-
========================
The investment using this cost method is carried at cost. Dividends
received from the investment carried at cost are included in other
income. Dividends received in excess of the Company's proportionate share
of accumulated earnings ("return of capital dividend") are applied as a
reduction of the cost of the investment. No securities were sold during
2001 and 2000 and all securities were treated as available for sale for
2001 and 2000. The net unrealised loss of A$612 and A$3,855 shown in the
Statement of Stockholders' Equity for 2000 and 1999 consist entirely of
the change in holding loss for those periods. At June 30, 2001 the
Company determined that the decline in value of its investment was
permanent and has recorded a realised loss in the amount of $4,516.
A$000's A$000's
2000 2001
---- ----
(4) SHORT TERM AND LONG-TERM DEBT
The following is a summary of Bay's
borrowing arrangements as of June
30, 2000 and 2001.
Long Term
Loan from corporations affiliated with the
President of Bay. Interest accrues at the
ANZ Banking Group Limited rate +1% for
overdrafts over $100,000. Repayment of
loan not required before June 30, 2002. (1) $214 $641
====================
(1) $7,000 was repaid on January 20, 2000 partly through the issuance of
8,000,000 options to purchase previously unissued stock. Through the date
of these financials, Bay has continued to borrow from this source. The
options to purchase shares expire January 20, 2010 and the exercise price
is US$1.00 per share. The options were issued to a company affiliated
with the President of Bay Resources Ltd.
9
33
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
(5) AFFILIATE TRANSACTIONS
Bay advances to and receives advances from various affiliates. All
advances between consolidated affiliates are eliminated on
consolidation. At June 30, 2001 Bay had no outstanding advances to or
from unconsolidated affiliated companies. $185,000 and $275,000 of
accounts payable for the years shown is due to an affiliated management
company.
(6) GOING CONCERN
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles, which
contemplates continuation of Bay as a going concern. However, Bay has
sustained recurring losses. In addition, Bay has a net working capital
deficiency which raises substantial doubts as to its ability to
continue as a going concern.
Bay anticipates that it will be able to defer repayment of certain of
its short term loan commitments until it has sufficient liquidity to
enable these loans to be repaid or other arrangements to be put in
place.
In addition Bay has historically relied on loans and advances from
corporations affiliated with the President of Bay. Based on discussions
with these affiliate companies, Bay believes this source of funding
will continue to be available.
Other than the arrangements noted above, Bay has not confirmed any
other arrangement for ongoing funding. As a result Bay may be required
to raise funds by additional debt or equity offerings in order to meet
its cash flow requirements during the forthcoming year.
(7) SALE OF SOLMECS
Pursuant to a stock purchase agreement dated as of June 5, 1998, the
Company acquired 499,701 shares in SCNV Acquisition Corp ("SCNV"),
representing approximately 24% of the issued and outstanding share
capital of SCNV, in return for the whole of the share capital of
Solmecs Corporation N.V, a Netherlands Antilles company which prior to
the exchange was formerly a wholly owned subsidiary of the Company. The
499,701 shares has been valued at US$2,800,000 or A$4,516,000 and will
be accounted for using the cost method because the Company does not
exercise significant influences over SCNV's operating and financial
activities (see note 4). The sale resulted in a gain of $5,899,000.
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34
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
(7) SALE OF SOLMECS (Continued)
SCNV is a Delaware corporation established May 1997 to select, develop
and commercially exploit proprietary technologies, in various stages of
development, invented primary by scientists who have been recently
immigrated to Israel from and by scientists and institutions in Russia
and other countries that formerly comprised the Soviet Union.
Simultaneously with the SCNV stock acquisition by the Company, SCNV
completed an initial public offering of common stock and warrants which
resulted in gross proceeds of approximately US$5,900,000
The Company has been granted certain demand and "piggyback"
registration rights with respect to the SCNV shares. Notwithstanding
the foregoing, the Company has agreed not to sell, grant options for
sale of assign or transfer any of the SCNV shares, for a period of 24
months from the closing of the agreement which expired in June 2000.
Bay Resources has requested SCNV to take the necessary steps to
register Bay Resources' shareholding in SCNV. The Company does not
currently have any plans to distribute the shares.
(8) INCOME TAXES
Bay files its income tax returns on an accrual basis. Bay has carry
forward losses of approximately US$17.5 million as of June 30, 2001
which expire in the years 1999 through 2012, Baynet will need to file
tax returns for those years having losses on which returns have not
been filed to establish the tax benefits of the NOL carryforwards. Due
to the uncertainty as to realization of these losses, a valuation
allowance of US$6.0 million has been recorded to offset the tax benefit
of the carry forward losses. During the year ended June 30, 2001 Bay
provided an additional valuation allowance of US$1.0 million.
11