SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[ ] Preliminary Information Statement [ ] Confidential, for Use of
[X] Definitive Information Statement the Commission Only (as
permitted by Rule 14c-5(d)(2))
</Table>
BAY RESOURCES LTD
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Information Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
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------------------------------------------------------------------------
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------------------------------------------------------------------------
(4) Date Filed:
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BAY RESOURCES LTD.
(A DELAWARE CORPORATION)
INFORMATION STATEMENT
DATE FIRST MAILED TO STOCKHOLDERS:
DECEMBER 14, 2001
210 KINGS WAY
SOUTH MELBOURNE
VICTORIA 3205
AUSTRALIA
(PRINCIPLE EXECUTIVE OFFICES OF THE COMPANY)
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
BAY RESOURCES LTD.
INFORMATION STATEMENT
INTRODUCTION
This Information Statement is being furnished to Stockholders of Bay
Resources Ltd. a Delaware corporation (the "Company"), pursuant to the
requirements of Regulation 14C under the Securities Exchange Act 1934, as
amended, in connection with an Action by Written Consent, dated November 29,
2001, of the Stockholders of the Company in lieu of the Annual Meeting of
Stockholders of the Company for the year ended June 30, 2001 (the "Written
Consent"). A copy of the Written Consent is attached as Exhibit "A" to this
Information Statement.
Management of the Company is utilising the Written Consent in order to
reduce the expenses and demands on the Company's executives' time necessitated
by the holding of a meeting of stockholders, since the only business of such a
meeting would be the election of Directors and the Company's major Stockholder,
Edensor Nominees Pty Ltd ("Edensor") and certain companies which have some
common Directors with the Company representing 84.1% of the issued and
outstanding shares of the Company's $.0001 par value common stock (the "Common
Stock") have indicated that they will vote for Management's nominees for
election as Directors, thereby ensuring the election of such nominees. See "Vote
Required"; "Other Information Regarding the Company -- Security Ownership of
Certain Beneficial Owners and Management"; and "Directors and Executive
Officers". The Company has received executed Written Consents from Edensor and
certain companies which have some common Directors with the Company which shall
be effective 21 days from the date this Information Statement is first mailed to
Stockholders. See "Matters Set Forth in the Written Consent".
Stockholders of record at the close of business on November 29, 2001 are
being furnished copies of this Information Statement. The principal executive
offices of the Company are located at 210 Kings Way, South Melbourne, Victoria,
3205, Australia, and the Company's telephone number is 011 613 9234 1100.
MATTERS SET FORTH IN THE WRITTEN CONSENT
The Written Consent contains a resolution electing Management's six
nominees for Director to serve for a one year term, or until their successors
are duly elected and qualified. Management's nominees for Director are Joseph
Isaac Gutnick, Marcus Nathan Solomon, David Stuart Tyrwhitt, Peter James Lee,
David Prentice, Samual Dov Farkas and Paul Ehrlich. Edensor and certain
companies which have some common Directors with the Company, representing 84.1%
of the currently issued and outstanding shares of Common Stock, have executed
the Written Consent, thereby ensuring the election of Management's nominees as
Directors. See "Other Information Regarding The Company -- Security Ownership of
Certain Beneficial Owners and Management."
2
Set forth below is a table of the stockholders who have executed the
Written Consent and, to the best of the Company's knowledge, the number of
shares of Common Stock beneficially owned by such stockholders as of November
29, 2001.
<Table>
<Caption>
NO. OF SHARES OF PERCENTAGE OF
COMMON STOCK OUTSTANDING
BENEFICIALLY COMMON
STOCKHOLDER OWNED STOCK
- ----------- ---------------- -------------
Autogen Limited(1).......................................... 47,082 0.7%
Gutnick Resources N.L.(1)(2)................................ 8,949 0.1%
Quantum Resources Limited(1)................................ 1,918 0.1%
AWI Administration Services Pty Ltd(1)...................... 229,489 3.6%
Edensor Nominees Pty Ltd(3)................................. 5,002,310 78.8%
Pearlway Investments Pty Ltd(3)............................. 26,000 0.4%
Joseph I. Gutnick(3)........................................ 25,650 0.4%
--------- ----
5,341,398 84.1%
========= ====
</Table>
- ---------------
(1) Messrs. Gutnick, Lee, Prentice, Farkas and Dr. Tyrwhitt, Management nominees
for election to the Board of Directors, are officers and/or Directors of
these companies.
(2) Mr. Solomon, Management nominee for election to the Board of Directors, is a
Director of Gutnick Resources.
(3) Joseph I. Gutnick, Stera M. Gutnick and members of their family are
officers, Directors and principal Stockholders of Edensor and Pearlway.
VOTE REQUIRED
Counterpart copies of the Written Consent evidencing a majority of the
outstanding shares of Common Stock, must be received by the Company within sixty
days of the earliest dated counterpart copy of the Written Consent received by
the Company in order to effectuate the matters set forth therein. As of November
29, 2001 (date of Written Consent), 6,347,089 shares of Common Stock were issued
and outstanding, thus, Stockholders representing no less than 3,173,545 shares
of Common Stock were required to execute the Written Consent to effect the
matters set forth therein. As discussed under "Matters Set Forth in the Written
Consent" Edensor and certain companies which have some common Directors with the
Company beneficially owning approximately 5,341,398 shares of Common Stock, or
84.1% of the outstanding Common Stock, have executed the Written Consent,
thereby ensuring the election of Management's nominees for Directors of the
Company. MANAGEMENT IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND MANAGEMENT A PROXY.
3
OTHER INFORMATION REGARDING THE COMPANY
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth to the best of the Company's knowledge the
number of shares beneficially owned as of November 29, 2001, by (i) each of the
current 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
Exchange Act) who beneficially owns more than 5% of the Common Stock, and (iii)
all current Directors and officers of the Company as a group.
<Table>
<Caption>
NUMBER OF PERCENT OF
SHARES SHARES
NAME OWNED (1)
- ---- --------- ----------
Edensor Nominees Proprietary Limited........................ 5,002,310 78.8%
Marcus Solomon.............................................. --(5)
David Tyrwhitt.............................................. --(2) *
Joseph I. Gutnick........................................... 5,053,960(2)(4)(6)(7) 79.6%
Stera M. Gutnick............................................ 5,028,310(4)(7) 79.2%
Peter Lee................................................... --(2) *
David Prentice.............................................. --(2) *
Dov Farkas.................................................. --(2) *
Paul Ehrlich................................................ --
All officers and directors as a group (7 persons)........... 5,053,961 79.6%
</Table>
- ---------------
* Represents less than 1% of the outstanding Common Stock
(1) Based upon 6,347,089 shares outstanding.
(2) Does not include (i) 47,082 shares of Common Stock beneficially owned by
Autogen Limited or (ii) 8,949 shares of Common Stock beneficially owned by
Gutnick Resources N.L. or (iii) 229,489 shares of Common Stock owned by AWI
Administration Services Pty. Ltd., or (iv) 1,918 shares of Common Stock
beneficially owned by Quantum Resources Limited, companies of which Messrs
Gutnick, Lee, Prentice, Farkas and Dr. Tyrwhitt are officers and/or
Directors. They, however, disclaim beneficial ownership to 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
Proprietary Limited and 26,000 shares of Common Stock owned by Pearlway
Investments Pty. Ltd. of which Joseph I. 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 a Director however, he disclaims beneficial
ownership to those shares.
(6) Joseph I. Gutnick is the beneficial owner of 25,650 shares.
(7) Joseph I. Gutnick and Stera M. Gutnick are husband and wife.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, the
Company's directors, executive officers and beneficial owners of more than 10%
of the outstanding Common Stock are required to file reports with the Securities
and Exchange Commission concerning their ownership of and transactions in the
Company's Common Stock and are also required to provide the Company with copies
of such reports. Based solely on such reports and related information furnished
to the Company, the Company believes that in fiscal 2001 all such filing
requirements were complied with in a timely manner by all directors and
executive officers, except that Messrs. Prentice and Farkas filed reports on
Form 3 after the due dates of such Forms.
4
ELECTION OF DIRECTORS BY WRITTEN CONSENT
GENERAL
The Certificate of Incorporation of the Company provides that the number of
Directors of the Company shall be not less than six nor more than nine as shall
be fixed in the By-laws of the Company.
Directors need not be Stockholders of the Company or residents of the State
of Delaware. Directors are elected for an annual term and generally hold office
until the next Directors have been duly elected and qualified. Directors may
receive compensation for their services as determined by the Board of Directors.
See "Compensation of Directors and Executive Officers". A vacancy on the Board
may be filled by the remaining Directors even though less than a quorum remains.
A Director appointed to fill a vacancy remains a Director until his successor is
elected by the Stockholders at the next annual meeting of Shareholders or until
a special meeting is called to elect Directors.
Currently the Board of Directors consists of six members. Currently serving
as Directors are Messrs. Gutnick, Solomon, Lee, Prentice, Farkas and Dr.
Tyrwhitt. It is proposed that Mr. Ehrlich joins the Board of Directors.
During the year ended June 30, 2001 the Board of Directors held 4 meetings
in person or by Written Consent. All members of the Board of Directors attended
more than 75% of the total number of meetings of the Board that they were
eligible to attend.
The Board of Directors has no standing committees and acts as its own
nominating compensation and internal audit committee.
The executive officers of the Company are appointed by the Board of
Directors. There are no family relationships between any Directors or executive
officers of the Company.
NOMINEES FOR ELECTION AS DIRECTOR
The following table sets forth certain information with respect to persons
nominated by the Board of Directors of the Company for election as Directors of
the Company and who will be elected by the Written Consent:
<Table>
<Caption>
NAME AGE POSITION(S) CURRENTLY HELD WITH THE COMPANY
- ---- --- ---------------------------------------------------
Joseph Gutnick............................ 49 Chairman of the Board, President, Chief Executive
Officer and Director
Marcus Solomon............................ 38 Vice President and Director
David Tyrwhitt............................ 63 Vice President and Director
Peter Lee................................. 44 Director, Secretary and Chief Financial Officer
David Prentice............................ 38 Director
Dov Farkas................................ 26 Director
Paul Ehrlich.............................. 43 Director
</Table>
The Board of Directors knows of no reason why any nominee will be unable or
will refuse to accept election. However if any nominees becomes unable or
refuses to accept election, the Board of Directors will reduce the number of
Directors standing for election and the Written Consent will be revised
accordingly.
If elected, all nominees are expected to serve until the 2002 annual
meeting of Stockholders or until their successors are duly elected and
qualified.
5
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the biographies of each of the Company's current
executive officers and Directors (all of whom are Management's nominees for
election as directors).
Joseph Isaac 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. 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, and a Member of the Institute of Company
Directors in Australia.
Marcus Nathan 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 Stuart 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.
Peter James 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 and the Institute of Company Directors 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.
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, Guitnick Resources N.L, Johnson's Well Mining N.L and Quantum
Resources Limited. Prior to that time, Mr. Farkas was employed by 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.
Paul Ehrlich. Mr. Ehrlich is an attorney of 20 years experience in the
fields of commercial law and commercial litigation. From 1989 to 2001 Mr.
Ehrlich was a partner in the national Australian law firm of Clayton Utz,
Australia's largest law firm. He has expertise in a range of corporate areas
including mergers and acquisition (with an emphasis on public company takeovers,
litigation and trade sales), securities law, public raisings, IPO's, government
privatisation, corporate reconstructions and the negotiation and drafting of
complex contractual and commercial arrangements. Mr. Ehrlich specialises in
areas of complex corporate litigation and has conducted such litigation on
behalf of corporate clients in the Supreme Courts of Victoria, New South Wales,
South Australia, Western Australia and in the Federal Court of Australia and in
the High Court of Australia. He also specialises in all areas of mining and
resource law and project finance.
6
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
year ended June 30, 2001 other than as noted below.
In accordance with the Service Agreement, the Company paid AWI
Administration Services Pty Ltd. A$267,000 for the fiscal year ended June 30,
2001, for services rendered and facilities provided by AWI Admin to the Company,
including the services of the Company's Chief Executive Officer and Chief
Financial Officer.
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
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
It is the policy of the Company to reimburse Directors for reasonable
travel and lodging expenses incurred in attending Board of Directors meetings.
In two of the Non-Executive Directors and one Executive Director were paid a
total of A$76,283 for services as a Director.
The services of the Company's Chief Executive Officer and Chief Financial
Officer as well as a clerical employee are provided to it on a part-time basis
pursuant to a Service Agreement dated November 25, 1988 (the "Service
Agreement") by and between the Company and AWI Administration Services Pty. Ltd.
("AWI Admin"). AWI Admin also provides office facilities, equipment,
administrative and clerical services to the Company pursuant to the Service
Agreement. This Agreement may be terminated by written notice from the parties
thereto.
As compensation therefore, the Company pays AWI Admin for the actual cost
of such facilities and services plus a maximum service fee of 15%. The Company
paid AWI Admin $292,377 in respect of this Service Agreement for 2001 fiscal
year.
STOCK OPTIONS
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 or 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. No options have been exercised.
LEGAL PROCEEDINGS
There are no pending or to the knowledge of the Company threatened lawsuits
involving the Company or officers or Directors of the Company in such
capacities.
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected David T. Thomson P.C., certified public
accountants, as independent auditor, to audit the accounts of the Company for
fiscal 2002. David T. Thomson P.C. served as the independent auditor of the
Company in fiscal 2001.
7
The following table sets forth the aggregate fees billed to the Company for
the fiscal year ended June 30, 2001 by the Company's independent accounting
firm:
<Table>
Audit fees.................................................. $5,910
Financial Information Systems Design and Implementation
Fees...................................................... $ --
All other fees.............................................. $ --
------
$5,910
======
</Table>
8
EXHIBIT A
BAY RESOURCES LTD
NOTICE PURSUANT TO SECTION 228 OF THE GENERAL
CORPORATION LAW
To: All Stockholders
1. PLEASE TAKE NOTICE THAT Stockholders owning at least a majority of the
outstanding stock of Bay Resources Ltd by written consent with a meeting dated
November 29, 2001 have duly adopted the following resolution:
"a resolution approving the election of the following Directors
- Joseph Isaac Gutnick
- Marcus Nathan Solomon
- David Stuart Tyrwhitt
- Peter James Lee
- David Prentice
- Samuel Dov Farkas
- Paul Lawrence Ehrlich
PETER LEE
Director and Secretary
9
BAY RESOURCES LTD
2001 ANNUAL REPORT
10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------
FORM 10-K
<Table>
<Caption>
(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
</Table>
COMMISSION FILE NUMBER 0-16097
---------------------
BAY RESOURCES LTD.
(Exact name of Registrant as specified in its charter)
<Table>
DELAWARE 98-0079697
(State or other jurisdiction of (IRS Employer
incorporation or organisation) Identification No.)
210 KINGS WAY,
SOUTH MELBOURNE, VICTORIA, 3205, AUSTRALIA
(Address of principal executive offices) (Zip Code)
</Table>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
011 (613) 9234 1100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
N/A N/A
</Table>
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.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
PART I
Item 1 Business.................................................... 2
Item 2 Properties.................................................. 4
Item 3 Legal Proceedings........................................... 5
Item 4 Submission of Matters to a Vote of Security Holders......... 5
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 5
Item 6 Selected Financial Data..................................... 6
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
Item 7A Not applicable.............................................. 9
Item 8 Not applicable.............................................. 9
Item 9 Not applicable.............................................. 9
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 9
Item 11 Executive Compensation...................................... 10
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 11
Item 13 Certain Relationships and Related Transactions.............. 12
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 13
Signatures............................................................ 14
Exhibit Index......................................................... 15
</Table>
1
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.
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.
2
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 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
3
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 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".
4
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.
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$):
<Table>
<Caption>
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
</Table>
- ---------------
(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.
5
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".
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
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)
------ ----- ------ ----- ------ ------
</Table>
<Table>
<Caption>
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)
------ ----- ------ ----- ------ ------
</Table>
<Table>
<Caption>
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
------ ------ ------ ------ ------ -------
Weighted average number of shares
outstanding............................... 46,942 2,347 2,347 5,680 6,347 6,347
------ ----- ------ ----- ------ ------
</Table>
<Table>
<Caption>
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)
====== ===== ====== ===== ====== ======
</Table>
6
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.
<Table>
<Caption>
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
</Table>
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.
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.
7
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.
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
8
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
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.
<Table>
<Caption>
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)
</Table>
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 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).
9
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 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.
10
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.
<Table>
<Caption>
NUMBER OF PERCENTAGE OF
NAME SHARES OWNED 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) --
Marcus Solomon.............................................. --(5) --
David Prentice.............................................. --(2) --
Dov Farkas.................................................. --(2) --
--------- ----
All officers and Directors As a group....................... 5,053,960 79.6%
--------- ----
</Table>
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.
11
(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 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.
12
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.
13
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
14
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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
1. /s/ Joseph Gutnick Chairman of the Board, September 24, 2001
--------------------------------------------- President and Chief
Joseph Gutnick Executive Officer (Principal
Executive Officer), and
Director.
2. /s/ David Tyrwhitt Director. September 24, 2001
---------------------------------------------
David Tyrwhitt
3. /s/ Marcus Solomon Director. September 24, 2001
---------------------------------------------
Marcus Solomon
4. /s/ Peter Lee Director, Secretary, Chief September 24, 2001
--------------------------------------------- Financial Officer and
Peter Lee Principal Financial and
Accounting Officer.
5. /s/ David Prentice Director. September 24, 2001
---------------------------------------------
David Prentice
6. /s/ Dov Farkas Director. September 24, 2001
---------------------------------------------
Dov Farkas
</Table>
15
EXHIBIT INDEX
<Table>
<Caption>
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.
</Table>
- ---------------
* 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]
16
EXHIBIT 21
LIST OF SUBSIDIARIES AS AT JUNE 30, 2001
BAYNEX.COM PTY LTD
BAYNET INTERNATIONAL PTY LTD
17
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)
18
CONTENTS
<Table>
<Caption>
PAGE
----
Report of Independent Auditor............................... 20
Consolidated Balance Sheets................................. 21
Consolidated Statements of Operations....................... 22
Consolidated Statements of Stockholders' Equity............. 23
Consolidated Statements of Cash Flows....................... 24
Notes to Consolidated Financial Statements.................. 25-28
</Table>
19
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.
Salt Lake City, Utah
September 24, 2001
David T. Thomson
P.O. Box 571605, Murray, Utah 84157 (801) 966 9481
20
BAY RESOURCES, LTD. AND SUBSIDARIES
(FORMERLY BAYNET LTD AND BAYOU INTERNATIONAL, LTD)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
<Table>
<Caption>
CONVENIENCE
AUSTRALIAN DOLLARS 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
======== ======== ========
</Table>
The accompanying notes are an integral part of
these consolidated financial statements.
21
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
<Table>
<Caption>
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
====== ====== ======= =======
</Table>
The accompanying notes are an integral part of
these consolidated financial statements.
22
BAY RESOURCES, LTD AND SUBSIDIARIES
(FORMERLY BAYNET LTD AND BAYOU INTERNATIONAL, LTD)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
JUNE 30, 2001, 2000 AND 1999
<Table>
<Caption>
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)
======= ======= ==== ======= ======== ======= =======
</Table>
The accompanying notes are an integral part of
these consolidated financial statements.
23
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
<Table>
<Caption>
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...................................... -- -- -- --
</Table>
The accompanying notes are an integral part of
these consolidated financial statements.
24
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.
(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.
25
BAY RESOURCES, LTD. AND SUBSIDIARIES
(FORMERLY BAYNET LTD AND BAYOU INTERNATIONAL, LTD)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
(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.
26
BAY RESOURCES, LTD. AND SUBSIDIARIES
(FORMERLY BAYNET LTD AND BAYOU INTERNATIONAL, LTD)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENT SECURITIES
The following is a summary of Investment Securities, 2000 and 2001:
<Table>
<Caption>
A$000'S A$000'S
2000 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 $ --
======= =======
</Table>
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.
(4) SHORT TERM AND LONG-TERM DEBT
The following is a summary of Bay's borrowing arrangements as of June 30,
2000 and 2001.
<Table>
<Caption>
A$000'S A$000'S
2000 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
==== ====
</Table>
- ---------------
(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.
(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
27
BAY RESOURCES, LTD. AND SUBSIDIARIES
(FORMERLY BAYNET LTD AND BAYOU INTERNATIONAL, LTD)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
28