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WASHINGTON D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2002 or
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 0-16097
BAY RESOURCES LTD.
(Exact name of Registrant as specified in its charter)
Delaware 98-0079697
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organisation) Identification No.)
Level 8, 580 St Kilda Road Melbourne, Victoria, 3004, Australia
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 011 (613) 8532 2860
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange
on which registered
N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.0001 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III 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$7,080,465 (US$3,879,387) as at September
28, 2002.
There were 6,347,089 outstanding shares of Common Stock as of June 30, 2002.
TABLE OF CONTENTS PAGE
PART I
Item 1 Business 1
Item 2 Properties 5
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 6
Related Stockholder Matters
Item 6 Selected Financial Data 7
Item 7 Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
Item 7A Not applicable 12
Item 8 Financial Statements and Supplementary Data 12
Item 9 Not applicable 12
PART III
Item 10 Directors and Executive Officers of the Registrant 13
Item 11 Executive Compensation 14
Item 12 Security Ownership of Certain Beneficial Owners 15
and Management and Related Stockholder Matters
Item 13 Certain Relationships and Related Transactions 16
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports 18
on Form 8-K
Signatures 19
Exhibit Index 27
PART I
ITEM 1 BUSINESS
GENERAL
Bay Resources, Ltd., a Delaware corporation ("Bay Resources" or the "Company")
is currently looking for opportunities in the mining and exploration industry in
North America, Canada and Latin America.
During the 2002 fiscal year, the Company continued to expand its gold
exploration business by:
(i) entering into an agreement to explore for gold on extensive property
interests on the Slave Craton in northern Canada held by Tahera
Corporation ("Tahera"); and
(ii) making application via a new 100% owned subsidiary, 4075251 Canada
Inc, for properties in the highly prospective Committee Bay
Greenstone Belt in Nunavut, Canada. Further details are set out in
the section "Canadian Exploration Properties"
Prior to fiscal 2002, 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 other 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, 2002 have been translated into United
States Dollars ("US$) using the rate of exchange at June 30, 2002 of
A$1.00=US$0.557.
The executive offices of the Company are located at Level 8, 580 St Kilda Road,
Melbourne Victoria, 3004, Australia and the telephone number is +613 8532 2860
(facsimile +613 8532 2805).
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).
1
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.
In May 2000, the Company commenced work on the development of a B2B mining
portal however, this is no longer proceeding as it was considered uneconomic.
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.
During the 2002 fiscal year the Company continued to expand its gold exploration
business by:
(iii) entering into an agreement to explore for gold on Tahera's extensive
property interests on the Slave Craton in northern Canada; and
(iv) making application via a new 100% owned subsidiary, 4075251 Canada
Inc, for properties in the highly prospective Committee Bay
Greenstone Belt in Nunavut, Canada. Further details are set out in
the section "Canadian Exploration Properties"
2
CANADIAN EXPLORATION PROPERTIES
During fiscal 2002, the Company reached an agreement with Tahera's to explore
for gold on Tahera's extensive properties on the Slave Craton in northern
Canada. Tahera is a diamond exploration company listed on the Toronto Stock
Exchange and is engaged in the diamond exploration in the northern Slave Craton.
Tahera has developed an extensive database to explore for diamonds and under the
terms of the agreement, Bay Resources will use the database and geochemical
samples to explore for gold. Joseph Gutnick, President and Chief Executive
Officer of the Company, is a Director and shareholder of Edensor Nominees Pty
Ltd and that company is a major shareholder of both Bay Resources and Tahera.
Tahera will retain a two percent net smelter return royalty on any production
from deposits discovered as a result of the Company using the Tahera samples and
database.
Tahera's diamond exploration data that Bay Resources will have access to
includes electromagnetic geophysical surveys, overburden and bedrock mapping,
overburden sampling and drilling data. The Tahera overburden samples cover some
60,000 square kilometers of the northern Slave Craton with some 17,000 samples
being potentially available for gold and base-metal analysis. The overburden
samples have been taken on a reconnaissance scale with line intervals at 2.5 -
5.0 kilometers with some detailed surveys at 50-100 meter sample spacings. The
Tahera samples cover areas of known gold mineralisation including in the
vicinity of the Lupin and Ulu gold deposits.
Tahera's Jericho and Contwoyto properties lie in close proximity to the Lupin
gold mine, which is a large, high grade, gold deposit (some three million ounce
gold endowment produced to date), currently operated by Echo Bay Mines Ltd. Bay
Resources considers there to be significant potential for gold mineralization,
similar to that found at Lupin, on Tahera's Jericho and Contwoyto properties.
Utilising the Tahera database in conjunction with existing public data, Bay
Resource's objective for fiscal year ended June 30, 2003 is to delineate new
areas of gold mineralization on the northern Slave Craton that could lead to a
multi-million ounce gold discovery.
In late June 2002, the Company also commenced acquiring a strategic land
position in the highly prospective Committee Bay Greenstone Belt.
The Committee Bay Belt is located approximately 240 kilometers northeast of
Baker Lake in Nunavut, Canada. The Baker Lake area is best known for the
Meliadine Gold Project, currently in the prefeasibility stage, which has a
majority interest held by WMC International.
Throughout the Archean-aged (2.73 million years ("Ma")) Committee Bay Belt,
there are numerous gold showings over an area measuring 150 kilometers x 40
kilometers. The stratigraphy of the Committee Bay Belt includes banded iron
formation ("BIF") up to 50 metres thick, komatiite flows, basalts, intermediate
to felsic tuffs, and quartz-cobble conglomerates. Deformation in the area is
recorded by major shear zones, second order faults, complex folding, and felsic
intrabelt intrusions (including a pluton with the same 2.7 Ma age as the Dome
Stock in Red Lake). In addition to the BIF hosted gold targets, this Belt has
potential for shear-hosted lode gold, komatiite hosted stratiform nickel-copper,
and platinum group elements in layered igneous
3
complexes. Grades from previous work in the Committee Bay area returned samples
grading up to 245 grams per tonne gold, 0.5% nickel, and 0.8% copper.
In the period to February 2003, the Company will assemble exploration data from
public records and conduct desk top studies to formulate a exploration program
for field work which will be undertaken following the winter season in Northern
Canada.
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 acquired the
Company's former subsidiary 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.
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 represented 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, Bay Resources converted all inter-company indebtedness from
Solmecs to Bay Resources (which aggregated approximately US$5,000,000) to a
capital contribution to Solmecs.
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 AXIS Consultants Pty Limited
("AXIS"). AXIS 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".
During the year the Company engaged Eugene Flood as a consultant to oversee
exploration programs. Mr Flood is a seasoned exploration geologist with several
years of gold exploration experience in northern Canada and abroad. During the
1990's, Mr Flood was a Senior Project Geologist with BHP Minerals Canada Ltd.,
where he managed drilling programs from discovery to deposit delineation.
(i.e.Doris and ULU gold deposits).
4
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 AXIS. See "Item 1- Business- Employees" and "Item 13- Certain Relationships
and Related Transactions".
The Company believes that its administrative space is adequate for its current
needs.
ITEM 3 LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party, or to
which any of its property is the subject, which the Company considers material.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
5
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 and quoted on the
OTC-Bulletin Board under the symbol "BYREE". The trading for the Common Stock
has been sporadic and the market for the Common Stock cannot be classified as an
established trading market.
The following table sets out the high and low bid information for the Common
Stock as reported by the National Quotation Service Bureau for each
period/quarter indicated (in US$):
CALENDAR PERIOD HIGH BID (1) LOW BID (1)
- --------------- ------------ -----------
2000
First Quarter -- --
Second Quarter 4.00 1.01
Third Quarter 5.00 4.00
Fourth Quarter 5.00 4.00
2001
First Quarter 5.00 4.00
Second Quarter 4.50 1.06
Third Quarter 0.65 1.10
Fourth Quarter 0.65 1.10
2002
First Quarter 1.20 0.90
Second Quarter 2.25 1.75
(1) The quotations set out herein reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not necessarily reflect actual
transactions.
SHAREHOLDERS
As of September 30, 2002 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.
6
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, 2002, and the balance
sheet data at June 30, 1998, 1999, 2000, 2001 and 2002 have been derived from
the consolidated financial statements of the Company, which financial statements
have been examined by David T. Thomson PC, independent accountants. 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, 2002, 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".
7
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year ended June 30
CONV.
TRANSL.
1998 1999 2000 2001 2002 2002
A$ A$ A$ A$ A$ US$
Revenues -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Costs and expenses 544 488 393 407 342 190
------ ------ ------ ------ ------ ------
Loss from operations (544) (488) (393) (407) (342) (190)
Other income (loss) 7,280 -- -- (4,516) -- --
------ ------ ------ ------ ------ ------
Profit (loss) before income
taxes 6,736 (488) (393) (4,923) (342) (190)
Provision for income taxes -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Net profit (loss) from
Continuing Operations 6,736 (488) (393) (4,923) (342) (190)
Net loss from
Discontinued Operations (952) -- -- -- -- --
------ ------ ------ ------ ------ ------
Net profit (loss) 5,784 (488) (393) (4,923) (342) (190)
------ ------ ------ ------ ------ ------
A$ A$ A$ A$ A$ US$
Net profit (loss) per share
On continuing operations 2.87 (0.21) (0.07) (.78) (.05) (0.03)
On discontinued
operations (0.41) -- -- -- -- --
---- ---- ---- ---- ---- ----
2.46 (0.21) (0.07) (.78) (.05) (.03)
---- ---- ---- ---- ---- ----
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
Weighted average number
of shares outstanding 2,347 2,347 5,680 6,347 6,347 6,347
----- ----- ----- ----- ----- -----
A$ A$ A$ A$ A$ US$
Total assets 4,518 663 51 1 23 13
Total liabilities 3,814 4,302 499 905 1,269 707
------ ------ ------ ------ ------ ------
Stockholders' equity
(deficiency) 704 (3,639) (448) (904) (1,246) (694)
------ ------ ------ ------ ------ ------
8
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FOREIGN CURRENCY TRANSLATION
The majority of the Company's administrative operations are in Australia and, as
a result, its accounts are maintained in Australian dollars. The income and
expenses of its foreign operations are translated into Australian dollars at the
average exchange rate prevailing during the period. Assets and liabilities of
the foreign operations are translated into Australian dollars at the period-end
exchange rate. The following table shows the average rates of exchange of the
Australian dollar compared with the US dollar during the periods indicated.
YEAR ENDED
JUNE 30
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
2002 A$1.00 = US$0.557
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 2002 VERSUS YEAR ENDED JUNE 30, 2001
Total costs and expenses have decreased from A$407,000 for the year ended June
30, 2001 to A$342,000 (US$190,000) for the year ended June 30, 2002. The
decrease was a net result of:
i) An increase in exploration expenditure written off from A$nil to A$13,000
(US$7,000). The Company has commenced a new business activity in fiscal
2002 being exploration and has adopted an accounting policy whereby
prospecting and exploration costs are written off against earnings as
incurred. There was no comparable activity in the prior year.
ii) An increase in interest expense from A$69,000 to A$90,000 (US$50,000) as a
result of the increase in debt owing to Chevas Pty Ltd ("Chevas"), which
was partially offset by a reduction in interest rates. Chevas is a company
associated with Mr. J.I. Gutnick, President of Bay Resources Ltd, which
has provided funding for the Company's operations during the year.
iii) A decrease in legal, accounting and professional costs from A$43,000 to
$21,000 (US$12,000). In fiscal 2001 the Company utilised legal services as
part of the due diligence exercise undertaken on a potential investment in
St Andrew Goldfields Ltd. There was no comparable cost in fiscal 2002.
iv) A decrease in administrative costs from A$295,000 to A$218,000
(US$121,000). In fiscal 2001 the Company incurred costs including
consultants fees and travel and accommodation costs as part of the due
diligence exercise undertaken on a potential investment in St Andrew
Goldfields Ltd. There was no comparable cost in fiscal 2002.
Accordingly, the loss from operations decreased from A$407,000 for the year
ended June 30, 2001 to A$342,000 (US$190,000) for the year ended June 30, 2002.
9
The Company was not required to provide for income tax during the years ended
June 30, 2001 or 2002.
The net loss amounted to A$342,000 (US$190,000) for the year ended June 30, 2002
compared to a net loss of A$407,000 for the year ended June 30, 2001. The net
loss per common equivalent share was A$0.05 cents compared with a net loss with
a common equivalent share of A$0.03 cents in the prior year.
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 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 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. 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 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 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 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 compared with a net loss with a common
equivalent share of A$0.07 in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002 the Company had the short-term obligations of A$485,000
(US$270,000) consisting of accounts payable and accrued expenses.
The Company also had long-term obligations of A$784,000 (US$437,000) at June 30,
2002 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
10
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 HARBOUR" 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, without limitation, the risks of
exploration and development stage projects, political risks of development in
foreign countries, risks associated with environmental and other regulatory
matters, mining risks and competitors, the volatility of gold prices and
movements in foreign exchange rates.
IMPACT OF AUSTRALIAN TAX LAW
Australian resident corporations are subject to Australian income tax on their
non-exempt worldwide assessable income (which includes capital gains), less
allowable deductions, at the rate of 36%. Foreign tax credits are allowed where
tax has been paid on foreign source income, provided the tax credit does not
exceed 36% of the foreign source income.
Under the U.S./Australia tax treaty, a U.S. resident corporation such as the
Company is subject to Australian income tax on net profits attributable to the
carrying on of a business in Australia through a "permanent establishment" in
Australia. A "permanent establishment" is a fixed place of business through
which the business of an enterprise is carried on. The treaty limits the
Australian tax on interest and royalties paid by an Australian business to a
U.S. resident to 10% of the gross interest or royalty income unless it relates
to a permanent establishment. Although the Company considers that it does not
have a permanent establishment in Australia, it may be deemed to have such an
establishment due to the location of its administrative offices in Melbourne. In
addition the Company may receive interest or dividends from time to time.
IMPACT OF AUSTRALIAN GOVERNMENTAL, ECONOMIC, MONETARY OR FISCAL POLICIES
Although Australian taxpayers are subject to substantial regulation, the Company
believes that its operations are not materially impacted by such regulations nor
is it subject to any broader regulations or governmental policies than most
Australian taxpayers.
11
ITEM 7A. NOT APPLICABLE
ITEM 8. SEE ITEM 14
ITEM 9. NOT APPLICABLE
12
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, 2002.
NAME AGE POSITION(S) HELD
Joseph Gutnick 50 Chairman of the Board
President, Chief Executive Officer and Director.
David Tyrwhitt 64 Director.
Peter Lee 45 Director, Secretary, Chief Financial Officer and Chief Accounting Officer.
David Prentice 38 Director
Paul Ehrlich 44 Director
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. Mr. Gutnick is Executive Chairman of Tahera Corporation, a company
that is listed on Toronto Stock Exchange. He is a Fellow of the Australasian
Institute of Mining & Metallurgy and the Australian Institute of Management and
a member of the Australian Institute of Company Directors.
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 40 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 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 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 15 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
13
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).
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 a
major national Australian 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 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
resource law and project finance.
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 2002 all such filing
requirements were complied with in a timely manner by all Directors and
executive officers.
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, 2002, other than as noted below.
In accordance with the Service Agreement, the Company paid AXIS A$169,770 for
the fiscal year ended June 30, 2002, for services rendered and facilities
provided by AXIS 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, 2002.
14
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, 2002 the Directors were paid A$21,600 for services as a Director
of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
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, 2002 by:
(i) each of the present Executive Officers and Directors of the Company,
(ii) each person (including any "group" as that term is defined in Section
13(d)(3) of the Securities Exchange Act) who beneficially owns more than
5% of the Common Stock, and
(iii) all present Directors and officers of the Company as a group.
NAME NUMBER OF SHARES OWNED PERCENTAGE OF
SHARES (1)
Edensor Nominees
Pty Ltd 5,002,310 78.8%
Joseph Gutnick 5,053,960 (2)(3) 79.6%
(4)(6)(7)
Stera Gutnick 5,028,310 (4)(7) 79.2%
David Tyrwhitt -- (2) --
Peter Lee -- (2) --
David Prentice -- (2) --
Paul Ehrlich -- (2)
--------- ----
All officers and Directors
As a group 5,053,960 79.6%
--------- ----
NOTES RELATING TO ITEM 12:
(1) Based on 6,347,089 shares outstanding
(2) Does not include:
(i) 8,949 shares of Common Stock beneficially owned Gutnick Resources NL
("GKR"),
or
15
(ii) 1,918 shares of Common Stock beneficially owned by Quantum Resources
Limited ("QUR"),
or
(iii) 229,489 shares of Common Stock beneficially owned by AXIS,
of which companies Messrs Gutnick, Lee, Prentice and Dr. Tyrwhitt are
officers and/or Directors, as they disclaim beneficial ownership of those
shares.
(3) Does not include 2,500 shares of Common Stock beneficially owned by the
Company.
(4) Includes 5,002,310 shares of Common Stock owned by Edensor Nominees Pty
Ltd and 26,000 shares of Common Stock owned by Pearlway Investments
Proprietary Limited, of both of which Mr Joseph Gutnick, Stera M. Gutnick
and members of their family are officers, Directors and principal
stockholders.
(5) Does not include 8,949 shares of Common Stock beneficially owned by GKR
and 1,918 shares of common stock beneficially owned by QUR, companies of
which Mr Ehrlich 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 AXIS 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 AXIS for the
actual costs of such facilities plus a maximum service fee of 15%. The Company
paid AXIS A$169,770 in respect of the Service Agreement for the fiscal year
ended June 30, 2002, A$267,000 for the fiscal year ended June 30, 2001 and
A$163,000 for the fiscal year ended June 30, 2000. 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, 2000 the
Company had a liability to Chevas of A$274,985. 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.
During the 2002 fiscal year, Chevas loaned a further A$82,000 and charged
A$60,171 in interest to the Company on the loan account. At June 30, 2002, the
Company owed Chevas $783,743.
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 8.00% and 8.75%.
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
16
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.
As described in the section headed "Canadian Exploration Properties" the Company
has entered into an agreement to explore for gold on properties owed by Tahera.
Mr Gutnick, President of the Company, is Executive Chairman of Tahera and his
family company, Edensor Nominees, which is the controlling stockholder of the
Company, is a major shareholder of Tahera.
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.
17
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.
(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.
18
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)
/s/ Peter J Lee
By: .................................
Peter J Lee
Director, Secretary,
Chief Financial Officer
and Principal Financial
and Accounting Officer
Dated: October 14, 2002
19
FORM 10-K SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
1. /s/ Joseph Gutnick Chairman of the Board,
------------------------ President and Chief Executive
Joseph Gutnick Officer (Principal Executive
Officer), and Director. October 14, 2002
2. /s/ David Tyrwhitt Director. October 14, 2002
-------------------------
David Tyrwhitt
3. /s/ Peter Lee Director, Secretary,
------------------------- Chief Financial Officer and
Peter Lee Principal Financial and
Accounting Officer. October 14, 2002
4. /s/ David Prentice Director October 14, 2002
-------------------------
5. /s/ Paul Ehrlich Director October 14, 2002
-------------------------
Paul Ehrlich
20
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter James Lee, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Bay Resources Ltd. (the
"registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
21
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 14, 2002
/s/ Peter Lee
-------------------------------------
Name: Peter Lee
Title: Director, Secretary and
Chief Financial Officer
(Principal Financial Officer)
22
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph Isaac Gutnick, Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Bay Resources Ltd. (the
"registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
23
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 14, 2002
/s/ Joseph I. Gutnick
---------------------------------------
Name: Joseph I. Gutnick
Title: Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
24
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of Bay Resources Ltd.
(the "Company") for the fiscal year ended June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "report"), the
undersigned, Joseph Isaac Gutnick, Chief Executive Officer of the Company,
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 that:
(1) The report fully complies with the requirements of Section 13(a) or
15(d) of the securities Exchange Act of 1934; and
(2) The information contained in the report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
/s/ Joseph Isaac Gutnick
------------------------------------
Joseph Isaac Gutnick
Chairman of the Board, President
and
Chief Executive Officer
(Principal Executive Officer)
25
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of Bay Resources Ltd. (the
"Company") for the fiscal year ended June 30, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "report"), the undersigned,
Peter James Lee, Chief Financial Officer of the Company, certifies pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 that:
(1) The report fully complies with the requirements of Section 13(a) or
15(d) of the securities Exchange Act of 1934; and
(2) The information contained in the report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Peter James Lee
-----------------------------
Peter James Lee
Director, Secretary and
Chief Financial Officer
(Principal Financial Officer)
26
EXHIBIT INDEX
INCORPORATED BY EXHIBIT
REFERENCE TO: NO EXHIBIT
(1) Exhibit 3.1 3.1 Certificate of Incorporation of the Registrant.
(1) Exhibit 3.2 3.2 By-laws of the Registrant.
(2) Exhibit B 3.3 Amendment to Certificate of Incorporation
(5) Exhibit A 3.4 Amendment to Certificate of Incorporation
3.5 Amendment to Certificate of Incorporation
dated October 17, 2000.
(6) Exhibit 3.4
(3) Exhibit 10.5 10.4 Service Agreement dated November 25, 1988,
by and between the Registrant and AWI
Administration Services Pty Limited.
(4) Exhibit 10.5 10.5 Form of Stock Purchase Agreement among
Baynet, Solmecs and SCNV.
Exhibit 10.6 10.6 Agreement with Tahera Corporation
Exhibit 21 * List of Subsidiaries as at June 30, 2002.
*Filed herewith
FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2001 AND 2002.
Bay Resources, Ltd
Audited Consolidated Financial Statements for the Company and its
Subsidiaries for the year ended June 30, 2001 and audited Financial
Statements for the Company for the year ended June 30, 2002.
(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]
(7) [Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 2001]
27
BAY RESOURCES LTD, AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Consolidated Financial Statements
June 30, 2002 and 2001
(with Independent Auditor's Report)
28
CONTENTS
Page
Report of Independent Auditor 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-13
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, 2002 and 2001 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, 2002. 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, 2002 and 2001 and the results of its operations and
its cash flows for each of three years in the period ended June 30, 2002, 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 (7) 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 (7). The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Salt Lake City, Utah /s/ David T. Thomson P.C.
September 24, 2002
P.O. Box 571605, Murray, Utah 84157 (801) 966 9481
1
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Consolidated Balance Sheets
June 30, 2002 and 2001
Australian Dollars
Convenience
Translation
A$000's A$000's US$000's
2001 2002 2002
---- ---- ----
ASSETS
Current Assets:
Cash $1 $ - $ -
Staking Deposit - 23 13
------- ------- -------
Total Current Assets 1 23 13
------- ------- -------
Other Assets:
Capitalised Mining & Exploration - - -
Investment Securities - - -
Organisational Costs, net - - -
------- ------- -------
Total Other Assets - - -
------- ------- -------
Total Assets $1 $23 $13
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses $264 $449 $250
Short-Term Loan - Affiliate - 36 20
------- ------- -------
Total Current Liabilities 264 485 270
Long-Term Debt 641 784 437
------- ------- -------
Total Liabilities 905 1,269 707
------- ------- -------
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) (11)
Additional Paid-in-Capital 25,175 25,175 14,022
Accumulated Other Comprehensive Loss (1,989) - -
Retained Deficits (24,071) (26,402) (14,706)
------- ------- -------
Total Stockholders' Deficit (904) (1,246) (694)
------- ------- -------
Total Liabilities and Stockholders' Deficit $1 $23 $13
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
2
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Consolidated Statements of Operations
For the years ended June 30, 2002, 2001 and 2000
Convenience
Translation
A$000' A$000' A$000' US$000's
2000 2001 2002 2002
Revenues $- $- $- $-
------- ------- ------- -------
Cost and expenses
Exploration Expenditure -- -- 13 7
Interest Expense 80 69 90 50
Legal, Accounting & Professional 69 43 21 12
Administrative 244 295 218 121
------- ------- ------- -------
393 407 342 190
------- ------- ------- -------
Loss from Operations (393) (407) (342) (190)
------- ------- ------- -------
Foreign Currency Exchange Gain (Loss) -- -- -- --
Permanent decline of Investment -- (4,516) -- --
------- ------- ------- -------
-- (4,516) -- --
------- ------- ------- -------
Profit (Loss) before Income Tax (393) (4,923) (342) (190)
Provision for Income Tax -- -- -- --
------- ------- ------- -------
Net Profit (Loss) $ (393) $(4,923) $ (342) $ (190)
======= ======= ======= =======
Earnings (Loss) per Common Equivalent Shares From
Continuing Operations $ (.07) $ (.78) $ (.05) $ (.03)
======= ======= ======= =======
Weighted Number of Common Equivalent
Shares Outstanding 5,680 6,347 6,347 6,347
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
BAY RESOURCES, LTD AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Consolidated Statements of Stockholders' Equity
June 30, 2002, 2001 and 2000
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, 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)
Reclassification of Permanent
Decline in Investment Securities -- -- -- -- (1,989) 1,989 --
Comprehensive Income
Net loss (342) -- (342)
--------
Total Comprehensive Income (342)
------- ------- ------- ------- -------- ------- --------
Balance June 30, 2002 6,347 $ 1 $ (20) $ 25,175 $(26,402) $- $ (1,246)
======= ======== ======= ======== ======== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2002, 2001 and 2000
Convenience
Translation
A$000's A$000's A$000's US$000's
2000 2001 2002 2002
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (393) $(4,923) $ (342) $ (190)
Adjustments
Foreign Currency Translation -- -- -- --
Depreciation & Amortisation -- -- -- --
Permanent Decline of Investment -- 4,516 -- --
Net Change In:
Staking Deposit -- -- (23) (13)
Organisation Cost 1 -- -- --
Accounts Payable and Accrued Expenses (11) (21) 185 103
Short-Term Loan - Affiliates -- -- 36 20
------- ------- ------- -------
Net Cash Used in Continuing Operations (403) (428) (144) (80)
Net Cash (used in) Discontinued Operations -- -- -- --
------- ------- ------- -------
Net Cash (used in) Operating Activities (403) (428) (144) (80)
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in Treasury Stock -- -- --
Net Proceeds from Investments -- -- --
------- ------- ------- -------
Net Cash Provided by (Used in) Investing Activities -- -- -- --
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing From Affiliates 284 427 143 79
Sale of Options 120 -- -- --
New Borrowing -- -- -- --
------- ------- ------- -------
Net Cash Provided by (Used in) Financing Activities 404 427 143 79
------- ------- ------- -------
Net Increase (Decrease) in Cash 1 (1) (1) (1)
Cash at Beginning of Year 1 2 1 1
------- ------- ------- -------
Cash at End of Year $ 2 $ 1 $ -- $ --
======= ======= ======= =======
Supplemental Disclosures
Common Stock Issued in Lieu of Debt Repayment 4,076 -- -- --
Interest Paid (Net Capitalised) 80 69 90 50
Income Taxes Paid -- -- -- --
The accompanying notes are an integral part of these consolidated financial
statements.
5
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2002 and 2001
(1) ORGANIZATION
Bay Resources, Ltd. ("Bay") is incorporated in the State of Delaware.
The principal shareholder of Bay is Edensor Nominees Proprietary
Limited ("Edensor"), an Australian corporation. Edensor owned 78.8% of
Bay as of June 30, 2002. 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. In June 2002, the Company
incorporated a new wholly owned subsidiary, 4075251 Canada Inc, a
corporation incorporated under the laws of Canada. 4075215 Canada Inc
is the vehicle that will be used by the Company to undertake
exploration activities for gold in Canada.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has recently issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, SFAS No. 142, Goodwill and Other Intangible Assets, SFAS
No. 143, Accounting for Asset Retirement Obligations, SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets and SFAS
No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Conditions.
SFAS No. 141, Business Combinations, requires the use of the purchase
method of accounting for all business combinations initiated after June
30, 2001. SFAS No. 142, Goodwill and Other Intangible Assets, addresses
accounting for the acquisition of intangible assets and accounting for
goodwill and other intangible assets after they have been initially
recognised in the financial statements, which is effective for fiscal
years beginning after December 15, 2001; however, certain provisions of
this Statement apply to goodwill and other intangible assets acquired
between July 1, 2001 and the effective date of SFAS 142.
Major provisions of these Statements and their effective dates for the
Company are as follows:
- All business combinations initiated after June 30, 2001 must
use the purchase method of accounting, with the pooling of
interest method of accounting prohibited.
- Intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the
acquired entity.
6
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2002 and 2001
(2) RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
- Goodwill, as well as intangible assets with
indefinite lives, acquired after June 30, 2001 will
not be amortised. In the year of adoption, all
previously recognised goodwill and intangible assets
with indefinite lives will no longer be subject to
amortization.
- Goodwill, tested by business segment and intangible
assets with indefinite lives will be tested for
impairment annually and wherever there is an
impairment indicator.
Management has adopted SFAS No. 141 and 142 as of June 30, 2002 and
anticipates that there will be no impact on the 2002 financial
statements.
SFAS No. 143, Accounting for Asset Retirement Obligations, addresses
accounting and reporting for obligations associated with the retirement
of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 will be effective for the Company for the fiscal
year beginning January 1, 2003 and early adoption is encouraged. SFAS
No. 143 requires that the fair value of a liability for an asset's
retirement obligation be recorded in the period in which it is incurred
and the corresponding cost capitalised by increasing the carrying
amount of the related long-lived asset. The Company estimates that the
new standard will not have a material impact on its financial
statements.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, is effective for the Company on January 1, 2003, and addresses
accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of and APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a
Business. SFAS No. 144 retains the fundamental provisions of SFAS No.
121 and expands the reporting of discontinued operations to include all
components of an entity with operations that can be distinguished from
the rest of the entity and that will be eliminated from the ongoing
operations of the entity in a disposal transaction. The Company
estimates that the new standard will not have a material impact on its
financial statements.
SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections is
effective for the Company on January 1, 2003 and records FASB Statement
No. 4. Reporting Gains and Losses from Extinguishment of Debt and an
amendment of that Statement, FASB Statement No. 64, Extinguishments of
Debt made to Satisfy Sinking-Fund Requirements. This Statement also
rescinds FASB Statement
7
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2002 and 2001
(2) RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
No. 44, Accounting for Intangible Assets of Motor Carriers. This
Statement Amends FASB Statement No. 13, Accounting for Leases, to
eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. The Statement also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings or describe their applicability under changes
conditions. The Company estimates that the new standard will not have a
material impact on its financial statements.
(3) 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,
Baynet International Pty Ltd and 4075251 Canada Inc. 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.
8
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2002 and 2001
(3) ACCOUNTING POLICIES (Continued)
(d) Financial Instruments
The following methods and assumptions were used by Bay to
estimate the fair values of financial instruments as disclosed
herein:
(i) Cash and Equivalents - The carrying amount
approximates fair value because of the short period
to maturity of the instruments.
(ii) Investment Securities - For both trading securities
and available-for-sale securities, the carrying
amounts approximate fair value.
(iii) Long-term Debt - The fair value of long-term debt is
estimated based on interest rates for the same or
similar debt offered to Bay having the same or
similar remaining maturities and collateral
requirements.
(e) Investment Securities
Management determines the appropriate classification of
investment securities at the time they are acquired and
evaluates the appropriateness of such classification at each
balance sheet date. The classification of these securities and
the related accounting policies are as follows:
(i) Trading securities are held for resale in
anticipation of short-term fluctuations in market
prices. Trading securities consisting primarily of
actively traded marketable equity securities are
stated at fair value. Realised and unrealised gains
and losses are included in income.
(ii) Available-for-sale securities consist of marketable
equity securities not classified as trading
securities. Available-for-sale are stated at fair
value and unrealised holding gains and losses net of
the related deferred tax effect, are reported as a
separate component of stockholders' equity.
(iii) Dividends on marketable equity securities are
recognised in income when declared. Realised gains
and losses are included in income. Realised gains and
losses are determined on the actual cost of the
securities sold.
9
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2002 and 2001
(3) ACCOUNTING POLICIES (Continued)
(f) Cash and Cash Equivalents
Bay considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash
equivalents. For the periods presented there were no cash
equivalents.
(g) Property and Equipment
Property and equipment is stated at the lower of historical
cost or market or in the case of acquisitions from related
parties at the lower of historical cost to the related party
or market. Depreciation is computed over a period covering the
estimated useful life of the applicable property and
equipment.
(h) Income Tax
Income taxes are provided on financial statement income. For
the periods presented there was no taxable income. There are
no deferred income taxes resulting from timing differences in
reporting certain income and expense items for income tax and
financial accounting purposes. Bay at this time is not aware
of any net operating losses which are expected to be realised.
(i) Earnings (loss) per share
Primary (loss) per share is computed based on the weighted
average number of common shares and common share equivalents
outstanding during the period.
(j) Exploration Expenditure
Exploration expenditure consisting of prospecting and
exploration costs are written off against earnings as
incurred.
(k) Convenience Translation to US$
The consolidated financial statements at June 30, 2002 have
been translated into United States dollars using the rate of
exchange of the United States dollar at June 30, 2002 (AUS
$1.00=US $0.5569). The translation was made solely for the
convenience of readers in the United States.
(l) 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.
10
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2002 and 2001
A$000's A$000's
2001 2002
---- ----
(4) INVESTMENT SECURITIES
The following is a summary
of Investment
Securities, 2000 and 2001:
Investment, Cost method
Available for Sale Securities $ 4,516 $ 4,516
Marketable Equity Securities, at cost -- --
Gross Realised Loss or impairment (4,516) (4,516)
------ ------
Marketable Equity Securities,
at fair value $- $-
====== ======
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
2002 and 2001 and all securities were treated as available for sale for
2002 and 2001. 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 $4,516,000.
A$000's A$000's
2001 2002
---- ----
(5) SHORT TERM AND LONG-TERM DEBT
The following is a summary of Bay's borrowing arrangements as of June 30,
2000 and 2001.
Long Term
Loan from corporations affiliated with the President of Bay. Interest
accrues at the ANZ Banking Group Limited rate +1% for overdrafts over
$100,000. Repayment of loan not required before June 30, 2003. (1) $641 $784
==== ====
(1) During the year ended June 30, 2000, the Company issued 8,000,000 options
to purchase previously unissued stock in lieu of payment of this debt.
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.
11
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2002 and 2001
(6) AFFILIATE TRANSACTIONS
Bay advances to and receives advances from various affiliates. All
advances between consolidated affiliates are eliminated on
consolidation. At June 30, 2002 and 2001 Bay had outstanding advances
to unconsolidated affiliated companies of $0 and $23,000, respectively
and from unconsolidated affiliated companies of $0 and $36,000,
respectively. $389,088 and $185,000 of accounts payable for the years
shown is due to an affiliated management company. During the years
ending June 30,2002, 2001 and 2000, Bay paid management fees to this
affiliated management company in the amounts $170,000, $267,000 and
$163,000 respectively. These entities are affiliated through common
management and ownership.
(7) GOING CONCERN
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles, which
contemplates continuation of Bay as a going concern. However, Bay has
sustained recurring losses. In addition, Bay has a net working capital
deficiency which raises substantial doubts as to its ability to
continue as a going concern.
Bay anticipates that it will be able to defer repayment of certain of
its short term loan commitments until it has sufficient liquidity to
enable these loans to be repaid or other arrangements to be put in
place.
In addition Bay has historically relied on loans and advances from
corporations affiliated with the President of Bay. Based on discussions
with these affiliate companies, Bay believes this source of funding
will continue to be available.
Other than the arrangements noted above, Bay has not confirmed any
other arrangement for ongoing funding. As a result Bay may be required
to raise funds by additional debt or equity offerings in order to meet
its cash flow requirements during the forthcoming year.
(8) 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.
12
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
(8) SALE OF SOLMECS (Continued)
SCNV is a Delaware corporation established May 1997 to select, develop
and commercially exploit proprietary technologies, in various stages of
development, invented primary by scientists who have been recently
immigrated to Israel from and by scientists and institutions in Russia
and other countries that formerly comprised the Soviet Union.
Simultaneously with the SCNV stock acquisition by the Company, SCNV
completed an initial public offering of common stock and warrants which
resulted in gross proceeds of approximately US$5,900,000
The Company has been granted certain demand and "piggyback"
registration rights with respect to the SCNV shares. Notwithstanding
the foregoing, the Company has agreed not to sell, grant options for
sale of assign or transfer any of the SCNV shares, for a period of 24
months from the closing of the agreement which expired in June 2000.
Bay Resources has requested SCNV to take the necessary steps to
register Bay Resources' shareholding in SCNV. The Company does not
currently have any plans to distribute the shares.
(9) INCOME TAXES
Bay files its income tax returns on an accrual basis. Bay has carry
forward losses of approximately US$19 million as of June 30, 2002 which
expire in the years 2003 through 2022, Bay 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 carry forwards. Due to
the uncertainty as to realization of these losses, a valuation
allowance of US$6 million has been recorded to offset the tax benefit
of the carry forward losses. During the year ended June 30, 2002 Bay
provided for a net change in its valuation allowance of US$10,000.
(10) CANADIAN AGREEMENT
During the 2002 fiscal year, Bay continued to expand its gold
exploration business by entering into an agreement to explore for gold
on extensive property interests in northern Canada held by Tahera
Corporation; and making application via a new 100% owned subsidiary,
4075251 Canada Inc, for properties in the highly prospective Committee
Bay Greenstone Belt in Nunavut, Canada.
13
BAY RESOURCES, LTD. AND SUBSIDIARIES
(formerly Baynet Ltd and Bayou International, Ltd)
Supplementary Financial Information
FISCAL YEAR ENDED
June 30, 2001 June 30, 2002
A$000's A$000's
------- -------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Revenues -- -- -- -- -- -- -- --
Loss from Operations (175) (145) (118) 31 (100) (123) (96) (23)
Permanent
decline of
Investment -- -- -- (4,516) -- -- -- --
Income (loss)
Before Income Taxes (175) (145) (118) (4,485) (100) (123) (96) (23)
Net Profit (Loss) (175) (145) (118) (4,485) (100) (123) (96) (23)
Earnings (Loss) per
Common Equivalent
Share (.03) (.02) (.02) (.71) (.02) (.02) (.02) (.00)
14