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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-K/A
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, 2000
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
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BAY RESOURCES LTD.
(FORMERLY BAYNET, LTD AND BAYOU INTERNATIONAL, LTD)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 98-0079697
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANISATION) IDENTIFICATION NO.)
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210 KINGS WAY, SOUTH MELBOURNE, VICTORIA, 3205, AUSTRALIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
011 (613) 9234 1100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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N/A N/A
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.0001 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part 111 of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value based on the average bid and asked price on the
over-the-counter market of the Registrant's common stock, ("Common Stock") held
by non-affiliates of the Company was A$9,492,604 (US$5,172,520) as at September
26, 2000.
There were 6,347,090 outstanding shares of Common Stock as of June 30, 2000.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Item 7A. Not applicable.............................................. 14
Item 8. Not applicable.............................................. 14
Item 9. Not applicable.............................................. 14
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 15
Item 11. Executive Compensation...................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 16
Item 13. Certain Relationships and Related Transactions.............. 18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 19
Signatures............................................................ 20
Exhibit Index......................................................... 22
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PART I
ITEM 1. BUSINESS
GENERAL
On October 20, 2000, the Company changed its name to Bay Resources Ltd.
This Form 10-K has been refiled to ensure shareholders, potential investors and
other stakeholders are aware of the change of name. References in the Form 10-K
to Baynet, Ltd or the Company should now be read as references to Bay Resources
Ltd.
Baynet, Ltd., a Delaware corporation (the "Company") is currently 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 has two wholly owned subsidiaries, Baynet International Pty Ltd
and Baynex.com.Pty Ltd, both of which are incorporated in Australia, and are
involved in the internet and information technology industry.
The Company is continuing to investigate new business opportunities which
may be in the area of mining and exploration and/or its existing business
activities.
In connection with Baynet's future business activities, it is the policy of
Baynet's Board of Directors that Baynet will not engage in any activities the
scope and nature of which would subject Baynet 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, 1999 have been translated into United
States Dollars ("US$") using the rate of exchange at June 30, 2000 of
A$1.00=US$0.6016.
The executive offices of the Company are located at 210 Kings Way, South
Melbourne Victoria, 3205, Australia and the telephone number is +613 9234 1100
(facsimile +613 9234 1110).
The term "Company" as defined above and as used in this Report refers to
Bay Resources, Ltd. and its predecessor corporation, Bayou Oil and Gas, Inc
("Bayou Oil") (described below), after giving effect to the reincorporation in
the State of Delaware (also described below).
HISTORY OF THE COMPANY
The Company's predecessor corporation, Bayou Oil, was incorporated under
the laws of Minnesota in 1973. From 1973 through to 1981 Bayou Oil was engaged
in the design and production of athletic equipment and it also owned rights to a
line of sportswear. These business lines were ultimately discontinued and in
March 1981 Bayou Oil entered into the oil and gas exploration business by
acquiring certain rights to oil and gas leases. These rights were not profitable
and, as a result, from 1981 through to May 1986 Bayou Oil did not engage in any
meaningful business activities or operations.
On March 6, 1987 Bayou Oil was reincorporated in the State of Delaware, its
name was changed to Bayou International, Ltd, and the par value of the stock was
increased from US$0.01 to US$0.15 per share.
In 1987 the Company acquired 54% of the issued and outstanding capital
stock of Solmecs, and in January 1992 acquired the remaining 46% of the issued
and outstanding shares. At that time, therefore, Solmecs became a wholly owned
subsidiary of the Company.
On February 13, 1998, the Company incorporated a 100% owned subsidiary,
Bayou Australia Pty Ltd, a corporation incorporated under the laws of Australia.
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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.
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.
RECENT DEVELOPMENTS
(i) NEW BUSINESS OPPORTUNITIES
(a) St Andrew Goldfields Ltd
On September 27, 2000 the Company announced that it had signed a term sheet
with St Andrew Goldfields Ltd ("St Andrew") and Edensor Nominees Pty Ltd
("Edensor") providing for a share exchange between the Company and St Andrew and
certain private placement arrangements that would, upon completion, result in
the Company owning approximately 36% of St Andrew.
St Andrew is listed on the Toronto Stock Exchange (TSE:T.SAS). St Andrew
has four gold systems, three mine sites with underground workings, approximately
50 square miles of land, and a 1300 tonne per day mill. The properties primarily
lie 23 to 50km east of Timmins, approximately 700km north of Toronto, along the
Porcupine Destor Fault Zone. Historically, gold mines in the Timmins area occur
along this fault zone and ten mines have already produced 1 to 20 million ounces
of gold with development from surface to over 5000 ft deep.
St Andrew advised in its announcement of its second quarter results that it
was focussing its efforts on its Taylor project and Stock mine and would
terminate the open pit mining operations at Hislop in December 2000.
The Taylor project is 8 miles from the existing Stock mine and mill and
gold mineralisation has been identified over 1.5 miles from the shaft westwards
to the Shoot zone. The high grade West Porphry zone lies in the middle and
remains open at depth. Current gold resources on the Taylor property are 1.03
million ounces of gold using grades only above 0.075 ounces. The current
resources are sufficient for at least a 12 year mine life with production of
50,000 to 70,000 ounces per year. One will be trucked to the Stock mill for
processing.
St Andrew currently operates the Stock mine which re-opened in the second
quarter of 2000. It produced 4,635 ounces of gold and an average head grade of
6.6 g/t and a recovery rate of 96.2%. Cash operating costs for the quarter were
US$234 per ounce. Recent positive diamond drill results indicate reserves
continue at depth and along strike.
The term sheet contemplates that the Company would exchange 1 million
common shares of the Company for 16 million shares of St Andrew (the "exchange
shares"). The deemed value of the common shares of St Andrew for the purpose of
the share exchange will be C$0.25 per share for a total consideration of C$4
million. As part of the share exchange, St Andrew will also issue to the
Company, 16 million common share purchase warrants for a 36 month period from
closing at a subscription price of C$0.25 per common share.
As part of the St Andrew financing, St Andrew will undertake on a best
efforts basis a private placement of up to 16 million common shares at a
subscription price of C$0.25 per share for a total consideration of C$4 million.
As part of the private placement, Edensor or its nominee will subscribe for a
minimum of C$1 million. In addition, subscribers for the common shares in the
private placement will be entitled to a share purchase warrant to acquire one
common share of St Andrew at price of C$0.25 per share for a period of 36 months
for a total consideration of C$4 million.
St Andrew will also undertake on a best efforts basis a private placement
to replace the existing secured financing arrangements and to provide additional
working capital with a first secured convertible debenture of up to C$4 million
which will be convertible into a unit at a price of C$0.25 each unit consisting
of one
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common share and a half share purchase warrant. Each whole warrant is
exercisable into one common share at C$0.25 per share for 36 months.
In connection with the share exchange, the Company will enter into a
put/call arrangement with respect to the Company's shares that have been
exchanged for St Andrew's shares. The exchange shares will be held in escrow and
released pro rata to the Company's shares being sold under the put/call to the
Company or otherwise realised by St Andrews. Edensor will guarantee the
Company's obligation under the put provisions.
Accordingly, potential proceeds to St Andrew from these financings total
C$22 million including C$8 million from the private placements, C$4 million from
the share exchange and C$10 million upon the exercise of warrants. These funds
will be used to improve St Andrew's working capital, replace the existing
secured debt facilities and finance the first phase underground exploration and
development program at Taylor. It is anticipated the balance of the capital cost
to bring Taylor into production will be funded by project financing.
In connection with the foregoing, the Company would be entitled to appoint
3 directors to the Board of Directors of St Andrew at closing. Mr. Joseph
Gutnick would be appointed as Executive chairman of St Andrew.
The share exchange transaction is subject to a number of conditions
including the signing of definitive agreements, completion of due diligence and
regulatory approval. The share exchange transaction is anticipated to close on
or about November 15, 2000. The private placement transactions are subject to
due diligence to each other closing and regulatory approval and are anticipated
to close prior to the share exchange transaction.
(b) Primus Telecom -- B2B Portal Opportunity
On May 23, 2000 the Company in conjunction with Primus Telecom, one of the
largest data, internet and telecommunications companies in Australia announced
they plan to jointly develop, establish and operate a global electronic trading
community ("Portal"), set to revolutionise activity within the international
mining industry.
The Portal will be an aggregation of buyers and sellers, promoting
efficiencies between parties, enabling them to attain cost savings, improved
revenue growth and a sense of community. The neutral Portal will specifically
cater for companies operating in the global minerals exploration, extraction and
processing industry. Currently, this segment of the industry is valued at US$890
billion, of which US$466 billion is the value of production and US$424 billion
is the value of annual expenditure.
Baynet will derive its revenue through the provision of a range of
functions including but not limited to:
- infomediary and community;
- online tendering;
- auctioning;
- online catalogue and transaction system;
- employment;
- data mining; and
- application service provider aspects
During the past several months, Baynet has worked closely with Primus and
AWI Administration Services Pty Ltd ("AWI"), to formulate the concept, model and
strategy for the Business-to-Business community.
The venture will leverage the core strengths of AWI in the mining sphere
and Primus in the eCommerce and telecommunications sphere. Baynet will further
benefit from the relationship between Primus and Open Markets Inc, a leading
supplier of enabling software, who will provide the core system architecture to
the mining portal.
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Baynet, has had initial discussions with a number of mining industry
participants, who have expressed their desire to be involved in the initiative.
It has already begun implementing its plans, with a pilot site set to be
launched in calendar 2000, of which there can be no assurance.
(ii) CHANGE OF NAME
On 20 September, 2000 the Company mailed an Information Statement to
shareholders related to the change of the Company name to Bay Resources Ltd. The
change of name becomes effective 21 days after the date of mailing.
The Company has been continuing to investigate new business activities over
the past twelve months and is pursuing an opportunity in the internet area with
Primus Telecommunications Group. This opportunity is in the area of a B2B
e-commerce as it relates to the mining and exploration industry. The Company is
also investigating other opportunities in the area of mining and exploration.
Accordingly, the Directors have become concerned that the name Baynet, Ltd.
places too much emphasis on the Company's activities to decidedly towards the
internet industry and therefore may restrict other opportunities in the mining
and exploration area. Therefore, the Directors believe a change of name to "Bay
Resources Ltd." more appropriate for the industry in which they wish to focus
the Company's activities. The change of name will have no effect on the Company.
Shareholders holding 84.1% of the issued and outstanding shares of the Company
have indicated they will vote in favour of the change of name.
SCNV ACQUISITION CORPORATION ("SCNV")
SCNV is a Delaware corporation established in May, 1997 to select, develop
and commercially exploit proprietary technologies, in various stages of
development, invented primarily by scientists who have immigrated to Israel from
and by scientists and institutions in, Russia and other countries that formerly
comprised the Soviet Union. In furtherance of this goal, SCNV has acquired
Solmecs.
THE AGREEMENT WITH SCNV
The Stock Purchase Agreement dated June 5, 1998 between the Company, SCNV
and Solmecs required the Company to deliver to SCNV all of the issued share
capital in its wholly owned subsidiary Solmecs, in return for 499,701 shares in
SCNV.
The consideration shares in SCNV represent 24% of SCNV's issued share
capital as at July 8, 1998. Simultaneously with the closing of the Solmecs
Acquisition, SCNV completed an initial public offering of common stock and
warrants which resulted in gross proceeds of approximately US$5,900,000. In
connection with the Solmecs Acquisition, Baynet converted all inter-company
indebtedness from Solmecs to Baynet (which aggregated approximately
US$5,000,000) to a capital contribution to Solmecs.
Baynet has been granted certain demand and "piggyback" registration rights
with respect to the SCNV Shares. Notwithstanding the foregoing, Baynet has
agreed not to sell, grant options for sale of, assign or transfer any of the
SCNV Shares, for a period of 24 months from the closing of the Agreement which
expired in June 2000. Baynet has requested SCNV to take the necessary steps to
register Baynet's shareholding in SCNV.
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. 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.
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SOLMECS CORPORATION N.V. ("SOLMECS")
Solmecs was established in 1980 to engage in the research, development and
commercialisation of products and technologies in the energy conversion field.
The technology, known as LMMHD Energy Conversion Technology (ECT) is in relation
to more efficient and less capital-intensive methods of power generation. If
commercially successful, the technology will enable more efficient conversion of
generator fuel to electrical energy by bypassing the interim conversion to
mechanical energy to drive a rotor. The process requires lower capital costs and
its higher efficiency will create less environmental pollution than conventional
electrical generation processes.
The specific form of LMMHD-ECT in which Solmecs is engaged is referred to
as OMACON (Optimised Magnetohydrodynamic Conversion). The patented technology
for the OMACON generator was originally developed by Professor Herman Branover
("Branover"), an astrophysicist who is the head of Ben-Gurion University's
centre for Magnetohydrodynamic (MHD) studies in Israel and a former Professor at
the Academy of Science in Riga, Latvia.
The following is an extract from SCNV's Form 10.Q Report for the quarter
ended March 31, 2000:
General
SCNV was organized 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. Since its inception, SCNV has been engaged principally in organizational
activities, including developing a business plan, matters directly related to
the Public Offering and the acquisition of Solmecs and the acquisition of
identified technologies or manufacturing facilities for certain technologies for
further development, production and commercialization.
SCNV is actively engaged in the commercial development of two technologies
previously identified by Solmecs, namely (i) advanced bi-facial photovoltaic
panels and (ii) monocrystals of silicon. In November 1998, Solmecs acquired
materials, equipment and engineering services in order to establish a
manufacturing facility in Israel for both one-sided and advanced bi-facial
photovoltaic panels. SCNV anticipates that a commercial production facility will
be completed by the end of 2000. SCNV, however, will require additional funds,
not currently available to SCNV, to operate the production facility and acquire
raw materials for the production of commercial quantities. If the SCNV is able
to obtain such additional funds, on a timely basis, it anticipates commercial
production of photovoltaic panels during the 2000 fiscal year. During the 1999
fiscal year, SCNV received limited purchase orders for photovoltaic panels,
which were filled by SCNV through its distribution arrangement with a Russian
manufacturer.
Also in November 1998, Solmecs acquired equipment to be used in three
production facilities currently being set up for growing silicon monocrystals.
Two of the facilities are in operational conditions and are dedicated to tests
production of standard size silicon monocrystals with the qualities necessary
for use in both sophisticated electronics and photovoltaics. The third facility
will be modified for experimental production of silicon monocrystals utilizing
LMMHD technology. SCNV did not produce any commercial silicon monocrystals
during the 1999 fiscal year. SCNV, however, will require additional funds, not
currently available to SCNV, to operate the production facilities and acquire
the raw materials necessary to produce commercial quantities. If SCNV is able to
obtain additional funds, on a timely basis, it anticipates commercial production
of standard size silicon monocrystals by mid-2000. Development of LMMHD enhanced
silicon monocrystals, however, is still in the preliminary testing stage and
SCNV does not anticipate that this technology will be ready for production of
prototypes for at least one year, and for production of commercial monocrystals
for at least two years. Further development of this technology will also require
additional funds not currently available to SCNV.
In February 1999, SCNV acquired world-wide rights (except for Israel) to
develop, produce, market and distribute advanced electronic pocket dictionaries
manufactured by an Israeli company. During fiscal 1999, SCNV had limited sales
of the Hebrew/English and Russian/English dictionaries in the United States.
SCNV is now focusing on the development of a Spanish/English dictionary which is
expected to be ready for
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commercial production in early 2000. SCNV is negotiating promotional and
marketing arrangements with two marketing and distribution companies for
promotion and distribution of the dictionaries.
In May 1999, SCNV acquired a 90.4% interest in Elecmatec, which employs
"micro-gravity" conditions to the production of alloys for use in production of
metal based products such as engine bearings for the automotive industry.
Elecmatec has completed the development and preliminary testing of its
manufacturing process. A third party has commenced construction of a facility in
Kiryat Gat, Israel, which it will lease to Elecmatec for the production of metal
alloys. Construction of such facility is dependent upon Elecmatec meeting its
obligation to provide certain financing which, in turn, is dependent on SCNV
providing certain financing to Elecmatec. If such financing is obtained on a
timely basis, it is anticipated that the production facility will be completed
and operational for production of commercial quantities of alloy by the end of
2000.
Completion of the research, development and commercialization of SCNV's
technologies or any potential application of such technologies will require
significant additional effort, resources and time, including funding
substantially greater than the proceeds otherwise currently available to SCNV.
Such research and development efforts remain subject to all of the risks
associated with the development of new products based on emerging and innovative
technologies, including, without limitation, unanticipated technical or other
problems and the possible insufficiency of the funds allocated to complete such
development, which could result in delay of research or development or
substantial change or abandonment of research and development activities.
To date, SCNV has not generated significant revenues from its marketable
products. SCNV does not expect to generate any meaningful revenues until such
time, if ever, as it successfully produces, markets and distributes its
commercial products on a broad scale or until it successfully commercializes or
sells proprietary rights relating to one or more of Solmecs' technologies
currently in development.
SCNV has incurred substantial operating losses and at March 31, 2000, has
an accumulated deficit of approximately $7,415,000. SCNV anticipates that it
will continue to incur losses for some time. SCNV is continuing its efforts in
research and development which will require substantial additional expenditures.
As such, SCNV is dependent upon its ability to raise resources to finance
operations. This fact raises substantial doubt that SCNV's ability to continue
as a going concern.
SCNV will attempt to finance its operations and capital expenditures by
receiving additional credit lines and bank loans. SCNV is also negotiating with
potential investors/partners who would provide bridge financing until SCNV will
begin to produce and sell its products. However, no arrangements for such credit
lines, bank lines or financings were entered into as of May 22, 2000 and no
assurances can be given that any such arrangements will be entered into. If no
such arrangements are made, SCNV will likely be required to suspend operations.
A loan in the amount of $500,000 has been received from a third party on
March 26, 2000, repayable in March 2001. The loan bears an interest rate of 6%
per year. This loan was received in connection with a proposed equity financing
of subsidiaries of SCNV by the lender. The lender has informed SCNV and the
subsidiaries that it will not proceed with such equity financing. SCNV and the
lender are negotiating a possible additional loan. No assurances can be given
that such additional loan will be made.
EMPLOYEES
The services of the Company's Chief Executive Officer and Chief Financial
Officer as well as clerical employees are provided to the Company on a part-time
basis pursuant to a Service Agreement dated November 25, 1988 (the "Service
Agreement") by and between the Company and A.W.I. Administration Services Pty
Limited ("AWI Admin"). AWI Admin also provides office facilities, equipment,
administration and clerical services to the Company pursuant to the Service
Agreement. The Service Agreement may be terminated by written notice from the
parties thereto.
Further detail relating to additional terms of the Service Agreement is
included in "Item 2 -- Properties", "Item 13 -- Certain Relationships and
Related Transactions" and "Item 11 -- Executive Compensation".
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ITEM 2. PROPERTIES
The Company occupies certain executive and office facilities in Melbourne,
Victoria, Australia which are provided to it pursuant to the Service Agreement
with AWI Admin. See "Item 1 -- Business -- Employees" and "Item 13 -- Certain
Relationships and Related Transactions".
The Company believes that its administrative space is adequate for its
current needs.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party, or
to which any of its property is the subject, which the Company considers
material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is traded in the over-the-counter market. The trading for
the Common Stock has been sporadic and the market for the Common Stock can not
be classified as an established trading market.
The following table sets out the high and low bid information for the
Common Stock as reported by the National Quotation Service Bureau for each
period/quarter indicated ( in US$):
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CALENDAR PERIOD HIGH BID(1) LOW BID(1)
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1998
First Quarter............................................... 0.125 0.125
Second Quarter.............................................. 0.156 0.125
Third Quarter............................................... 0.375 0.375
Fourth Quarter.............................................. 0.125 0.063
1999
First Quarter............................................... 0.125 0.063
Second Quarter.............................................. 0.125 0.063
Third Quarter............................................... 1.250 0.220
Fourth Quarter.............................................. 1.000 1.000
2000
First Quarter............................................... -- --
Second Quarter.............................................. 4.000 1.010
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(1) The quotations set out herein reflect interdealer prices without retail
mark-up, mark-down or commission and may not necessarily reflect actual
transactions.
SHAREHOLDERS
As of August 23, 2000 the Company had approximately 282 shareholders of
record.
DIVIDEND POLICY
It is the present policy of the Board of Directors to retain earnings for
use in the Company's business. The Company has not declared any cash dividends
to the holders of its Common Stock and does not intend to declare such dividends
in the foreseeable future
TRANSFER AGENT
The United States Transfer Agent and Registrar of the Company is The Bank
of New York.
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the Company presented below
for each of the years in the five-year period ended 30 June, 2000, and the
balance sheet data at June 30, 1996, 1997, 1998, 1999 and 2000 have been derived
from the consolidated financial statements of the Company, which financial
statements have been examined by David T. Thomson PC, independent accountants,
in respect of the years June 30, 1996, 1997, 1998, 1999 and 2000. 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, 2000, and Notes thereto, which are included elsewhere in this Annual
Report and with "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations".
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEAR ENDED JUNE 30 CONV.
---------------------------------------- TRANSL.
1996 1997 1998 1999 2000 2000
A$ A$ A$ A$ A$ US$
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Revenues....................................... -- -- -- -- -- --
------ ------ ----- ------ ----- -----
Costs and expenses............................. (244) (380) (544) (488) (393) (236)
------ ------ ----- ------ ----- -----
Loss from operations........................... (244) (380) (544) (488) (393) (236)
Other income (loss)............................ (550) 344 7,280 -- -- --
------ ------ ----- ------ ----- -----
Profit (loss) before income taxes.............. (794) (36) 6,736 (488) (393) (236)
Provision for income taxes..................... -- -- -- -- -- --
------ ------ ----- ------ ----- -----
Net profit (loss)from Continuing Operations.... (794) (36) 6,736 (488) (393) (236)
Net loss from Discontinued Operations.......... (1,216) (1,224) (952) -- -- --
------ ------ ----- ------ ----- -----
Net profit (loss).............................. (2,010) (1,260) 5,784 (488) (393) (236)
------ ------ ----- ------ ----- -----
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A$ A$ A$ A$ A$ US$
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Net profit (loss) per share
On continuing operations....................... (0.01) -- 2.87 (0.21) (0.07) (0.04)
On discontinued operations..................... (0.03) (0.03) (0.41) -- -- --
------ ------ ----- ------ ----- -----
(0.04) (0.03) 2.46 (0.21) (0.07) (0.04)
------ ------ ----- ------ ----- -----
<CAPTION>
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
<S> <C> <C> <C> <C> <C> <C>
Weighted average number of shares
outstanding.................................. 46,942 46,942 2,347 2,347 5,680 5,680
------ ------ ----- ------ ----- -----
<CAPTION>
A$ A$ A$ A$ A$ US$
<S> <C> <C> <C> <C> <C> <C>
Total assets......................... 717 1 4,518 663 51 31
Total liabilities.................... 2,344 3,507 3,814 4,302 499 300
------ ------ ----- ------ ----- -----
Stockholders' equity (deficiency).............. (1,627) (3,506) 704 (3,639) (448) (269)
------ ------ ----- ------ ----- -----
</TABLE>
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FOREIGN CURRENCY TRANSLATION
The majority of the Company's administrative operations are in Australia
and, as a result, its accounts are maintained in Australian dollars. The income
and expenses of its foreign operations are translated into Australian dollars at
the average exchange rate prevailing during the period. Assets and liabilities
of the foreign operations are translated into Australian dollars at the
period-end exchange rate. The following table shows the average rates of
exchange of the Australian dollar compared with the US dollar during the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30
----------
<S> <C>
1996...................................................... A$1.00 = US$0.787
1997...................................................... A$1.00 = US$0.746
1998...................................................... A$1.00 = US$0.620
1999...................................................... A$1.00 = US$0.661
2000...................................................... A$1.00 = US$0.6016
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 2000 VERSUS YEAR ENDED JUNE 30, 1999
Total costs and expenses have decreased from A$488,000 for the year ended
June 30, 1999 to A$393,000 (US$236,000) for the year ended June 30, 2000. The
decrease was a net result of:
i) A decrease in interest expense from A$321,000 to A$80,000
(US$48,000) as a result of the conversion of the debt owing to
Chevas Pty Ltd, a company associated with Mr. J.I. Gutnick,
President of Baynet, Ltd, into equity in the Company.
ii) An increase in legal, accounting and professional costs from
A$34,000 to A$69,000 (US$41,000) as a result of work undertaken in
regard to the Company's proposed new B2B internet activities.
iii) An increase in administrative costs from A$133,000 to A$244,000
(US$147,000) as a result of the work undertaken in regard to the
proposed new business activity of the Company in the area of B2B
internet.
Accordingly, the loss from operations decreased from A$488,000 for the year
ended June 30, 1998 to A$393,000 (US$236,000) for the year ended June 30, 2000.
The Company was not required to provide for income tax during the years
ended June 30, 2000 or 1999.
The net loss amounted to A$393,000 (US$236,000) for the year ended June 30,
2000 compared to a net loss of A$488,000 for the year ended June 30, 1999. The
net loss per common equivalent share was A$0.07 (US$0.04) compared with a net
loss with a common equivalent share of A$0.21 in the prior year.
YEAR ENDED JUNE 30, 1999 VERSUS YEAR ENDED JUNE 30, 1998
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, 1995, 1996, 1997, 1998 and 1999 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 decreased from A$544,000 for the year ended June
30, 1998 to A$488,000 for the year ended June 30, 1999. The decrease was a net
result of
i) an increase in interest expense from A$290,000 to A$321,000
resulting from increased borrowings by the Company;
ii) a decrease in legal, accounting and professional costs from
A$145,000 to A$34,000 as a result of the completion of Solmecs
reorganisation at the beginning of the financial year.
12
<PAGE> 13
iii) an increase in general administration expenses from A$109,000 to
A$133,000 which include an increase in Directors fees paid and
costs involved in the preparation and mailing of information to
shareholders on certain corporate actions of the Company.
Accordingly, the loss from operations decreased from A$544,000 for the year
ended June 30, 1998 to A$488,000 for the year ended June 30, 1999.
An unrealised foreign exchange gain of A$1,381,000 was recorded in the
prior year with no comparable amount in the current year as the foreign currency
loans were assigned as part of the Solmecs reorganisation. As a result of the
disposal of Solmecs, the Company has recorded a gain of A$5,899,000 in the prior
year for which there is no comparable amount in the current 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 loss from
continuing operations before income tax of A$488,000 compared to a net profit of
A$6,736,000 in the year ended June 30, 1998.
The Company was not required to provide for income tax during the years
ended June 30, 1999 or 1998.
The net loss from discontinued operations being the loss attributable to
the operations of Solmecs decreased from A$952,000 for the year ended June 30,
1998 to A$nil for the year ended June 30, 1999.
The net loss for the year amounted to A$488,000 compared to a net profit of
A$5,784,000 in the previous year. The net loss per common equivalent share was
A$0.21 compared with a net profit per common equivalent share of A$2.46 in the
prior year. The number of common equivalent shares outstanding was unchanged.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000 the Company had the short-term obligations of A$285,000
(US$171,000) consisting of accounts payable and accrued expenses.
The Company also had long-term obligations of A$214,000 (US$129,000) at
June 30, 2000 which were amounts owed to Chevas Pty Ltd of which Mr. J.I.
Gutnick, President of Baynet, is a Director. On October 7, 1999 the Directors of
the Company resolved to issue 4,000,000 shares in the Company to Edensor, a
company of which Mr. J. I. Gutnick, President of Baynet, is a Director and
Shareholder, in lieu of repayment of a debt of A$4,075,529 to Chevas Pty Ltd, a
company of which Mr. J. I. Gutnick is also a Director.
The Company anticipates that it will be able to defer repayment of certain
of its short-term loan commitments until it has sufficient liquidities to enable
these loans to be repaid or other arrangements can be put in place for repayment
of these debts. Other than the arrangements noted above, the Company has not
confirmed any other arrangements for ongoing funding. As a result, the Company
may be required to raise funds by additional debt or equity offerings and or
increased revenues for operations in order to meet its cash flow requirements
during the forthcoming year of which there can be no assurance.
CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
Certain information contained in this Form 10-K are forward-looking
statements within the meaning of the Private Securities Litigation Act of 1995
("the Act"), which became law in December, 1995. In order to obtain the benefits
of the "safe harbor" provisions of the Act for any such forward-looking
statements, the Company wishes to caution investors and prospective investors
about significant factors which, among others, have in some cases affected the
Company's actual results and are in the future likely to affect the Company's
actual results and cause them to differ materially from those expressed in any
such forward-looking statements. This Form 10-K contains forward-looking
statements relating to future financial results. Actual results may differ as a
result of factors over which the Company has no control, including the strength
of domestic and foreign economies, slower than anticipated completion of
research and development projects, and movements in foreign exchange rates.
13
<PAGE> 14
IMPACT OF AUSTRALIAN TAX LAW
Australian resident corporations are subject to Australian income tax on
their non-exempt worldwide assessable income (which includes capital gains),
less allowable deductions, at the rate of 36%. Foreign tax credits are allowed
where tax has been paid on foreign source income, provided the tax credit does
not exceed 36% of the foreign source income.
Under the U.S./Australia tax treaty, a U.S. resident corporation such as
the Company is subject to Australian income tax on net profits attributable to
the carrying on of a business in Australia through a "permanent establishment"
in Australia. A "permanent establishment" is a fixed place of business through
which the business of an enterprise is carried on. The treaty limits the
Australian tax on interest and royalties paid by an Australian business to a
U.S. resident to 10% of the gross interest or royalty income unless it relates
to a permanent establishment. Although the Company considers that it does not
have a permanent establishment in Australia, it may be deemed to have such an
establishment due to the location of its administrative offices in Melbourne. In
addition the Company may receive interest or dividends from time to time.
IMPACT OF AUSTRALIAN GOVERNMENTAL, ECONOMIC, MONETARY OR FISCAL POLICIES
Although Australian taxpayers are subject to substantial regulation, the
Company believes that its operations are not materially impacted by such
regulations nor is it subject to any broader regulations or governmental
policies than most Australian taxpayers.
ITEM 7A. NOT APPLICABLE
ITEM 8. SEE ITEM 14
ITEM 9. NOT APPLICABLE
14
<PAGE> 15
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, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
Joseph I. Gutnick......................... 48 Chairman of the Board President, Chief
Executive Officer and Director.
David Tyrwhitt............................ 62 Director.
Peter Lee................................. 43 Director, Secretary, Chief Financial
Officer and Chief Accounting Officer.
Marcus Solomon............................ 37 Director.
Ian Currie................................ 40 Director.
</TABLE>
JOSEPH GUTNICK Mr Gutnick has been the Chairman of the Board, President and
Chief Executive Officer of the Company since March, 1988. Mr Gutnick has been a
Director of numerous public listed companies in Australia specialising in the
mining sector since 1980, including Centaur Mining and Exploration Limited
("Centaur"), (whose American Depositary Receipts are publicly traded in the
United States on NASDAQ pursuant to a sponsored ADR program), and Johnson's Well
Mining N.L. ("Johnson's Well") (whose ordinary shares, together with Centaur's,
are publicly traded in the U.S. in the over-the-counter market). Mr. Gutnick is
Executive Chairman of Tahera Corporation, a company that is listed on Toronto
Stock Exchange. Mr. Gutnick was appointed a Director of the World Gold Council
in November 1999. He is a Fellow of the Australasian Institute of Mining &
Metallurgy and the Australian Institute of Management.
DAVID TYRWHITT Dr Tyrwhitt was appointed a Director of the Company in
November, 1996. He is a geologist, holding a Bachelor of Science and Phd degrees
and has 39 years experience in mineral exploration and management development
and operation of gold mines in Australia. Dr Tyrwhitt is a Director of several
public listed companies in Australia in the mining industry, including Centaur
Mining and Exploration Limited ("Centaur"), (whose American Depositary Receipts
are publicly traded in the United States on NASDAQ pursuant to a sponsored ADR
program), and Johnson's Well Mining N.L. ("Johnson's Well") (whose ordinary
shares, together with Centaur's, are publicly traded in the U.S. in the
over-the-counter market).
PETER LEE Mr Lee has been Chief Financial Officer and Chief Accounting
Officer since August, 1989 and was appointed a Director of the Company in
February, 1996. Mr Lee is a Member of the Institute of Chartered Accountants in
Australia, a Fellow of the Chartered Secretaries Australia Ltd., and holds a
Bachelor of Business (Accounting) from Royal Melbourne Institute of Technology.
He has over 20 years commercial experience and is currently General Manager
Corporate and Company Secretary of several listed public companies in Australia
, including Centaur Mining and Exploration Limited ("Centaur"), (whose American
Depositary Receipts are publicly traded in the United States on NASDAQ pursuant
to a sponsored ADR program), and Johnson's Well Mining N.L. ("Johnson's Well")
(whose ordinary shares, together with Centaur's, are publicly traded in the U.S.
in the over-the-counter market).
MARCUS SOLOMON Mr Solomon is a partner of the legal firm Gadens Lawyers in
Perth, Western Australia where he was appointed partner in 1994 and currently
heads the National Gadens Lawyers Native Title Group. He holds a Bachelor of
Laws with First Class Honors from the University of Western Australia which
includes an Honor dissertation on fiduciary obligations in Mining Joint
Ventures. Mr Solomon has extensive experience in resources law, property
matters, general commercial litigation and in particular, is recognized
nationally as a leader in Native Title law particularly as it affects resource
projects.
IAN CURRIE Mr Currie's experience includes over 19 years in the Finance and
Administration field, including seven years in the Australian mining industry.
He has worked with KPMG as a tax adviser to the mining industry and
subsequently, as a Finance Manager with Newcrest Mining Limited from 1993
through 1995. Mr Currie is a Chartered Accountant and a Member of the Institute
of Chartered Accountants in
15
<PAGE> 16
Australia, a Fellow of the Taxation Institute of Australia and a Member of the
Institute of Company Directors in Australia. He is a past Tax Committee member
of the Minerals Council of Australia and a current Tax Committee member of the
Association of Mining and Exploration Companies Inc. As Chief Financial Officer
of Centaur since 1995, Mr. Currie has had responsibility for overseeing the
development of each companies Finance Department including the fields of
accounting, treasury, corporate and project debt finance, high yield capital
raising, taxation, investor, ratings agency and banking relations and corporate
administrative and compliance matters.
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, 2000, other than as noted below.
In accordance with the Service Agreement, the Company paid AWI Admin
A$205,029 for the fiscal year ended June 30, 2000, 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, 2000.
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, 2000 the Directors were paid A$76,283 for
services as a Director of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets out, to the best of the Company's knowledge, the
numbers of shares in the Company beneficially owned as at June 30, 2000 by:
(i) each of the present Executive Officers and Directors of the
Company,
16
<PAGE> 17
(ii) each person (including any "group" as that term is defined in
Section 13(d)(3) of the Securities Exchange Act) who beneficially
owns more than 5% of the Common Stock, and
(iii) all present Directors and officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER
OF SHARES PERCENTAGE
NAME OWNED OF SHARES(1)
---- --------- ------------
<S> <C> <C>
Edensor Nominees Pty Ltd.................................... 5,002,310 78.8%
Joseph I. Gutnick........................................... 5,053,960(2)(3) 79.6%
(4)(6)(7)
Stera M. Gutnick............................................ 5,028,310(4)(7) 79.2%
David Tyrwhitt.............................................. --(2) --
Peter Lee................................................... --(2) --
Marcus Solomon.............................................. --(5) --
Ian Currie.................................................. --(2) --
--------- -----
All officers and Directors As a group....................... 5,053,960 79.6%
--------- -----
</TABLE>
NOTES RELATING TO ITEM 12:
(1) Based on 6,347,089 shares outstanding
(2) Does not include:
(i) 47,082 shares of Common Stock beneficially owned by Autogen,
or
(ii) 253,800 shares of Common Stock beneficially owned by Centaur,
or
(iii) 8,949 shares of Common Stock beneficially owned Gutnick Resources
NL,
or
(iv) 27,079 shares of Common Stock beneficially owned by Australian
Gold Resources Limited,
or
(v) 1,918 shares of Common Stock beneficially owned by Quantum
Resources Limited,
or
(vi) 229,489 shares of Common Stock beneficially owned by AWI Admin,
of which companies Messrs Gutnick, Lee, Currie 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 (i) 253,800 shares of Common Stock beneficially owned
by Centaur or (ii) 8,949 shares of Common Stock beneficially owned by
GKR or (iii) 27,079 shares of Common Stock beneficially owned by AGR,
companies of which Mr Solomon is Director however he disclaims
beneficial ownership to those shares.
(6) Joseph Gutnick is the beneficial owner of 25,650 shares of Common
Stock.
(7) Joseph Gutnick and Stera M. Gutnick are husband and wife.
17
<PAGE> 18
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$205,029 in respect of the Service
Agreement 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,
1999 the Company had a liability to Chevas of A$4,006,027. During the year,
Chevas paid expenses totalling A$76,548 on behalf of the Company, loaned a
further A$212,000 to the Company and charged A$56,410 in interest to the Company
on the loan account. During the year, the Company issued 4,000,000 shares to
Edensor Nominees Pty Ltd, a company associated with the President of the
Company, Joseph Gutnick, in lieu of repayment of the liability owing to Chevas
which amounted to A$4,076,000 at the time of the issue.
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 year varied between 7.95% and 9.25%.
On January 20, 2000, the Company issued 8,000,000 options over fully paid
shares in the capital of the Company at an issue price of US$0.01 per option and
an exercise price of US$1.00 per option to Edensor. The options have a term of 5
years with a non-exercise period of 2 years subject to a further board approval
for Edensor Nominees Pty Ltd, either directly of indirectly, to exercise options
in the case of a further requirement of the Company to raise working capital.
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.
18
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.
(i) The Consolidated Financial Statements and Notes thereto listed on
the Index at page 1 of this Annual Report on Form 10-K are filed as
a part of this Annual Report.
(ii) The Financial Data schedule as required by Item 601(c) of
Regulation S-K is filed as part of this Annual Report.
(iii) The consolidated balance sheet of SCNV Acquisition Corp. and
subsidiaries as at June 30, 2000 and the related consolidated
statements of operations, cash flows and changes in shareholders'
equity for the fiscal year ended June 30, 2000 and the auditor's
report thereon contained in SCNV's Annual Report on Form 10KSB for
its fiscal year ended June 30, 2000 (File No. 0-29624) are
incorporated herein by reference (with the exception of the
specific information and report referred to, no part of the SCNV
Annual Report on Form 10-K is deemed a part of this Report).
(b) EXHIBITS
The Exhibits to this Annual Report on Form 10-K are listed in the Exhibit
Index at page 26 of this Annual Report.
19
<PAGE> 20
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 authorized.
Dated: September 28, 2000 BAY RESOURCES, LTD.
(Registrant)
BY: /s/ PETER J LEE
------------------------------------
(PETER J LEE)
DIRECTOR, SECRETARY,
CHIEF FINANCIAL OFFICER AND
PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER
20
<PAGE> 21
FORM 10-K
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
1. /s/ Joseph I. Gutnick Chairman of the Board, President and September 28, 2000
------------------------------------------------ Chief Executive Officer (Principal
Joseph I. Gutnick Executive Officer), and Director.
2. /s/ David Tyrwhitt Director. September 28, 2000
------------------------------------------------
David Tyrwhitt
3. /s/ Marcus Solomon Director. September 28, 2000
------------------------------------------------
Marcus Solomon
4. /s/ Peter Lee Director, Secretary, Chief Financial September 28, 2000
------------------------------------------------ Officer and Principal Financial and
Peter Lee Accounting Officer.
5. /s/ Ian Currie Director. September 28, 2000
------------------------------------------------
Ian Currie
</TABLE>
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
INCORPORATED BY EXHIBIT
REFERENCE TO: NO EXHIBIT
-------------------- ------- ------------------------------------------------------------
<S> <C> <C> <C>
(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.
(3) Exhibit 10.5 10.4 Service Agreement dated November 25, 1988, by and between
the Registrant and AWI Administration Services Pty Limited.
(4) Exhibit 10.5 10.5 Form of Stock Purchase Agreement among Baynet, Solmecs and
SCNV.
Exhibit 21* List of Subsidiaries as at June 30, 2000.
*Filed herewith
FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999 AND
2000.
Baynet, Ltd
Audited Consolidated Financial Statements for the Company
and its Subsidiaries for the year ended June 30, 1999 and
audited Financial Statements for the Company for the year
ended June 30, 2000.
</TABLE>
---------------
(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]
22
<PAGE> 23
BAYNET, LTD AND SUBSIDIARIES
(FORMERLY BAYOU INTERNATIONAL, LTD)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(WITH INDEPENDENT AUDITOR'S REPORT)
<PAGE> 24
CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Auditor............................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7-12
</TABLE>
F-1
<PAGE> 25
CERTIFIED PUBLIC ACCOUNTANT INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Baynet, Ltd
I have audited the accompanying consolidated balance sheets of Baynet, Ltd
(formerly Bayou International, Ltd) (a Delaware corporation) and Subsidiaries at
June 30, 2000 and 1999 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, 2000. 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 former subsidiary
of Baynet, Ltd., who's statement reflected total assets of A$359,024 as of June
30, 1998 and total revenues of A$82,870 for the year then ended. This statement
was audited by other auditors whose report has 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 report 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 Baynet, Ltd. And Subsidiaries at
June 30, 2000 and 1999 and the results of its operations and its cash flows for
each of three years in the period ended June 30, 2000, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company and its subsidiaries will continue as going concerns.
As discussed in Note (6) to the consolidated financial statements, the Company
and its subsidiaries have suffered recurring losses from operations, have no net
working capital and have stockholders' deficits. These factors raise substantial
doubt as to the consolidated entity's ability to continue as a going concern.
Management's plans in regard to these matters are discussed in Note (6). The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
DAVID T. THOMSON P.C.
Salt Lake City, Utah
September 14, 2000
except as to the subsequent event note 11
which is as of September 27, 2000.
P.O. Box 571605, Murry, Utah 84157 (801) 966 9481
F-2
<PAGE> 26
BAYNET, LTD. AND SUBSIDIARIES
(FORMERLY BAYOU INTERNATIONAL, LTD)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
AUSTRALIAN DOLLARS CONVENIENCE
------------------- TRANSLATION
A$000'S A$000'S US$000'S
1999 2000 2000
-------- -------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 1 $ 2 $ 1
-------- -------- --------
Total Current Assets...................................... 1 2 1
-------- -------- --------
Other Assets:
Investments............................................... 661 49 30
Organisational Costs, net................................. 1 -- --
-------- -------- --------
Total Other Assets........................................ 662 49 30
-------- -------- --------
Total Assets...................................... 663 51 31
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses....................... 296 285 171
-------- -------- --------
Total Current Liabilities................................... 296 285 171
Long-Term Debt.............................................. 4,006 214 129
-------- -------- --------
Total Liabilities................................. 4,302 499 300
-------- -------- --------
Stockholders' Equity (Deficit):
Common stock: $.0001 par value 25,000,000 shares
authorised, 2,347,089 and 6,347,089 shares issued and
outstanding............................................ 1 1 1
Less Treasury Stock, at Cost, 2,500 shares................ (20) (20) (12)
Additional Paid-in-Capital................................ 20,979 25,175 15,145
Accumulated Other Comprehensive Loss...................... (5,844) (6,456) (3,884)
Retained Deficits......................................... (18,755) (19,148) (11,519)
-------- -------- --------
Total Stockholders' Deficit....................... (3,639) (448) (269)
-------- -------- --------
Total Liabilities and Stockholders' Deficit....... $ 663 $ 51 $ 31
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 27
BAYNET, LTD. AND SUBSIDIARIES
(FORMERLY BAYOU INTERNATIONAL, LTD)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
CONVENIENCE
TRANSLATION
A$000' A$000' A$000' US$000'S
1998 1999 2000 2000
------ ------ ------ -----------
<S> <C> <C> <C> <C>
Revenues................................................. $ -- $ -- $ -- $ --
------ ------ ------ ------
Cost and expenses
Interest Expense....................................... 290 321 80 48
Legal, Accounting & Professional....................... 145 34 69 41
Administrative......................................... 109 133 244 147
------ ------ ------ ------
544 488 393 236
------ ------ ------ ------
Loss from Operations..................................... (544) (488) (393) (236)
------ ------ ------ ------
Foreign Currency Exchange Gain (Loss).................... 1,381 -- -- --
Gain on disposal of Subsidiaries......................... 5,899 -- -- --
------ ------ ------ ------
7,280 -- -- --
------ ------ ------ ------
Profit (Loss) before Income Tax.......................... 6,736 (488) (393) (236)
Provision for Income Tax................................. -- -- -- --
------ ------ ------ ------
Net Profit (Loss) from Continuing Operations............. 6,736 (488) (393) (236)
Discontinued Operations
Net Loss from Discontinued Operations.................... (952) -- -- --
------ ------ ------ ------
Net Profit (Loss)........................................ $5,784 $ (488) $ (393) $ (236)
====== ====== ====== ======
Earnings (Loss) per Common Equivalent Shares
From Continuing Operations............................. 2.87 (.21) (.07) (.04)
From Discontinued Operations........................... (.41) (.00) (.00) (.00)
------ ------ ------ ------
Total.......................................... 2.46 (.21) (.07) (.04)
====== ====== ====== ======
Weighted Number of Common Equivalent Shares
Outstanding......................................... 2,347 2,347 5,680 5,680
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 28
BAYNET, LTD AND SUBSIDIARIES
(FORMERLY BAYOU INTERNATIONAL, LTD)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
TREASURY ACCUMULATED
COMMON STOCK, RETAINED OTHER
STOCK AT PAID-IN EARNINGS COMPREHENSIVE
SHARES AMOUNT COST CAPITAL (DEFICIT) LOSS
------- ------- -------- -------- --------- -------------
000'S A$000'S A$000'S A$000'S A$000'S A$000'S
<S> <C> <C> <C> <C> <C> <C>
Balance
June 30, 1997................... 46,942 $ 9,388 $ -- $11,592 $(24,051) $ (435)
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 (18,267) (1,989)
Net loss..................... -- -- -- -- (488) --
Net unrealised loss on marketable
securities...................... -- -- -- -- -- (3,855)
------- ------- ---- ------- -------- -------
Balance
June 30, 1999................... 46,942 9,388 (20) 11,592 (18,755) (5,844)
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 -- --
Sale of 8,000,000 options to
purchase common stock........... -- -- -- 120 -- --
Net loss..................... -- -- -- -- (393) --
Net unrealised loss on marketable
securities...................... -- -- -- -- -- (612)
------- ------- ---- ------- -------- -------
Balance
June 30, 2000................... 6,347 $ 1 $(20) $25,175 $(19,148) $(6,456)
======= ======= ==== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 29
BAYNET, LTD. AND SUBSIDIARIES
(FORMERLY BAYOU INTERNATIONAL, LTD)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
CONVENIENCE
TRANSLATION
A$000'S A$000'S A$000'S US$000'S
1998 1999 2000 2000
------- ------- ------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) from Continuing Operations.......... $ 6,736 $(488) $ (393) $ (236)
Adjustments........................................... -- --
Foreign Currency Translation....................... (1,554) -- -- --
Depreciation & Amortisation........................ -- -- -- --
(Gain) Loss on Disposal of Assets.................. (5,899) -- -- --
Net Change In:
Organisation Cost................................ -- -- 1 1
Accounts Payable and Accrued Expenses............ 89 67 (11) (7)
------- ----- ------ ------
Net Cash Used in Continuing Operations............. (628) (421) (403) (242)
Net Cash (used in) Discontinued Operations......... 63 -- -- --
------- ----- ------ ------
Net Cash (used in) Operating Activities............ (565) (421) (403) (242)
------- ----- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in Treasury Stock......................... (20) -- -- --
Investments in Subsidiaries........................... (1) -- -- --
Net Proceeds from Investments......................... -- -- -- --
------- ----- ------ ------
Net Cash Provided by (Used in) Investing
Activities....................................... (21) -- -- --
------- ----- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing From Affiliates............................. 586 421 284 171
Sale of Options....................................... -- -- 120 71
New Borrowing......................................... -- -- -- --
------- ----- ------ ------
Net Cash Provided by (Used in) Financing
Activities....................................... 586 421 404 242
------- ----- ------ ------
Net Increase (Decrease) in Cash......................... -- -- 1 --
Cash at Beginning of Year............................... 1 1 1 1
------- ----- ------ ------
Cash at End of Year..................................... $ 1 $ 1 $ 2 $ 1
======= ===== ====== ======
Supplemental Disclosures
Common Stock Issued in Lieu of Debt Repayment......... -- -- 4,076 2,452
Interest Paid (Net Capitalised)....................... 290 321 80 48
Income Taxes Paid..................................... -- -- -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 30
BAYNET, LTD. AND SUBSIDIARIES
(FORMERLY BAYOU INTERNATIONAL, LTD)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(1) ORGANIZATION
Baynet, Ltd. ("Baynet") is incorporated in the State of Delaware. The
principal shareholder of Baynet is Edensor Nominees Proprietary Limited
("Edensor"), an Australian corporation. Edensor owned 78.8% of Baynet as of June
30, 2000.
Baynet's acquired a controlling interest on September 3, 1987 in former
subsidiary, Solmecs Corporation N.V. ("Solmecs") and 100% ownership on January
2, 1992. Baynet sold its interest in Solmecs effective June 5, 1998.
During fiscal 1998, Baynet 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,
Baynet International Pty Ltd, a corporation incorporated under the laws of
Australia.
(2) ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
in connection with the preparation of the consolidated financial statements.
(a) Consolidation
The consolidated financial statements include the accounts of Baynet
and the 100% interest it holds in Baynex.com Pty Ltd and in the future,
Baynet International 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 Baynet's subsidiaries are recognised on an accrual
basis.
(c) Foreign Currency Translation
The majority of Baynet'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.
(d) Change in Name
On September 27, 1999 the Company changed its name from Bayou
International, Ltd to Baynet, Ltd. The Company has lodged a Preliminary
Information Statement with the Securities and Exchange Commission, for a
further change in name to Bay Resources, Ltd. for review prior to mailing
it to shareholders. Shareholders holding 84.1% of the issued and
outstanding shares of the Company have indicated they will vote in favour
of the change of name. The change of name becomes effective 21 days after
the mailing of the definitive Information Statement to shareholders.
(e) Financial Instruments
The following methods and assumptions were used by Baynet 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.
F-7
<PAGE> 31
BAYNET, LTD. AND SUBSIDIARIES
(FORMERLY BAYOU INTERNATIONAL, LTD)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACCOUNTING POLICIES -- (CONTINUED)
(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 Baynet having the same or similar remaining maturities and collateral
requirements.
(f) 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.
(g) Cash and Cash Equivalents
Baynet 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.
(h) 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.
(i) 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. Baynet at
this time is not aware of any net operating losses which are expected to be
realised.
(j) 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.
(k) Convenience Translation to US$
The consolidated financial statements at June 30, 2000 have been
translated into United States dollars using the rate of exchange of the
United States dollar at June 30, 2000 (AUS $1.00=US $0.6016). The
translation was made solely for the convenience of readers in the United
States.
F-8
<PAGE> 32
BAYNET, LTD. AND SUBSIDIARIES
(FORMERLY BAYOU INTERNATIONAL, LTD)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACCOUNTING POLICIES -- (CONTINUED)
(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.
<TABLE>
<CAPTION>
A$000'S A$000'S
1999 2000
------- -------
<S> <C> <C>
(3) INVESTMENT SECURITIES
The following is a summary of Investment Securities,
1999 and 2000:
Investment, Cost method
Available for Sale Securities.......................... $ 4,516 $ 4,516
Marketable Equity Securities, at cost.................. -- --
Gross Unrealised Gains................................. -- --
Gross Unrealised Losses................................ (3,855) (4,467)
------- -------
Marketable Equity Securities, at fair value............ $ 661 $ 49
======= =======
</TABLE>
The investment using this cost method is carried at cost. Dividends
received from the investment carried at cost are included in other income.
Dividends received in excess of the Company's proportionate share of accumulated
earnings ("return of capital dividend") are applied as a reduction of the cost
of the investment. No securities were sold during 2000 and 1999 and all
securities were treated as available for sale for 2000 and 1999. The net
unrealized loss of A$612 and A$5,855 shown in the Statement of Stockholders'
Equity for 2000 and 1999 consist entirely of the change in holding loss for
those periods.
<TABLE>
<CAPTION>
A$000'S A$000'S
1999 2000
------- -------
<S> <C> <C>
(4) SHORT TERM AND LONG-TERM DEBT
The following is a summary of Baynet's borrowing
arrangements as of June 30, 1999 and 2000.
Long Term
---------
Loan from corporations affiliated with the President of
Baynet. Interest accrues at the ANZ Banking Group
Limited rate +1% for overdrafts over $100,000.
Repayment of loan not required before June 30, 2001.(1) $4,006 $214
</TABLE>
---------------
(1) 4,076,000 repaid on October 7, 1999 through the issuance of 4,000,000 post
split shares. $7,000 was repaid on January 20, 2000 partly through the
issuance of 8,000,000 options to purchase previously unissued stock. Both
issuances were to a company affiliated with the President of Baynet.
(5) AFFILIATE TRANSACTIONS
Baynet advances to and receives advances from various affiliates. All
advances between consolidated affiliates are eliminated on consolidation. At
June 30, 2000 Baynet had no outstanding advances to or from unconsolidated
affiliated companies. $275,000 and $245,000 of accounts payable for the years
shown is due to an affiliated management company.
F-9
<PAGE> 33
BAYNET, LTD. AND SUBSIDIARIES
(FORMERLY BAYOU INTERNATIONAL, LTD)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) GOING CONCERN
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of Baynet as a going concern. However, Baynet has sustained
recurring losses. In addition, Baynet has a net working capital deficiency which
raises substantial doubts as to its ability to continue as going concerns.
Baynet 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 Baynet has historically relied on loans and advances from
corporations affiliated with the President of Baynet. Based on discussions with
these affiliate companies, Baynet believes this source of funding will continue
to be available.
Other than the arrangements noted above, Baynet has not confirmed any other
arrangement for ongoing funding. As a result Baynet may be required to raise
funds by additional debt or equity offerings in order to meet its cash flow
requirements during the forthcoming year.
(7) SALE OF SOLMECS
Pursuant to a stock purchase agreement dated as of June 5, 1998, the
Company acquired 499,701 shares in SCNV Acquisition Corp ("SCNV"), representing
approximately 24% of the issued and outstanding share capital of SCNV, in return
for the whole of the share capital of Solmecs Corporation N.V, a Netherlands
Antilles company which prior to the exchange was formerly a wholly owned
subsidiary of the Company. The 499,701 shares has been valued at US$2,800,000 or
A$4,516,000 and will be accounted for using the cost method because the Company
does not exercise significant influences over SCNV's operating and financial
activities (see note 4). The sale resulted in a gain of $5,899,000 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 agreement
which expired in June 2000, Baynet has requested SCNV to take the necessary
steps to register Baynet's shareholding in SCNV.
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 and 1998 have been combined and reflected in the accompanying balance sheet
as net liabilities of discontinued operations.
F-10
<PAGE> 34
BAYNET, LTD. AND SUBSIDIARIES
(FORMERLY BAYOU INTERNATIONAL, LTD)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) SALE OF SOLMECS -- (CONTINUED)
The following is a summary of net assets and results of operations of
Solmecs Corporation N.V. as of June 30, 1998 and for the years then ended.
<TABLE>
<CAPTION>
A$000'S
JUNE 30,
1998
--------
<S> <C>
Cash........................................................ $ 7
Accounts receivable......................................... 167
Property and equipment, net................................. 185
-------
Total assets...................................... 359
-------
Accounts payable and Accrued Expenses....................... 1,399
Long-term Debt.............................................. 8,521
-------
Net Assets........................................ (9,561)
=======
Sales....................................................... 83
Cost and Expenses........................................... 1,035
-------
Loss before Income Tax...................................... (952)
Income Taxes................................................ --
-------
Net Profit (Loss)........................................... (952)
=======
</TABLE>
(8) INCOME TAXES
Baynet files its income tax returns on an accrual basis. Baynet has carry
forward losses of approximately US$15 million as of June 30, 2000 which expire
in the years 1999 through 2012, Baynet will need to file tax returns for those
years having losses on which returns have not been filed to establish the tax
benefits of the NOL carryforwards. Due to the uncertainty as to realization of
these losses, a valuation allowance of US$5.0 million has been recorded to
offset the tax benefit of the carry forward losses.
(9) NEW BUSINESS OPPORTUNITY
On May 23, 2000 the Company announced their intention to join with Primus
Telecom, an International Data, Internet and Telecommunications company, to
develop a global electronic trading community ("Portal") to date, no financial
commitments have been agreed to.
(10) CHANGES IN STOCKHOLDERS' EQUITY
During the year ended June 30, 2000 the Company completed the following
transactions:
(a) On June 29, 1999 the Company undertook a reverse stock split on a 1:20
basis and changed its par value from US$0.15 to US$0.0001 per share.
(b) On October 7, 1999 the Company issued 4,000,000 post split shares, to a
Company affiliated with the President of Baynet, in lieu of payment of
$4,076,000 in borrowings.
(c) On January 20, 2000 the Company issued 8,000,000 options to purchase
previously unissued stock to a company affiliated with the President of Baynet.
Total consideration totalled $120,000 and included both cash and partial debt
repayment.
(11) SUBSEQUENT EVENT
On September 27, 2000 the Company announced their intention to acquire a
strategic investment in St Andrew Goldfields Ltd, ("St Andrew") subject to the
completion of due diligence. The Company will
F-11
<PAGE> 35
BAYNET, LTD. AND SUBSIDIARIES
(FORMERLY BAYOU INTERNATIONAL, LTD)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) SUBSEQUENT EVENT -- (CONTINUED)
issue, if completed, 1 million shares to St Andrew who, in exchange, will issue
16 million shares to the Company and 16 million common share purchase warrants
with an exercise period of 36 months. The Company will hold an approximate 36%
interest in St Andrew. The agreement also requires St Andrew to refinance
existing debt and raise further working capital, on a best endeavours basis.
F-12
