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 December 31, 2005 or
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[ ] 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
------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Level 8, 580 St. Kilda Road, Melbourne, Victoria, 3004 Australia
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 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
----------- -----------
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
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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 December 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 3
Item 2 Management's Discussion and Analysis or Plan of Operations 11
Item 3 Controls and Procedures 14
PART II OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits 15
SIGNATURES 16
EXHIBIT INDEX 17
Exh. 31.1 Certification 18
Exh. 31.2 Certification 20
Exh. 32.1 Certification 22
Exh. 32.2 Certification 23
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, 2005.
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 December 31, 2005, the results of
its operations for the three and six month periods ended December 31, 2005 and
December 31, 2004, and the changes in its cash flows for the six month periods
ended December 31, 2005 and December 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
December 31, 2005
(Unaudited)
A$000's
ASSETS
Current Assets
Cash 5
Receivables 92
Prepayments and Deposits 79
-----------------
Total Current Assets 176
-----------------
Non Current Assets
Property and Equipment, net 15
-----------------
Total Non Current Assets 15
-----------------
Total Assets 191
=================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable and Accrued Expenses 622
-----------------
Total Current Liabilities 622
-----------------
Non Current Liabilities
Long-term Advance - Affiliate 1,489
-----------------
Total Non Current Liabilities 1,489
-----------------
Total Liabilities 2,111
-----------------
Stockholders' Equity (Deficit):
Common Stock: $.0001 par value 50,000,000 shares
authorized, 16,714,130 issued 2
Less Treasury Stock at Cost, 2,500 shares (20)
Additional Paid-in-Capital 30,275
Deferred Compensation (62)
Other Comprehensive Loss (8)
Retained Deficit during exploration stage (5,705)
Retained Deficit prior to exploration stage (26,402)
-----------------
Total Stockholders' Equity (Deficit) (1,920)
-----------------
Total Liabilities and Stockholders' Equity (Deficit) 191
=================
See Notes to Consolidated Financial Statements
3
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Consolidated Statements of Operations
Three and Six Months Ended December 31 2005 and 2004
and for the cumulative period July 1, 2002
(inception of exploration activities) to December 31, 2005
(Unaudited)
Three Three Months Six Months Six
Months Ended Ended Months Ended July 1, 2002
Ended December 31, December December 31, to December
December 2004 31, 2005 2004 31, 2005
31, 2005 A$000's A$000's A$000's A$000's
- ------- - ------- - ------- -------
A$000's
Revenues: $- $- $- $- $-
--------- --------------- -------------- --------------- ----------------
Costs and Expenses:
Stock Based Compensation 58 - 136 - 513
Exploration Expenditure 87 132 125 1,188 2,551
Interest Expense, net-related entity 29 2 55 5 354
Interest Expense, other 8 - 8 - 8
Legal, Accounting and Professional 24 47 39 86 402
Administrative 164 196 315 416 1,856
--------- --------------- -------------- --------------- ----------------
370 377 678 1,695 5,684
--------- --------------- -------------- --------------- ----------------
(Loss) from Operations (370) (377) (678) (1,695) (5,684)
Foreign Currency Exchange (Loss) (16) - (23) - (21)
--------- --------------- -------------- --------------- ----------------
(Loss) before Income Tax (386) (377) (701) (1,695) (5,705)
Provision for Income Tax - - - - -
--------- --------------- -------------- --------------- ----------------
Net (Loss) (386) (377) (701) (1,695) (5,705)
--------- --------------- -------------- --------------- ----------------
Basic net (Loss) Per Common Equivalent Shares (0.02) (0.02) (0.04) (0.10) (0.49)
--------- --------------- -------------- --------------- ----------------
Weighted Number of Common
Equivalent Shares Outstanding (000's) 16,714 16,714 16,714 16,714 11,671
--------- --------------- -------------- --------------- ----------------
See Notes to Consolidated Financial Statements
4
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
Six Months Ended December 31 2005 and 2004 and for the cumulative period
July 1, 2002 (inception of exploration activities) to December 31, 2005
(Unaudited)
July 1, 2002
to December
2005 2004 31, 2005
A$000's A$000's A$000's
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(701) $(1,695) $(5,705)
Adjustments to reconcile net (loss) to net cash used
in Operating Activities
Foreign Currency Exchange Loss/(Gain) 23 9 20
Depreciation of Plant and Equipment 4 5 14
Stock based compensation 136 - 513
Accrued interest added to principal 40 7 224
Net Change in:
Receivables 33 (49) (93)
Staking Deposit - - 23
Prepayments and Deposits - 130 (82)
Accounts Payable and Accrued Expenses 21 16 177
Short Term Advance - Affiliates - - (36)
---------------- ------------------ ------------------
Net Cash Provided (Used) in Operating Activities (444) (1,577) (4,945)
---------------- ------------------ ------------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Plant and Equipment - (6) (27)
---------------- ------------------ ------------------
Net Cash (Used) in Investing Activities - (6) (27)
---------------- ------------------ ------------------
CASH FLOW PROVIDED BY FINANCING ACTIVITIES
Net Borrowings from Affiliates 447 466 450
Sale of Shares of Common Stock - - 2,253
Proceeds from Loan Payable - - 2,273
---------------- ------------------ ------------------
Net Cash Provided by Financing Activities 447 466 4,976
---------------- ------------------ ------------------
Net Increase (decrease) in Cash 3 (1,117) 4
Cash at Beginning of Period 2 1,118 1
---------------- ------------------ ------------------
Cash at End of Period 5 1 5
---------------- ------------------ ------------------
Supplemental Disclosures
Interest Paid 15 - 270
NON CASH FINANCING ACTIVITY
Debt repaid through issuance of shares - - 2,273
Stock Options recorded as Deferred Compensation - - 575
See Notes to Consolidated Financial Statements
5
BAY RESOURCES LTD AND SUBSIDIARIES
(An Exploration Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
December 31, 2005
and for the cumulative period July 1, 2002
(inception of exploration activities) to December 31, 2005
(Unaudited)
Common Treasury Additional Retained Retained Other
Stock Stock, at Paid-in Earnings Earnings Deferred Compre-
Amount Cost Capital (Deficit) (Deficit) Compen hensive
------ ---- ------- (during (prior to sation Loss Total
Shares the Exploration ------ ---- -----
Exploration stage)
stage) ------
-----
000's A$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 $(681) $(26,402) - - $(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 1,670 - - 2,253 - - - - 2,253
shares 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 $(2,404) $(26,402) - $(9) $867
Issuance of 1,400,000 - - - 575 - - (575) - -
options under 2004
stock option plan
Amortisation of - - - - - - 377 - 377
1,400,000 options under
2004 stock option plan
Net unrealised gain on - - - - - - - 6 6
foreign exchange
Net/(loss) - - - - (2,600) - - - (2,600)
--------- ---------- ---------- ------------ ----------- ---------- ---------- ------------- ------------
Balance June 30, 2005 16,714 $2 $(20) 30,275 $(5,004) $(26,402) $(198) $(3) $(1,350)
--------- ---------- ---------- ------------ ----------- ---------- ---------- ------------- ------------
Amortisation of - - - - - - 136 - 136
1,400,000 options under
2004 stock option plan
Net unrealised gain on - - - - - - - (5) (5)
foreign exchange
Net/(loss) - - - - (701) - - - (701)
--------- ---------- ---------- ------------ ----------- ---------- ---------- ------------- ------------
Balance
December 31, 2005 16,714 $2 $(20) $30,275 $(5,705) $(26,402) $(62) $(8) $(1,920)
--------- ---------- ---------- ------------ ----------- ---------- ---------- ------------- ------------
See Notes to Consolidated Financial Statements
6
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 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 32.3% of Bay
Resources as of December 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 six months ending December 31, 2005 and 2004 AXIS Consultants Pty Ltd
("AXIS") an affiliated management company advanced Bay Resources A$77,500 and
A$137,000 respectively including services provided in accordance with the
service agreement of A$187,192 and A$226,357 respectively and reimbursed AXIS
A$545,819 and A$473,092 respectively for outstanding amounts including carried
forward outstanding amounts. During the six months ending December 31, 2005 and
2004 AXIS charged interest of A$18,366 and A$4,613, respectively, on outstanding
balances. The interest rate charged by AXIS for the six months ended December
31, 2005 was 9.35% compared to between 10.10% and 10.60% for the six months
ended December 31, 2004. At December 31, 2005 the Company owed AXIS A$34,003.
These entities are 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 six months ending
December 31, 2005, Wilzed loaned the Company A$742,899 and charged interest of
A$36,873. The interest rate charged by Wilzed for the six months was 9.35%. At
December 31, 2005, the Company owed Wilzed A$1,455,244. During the six months to
December 31, 2005 the Company granted Wilzed security over its interest in one
of its properties as security for the amount owing to Wilzed.
Interest expense incurred on loans and advances due to affiliated entities
approximated A$55,239 and A$5,469 in the six months ended December 31, 2005 and
2004, respectively.
A$000's
2005
(3) Long-Term Advance - Affiliate
Loan from AXIS, a corporation affiliated with the President of Bay 34
Resources. Interest accrued at 9.35% being the ANZ Banking Group Limited
rate for overdrafts over $100,000.
Loan from Wilzed Pty Ltd, a corporation affiliated with the President of Bay
Resources. Interest accrued at 9.35% per annum. 1,455
--------------------
1,489
====================
7
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2005
(3) Long-Term Advance - Affiliate (Cont'd)
The Company has granted Wilzed security over its interest in one of its
properties as security for the amount owing to Wilzed
(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 December 31, 2005
amounted to A$32,107,000 of which A$5,705,000 has been accumulated from July
2002, the date the Company entered the Exploration Stage, through December 31,
2005.
(5) Income Taxes
Bay Resources should have carry forward losses of approximately US$19.4 million
as of June 30, 2005 which will expire in the various years through 2024. 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) 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 7). 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.
(7) 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, 250,000 will vest immediately 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.
The options expire on October 15, 2014.
8
BAY RESOURCES LTD. AND SUBSIDIARIES
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2005
(7) Issue of Options under Stock Option Plan (Cont'd)
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 in 2004.
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
Section of the Balance Sheet. The gross fair value is amortised into operations
over the vesting period. For the three and six months ended December 31, 2005,
the amortization amounted to A$57,586 and A$135,598 respectively.
During the six months ended December 31, 2005, 50,000 options lapsed when Mr P.
Ehrlich resigned as a Director.
A summary of the options outstanding and exercisable at December 31, 2005 are as
follows:
Outstanding Exercisable
Number of options 1,350,000 716,666
Exercise price US$1.00 US$1.00
Expiration date October 15, 2014 October 15, 2014
9
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:
6 months ended December 31, 2004 A$1.00 = US$0.78
6 months ended December 31, 2005 A$1.00 = US$0.7301
6 months ended December 31, 2004 A$1.00 = CDN$0.94
6 months ended December 31, 2005 A$1.00 = CDN$0.8513
RESULTS OF OPERATION
Three Months Ended December 31, 2005 vs. Three Months Ended December 31 2004.
Costs and expenses decreased from A$377,000 in the three months December 31,
2004 to A$370,000 in the three months ended December 31, 2005. The Company's
financial statements are prepared in Australian dollars (A$). 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 three months
December 31 2005 to the three months December 31,2004 does not always present a
true comparison. The decrease in expenses is a net result of:
a) an increase in interest expense (net) from A$2,000 for the three months
ended December 31, 2004 to A$37,000 for the three months ended December
31, 2005. AXIS provides management and geological services to the
Company pursuant to a Service Deed dated November 25, 1988. AXIS
charged A$10,460 in interest on outstanding amounts at a rate of 9.35%
for the three months to December 31, 2005 compared to 10.10% and 10.60%
for fiscal 2004. Wilzed loaned further funds to the Company during the
quarter and charged A$20,039 in interest. A$8,000 general interest was
charged on outstanding accounts payable liabilities.
b) a decrease in legal, accounting and professional expense from A$47,000
for the three months ended December 31, 2004 to A$24,000 for the three
months ended December 31, 2005. In December 31, 2004 quarter, legal
fees were incurred in relation to discussions with external financiers
and preparation of a listing of the Company's securities on the Toronto
Venture Exchange. No such costs were incurred in the December 31, 2005
quarter.
c) a decrease in administrative costs including salaries from A$196,000 in
the three months ended December 31, 2004 to A$164,000 in the three
months ended December 31, 2005, primarily as a result of a reduced
exploration activity. Insurance costs decreased by A$16,000 and
administration salaries charged to the Company by AXIS decreased by
A$12,000.
d) a decrease in the exploration expenditure expense from A$132,000 for
the three months ended December 31, 2004 to A$87,000 for the three
months ended December 31, 2005. No field exploration has been
undertaken during the 2005 field season due to the high level of field
exploration in the 2004 field season and limited funding.
e) an increase in stock based compensation from A$nil for the three months
ended December 31, 2004 to A$58,000 for the three months ended December
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, 250,000 will vest immediately 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.
10
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$57,586 has been amortised and charged to
operations in the December 2005 quarter.
As a result of the foregoing, the loss from operations decreased from A$377,000
for the three months ended December 31, 2004 to A$370,000 for the three months
ended December 31, 2005.
The net loss was A$386,000 for the three months ended December 31, 2005 compared
to a net loss of A$377,000 for the three months ended December 31, 2004.
Six Months Ended December 31, 2005 vs. Six Months Ended December 31, 2004.
Costs and expenses decreased from A$1,695,000 in the six months December 31,
2004 to A$678,000 in the six months ended December 31, 2005. The Company's
financial statements are prepared in Australian dollars (A$). 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 three months
December 31 2005 to the three months December 31, 2004 does not always present a
true comparison. The decrease in expenses is a net result of:
a) an increase in interest expense (net) from A$5,000 for the six months
ended December 31, 2004 to A$63,000 for the six months ended December
31, 2005. AXIS provides management and geological services to the
Company pursuant to a Service Deed dated November 25, 1988. AXIS
charged A$18,366 in interest on outstanding amounts at a rate of 9.35%
for the six months to December 31, 2005 compared to 10.60% for the six
months to December 31, 2004. Wilzed loaned further funds to the Company
during the six months and charged A$36,873 in interest. A$8,000 general
interest was charged on outstanding accounts payable liabilities.
b) a decrease in legal, accounting and professional expense from A$86,000
for the six months ended December 31, 2004 to A$39,000 for the six
months ended December 31, 2005. In the six months period to December
31, 2004, legal fees were incurred in relation to discussions with
external financiers and preparation of a listing of the Company's
securities on the Toronto Venture Exchange. No such costs were incurred
in the six months to December 31, 2005. A decrease in share register
activity reduced the fee for maintenance of the records by the external
share registrar.
c) a decrease in administrative costs including salaries from A$416,000 in
the six months ended December 31, 2004 to A$315,000 in the six months
ended December 31, 2005. In the six month period to December 31, 2004
external consultants were used to undertake work in respect to the
Company's listing on the Toronto Venture Exchange in Canada. No such
costs were incurred in six months ended December 31, 2005. Salaries
charged to the Company by AXIS decreased by A$35,000 and insurance
costs incurred by the Company reduced by A$16,000.
d) a decrease in the exploration expenditure expense from $1,188,000 for
the six months ended December 31, 2004 to $125,000 for the six months
ended December 31, 2005. No field exploration has been undertaken
during the 2005 field season due to the high level of field exploration
in the 2004 field season and limited funding.
e) an increase in stock based compensation from A$nil for the six months
ended December 31, 2004 to A$136,000 for the six months ended December
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, 250,000 will vest immediately 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.
11
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$135,598 has been amortised and charged to
operations for the six month period to December 31, 2005.
As a result of the foregoing, the loss from operations decreased from
A$1,695,000 for the six months ended December 31, 2004 to A$701,000 for the six
months ended December 31, 2005.
The net loss was A$701,000 for the six months ended December 31, 2005 compared
to a net loss of A$1,695,000 for the six months ended December 31, 2004.
Liquidity and Capital Resources
For the six months ended December 31, 2005, net cash used in operating
activities was A$444,000 primarily consisting of the net loss of A$701,000
partially offset by increases in accounts payable and accrued expenses of
A$21,000; a decrease in receivables of A$33,000; stock based compensation of
A$136,000; and accrued interest added to principal of A$40,000.
As of December 31, 2005 the Company had short-term obligations of A$622,000
comprising accounts payable and accrued expenses.
We have A$5,000 in cash at December 31, 2005. During the six months to December
31, 2005, a company associated with our President and Chief Executive Officer
provided $447,000 in loan funds to allow us to meet our financial obligations.
The Company anticipates that it needs to spend $500,000 on legal, professional,
accounting and administration expenses over the next 12 months. We are
investigating the possibility of raising "flow through financing" in Canada for
exploration purposes and/or other finance for exploration and working capital
purposes. If this financing is not successful, we anticipate that a company
associated with our President and Chief Executive Officer will provided
sufficient funds to allow us to meet our obligations, however there can be no
assurance that this funding will eventuate.
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 questions raised by
TSX-V. 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.
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.
12
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
foreign countries, risks associated with environmental and other regulatory
matters, mining risks and competition and the volatility of gold and copper
prices, movements in the foreign exchange rate and the availability of
additional financing for the Company. 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.
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-15 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 required to be disclosed by the Company in this report is
recorded, processed, summarized and reported 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.
13
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
(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
14
(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 authorized.
BAY RESOURCES LTD.
By: Joseph I. Gutnick
---------------------
Joseph I. Gutnick
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
By: Peter Lee
---------------------
Peter Lee
Peter Lee, Director, Secretary and
Chief Financial Officer
(Principal Financial Officer)
Dated February 8, 2006
15
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
16