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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998 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
BAYOU INTERNATIONAL, 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.)
210 Kings Way, South Melbourne, Victoria, 3205, Australia
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 011 (613) 9234 1100
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange
on which registered
N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $0.15 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, US$0.15 par value per
share ("Common Stock") held by non-affiliates of the Company was A$4,849,215
(US$3,006,514)as at November 4, 1998.
There were 46,941,789 outstanding shares of Common Stock as of June 30, 1998
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TABLE OF CONTENTS PAGE
PART I
Item 1 Business 3
Item 2 Properties 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 7
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters 8
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 8 Not applicable 15
Item 9 Not applicable 15
PART III
Item 10 Directors and Executive Officers of the Registrant 16
Item 11 Executive Compensation 18
Item 12 Security Ownership of Certain Beneficial Owners 19
and Management
Item 13 Certain Relationships and Related Transactions 20
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 22
Signatures 23
Exhibit Index 25
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PART I
ITEM 1 BUSINESS
GENERAL
Bayou International, Ltd., a Delaware corporation (the "Company") is primarily a
holding company whose major asset is 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 will continue to pursue other business activities which may be in
the fields of energy conversion and conservation (such activities not being in
competition with SCNV) and/or other industries including the mineral exploration
industry.
In connection with Bayou's future business activities, it is the policy of
Bayou's Board of Directors that Bayou will not engage in any activities the
scope and nature of which would subject Bayou 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, 1998 have been translated into United
States Dollars ("US$") using the rate of exchange at June 30, 1998
[(A$1.00=US$0.620)].
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 Bayou
International, 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).
RECENT DEVELOPMENTS
On July 21, 1998 the Company lodged Form 8-K with the Securities and Exchange
Commission, advising that by the Stock Purchase Agreement made July 8, 1998 and
dated June 5, 1998 referred to above, the Company had sold all of the issued
capital of its wholly-owned subsidiary Solmecs to SCNV. Consideration for the
sale was 499,701 shares in SCNV, representing approximately 24% of that company.
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The sale of Solmecs, which had represented the major undertaking of the Company,
had received the Written Consent of Stockholders, a pro-forma of which was
included as Annex A to an Information Statement mailed out to Stockholders on
June 5, 1998.
As a result of this transaction the major asset of the Company is its investment
in the issued share capital of SCNV.
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 acquired a 100% owned subsidiary, Bayou
Australia Pty Ltd, a corporation incorporated under the laws of Australia.
SOLMECS CORPORATION N.V.
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.
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The presently ongoing LMMHD program of Solmecs commenced in 1981. The program
concentrates on the development of OMACON systems and toward the
commercialisation of small-scale power plants being able to utilise a variety of
heat sources. This program is called the ETGAR Program.
The majority of Solmecs' activities are located in Israel. Ben-Gurion
University, through its commercial arm, Advanced Products (Beer-Sheva) Ltd.
("AP"). AP has assigned all of its rights, title and interest in and to the
patents and technology which underlie the OMACON generator to Solmecs for
consideration of an initial payment of $100,000 and ongoing royalties. Solmecs
has agreed to certain obligations to the Government of Israel in relation to
research grants, and has obligations to conduct certain of its research through
the MHD centre at Ben-Gurion University.
A further subsidiary of Solmecs, Heatex Ltd, was formed in 1995 to research
develop and commercialise a domestic hot water tank control and display system.
Between 1987 and 1997 the Company advanced approximately US$5,000,000 to Solmecs
to fund its day to day operating expenses, and invested a similar amount in
Solmecs over the same period.
In determining to approve the disposition of Solmecs pursuant to the Stock
Purchase Agreement the Board considered that Solmecs will require substantial
additional funds in order to complete the development and commercialisation of
the ETGAR project. The Company has been unable to obtain the necessary funding.
The Board believed that in the light of the limited resources available to the
Company, it would be advisable for the Company to seek to refocus its business
towards other businesses or activities that would provide greater opportunities
for commercial development in the near term, without the same level of
investment that Solmecs will require.
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, Bayou converted all inter-company
indebtedness from Solmecs to Bayou (which aggregated approximately US$5,000,000)
to a capital contribution to Solmecs.
Bayou has been granted certain demand and "piggyback" registration rights with
respect to the SCNV Shares. Notwithstanding the foregoing, Bayou 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, provided, however,
that under certain circumstances
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Bayou shall have the right to distribute the SCNV Shares pro rata to its
stockholders and provided further that the recipients will take such Shares
subject to the remaining term of the lock-up. Bayou does not currently have any
plans to distribute the SCNV Shares to its stockholders.
Certain pre-conditions applied to the Agreement, including conditions relating
to the obtaining of shareholder consents, accuracy of representations and
Branover executing an Employment Agreement with SCNV.
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 recently 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.
EMPLOYEES
Following the sale of Solmecs, the Company does not directly employ any staff.
The services of the Company's Chief Executive Officer and Chief Financial
Officer as well as clerical employees are provided to the Company on a part-time
basis pursuant to a Service Agreement dated November 25, 1988 (the "Service
Agreement") by and between the Company and A.W.I. Administration Services Pty
Limited ("AWI Admin"). AWI Admin also provides office facilities, equipment,
administration and clerical services to the Company pursuant to the Service
Agreement. The Service Agreement may be terminated by written notice from the
parties thereto.
Further detail relating to additional terms of the Service Agreement is included
in "Item 2- Properties", "Item 13- Certain Relationships and Related
Transactions" and "Item 11- Executive Compensation".
ITEM 2 PROPERTIES
The Company occupies certain executive and office facilities in Melbourne,
Victoria, Australia which are provided to it pursuant to the Service Agreement
with AWI Admin. See "Item 1- Business- Employees" and "Item 13- Certain
Relationships and Related Transactions".
The Company believes that its administrative space is adequate for its current
needs.
ITEM 3 LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party, or to
which any of its property is the subject, which the Company considers material.
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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The transfer by the Company to SCNV of its shares in Solmecs pursuant to the
Stock Purchase Agreement may be deemed to constitute the sale of substantially
all of the assets of the Company. Under the Delaware General Corporation Law,
such a transaction requires the approval of the holders of a majority of the
issued and outstanding shares of Common Stock of the Company.
As of June 5, 1998 (the date of the Written Consent), 46,941,789 shares of
Common Stock of the Company were issued and outstanding. Thus, Stockholders
representing not less than 23,470,895 shares of Common Stock were required to
execute the Written Consent to effect the matters set forth therein.
Edensor Nominees Pty Limited and certain other companies which have some common
Directors with the Company, together beneficially owning not less than
32,445,599 shares of Common Stock, or 69.2% of the issued and outstanding Common
Stock, executed the Written Consent, thereby ensuring that Stockholders
representing a majority of the issued and outstanding shares of Common Stock of
the Company have consented to the transactions contemplated by the Stock
Purchase Agreement.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is traded in the over-the-counter market. The trading for the
Common Stock has been sporadic and the market for the Common Stock can not be
classified as an established trading market.
The following table sets out the high and low bid information for the Common
Stock as reported by the National Quotation Service Bureau for each
period/quarter indicated (in US$):
CALENDAR PERIOD HIGH BID(1)(2) LOW BID(1)(2)
- --------------- -------- -------
1996
First Quarter ................. 1/2 1/4
Second Quarter ................ 5/8 3/8
Third Quarter ................. 5/8 5/8
Fourth Quarter ................ 1/2 1/2
1997
First Quarter ................. 3/8 3/8
Second Quarter ................ 1/4 1/4
Third Quarter ................. 1/4 1/4
Fourth Quarter ................ 1/4 1/8
1998
First Quarter ................. 1/8 1/8
Second Quarter ................ 5/32 1/8
Third Quarter ................. 3/8 3/8
(1) The quotations set out herein reflect interdealer prices without retail
mark-up, mark-down or commission and may not necessarily reflect actual
transactions.
(2) These prices reflect market adjustments made in connection with the
Company's one-for-five reverse stock split effective as of December 31,
1986.
On June 30, 1998 the closing bid for the Common Stock was US$1/8.
SHAREHOLDERS
As of November 1, 1998 the Company had approximately 300 shareholders of record.
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DIVIDEND POLICY
It is the present policy of the Board of Directors to retain earnings for use in
the Company's business. The Company has not declared any cash dividends to the
holders of its Common Stock and does not intend to declare such dividends in the
foreseeable future
TRANSFER AGENT
The United States Transfer Agent and Registrar of the Company is The Bank of New
York.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the Company presented below for
each of the years in the five-year period ended 30 June, 1998, and the balance
sheet data at June 30, 1994, 1995, 1996, 1997 and 1998 have been derived from
the consolidated financial statements of the Company, which financial statements
have been examined by Rodee and Associates PC, independent accountants, in
respect of the year ended June 30, 1994, and by David T. Thomson PC, independent
accountants, in respect of the years June 30, 1995, 1996, 1997,and 1998. The
selected financial data should be read in conjunction with the consolidated
financial statements of the Company for each of the years in the three-year
period ended June 30, 1998, and Notes thereto, which are included elsewhere in
this Annual Report and with "Item 7- Management's Discussion and Analysis of
Financial Condition and Results of Operations".
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CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year ended June 30
CONV.
TRANSL.
1994 1995 1996 1997 1998 1998
A$ A$ A$ A$ A$ US$
Revenues -- -- -- -- -- --
-----------------------------------------------------------------------------
Costs and expenses (1,402) (1,229) (244) (380) (544) (337)
-----------------------------------------------------------------------------
Loss from operations (1,288) (1,147) (244) (380) (544) (337)
Other income (loss) 686 220 (550) 344 7,280 4,513
-----------------------------------------------------------------------------
Profit (loss) before income
taxes (602) (927) (794) (36) 6,736 4,176
Provision for income taxes -- -- -- -- -- --
-----------------------------------------------------------------------------
Net profit (loss) from (602) (927) (794) (36) 6,736 4,176
Continuing Operations
Net loss from -- -- (1,216) (1,224) (952) (590)
Discontinued Operations
-----------------------------------------------------------------------------
Net profit (loss) (602) (927) (2,010) (1,260) 5,784 3,586
-----------------------------------------------------------------------------
A$ A$ A$ A$ A$ US$
Net profit (loss)
Per share
On continuing operations (0.03) (0.03) (0.01) -- 0.14 0.09
On discontinued operations -- -- (0.03) (0.03) (0.02) (0.01)
------------------------------------------------------------------
(0.03) (0.03) (0.04) (0.03) 0.12 0.08
------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
Weighted average number
of shares outstanding 34,501 46,942 46,942 46,942 46,942 46,942
-----------------------------------------------------------------------
A$ A$ A$ A$ A$ US$
Total assets 2,060 1,357 717 1 4,518 2,800
Total liabilities 660 1,542 2,344 3,507 3,814 2,365
------------------------------------------------------------------------
Stockholders' equity
(deficiency) 1,400 (185) (1,627) (3,506) 704 435
------------------------------------------------------------------------
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FOREIGN CURRENCY TRANSLATION
The majority of the Company's administrative operations are in Australia and, as
a result, its accounts are maintained in Australian dollars. The income and
expenses of its foreign operations are translated into Australian dollars at the
average exchange rate prevailing during the period. Assets and liabilities of
the foreign operations are translated into Australian dollars at the period-end
exchange rate. The following table shows the average rates of exchange of the
Australian dollar compared with the US dollar during the periods indicated.
YEAR ENDED
JUNE 30
1994 A$1.00 = US$0.724
1995 A$1.00 = US$0.711
1996 A$1.00 = US$0.787
1997 A$1.00 = US$0.746
1998 A$1.00 = US$0.620
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1998 VERSUS YEAR ENDED JUNE 30, 1997
The results of the Company's operations for the year were affected by the sale,
on July 8, 1998, of the main undertaking of the Company, that is, its ownership
of Solmecs. As a result, the results of operations for the years ended June 30,
1994, 1995, 1996, 1997 and 1998 are not comparable. The results of operations of
Solmecs so disposed of are presented to the consolidated financial statements as
discontinued operations. Results for previous years have been restated
accordingly.
Total costs and expenses increased from A$380,000 for the year ended June 30,
1997 to A$544,000 (US$337,000) for the year ended June 30, 1998. The increase
was a net result of
i) an increase in interest expense from A$256,000 to A$290,000
(US$179,000) resulting from increased borrowings by the Company;
ii) an increase in legal, accounting and professional costs from A$33,000
to A$145,000 (US$90,000) as a result of an increase in professional
fees connected to the Solmecs reorganisation.
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iii) an increase in general administration expenses from A$91,000 to
A$109,000 (US$68,000) connected to the additional costs incurred in
regard to the sale of Solmecs.
Accordingly, the loss from operations increased from A$380,000 for the year
ended June 30, 1997 to A$544,000 (US$337,000) for the year ended June 30, 1998.
An unrealised foreign exchange gain of A$1,381,000 (US$856,000) was recorded for
the year ended June 30, 1998 compared with an unrealised foreign exchange gain
of A$346,000 in the prior year. As a result of the disposal of Solmecs, the
Company has recorded a gain of A$5,899,000 (US$3,657,000) for which there is no
comparable amount in the prior year. This gain relates to the elimination of
losses of Solmecs during the period which the Company held a controlling
interest in Solmecs, offset by the forgiveness of intercompany borrowings to
Solmecs.
As a result of the foregoing, the Company recorded a net profit from continuing
operations before income tax of A$6,736,000 (US$4,176,000) compared to a loss of
A$36,000 in the year ended June 30, 1997.
The Company was not required to provide for income tax during the years ended
June 30, 1998 or 1997.
The net loss from Discontinued Operations being the loss attributable to the
operations of Solmecs decreased from A$1,224,000 for the year ended June 30,
1997 to A$952,000 (US$590,000) for the year ended June 30, 1998.
The net profit for the year amounted to A$5,784,000 (US$3,586,000) compared to a
net loss of A$1,260,000 in the previous year. The net profit per common
equivalent share was A$0.12 (US$0.09) compared with a net loss per common
equivalent share of A$0.03 in the prior year. The number of common equivalent
shares outstanding was unchanged.
YEAR ENDED JUNE 30, 1997 VERSUS YEAR ENDED JUNE 30, 1996
Total costs and expenses increased from A$244,000 to A$380,000 for the year
ended June 30, 1997. The increase was a net result of:
(i) higher interest expense which increased from A$170,000 to A$256,000
resulting from increased borrowings by the Company.
(ii) lower legal, accounting and professional costs which decreased from
A$45,000 to A$33,000.
(iii) administration costs which increased from A$29,000 to A$91,000, with
costs arising from the negotiation of the proposed sale of Solmecs.
The loss from operations increased from A$244,000 for the year ended June 30,
1996 to A$380,000 for the year ended June 30, 1997.
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A unrealised foreign exchange gain of A$346,000 was recorded for the year ended
June 30, 1997 compared with an unrealised foreign exchange loss of A$552,000 in
the previous year. Foreign exchange gains and losses result from movements in
the exchange rate between the Australian dollar and the US dollar. The Company's
loan accounts are denominated in US dollars.
The Company recorded a loss from continuing operations before income tax of
A$36,000 compared with a loss of A$794,000 for the previous year.
The Company was not required to provide for income tax during either of the
years ended June 30, 1997 and 1996.
The net loss from Discontinued Operations being the loss attributable to the
operation of Solmecs increase from A$1,216,000 for the year ended June 30, 1996
to A$1,224,000 for the year ended June 30, 1997.
The net loss was A$1,260,000 for the year ended June 30, 1997 compared with a
net loss of $2,010,000 in the previous year.
The net loss per common equivalent share was A$0.03 (US$0.02) compared with
A$(0.04) in the previous year. The number of common equivalent shares
outstanding was unchanged.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998 the Company had the short-term obligations of A$229,000
(US$142,000) consisting of accounts payable and accrued expenses.
The Company also had long-term obligations of A$3,585,000 (US$2,223,000) at June
30, 1998 which were amounts owed to Chevas Pty Ltd of which Mr. J.I. Gutnick,
President of Bayou, 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
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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.
INFLATION
To date the Company believes that inflation has not had a material adverse
impact on its operations in Australia. In the United States the Company's
activities to date have been principally related to the exploration and
preliminary testing of certain mineral claims and, although the Company has not
operated in the United States during a period of significant inflation,
management believes that inflation would not have a material adverse effect on
such operations in this country.
SEASONALITY
Management believes that its operations are not subject to seasonal fluctuation.
IMPACT OF AUSTRALIAN TAX LAW
Australian resident corporations are subject to Australian income tax on their
non-exempt worldwide assessable income (which includes capital gains), less
allowable deductions, at the rate of 36%. Foreign tax credits are allowed where
tax has been paid on foreign source income, provided the tax credit does not
exceed 36% of the foreign source income.
Under the U.S./Australia tax treaty, a U.S. resident corporation such as the
Company is subject to Australian income tax on net profits attributable to the
carrying on of a business in Australia through a "permanent establishment" in
Australia. A "permanent establishment" is a fixed place of business through
which the business of an enterprise is carried on. The treaty limits the
Australian tax on interest and royalties paid by an Australian business to a
U.S. resident to 10% of the gross interest or royalty income unless it relates
to a permanent establishment. Although the Company considers that it does not
have a permanent establishment in Australia, it may be deemed to have such an
establishment due to the location of its administrative offices in Melbourne. In
addition the Company may receive interest or dividends from time to time.
IMPACT OF AUSTRALIAN GOVERNMENTAL, ECONOMIC, MONETARY OR FISCAL POLICIES
Although Australian taxpayers are subject to substantial regulation, the Company
believes that its operations are not materially impacted by such regulations nor
is it subject to any broader regulations or governmental policies than most
Australian taxpayers.
ITEM 8. NOT APPLICABLE
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ITEM 9. NOT APPLICABLE
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets out certain information in relation to each person who
held a position of Director and/or executive officer of the Company during the
year ended June 30, 1998.
NAME AGE POSITION(S) HELD
Joseph I. Gutnick 46 Chairman of the Board
President, Chief Executive Officer and
Director.
Henry Herzog 57 Vice President and Director.
Eduard Eshuys 53 Vice President and Director.
David Tyrwhitt 60 Director.
Peter Lee 41 Director, Secretary, Chief Financial
Officer and Chief Accounting Officer.
David H. Simcox 54 Director
JOSEPH I. 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 Great Central Mines Limited ("Great Central") and 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).
HENRY HERZOG.
Mr Herzog served as the President and Chief Executive Officer of the Company
from May, 1986 to March, 1988. In March, 1988 Mr Herzog became a Vice President
of the Company and Mr Gutnick became President and Chief Executive Officer of
the Company. Mr Herzog has served as a Director of the Company since May, 1986.
Mr Herzog was a Director of Australia Wide Industries Limited ("Australia Wide")
(which, in May, 1986 acquired 85.1% of the Company), and was a Director of
numerous subsidiaries of Australia Wide from 1983 to 1988. Since 1991 he has
been involved in hotel management, consulting and investment.
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EDUARD ESHUYS.
Mr Eshuys has been a Director of the Company since June, 1991. Mr Eshuys is a
Fellow of the Australian Institute of Mining and Metallurgy and a Fellow of the
Institute of Company Directors in Australia. He is a geologist, holding a
Bachelor of Science degree from the University of Tasmania. He has 21 years
experience in mineral exploration and management and in the development and
operation of gold mines in Australia. Mr Eshuys is a Director of several public
listed companies in Australia in the mining industry , including Great Central
Mines Limited ("Great Central") and 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).
DAVID STUART TYRWHITT.
Mr Tyrwhitt was appointed a Director of the Company in November, 1996. He is a
geologist, holding a Bachelor of Science degree and has 39 years experience in
mineral exploration and management development and operation of gold mines in
Australia. Mr Tyrwhitt is a Director of several public listed companies in
Australia in the mining industry, including Great Central Mines Limited ("Great
Central") and 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).
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 Institute of Company Secretaries in Australia Ltd., and holds a
Bachelor of Business (Accounting) from Royal Melbourne Institute of Technology.
He has over 17 years commercial experience and is currently General Manager
Corporate and Company Secretary of several public listed companies in Australia
, including Great Central Mines Limited ("Great Central") and 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).
DAVID SIMCOX
Mr Simcox has over 28 years of experience in the accounting and company
secretarial field primarily in resource based public listed companies in
Australia. Mr Simcox has had extensive experience in corporate management, being
both a Director and Secretary of a number of public listed companies in
Australia and overseas. He has a sound working knowledge of company laws of
Indonesia, Singapore, Malaysia, United States and The Netherlands. Mr Simcox has
also worked with mining and exploration joint ventures in Australia, Indonesia
and Malaysia.
17
18
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, 1998, other than as noted below.
In accordance with the Service Agreement, the Company paid AWI Admin A$16,500
for the fiscal year ended June 30, 1998, 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, 1998.
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, 1998 one of the non-executive Directors was paid
A$20,000 for services as a Director of the Company.
18
19
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, 1998 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)
Centaur 5,076,000 10.8%
Mamash Ltd 5,426,388 11.6%
AWI Admin 4,589,795 9.8%
Edensor Nominees
Pty Ltd 20,046,207 42.7%
Joseph I Gutnick 21,079,207 (2)(3) 44.9%
(4)(5)(6)
Stera M. Gutnick 20,566,207 (4)(6) 43.8%
Eduard Eshuys 100 (2) *
Henry Herzog - (3)
David Tyrwhitt - (2)
Peter Lee - (2)
David Simcox - (2)
------------------------------------
All officers and Directors
As a group 21,079,307 44.9%
------------------------------------
* Represents less than 1% of the outstanding Common Stock
19
20
NOTES RELATING TO ITEM 12:
(1) Based on 46,941,789 shares outstanding
(2) Does not include:
(i) 941,651 shares of Common Stock beneficially owned by Australia
Wide, or
(ii) 5,076,000 shares of Common Stock beneficially owned by
Centaur, or
(iii) 178,985 shares of Common Stock beneficially owned Mt. Kersey
Mining NL, or
(iv) 541,585 shares of Common Stock beneficially owned by
Australian Gold Resources Limited, or
(v) 38,376 shares of Common Stock beneficially owned by Quantum
Resources Limited, or
(vi) 4,589,795 shares of Common Stock beneficially owned by AWI
Admin,
of which companies Messrs Gutnick, Tyrwhitt, Eshuys, Lee and Simcox are
officers and/or Directors, as they disclaim beneficial ownership of
those shares.
(3) Does not include 50,000 shares of Common Stock beneficially owned by
the Company.
(4) Includes 20,046,207 shares of Common Stock owned by Edensor Nominees
Pty Ltd and 520,000 shares of Common Stock owned by Pearlway
Investments Proprietary Limited, of both of which Mr Joseph I. Gutnick,
Stera M. Gutnick and members of their family are officers, Directors
and principal stockholders.
(5) Joseph I. Gutnick is the beneficial owner of 513,000 shares of Common
Stock.
(6) Joseph I. Gutnick and Stera M. 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$16,500 in respect of the Service Agreement for the fiscal year
ended June 30, 1998. The Service Agreement may be terminated by written notice
by either party.
20
21
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.
21
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.
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.
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 25 of this Annual Report.
22
23
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.
BAYOU INTERNATIONAL, LTD.
(Registrant)
By: /s/ Peter J. Lee
--------------------------------
Peter J Lee
Director, Secretary,
Chief Financial Officer
and Principal Financial
and Accounting Officer
Dated: November 19, 1998
23
24
FORM 10-K SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/ Joseph I. Gutnick Chairman of the Board,
- ------------------------ President and Chief Executive
Joseph I. Gutnick Officer (Principal Executive
Officer), and Director. November 19, 1998
---------------
Vice President and Director. 1998
- ------------------------ ---------------
Henry Herzog
/s/ David Tyrwhitt Vice President and Director. November 19, 1998
- ------------------------ ---------------
David Tyrwhitt
/s/ Eduard Eshuys Vice President and Director. November 19, 1998
- ------------------------ ---------------
Eduard Eshuys
/s/ Peter Lee Director, Secretary,
- ------------------------ Chief Financial Officer and
Peter Lee Principal Financial and
Accounting Officer. November 19, 1998
---------------
/s/ David Simcox Director. November 19, 1998
- ------------------------ ---------------
David Simcox
24
25
BAYOU INTERNATIONAL, LTD AND SUBSIDIARY
Consolidated Financial Statements
June 30, 1998 and 1997
(with Independent Auditor's Report)
26
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 6-12
27
DAVID T.
THOMSON P.C. CERTIFIED PUBLIC ACCOUNTANT
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Bayou International, Ltd
I have audited the accompanying consolidated balance sheets of Bayou
International, Ltd (a Delaware corporation) and Subsidiary at June 30, 1998 and
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years then ended. 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 did not audit the financial statements of Solmecs Corporation, N.V., a
subsidiary of Bayou International, Ltd., which statements reflect total assets
of A$359,024 A$166,151 and A$180,997 as of June 30, 1998, 1997 and 1996,
respectively and total revenues of A$82,870 A$76,744 and A$147,367 respectively,
for the years then ended. Those statements were audited by other auditors whose
reports have been furnished to me, and my opinion, insofar as it relates to the
amounts included for Solmecs Corporation, N.V., is based solely on the reports
of the other auditors.
I conducted my audits in accordance with generally accepted auditing standards.
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 and the reports of other auditors provide a reasonable
basis for my opinion.
In my opinion, based on my audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Bayou International, Ltd. And
Subsidiary at June 30, 1998 and 1997 and the results of its operations and its
cash flows for each of three years in the period ended June 30, 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company and its subsidiary will continue as going concerns. As
discussed in Note (8) to the consolidated financial statements, the Company and
its subsidiary have suffered recurring losses from operations, have no net
working capital and have stockholders' deficits. These factors raise substantial
doubt as to the consolidated entities, ability to continue as going concerns.
Management's plans in regard to these matters are discussed in Note (8). The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Salt Lake City, Utah
October 8, 1998
P.O. Box 571605, Murry, Utah 84157 (801) 966 9481
28
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1998 and 1997
Australian Dollars Convenience
Translation
A$000's A$000's US$000's
1997 1998 1998
---- ---- ----
ASSETS
Current Assets:
Cash 1 1 1
Accounts Receivable, net - - -
Investments - - -
------------------------------------
Total Current Assets 1 1 1
------------------------------------
Other Assets:
Investments - 4,516 2,799
Property and Equipment, net - - -
Organisational Costs, net - 1 -
------------------------------------
Total Other Assets 1 4,517 2,799
------------------------------------
Total Assets 1 4,518 2,800
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses 140 229 142
------------------------------------
Total Current Liabilities 140 229 142
Long-Term Debt 2999 3,585 2,223
Net Liabilities of Discontinued
Operations 368 - -
------------------------------------
Total Liabilities 3,507 3,814 2,365
------------------------------------
Stockholders' Equity (Deficit):
Common stock: $0.20 par value
100,000,000 shares authorised,
46,941,789 shares issued and outstanding 9,388 9,388 5,820
Less Treasury Stock, at Cost, 50,000 - (20) (13)
shares
Additional Paid-in-Capital 11,592 11,592 7,187
Cumulative Translation Adjustments (435) (1,989) (1,233)
Retained Deficits (24,051) (18,267) (11,326)
------------------------------------
Total Stockholders' Equity (Deficit) (3,506) 704 435
------------------------------------
Total Liabilities and Stockholders' Equity 1 4,518 2,800
====================================
The accompanying notes are an integral part of these
consolidated financial statements.
2
29
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Consolidated Statements of Operations
For the years ended June 30, 1998, 1997 and 1996
Convenience
Translation
A$000's A$000's A$000' US$000's
1996 1997 1998 1998
---------------------------------------
Revenues -- -- -- --
---------------------------------------
Cost and expenses
Interest Expense 170 256 290 179
Legal, Accounting & Professional 45 33 145 90
Administrative 29 91 109 68
---------------------------------------
244 380 544 337
---------------------------------------
Loss from Operations (244) (380) (544) 337
---------------------------------------
Unrealised Gain on Investments 2 -- -- --
Gain (Loss) on Disposition of Assets (2) -- --
Foreign Currency Exchange Gain (Loss) (552) 346 1,381 856
Bad Debt Recovery -- -- -- --
Gain on disposal of Subsidiary -- -- 5,899 3,657
---------------------------------------
(550) 344 7,280 4,513
---------------------------------------
Profit (Loss) before Income Tax (794) (36) 6,736 4,176
Provision for Income Tax -- -- -- --
---------------------------------------
Net Profit (Loss) from Continuing
Operations (794) (36) 6,736 4,176
Discontinued Operations
Net Loss from Discontinued Operations (1,216) (1,224) (952) (590)
---------------------------------------
Net Profit (Loss) (2,010) (1,260) 5,784 3,586
---------------------------------------
Earnings (Loss) per Common Equivalent
Shares
From Continuing Operations (0.01) (.00) 0.14 0.09
From Discontinued Operations (.03) (.03) (.02) (.01)
---------------------------------------
Total (.04) .12 .08 (.03)
---------------------------------------
Weighted Number of Common Equivalent
Shares Outstanding 46,942 46,942 46,942 46,942
---------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
3
30
BAYOU INTERNATIONAL, LTD AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
June 30, 1998 and 1997
Additional Common Treasury Retained Cumulative
Shares Stock Stock, Paid-in Translation Earnings
------ Amount at Cost Capital Adjustments (Deficit)
------ ------- ------- ----------- ---------
A$000's A$000's A$000's A$000's A$000's A$000's
Balance June 30, 1995 46,942 9,388 -- 11,592 (665) (20,781)
Net Loss -- -- -- -- -- (2,010)
Foreign Currency
Translation -- -- -- -- 595 --
------------------------------------------------------------
Balance June 30, June 1996 46,942 9,388 -- 11,592 (70) (22,791)
Net Loss -- -- -- -- -- (1,260)
Foreign Currency
Translation -- -- -- -- (365) --
------------------------------------------------------------
Balance June 30, 1997 46,942 9,388 -- 11,592 (435) (24,051)
Net Profit -- -- 5,784
Foreign Currency
Translation -- -- (1,554) --
Acquisition of Treasury
Stock, at Cost, 50,000
shares -- -- (20) -- --
------------------------------------------------------------
Balance June 30, 1998 46,942 9,388 (20) 11,592 (1,989) (18,267)
------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
4
31
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1998, 1997 and 1996
Convenience
Translation
A$000's A$000's A$000's US$000's
1996 1997 1998 1997
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) from Continuing Operations (794) (36) 6,736 4,176
Adjustments
Foreign Currency Translation 595 (365) (1,554) (963)
Depreciation & Amortisation -- -- -- --
(Gain) Loss on Disposal of Assets -- 2 (5,899) (3,657)
Unrealised Gain (Loss) on Investments (2) --
Net Change In :
Accounts Receivable -- -- -- --
A/P & Accrued Expenses (10) 51 89 55
------------------------------------
Net Cash Used in Continuing Operations (211) (348) (628) (389)
Net Cash (used in) Discontinued Operations (1,052) (654) 63 39
------------------------------------
Net Cash (used in) Operating Activities (1,263) (1,002) (565) (350)
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in Treasury Stock -- -- (20) (13)
Investments in Subsidiary -- -- (1) (1)
Net Proceeds from Investments 50 -- -- --
------------------------------------
Net Cash Provided by (Used in) Investing
Activities 50 -- (21) (14)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing From Affiliates 1,210 1,002 586 364
New Borrowing -- -- -- --
------------------------------------
Net Cash Provided by (Used in) Financing
Activities 1,210 1,002 586 364
------------------------------------
Net Increase (Decrease) in Cash (3) -- -- --
Cash at Beginning of Year 4 1 1 1
------------------------------------
Cash at End of Year 1 1 1 1
------------------------------------
Supplemental Disclosures
Common Stock Issued in Lieu of Debt Repayment -- -- -- --
Interest Paid (Net Capitalised) 170 256 290 180
Income Taxes Paid -- -- -- --
The accompanying notes are an integral part of these
consolidated financial statements.
5
32
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998 and 1997
(1) ORGANIZATION
Bayou International, Ltd. ("Bayou") is incorporated in the State of Delaware.
The principal shareholder of Bayou is Edensor Nominees Proprietary Limited
("Edensor"), an Australian corporation. Edensor owned 42.7% of Bayou as of
June 30, 1998.
Bayou's acquired a controlling interest on September 3, 1987 in former
subsidiary, Solmecs Corporation N.V. ("Solmecs") and 100% ownership on January
2, 1992. Bayou sold its interest in Solmecs effective June 5, 1998.
During fiscal 1998, Bayou incorporated a further subsidiary, Bayou
Australia Pty Ltd, under the laws of Australia. Bayou Australia Pty Ltd
has not traded at June 30, 1998.
(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 Bayou and
the 100% interest it holds in Bayou Australia Pty Ltd. It also includes
the interest in Solmecs Corporation N.V. until the date of disposal.
All significant intercompany transactions and balances have been
eliminated in consolidation.
(b) Revenue Recognition
Research grants and contracts are recognised at the time granted and
commercial sales through Bayou's subsidiary are recognised on an accrual
basis.
(c) Foreign Currency Translation
The majority of Bayou's administrative operations are in Australia and as
a result its accounts are maintained in Australian dollars. The income and
expenses of its foreign operations are translated into Australian dollars
at the average exchange rate prevailing during the period. Assets and
liabilities of the foreign operations are translated into Australian
dollars at the period-end exchange rate.
6
33
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998 and 1997
ACCOUNTING POLICIES (Continued)
(d) Financial Instruments
The following methods and assumptions were used by Bayou 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 which is based on quoted market prices.
(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
Bayou 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.
(f) Cash and Cash Equivalents
Bayou 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. There were no
non-cash investing or financing activities.
7
34
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998 and 1997
(2) ACCOUNTING POLICIES (Continued)
(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. Bayou 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) Goodwill
Goodwill principally from the acquisition of Solmecs in 1987 and 1992
represents the excess of cost over fair value of net assets acquired
and is being amortised over ten years using the straight-line method.
(k) Convenience Translation to US$
The consolidated financial statements at June 30, 1998 have been
translated into United States dollars using the rate of exchange of the
United States dollar at June 30, 1998 (AUS $1.00=US $0.620). 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.
(m) Research and Development
Research and development costs are charged to operations as incurred.
8
35
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998 and 1997
A$000's A$000's
1997 1998
---- ----
(3) ACCOUNTS RECEIVABLE
Accounts Receivable at June 30,
1997 and 1998 includes:
Miscellaneous Receivables - -
Less Allowance for Doubtful Account - -
---------------------
Net - -
=====================
(4) SECURITIES
The following is a summary
of Investment Securities, 1997
and 1998:
Investment, Cost method - 4,516
Trading Securities:
Marketable Equity Securities, at - -
cost
Gross Unrealised Gains - -
Gross Unrealised Losses - -
---------------------
Marketable Equity Securities,
at fair value - 4,516
---------------------
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.
(5) PROPERTY
Property at June 30, 1997 and 1998
includes:
Office Furniture & Equipment - -
Motor Vehicles - -
--------------------------
- -
Less Accumulated Depreciation - -
--------------------------
- -
==========================
9
36
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998 and 1997
A$000's A$000's
1997 1998
(6) SHORT TERM AND LONG-TERM DEBT
The following is a summary of Bayou's
borrowing arrangements as of June 30, 1997
and 1998
Long Term
Loan from corporations affiliated with the
President of Bayou. Interest accrues
at the ANZ Banking Group Limited rate +1%
for overdrafts over $100,000. Repayment
of loan not required before June 30, 1999. 2,999 3,585
Short-Term
Overdraft arrangement with balance
Accruing interest - -
Notes Payable - Affiliates - -
-----------------------
Total 2,999 3,585
=======================
(7) AFFILIATE TRANSACTIONS
Bayou advances to and receives advances from various affiliates. All
advances between consolidated affiliates are eliminated on
consolidation. At June 30, 1998 Bayou had no outstanding advances to
or from unconsolidated affiliated companies. $125,000 and $168,000 of
accounts payable for the years shown is due to an affiliated
management company.
(8) GOING CONCERN
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles, which
contemplates continuation of Bayou as a going concern. However, Bayou
has sustained recurring losses. In addition, Bayou has a net working
capital deficiency which raises substantial doubts as to its ability
to continue as going concerns.
10
37
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998 and 1997
(8) GOING CONCERN (Continued)
Bayou 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 Bayou has historically relied on loans and advances from
corporations affiliated with the President of Bayou. Based on discussions
with these affiliate companies, Bayou believes this source of funding will
continue to be available.
Other than the arrangements noted above, Bayou has not confirmed any other
arrangement for ongoing funding. As a result Bayou may be required to raise
funds by additional debt or equity offerings in order to meet its cash flow
requirements during the forthcoming year.
(9) 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 which is included in other income.
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 ("Lock-up") agreement, provided, however, that under certain
circumstances, the Company shall have the right to distribute the SCNV
shares pro rata to its stockholders and provide further that the
11
38
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998 and 1997
(9) SALE OF SOLMECS (Continued)
recipients will take such shares subject to the remaining term of the
lock-up. The Company does not currently have any plans to distribute the
SCNV shares to its stockholders. Certain pre-conditions apply to the
agreement, including conditions relating to the obtaining of shareholder
consents, accuracy of representations and etc. See the agreement for
details.
The sale of Solmecs Corporation N.V. has been accounted for in the
consolidated financial statements as discontinued operations for all
periods presented. The assets and liabilities of discontinued operations as
of June 30, 1997, have been combined and reflected in the accompanying
balance sheet as net liabilities of discontinued operations.
The following is a summary of net assets and results of operations of
Solmecs Corporation N.V. as of June 30, 1996, 1997 and 1998 and for the
years then ended.
A$000 A$000's A$000's
June 30, June 30, June 30,
1996 1997 1998
Cash $73 $53 $7
Accounts receivable 53 62 167
Property and equipment, net 55 51 185
----------------------------------------
Total assets 181 166 359
----------------------------------------
Accounts payable and
Accrued Expenses 257 265 1,399
Long-term Debt 5,923 6,956 8,521
----------------------------------------
Net Assets (5,999) (7,055) (9,561)
========================================
Sales 147 77 83
Cost and Expenses 1,363 1,301 1,035
----------------------------------------
Loss before Income Tax (1,216) (1,224) (952)
Income Taxes - - -
----------------------------------------
Net Profit (Loss) (1,216) (1,224) (952)
=========================================
(10) INCOME TAXES
Bayou files its income tax returns on an accrual basis. Bayou has carry
forward losses of approximately US$14 million as of June 30, 1998 which
expire in the years 1999 through 2012. Due to the uncertainty as to
realization of these losses, no benefit has been recorded.
12
39
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
(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 Bayou,
Solmecs and SCNV.
Exhibit 21 * List of Subsidiaries as at June 30, 1998.
Exhibit 99 * Reports of other Accountants upon whom the
Principal Accountant is relying.
- Filed herewith
FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE
30, 1997 AND 1998.
Bayou International, Ltd
Audited Consolidated Financial Statements
for the Company and its Subsidiaries for
the year ended June 30, 1997 and audited
Financial Statements for the Company for
the year ended June 30, 1998.
Solmecs Corporation NV
Audited Financial Statements for the year
ended June 30, 1998.
(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