UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 2O549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005 or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(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.
(Exact name of Registrant as specified in its charter)
Delaware 98-0079697
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(State or other jurisdiction of (IRS Employer
incorporation or organisation) Identification No.)
Level 8, 580 St. Kilda Road, Melbourne, Victoria, 3004 Australia
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 0ll (613) 8532 2860
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Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 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 for the past 90
days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12,13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes___________ No____________
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. There were 16,711,630
outstanding shares of Common Stock as of March 31, 2005.
Transitional Small Business Disclosure Format (Check one) Yes No X
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Table Of Contents
PAGE NO
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements 2
Item 2 Management's Discussion and Analysis or Plan of Operations 11
Item 3 Controls and Procedures 16
PART II OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 2 Changes in Securities and Use of Proceeds 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
Exh. 31.1 Certification 20
Exh. 31.2 Certification 22
Exh. 32.1 Certification 24
Exh. 32.2 Certification 25
1
Item 1. FINANCIAL STATEMENTS
Introduction to Interim Financial Statements.
The interim financial statements included herein have been prepared by Bay
Resources Ltd. ("Bay Resources" or the "Company") without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (The
"Commission"). Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These interim financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended June 30, 2004.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments and consolidating entries, necessary to present fairly the financial
position of the Company and subsidiaries as of March 31, 2005, the results of
its operations for the three and nine month periods ended March 31, 2005 and
March 31, 2004, and the changes in its cash flows for the nine month periods
ended March 31, 2005 and March 31, 2004, have been included. The results of
operations for the interim periods are not necessarily indicative of the results
for the full year.
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.
UNLESS OTHERWISE INDICATED, ALL FINANCIAL INFORMATION PRESENTED IS IN AUSTRALIAN
DOLLARS.
2
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Consolidated Balance Sheet
March 31, 2005
(Unaudited)
A$000's
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ASSETS
Current Assets:
Cash 1
Receivables 132
Prepayments and Deposits 93
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Total Current Assets 226
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Non Current Assets:
Property and Equipment, net 19
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Total Non Current Assets 19
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Total Assets 245
=======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable and Accrued Expenses 480
Short Term Loan - Affiliate 817
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Total Current Liabilities 1,297
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Total Liabilities 1,297
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Stockholders' Equity (Deficit):
Common Stock: $.0001 par value
25,000,000 shares authorized,
16,714,130 issued 2
Less Treasury Stock at Cost, 2,500 shares (20)
Additional Paid-in-Capital 30,275
Deferred Compensation (324)
Other Comprehensive Loss (4)
Retained (Deficit) (30,981)
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Total Stockholders' Equity (Deficit) (1,052)
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Total Liabilities and Stockholders' Equity (Deficit) 245
=======
The accompanying notes are an integral part of these
consolidated financial statements.
3
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Consolidated Statements of Operations
Three and Nine Months Ended March 31 2005,
and March 31, 2004
(Unaudited)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
A$000's A$000's A$000's A$000's
Revenues: $ -- $ -- $ -- $ --
--------- --------- --------- ---------
Costs and Expenses:
Exploration Expenditure 45 61 1,233 87
Interest Expense, net 19 40 24 125
Stock Based Compensation 251 -- 251 --
Legal, Accounting & Professional 31 12 117 40
Administrative 139 176 555 297
------- ------- ------- -------
485 289 2,180 549
------- ------- ------- -------
Loss from Operations (485) (289) (2,180) (549)
Foreign Currency Exchange Gain 5 -- 5 --
------- ------- ------- -------
Income (Loss) before Income Tax (480) (289) (2,175) (549)
Provision for Income Tax -- -- -- --
------- ------- ------- -------
Net Income (Loss) (480) (289) (2,175) (549)
------- ------- ------- -------
Net (Loss) Per Common Equivalent Share $ (.03) $ (.03) $ (.13) $ (.08)
------- ------- ------- -------
Weighted Number of Common
Equivalent Shares Outstanding (in
thousands) 16,714 8,302 16,714 6,992
------- ------- ------- -------
The accompanying notes are an integral part of these
consolidated financial statements
4
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
March 1, 2005
Other
Common Treasury Additional Retained Deferred Compreh
Stock Stock, at Paid-in Earnings Compens ensive
Shares Amount Cost Capital (Deficit) ation Loss Total
------ ------ ------ ------- -------- -------- ---- -----
000's A$000's A$000's A$000's A$000's A$000's A$000's A$000's
Balance June 30, 2002 6,347 $ 1 $ (20) $ 25,175 $(26,402) -- -- $ (1,246)
Net loss -- -- -- -- (681) -- -- (681)
-------- -------- -------- -------- -------- -------- -------- --------
Balance June 30, 2003 6,347 $ 1 $ (20) $ 25,175 $(27,083) -- -- $ (1,927)
Issuance of 1,753,984 1,754 -- -- 2,273 -- -- -- 2,273
shares and warrants in
lieu of debt repayment
Sale of 1,670,000 shares 1,670 -- -- 2,253 -- -- -- 2,253
and warrants
Issuance of 6,943,057 6,943 1 -- (1) -- -- -- --
shares on cashless
exercise of options
Net unrealised loss on -- -- -- -- -- -- (9) (9)
foreign exchange
Net (loss) -- -- -- -- (1,723) -- -- (1,723)
-------- -------- -------- -------- -------- -------- -------- --------
Balance June 30, 2004 16,714 $ 2 $ (20) $ 29,700 $(28,806) -- (9) $ 867
Issuance of 1,400,000 -- -- -- 575 -- (575) -- --
options under 2004 Stock
Option Plan
Amortisation of 1,400,000 -- -- -- -- -- 251 -- 251
options issued under 2004
Stock Option Plan
Net unrealized gain on -- -- -- -- -- -- 5 5
foreign exchange
Net (loss) -- -- -- -- (2,175) -- -- (2,175)
-------- -------- -------- -------- -------- -------- -------- --------
Balance March 31, 2005 16,714 $ 2 $ (20) $ 30,275 $(30,981) $ (324) $ (4) $ (1,052)
-------- -------- -------- -------- -------- -------- -------- --------
5
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2005 and 2004
(Unaudited)
2005 2004
A$000's A$000's
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) (2,175) (549)
Adjustments
Foreign Currency Exchange Gain (5) --
Depreciation of Plant and Equipment 7 --
Accrued interest added to principal 24 125
Options Issued for Stock Based Compensation 251 --
Net Change in:
Receivables (45) (11)
Prepayments and Deposits 148 --
Accounts Payable and Accrued Expenses (5) 1
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Net Cash Provided (Used) in Operating Activities (1,800) (434)
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CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Plant and Equipment (6) (4)
------ ------
Net Cash (Used) in Investing Activities (6) (4)
------ ------
CASH FLOW FROM FINANCING ACTIVITIES
Short-Term Loan - Affiliate -- 62
Proceeds from issued shares of common stock -- 2,273
Net Borrowings from Affiliates 689 (1,897)
------ ------
Net Cash Provided by Financing Activities 689 438
------ ------
Net Increase (Decrease) in Cash (1,117) --
Cash at Beginning of Period 1,118 1
------ ------
Cash at End of Period 1 1
------ ------
Supplementary Disclosures
Interest Paid -- 125
Conversion of debt to equity - 1,753,984 shares -- 2,273
Stock Options recorded as Deferred Compensation 575 --
The accompanying notes are an integral part of these
consolidated financial statements
6
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
March 31, 2005
(1) Organisation
Bay Resources Ltd. (Bay Resources) is incorporated in the State of Delaware. The
principal shareholder of Bay Resources is Edensor Nominees Proprietary Limited
(Edensor), an Australian corporation. Edensor owned 44.2% of Bay Resources as of
March 31, 2005. During fiscal 1998, Bay Resources incorporated a further
subsidiary, Baynex.com Pty Ltd (formerly Bayou Australia Pty Ltd), under the
laws of Australia. Baynex.com Pty Ltd has not traded since incorporation. On
August 21, 2000, Bay Resources incorporated a new wholly owned subsidiary, Bay
Resources (Asia) Pty Ltd (formerly Bayou International Pty Ltd), a corporation
incorporated under the laws of Australia. In June 2002, the Company incorporated
a new wholly owned subsidiary, Golden Bull Resources Corporation, formerly
4075251 Canada Inc, a corporation incorporated under the laws of Canada. Golden
Bull Resources Corporation is undertaking exploration activities for gold in
Canada.
(2) Affiliate Transactions
Bay Resources advances to and receives advances from various affiliates. All
advances between consolidated affiliates are eliminated on consolidation.
During the nine months ending March 31, 2005 and 2004, AXIS Consultants Pty Ltd
("AXIS"), an affiliated management company, billed Bay Resources for management
fees in the amounts A$90,000 and A$180,000, respectively and A$195,179 and
A$169,986 for direct costs, including salaries, incurred on behalf of the
Company. Bay Resources paid an amount of A$243,500 and A$675,253 to AXIS during
the nine months to March 31, 2005 and 2004, respectively. At March 31, 2005 and
2004, the Company owed AXIS A$191,469 and A$41,468, respectively, for services
provided in accordance with the Service Agreement. During the nine months ending
March 31, 2005 and 2004, AXIS charged interest of A$7,665 and A$41,868,
respectively, on outstanding balances. AXIS is affiliated through common
management and ownership.
Wilzed Pty Ltd, a company associated with the President of the Company, Joseph
Gutnick, provided loan funds to enable the Company to meet its liabilities and
has paid certain expenses on behalf of the Company. During the nine months
ending March 31, 2005, Wilzed loaned the Company A$609,133 and charged interest
of A$16,087. At March 31, 2005, the Company owed Wilzed A$625,220.
Chevas Pty Ltd, a company associated with the President of the Company, Joseph
Gutnick, provided loan funds to enable the Company to meet its liabilities and
has paid certain expenses on behalf of the Company. At June 30 2003, the Company
owed Chevas A$1,239,315. During the nine months ending March 31, 2004, Chevas
loaned a further A$274,989 and charged A$82,268 in interest to the Company on
the loan account. The amount owed to Chevas was repaid in full in March 2004. At
March 31, 2005 there are no amounts owing to Chevas.
At June 30, 2003, the Company owed Tahera A$1,361. During the nine months ending
March 31, 2004 Tahera incurred further exploration and administration costs in
Canada on behalf of the Company amounting to A$9,130. During the nine months
ending March 31, 2004, Tahera did not charge the Company interest on amounts
outstanding. At March 31, 2004, the Company owed Tahera A$1,339. Mr. JI Gutnick,
the President of the Company, ceased to be the President and Chairman of Tahera
in October 2003 and the Company's principal stockholder, Edensor Nominees Pty
Ltd., of which Mr. Gutnick is a director and shareholder, ceased to be a major
stockholder of Tahera in October 2003.
7
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
March 31, 2005
(3) Affiliate Transactions (Cont'd)
During the year ended June 30, 2003, Mr JI Gutnick paid certain amounts owing to
Tahera on behalf of the Company and at December 31, 2003, the amount of A$47,000
was owing to Mr Gutnick. This amount was repaid in March 2004.
Quantum Resources Limited ("QUR"), a company associated with, Mr J I Gutnick,
incurred certain costs on behalf of the Company during the nine months ended
March 31, 2004 amounting to A$43,941 in respect to the Company's activities in
Tibet China as a result of QUR's contacts in China. The amount was repaid in
March 2004.
Kerisridge Pty Ltd, an entity associated with Mr J I Gutnick, loaned the Company
A$2,273,186 in March 2004 for the purpose of rpaying long term debt. On March
31, 2004, Kerisridge agreed to convert all of the debt owed to them into common
stock and warrants of the Company. The Company issued 1,753,984 shares of common
stock and 1,753,984 warranets exercisable at US$1.30 per share and at any time
up to March 31, 2006 in full repayment of the $2,273,186 owing to Kerisridge.
On February 19, 2004 Edensor Nominees Pty Ltd ("Edensor") advised the Company
that it was exercising the 6,000,000 options for common stock of the Company it
held utilizing the cashless exercise feature of the terms and conditions of the
issue of the options. The Company issued 5,142,857 shares of common stock to
Edensor on March 3, 2004 as a result of the exercise of the options.
Interest expense incurred on loans and advances due to affiliated entities
approximated A$23,752 and A$124,136 in the nine months ended March 31, 2005 and
2004, respectively.
(4) Going Concern
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of Bay Resources as a going concern. Bay Resources is in the
exploration stage, has sustained recurring losses and has a net working capital
deficiency which raises substantial doubts as to its ability to continue as a
going concern. However, Bay Resources anticipates that it will be able to defer
repayment of obligations until it has sufficient liquidity to enable these loans
to be repaid or other arrangements to be put in place. In addition Bay Resources
has historically relied on loans and advances from corporations affiliated with
the President of Bay Resources. Based on discussions with these affiliate
companies, Bay Resources believes this source of funding will continue to be
available. Other than the arrangements noted above, Bay Resources has not
confirmed any other arrangement for ongoing funding. As a result Bay Resources
may be required to raise funds by additional debt or equity offerings in order
to meet its cash flow requirements during the forthcoming year.
The accumulated deficit of the Company from inception through March 31, 2005
amounted to A$30,981,000 of which A$4,579,000 has been accumulated from July
2002, the date the Company entered the Exploration Stage, through March 31,
2005.
8
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
March 31, 2005
(5) Income Taxes
Bay Resources should have carry forward losses of approximately US$20.5 million
as of June 30, 2004 which will expire in the various years through 2023. Bay
Resources 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 net operating
loss carry forwards. Due to the uncertainty of the availability and future
utilization of those operating loss carry forwards, management has provided a
full valuation against the related tax benefit.
(6) Contingent Liabilities
The Company has received an invoice from a corporation that conducted the
pegging of the claims in Canada on behalf of the Company. A number of claims
that were pegged were not ultimately issued to the Company due to a number of
errors by the pegging Company. The Company had advised the pegging company that
it does not believe any further payments are due to the pegging company as a
result of the economic loss incurred by Bay Resources. The Company believes that
if it is unsuccessful in defending any claim that is brought against it, the
maximum potential liability is CDN$59,000. No accrued liability has been
recorded in the accompanying financial statements pending the ultimate
disposition of this matter.
(7) Employment Contract
In October 2004, the Company entered into an employment agreement with a new
Chief Operating Officer. The agreement expires on December 31, 2006 and provides
for an annual salary of US$110,000. As part of this employment contract, the
Company granted options to purchase 750,000 shares of the Company common stock
at US$1.00 per share (see Note 8). The 750,000 options vest as follows: 250,000
immediately, 250,000 on September 1, 2005 and 250,000 on December 31, 2006. The
issue of the second 250,000 and third 250,000 options are subject to
availability of options in the Stock Option Plan.
(8) Issue of Options under Stock Option Plan
In October 2004, the Board of Directors and Remuneration Committee of the
Company adopted a Stock Option Plan and agreed to issue 1,400,000 options and up
to a further 500,000 options to acquire shares of common stock in the Company,
at an exercise price of US$1.00 per option, subject to shareholder approval
which was subsequently received on January 27, 2005. Of the total 1,400,000
options issued, 350,000 vest immediately following shareholder approval, 50,000
vest on March 31, 2005, 333,331 vest on July 27, 2005, 333,334 vest on January
27, 2006 and the balance of 333,335 vest on July 27, 2006. If the additional
500,000 options are granted, they will vest 250,000 on September 1, 2005 and
250,000 on December 31, 2006. The exercise price of US$1.00 was derived from the
issue price of common stock from the placement of shares on March 31, 2004 and
is considered by the Company's Directors to be the fair value of the common
stock.
9
In December 2004, the Financial Accounting Standards Board issued Statement
Number 123 (revised 2004) ("FSAS 123 (R)"), Share-Based Payments. SAS 123 (R)
requires all entities to recognize compensation expense in an amount equal to
the fair value of share-based payments, such as stock options granted to
employees. The Company is required to apply SFAS 123 (R) on a modified
prospective method. Under this method, the Company is required to record
compensation expense (as previous awards continue to vest) for the unvested
portion of previously granted awards that remain outstanding at the date of
adoption. In addition, the Company may elect to adopt SFAS 123 (R) by restating
previously issued financial statements, basing the amounts on the expense
previously calculated and reported in their pro forma disclosures that had been
required by SFAS 123. SFAS 123 (R) is effective as of the beginning of the
Company's next fiscal year.
The Company has accounted for all options issued in 2005 based upon their fair
market value using the Black Scholes pricing model. There were no options issued
by the Company prior to 2005.
The Company has calculated the fair value of the options using the Black Scholes
valuation method using a share price of US$1.00, strike price of US$1.00,
maturity period of 5 years 7 1/2 months, risk free interest rate of 5.15% and
volatility of 20%. This equates to a value of US31.85 cents per option. The
total value of the options equates to A$575,100 (US$445,900) and has been
reflected as Deferred Compensation Expense within the Shareholders Equity
Statement. The gross fair value is amortised into operations over the vesting
period. For the quarter ended March 31, 2005, the amortization amounted to
$251,408.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FUND COSTS CONVERSION
The consolidated statements of operations and other financial and operating data
contained elsewhere here in and the consolidated balance sheets and financial
results have been reflected in Australian dollars unless otherwise stated.
The following table shows the average rate of exchange of the Australian dollar
as compared to the US dollar and Canadian dollar during the periods indicated:
9 months ended March 31, 2004 A$1.00 = US$0.7589
9 months ended March 31, 2005 A$1.00 = US$0.7484
9 months ended March 31, 2004 A$1.00 = CDN$0.9529
9 months ended March 31, 2005 A$1.00 = CDN$0.9357
RESULTS OF OPERATION
Three Months Ended March 31, 2005 vs. Three Months Ended March 31 2004.
Costs and expenses increased from A$289,000 in the three months ended March 31,
2004 to A$485,000 in the three months ended March 31, 2005. The Company's
financial statements are prepared in Australian dollars (A$). A number of costs
and expenses of the Company are incurred in US$ and CDN$ and the conversion of
these costs to A$ means that the comparison of the three months ended March 2005
to the three months ended March 2004 does not always present a true comparison.
The increase in expenses is a net result of:
a) a decrease in interest expense (net) from A$40,000 for the three
months ended March 31, 2004 to A$19,000 for the three months ended
March 31, 2005 as all long term debt was converted into equity in
March 2004 and the Company raised funds through the issue of shares
and warrants in March 2004 to fund the Company's operations. During
the 2004 quarter, the interest rate of 8.60% was charged on
outstanding amounts by Chevas. Chevas is a company associated with
Mr. J.I. Gutnick, our President, which provided funding for the
Company's operations during the prior year. AXIS Consultants
provides management and geological services to the Company pursuant
to a Service Deed dated November 25, 1988. AXIS Consultants charged
interest at a rate of 10.60% to 10.85% for fiscal 2005 compared to
9.60% and 10.10% for fiscal 2004. During the three months ended
March 31, 2005. Wilzed loaned the Company a further A$609,133 and
charged the Company A$16,087 in interest. The interest rate charged
by Wilzed was at the rate of 9.1% to 9.35%. During the March 2005
quarter, AXIS charged interest of A$7,665 on amounts outstanding.
b) an increase in legal, accounting and professional expense from
A$12,000 for the three months ended March 31, 2004 to A$31,000 for
the three months ended March 31, 2005 as a result of an increase in
legal fees in relation to the preparation of a listing of the
Company's securities on the Toronto Venture Exchange.
c) a decrease in administrative costs including salaries from A$176,000
in the three months ended March 31, 2004 to A$139,000 in the three
months ended March 31, 2005. In the March 31, 2004 quarter, the
consultant who provided investor relations and business development
services billed the Company for work from November 2003 in excess of
the amount anticipated by the Company. There is no similar amount in
the current year.
d) an decrease in the exploration expenditure expense from $61,000 for
the three months ended March 31, 2004 to $45,000 for the three
months ended March 31, 2005. In March 2004, we appointed a Vice
President Exploration in Canada and commenced the exploration
program on the Committee Bay and Slave Properties. These properties
11
are in Nunavet in an isolated area and exploration can only be
undertaken between June and September each year due to ground
conditions. Exploration is costly as we were required to hire and
construct a temporary camp which also had to be transported by
charter flight. All supplies and temporary employees also needed to
be transported to the temporary camp by charter flights and/or
helicopter. The properties are located approximately 100 kilometers
from the camp and employees are transported by helicopter daily from
camp to the exploration site. For the three months ended March 2005,
exploration in Canada was minimal due to the seasonal weather
conditions.
e) an increase in stock based compensation from A$nil for the three
months ended March 31, 2004 to A$251,000 for the three months ended
March 31, 2005. Following shareholder approval on January 27, 2005
the Company issued 1,400,000 options pursuant to the 2004 Stock
Option Plan. Of the total 1,400,000 options issued, 350,000 vest
immediately following shareholder approval, 50,000 vest on March 31,
2005, 333,331 vest on July 27, 2005, 333,334 vest on January 27,
2006 and the balance of 333,335 vest on July 27, 2006. If the
additional 500,000 options are granted, they will vest 250,000 on
September 1, 2005 and 250,000 on December 31, 2006. The exercise
price of US$1.00 was derived from the issue price of common stock
from the placement of shares on March 31, 2004 and is considered by
the Company's Directors to be the fair value of the common stock.
In December 2004, the Financial Accounting Standards Board issued
Statement Number 123 (revised 2004) ("SAS 123 (R)"), Share-Based
Payments. FSAS 123 (R) requires all entities to recognize
compensation expense in an amount equal to the fair value of
share-based payments, such as stock options granted to employees.
The Company is required to apply SFAS 123 (R) on a modified
prospective method. Under this method, the Company is required to
record compensation expense (as previous awards continue to vest)
for the unvested portion of previously granted awards that remain
outstanding at the date of adoption. In addition, the Company may
elect to adopt SFAS 123 (R) by restating previously issued financial
statements, basing the amounts on the expense previously calculated
and reported in their pro forma disclosures that had been required
by SFAS 123. SFAS 123 (R) is effective as of the beginning of the
Company's next fiscal year.. The Company has calculated the fair
value of the 1,400,000 options issued in January 2005 using the
Black Scholes valuation method using a share price of US$1.00,
strike price of US$1.00, maturity period of 5 years 7 1/2 months,
risk free interest rate of 5.15% and volatility of 20%. This equates
to a value of US31.85 cents per option or a total of A$575,100. Of
this amount, A$251,408 has been amortised and charged to operations
in the March 2005 quarter.
As a result of the foregoing, the loss from operations increased from A$289,000
for the three months ended March 31, 2004 to A$480,000 for the three months
ended March 31, 2005.
The net loss was A$289,000 for the three months ended March 31, 2004 compared to
a net loss of A$480,000 for the thee months ended March 31, 2005.
Nine Months Ended March 31, 2005 vs. Nine Months Ended March 31, 2004.
Costs and expenses increased from A$549,000 in the nine months March 31, 2004 to
A$2,180,000 in the nine months ended March 31, 2005. The Company's financial
statements are prepared in Australian dollars (A$). A number of the costs and
expenses of the Company are incurred in US$ and CDN$ and the conversion of these
costs to A$ means that the comparison of the nine months ended March 2005 to the
nine months ended March 2004 does not always present a true comparison. The
increase in expenses is a net result of:
a) an decrease in interest expense (net) from A$125,000 for the nine
months ended March 31, 2004 to A$24,000 for the nine months ended
March 31, 2005 as all long term debt was converted into equity in
March 2004 and the Company raised funds through the issue of shares
and warrants in March 2004 to fund the Company's operations. During
the 2004 period, the interest rate of 8.60% was charged on
12
outstanding amounts by Chevas. Chevas is a company associated with
Mr. J.I. Gutnick, our President, which provided funding for the
Company's operations during the prior year. AXIS provides management
and geological services to the Company pursuant to a Service Deed
dated November 25, 1988. AXIS charged interest at a rate of 10.60%
to 10.85% for fiscal 2005 compared to 9.60% and 10.10% for fiscal
2004
b) an increase in legal, accounting and professional expense from
A$40,000 for the nine months ended March 31, 2004 to A$117,000 for
the nine months ended March 31, 2005 as a result of an increase in
legal fees in relation to discussions with external financiers and
the preparation of a listing of the Company's securities on the
Toronto Venture Exchange .
c) an increase in administrative costs including salaries from
A$297,000 in the nine months ended March 31, 2004 to A$555,000 in
the nine months ended March 31, 2005 as a result of the increase in
the direct costs billed by AXIS Consultants from A$169,986 for the
nine months ended March 31, 2004 compared to A$318,285 for the nine
months ended March 31, 2005 as a result of the salary of the
President being charged for the nine months (A$82,500) which was not
billed until the June 2004 quarter in the prior period and the
increase in salaries and management fee charged by AXIS as a result
of the increase in work undertaken on behalf of the Company as a
result of the increase in the level of activity, the costs of our
Chief Operating Officer who undertakes business development, capital
raising and investor relations work for the Company and associated
business expenses of A$112,961 (2004: $76,932 as he was employed as
a consultant from November 2003); the costs of preparation,
lodgement with the SEC and printing of documentation forwarded to
shareholders for the 2004 annual general meeting of A$14,000 and the
nine month allocation of the insurance costs for Canada to cover the
exploration programme of A$47,830. There was no comparable cost in
the prior comparable period for the annual general meeting and
insurance as the Company has only taken out insurance since it
commenced its exploration activities and the prior annual
shareholders approval occurred in June 2003.
d) an increase in the exploration expenditure expense from A$87,000 for
the nine months ended March 31, 2004 to A$1,233,000 for the nine
months ended March 31, 2005. In March 2004, we appointed a Vice
President Exploration in Canada and commenced the exploration
program on the Committee Bay Properties and Slave Properties. These
properties are in Nunavet in an isolated area and exploration can
only be undertaken between June and September each year due to
ground conditions. Exploration is costly as we were required to hire
and construct a temporary camp which also had to be transported by
charter flight. All supplies and temporary employees also needed to
be transported to the temporary camp by charter flights and/or
helicopter. The properties are located approximately 100 kilometers
from the camp and employees are transported by helicopter daily from
camp to the exploration site. For the nine months ended March 31,
2004, exploration in Canada related to monitoring the staking of
claims in the Committee Bay Greenstone Belt. In the nine months
ended March 31, 2005, we completed field programs at both properties
at a cost during the nine month period of A$1,233,000.
e) an increase in stock based compensation from A$nil for the three
months ended March 31, 2004 to A$251,000 for the three months ended
March 31, 2005. Following shareholder approval on January 27, 2005
the Company issued 1,400,000 options pursuant to the 2004 Stock
Option Plan. Of the total 1,400,000 options issued, 350,000 vest
immediately following shareholder approval, 50,000 vest on March 31,
2005, 333,331 vest on July 27, 2005, 333,334 vest on January 27,
2006 and the balance of 333,335 vest on July 27, 2006. If the
additional 500,000 options are granted, they will vest 250,000 on
October 31, 2005 and 250,000 on December 31, 2006. The exercise
price of US$1.00 was derived from the issue price of common stock
from the placement of shares on March 31, 2004 and is considered by
the Company's Directors to be the fair value of the common stock.
As a result of the foregoing, the loss from operations increased from A$549,000
for the nine months ended March 31, 2004 to A$2,175,000 for the nine months
ended March 31, 2005.
13
The net loss was A$549,000 for the nine months ended March 31, 2004 compared to
a net loss of A$2,175,000 for the nine months ended March 31, 2005.
Liquidity and Capital Resources
For the nine months ended March 31, 2005, net cash used in operating activities
was A$1,800,000 primarily consisting of the net loss for the nine months ended
March 31, 2005 of A$2,175,000; decreases in accounts payable and accrued
expenses of A$5,000; a reduction of prepayments and deposits of A$148,000; an
increase in receivables of A$45,000. Net cash used in investing activities
consisted of a A$6,000 purchase of plant and equipment. Net cash from financing
activities was A$689,000 being an increase in borrowing from affiliates to fund
activities.
As of March 31, 2005 the Company had short-term obligations of A$1,297,000
comprising accounts payable, accrued expenses and a short term loan from an
affiliate.
We have A$1,000 in cash at March 31, 2005. We are investigating the possibility
of raising cash flow through money in Canada for exploration purposes as well as
other sources of equity or debt financing.
The Company has prepared a base case exploration budget for the 2005 exploration
season which totals A$464,000. We have been preparing a listing application for
the dual listing of our shares of common stock on TSX-V. The listing application
was lodged with TSX-V in June 2004 and we are currently in the process of
responding to recent questions raised by TSX-V. Canaccord Capital Corporation
has agreed, subject to satisfactory completion of its due diligence, to act as
sponsor for the listing.Following such listing, the Company may seek to raise up
to CDN$3 million in flow through financing to assist with funding the Company's
operations (of which there can be no assurance). We believe that a dual listing
of our shares of common stock will provide liquidity in our shares. There can be
no assurance that the dual listing on TSX-V will eventuate or that such listing
will create an increase in the volume of trading of our shares of common stock.
The Company 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, of which there can be no assurance. In addition the
Company has historically relied upon loans and advances from affiliates to meet
a significant portion of the Company's cash flow requirements which the Company
believes, based on discussions with such affiliates, will continue to be
available during fiscal 2005.
Other than the arrangements above, the Company has not confirmed any further
arrangements for ongoing funding. As a result, the Company will be required to
raise funds from additional debt or equity offerings in order to meet its cash
flow requirements during the forthcoming year.
The Company will require substantial additional capital over the next year in
order to satisfy existing liabilities and to provide funding to achieve its
current business plan. Failure to obtain such capital could adversely impact the
Company's operations and prospects.
Cautionary Safe Harbor Statement under the United States Private Securities
Litigation Reform Act of 1995.
Certain information contained in this Form 10-QSB's forward looking information
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 forwarding looking statements, the
Company wishes to caution investors and prospective investors about significant
factors which among others have 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-QSB report contains forward looking statements relating to future
financial results. Actual results may differ as a result of factors over which
the Company has no control including, without limitation, the risks of
exploration and development stage projects, political risks of development in
14
foreign countries, risks associated with environmental and other regulatory
matters, mining risks and competition and the volatility of gold and copper
prices, and movements in the foreign exchange rate. Additional information which
could affect the Company's financial results is included in the Company's Form
10-KSB on file with the Securities and Exchange Commission.
15
Item 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14 as of the end of
the period covered by this report. Based upon that evaluation, such officers
concluded that our disclosure controls and procedures are effective to ensure
that information is gathered, analyzed and disclosed on a timely basis.
Internal Control Over Financial Reporting. There have not been any changes in
the Company's internal control over financial reporting during the fiscal
quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
16
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
----------- -----------
31.1 Certification of Chief Executive Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act
31.2 Certification of Chief Financial Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of Sarbanes-Oxley act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of Sarbanes-Oxley act of 2002
17
(FORM 10-QSB)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorised.
BAY RESOURCES LTD.
By: /s/ Joseph I. Gutnick
----------------------------
Joseph I. Gutnick
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Peter Lee
-----------------------------
Peter Lee
Peter Lee, Secretary and
Chief Financial Officer
(Principal Financial Officer)
Dated May 11, 2005
18
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
31.1 Certification of Chief Executive Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act
31.2 Certification of Chief Financial Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of Sarbanes-Oxley act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of Sarbanes-Oxley act of 2002
19