<PAGE>   1
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 2O549

                                    FORM 1O-Q


 (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, 1998     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

                            BAYOU INTERNATIONAL, LTD.
             (Exact name of Registrant as specified in its charter)

               Delaware                                    98-0079697
(State or other jurisdiction of                          (IRS Employer
incorporation or organisation)                        Identification No.)

        210 Kings Way, South Melbourne, Victoria, 3205, Australia
        (Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code    0ll (613) 9234-1100

Securities registered pursuant to Section 12(b) of the Act :

    Title of each class                               Name of each exchange
                                                       on  which registered

            N/A                                                 N/A

          Securities registered pursuant to Section 12(g) of the Act:
                    Common Stock, par value $.15 per share
                               (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements the past 90 days.
                  Yes   X                 No
                       ---

               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                 PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the restraint has filed all documents and reports
required to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of
1934 subsequent to 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 46,941,789
outstanding shares on Common Stock, as of the latest practicable date. There
were 46,941,789 outstanding shares of Common Stock as of March 31, 1998.
<PAGE>   2
                                     PART 1

                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

      INTRODUCTION TO INTERIM FINANCIAL STATEMENTS.

      The interim financial statements included here in have been prepared by
Bayou International, Ltd. (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-K for the year ended June 30, 1997.

      In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of March 31, 1998 and March 31, 1997, the results of its operations
for the nine month periods ended March 31, 1998 and March 31, 1997, and the
changes in its cash flows for the nine month periods ended March 31, 1998 and
March 31, 1997, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the full year.

      UNLESS OTHERWISE INDICATED, ALL FINANCIAL INFORMATION
      PRESENTED IS IN AUSTRALIAN DOLLARS.


                                       2
<PAGE>   3
                    BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
                           Consolidated Balance Sheets
                        March 31, 1998 and June 30, 1997
                               and March 31, 1997
                             (in Australian Dollars)
                                 (000's omitted)
                                   (Unaudited)
                                     ASSETS

<TABLE>
<CAPTION>
                                             Mar 31      June 30       Mar 31
                                               1998         1997         1997
                                             ------      -------       ------
<S>                                        <C>          <C>          <C>
Current Assets:
   Cash                                    $      9     $     53     $     88
   Accounts Receivable, net                     153           63           55
   Investments                                   --           --            3
                                           --------     --------     --------

     Total Current Assets                       162          116          146
                                           --------     --------     --------
Other Assets:
   Property and Equipment, net                  177           51           51
   Goodwill, net                                 --                       133
                                           --------     --------     --------

   Total Other Assets                           177           51          184
                                           --------     --------     --------

     Total Assets                          $    339     $    167     $    330
                                           ========     ========     ========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Short Term Notes                        $    648     $     --     $     --
   Accounts Payable &
     Accrued Expenses                           492          406          322
                                           --------     --------     --------

     Total Current Liabilities                1,140          406          322

Long-Term Debt                                3,753        3,267        3,041
                                           --------     --------     --------

     Total Liabilities                        4,893        3,673        3,363
                                           --------     --------     --------
Stockholders' Equity (Deficit):
   Common Stock:  $0.20 par value
     50,000,000 shares authorized,
     46,941,789 issued and outstanding        9,388        9,388        9,388
   Additional Paid-in-Capital                11,592       11,592       11,592
   Cumulative Translation Adjustments        (1,362)        (435)         (92)
   Retained Deficits                        (24,172)     (24,051)     (23,921)
                                           --------     --------     --------

     Total Stockholders' Deficit             (4,554)      (3,506)      (3,033)
                                           --------     --------     --------
        Total Liabilities and
          Stockholders' Equity             $    339     $    167     $    330
                                           ========     ========     ========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       3
<PAGE>   4
                    BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
                      Consolidated Statements of Operations
                   Three Months Ended March 31, 1998 and 1997 and
                    Nine Months Ended March 31, 1998 and 1997
                                 (000's omitted)
                             (in Australian Dollars)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                     Three        Three         Nine         Nine
                                                    Months       Months       Months       Months
                                                     Ended        Ended        Ended        Ended
                                                    Mar 31       Mar 31       Mar 31       Mar 31
                                                      1998         1997         1998         1997
                                                    ------       ------       ------       ------
<S>                                               <C>          <C>          <C>          <C>
Revenues:
   Other Income                                   $      3     $     --     $     48     $     12
                                                  --------     --------     --------     --------

                                                         3           --           48           12
Costs and Expenses:
   Management Fee                                       --           --           --           --
   Interest Expense                                     89           65          231          189
   Legal, Accounting & Professional                     31            6           97           51
   Depreciation & Amortization                           4            3           10            9
   Amortization of Goodwill                             --          133           --          400
   Administrative                                      262           83          606          196
   Research & Development                               25          133           99          297
                                                  --------     --------     --------     --------

                                                       411          423        1,043        1,142
                                                  --------     --------     --------     --------

Loss from Operations                                  (408)        (423)        (995)      (1,130)

   Diminution of Asset Value                            --           --           --           --
   Gain (Loss) on Disposition of Assets                 --           --            1           --
   Foreign Currency Exchange Gain (Loss)              (140)          54          873           --
   Bad Debt (Expense) Recovery                          --           --           --           --
                                                  --------     --------     --------     --------

                                                      (140)          54          874           --
                                                  --------     --------     --------     --------

Loss before Income Tax                                (548)        (369)        (121)      (1,130)

Provision for Income Tax                                --           --           --           --
                                                  --------     --------     --------     --------

Net Income (Loss)                                 $   (548)    $   (369)    $   (121)    $ (1,130)
                                                  --------     --------     --------     --------

Earnings Per Common Equivalent Share              $   (.01)    $   (.01)    $   (.01)    $   (.02)
                                                  --------     --------     --------     --------
Weighted Number of Common
     Equivalent Shares Outstanding                  46,942       46,942       46,942       46,942
                                                  ========     ========     ========     ========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       4
<PAGE>   5
                    BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
                 Consolidated Statements of Stockholders' Equity
                        March 31, 1998 and June 30, 1997
                               and March 31, 1997
                             (in Australian Dollars)
                                 (000's omitted)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                             Cumulative     Retained
                                            Common Stock        Paid-In-    Translation     Earnings
                                          Shares      Amount     Capital     Adjustment    (Deficit)
                                          ------      ------     -------     ----------    ---------

<S>                                       <C>         <C>       <C>         <C>            <C>
Balance June 30, 1995                     46,942       9,388      11,592          (665)     (20,781)

   Net Income nine months
     ending 3-31-96                           --          --          --            --       (1,499)

        Foreign Currency Translation          --          --          --           546           --
                                          ------    --------    --------      --------     --------

Balance March 31, 1996                    46,942       9,388      11,592          (119)     (22,280)

   Net Income three months
     ending 6-30-96                           --          --          --            --         (511)

        Foreign Currency Translation          --          --          --            49           --
                                          ------    --------    --------      --------     --------

Balance June 30, 1996                     46,942       9,388      11,592           (70)     (22,791)

   Net Income nine months
     ending 3-31-97                           --          --          --            --       (1,130)

        Foreign Currency Translation          --          --          --           (22)          --
                                          ------    --------    --------      --------     --------

Balance March 31, 1997                    46,942       9,388      11,592           (92)     (23,921)

   Net Income three months
     ending 6-30-97                           --          --          --            --         (130)

        Foreign Currency Translation          --          --          --          (343)          --
                                          ------    --------    --------      --------     --------

Balance June 30, 1997                     46,942       9,388      11,592          (435)     (24,051)

   Net Income nine months
     ending 3-31-98                           --          --          --            --         (121)

   Foreign Currency Translation               --          --          --          (927)          --
                                          ------    --------    --------      --------     --------
Balance March 31, 1998                    46,942    $  9,388    $ 11,592      $ (1,362)    $(24,172)
                                          ======    ========    ========      ========     ========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       5
<PAGE>   6
                    BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                    Nine Months Ended March 31, 1998 and 1997
                          and Year Ended June 30, 1997
                             (in Australian Dollars)
                                 (000's omitted)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                   9 Months        Year    9 Months
                                                      Ended       Ended       Ended
                                                     Mar 31     June 30      Mar 31
                                                       1998        1997        1997
                                                   --------     -------    --------
<S>                                                <C>          <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Loss                                          $  (121)    $(1,260)    $(1,130)
   Adjustments:
     Foreign Currency Translation                       (927)       (365)          6
     Depreciation and Amortization                        10         545         409
             (Gain) Loss on Disposition of Assets         --           2          --
   Diminution of Value                                    --          --          --
     Provision for Bad Debt                               --
     Change Net of Effects of Subsidiary
       Acquisitions:
         Accounts Receivable                             (90)        (10)         (2)
         A/P and Accrued Liabilities                      86          60         (24)
                                                     -------     -------     -------
       Net Cash Provided (Used) by
           Operating Activities                       (1,042)     (1,028)       (741)
                                                     -------     -------     -------
CASH FLOW FROM INVESTING ACTIVITIES:
   Capital Expenditures, Net                            (136)         (8)         (5)
   Net Proceeds from Investments                          --           1          --
                                                     -------     -------     -------
       Net Cash Provided (Used) in
           Investing Activities                         (136)         (7)         (5)
                                                     -------     -------     -------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net Borrowing under Credit
     Line Arrangements                                    --          --          --
   Net Borrowing from Affiliates                         486       1,015         761
   Proceeds from borrowings                              648          --          --
                                                     -------     -------     -------
       Net Cash Provided by
           Financing Activities                        1,134       1,015         761
                                                     -------     -------     -------

Net Increase (Decrease) in Cash                          (44)        (20)         15
Cash at Beginning of Year                                 53          73          73
                                                     -------     -------     -------
Cash at End of Year                                  $     9     $    53     $    88
                                                     =======     =======     =======
Supplemental Disclosures:
   Common Stock Issued in Lieu of
     Debt Repayment                                  $    --     $    --     $    --
   Interest Paid (Net Capitalized)                   $   231     $   259     $   189
   Income Tax Paid                                   $    --     $    --     $    --
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       6
<PAGE>   7
                    BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
                     Notes to Consolidated Financial Statements
                        March 31, 1998, June 30, 1997 and
                                 March 31, 1997


(1)  ORGANIZATION

      Bayou International, Ltd. (Bayou) is incorporated in the State of
         Delaware. The principal shareholder of Bayou is Edensor Nominees
         Proprietary Limited (Edensor), an Australian corporation. Edensor owned
         42.7% of Bayou as of March 31, 1998.

      Bayou's subsidiary is Solmecs Corporation N.V. (Solmecs), which it
         acquired controlling interest of, on September 3, 1987 and complete
         ownership on January 2, 1992.

      Bayou is primarily engaged in the research and development of high
         efficiency, low pollution or pollution-free products and technologies
         in the energy conversion and conservation fields through its 100%-owned
         subsidiary, Solmecs. All revenue is from contracted services provided
         by Solmecs. Almost all of Bayou's operating expenses are for general
         and administrative and research and development cost.


(2)  ACCOUNTS RECEIVABLE

      Accounts Receivable at March 31,1998, June 30, 1997 and March 31, 1997
      includes:

<TABLE>
<CAPTION>
                                                    (in Australian Dollars)
                                                        (000's omitted)
                                                --------------------------------
                                                Mar 31      June 30       Mar 31
                                                  1998         1997         1997
                                                ------      -------       ------
<S>                                             <C>         <C>           <C>
Miscellaneous Receivables                         $153         $ 63         $ 55
  Less Allowance for
    Doubtful Account                                --           --           --
                                                  ----         ----         ----

      Net                                         $153         $ 63         $ 55
                                                  ====         ====         ====
</TABLE>

(3)  INVESTMENT SECURITIES

      The following is a summary of Investment Securities at March 31, 1998,
         June 30, 1997 and March 31, 1997:

<TABLE>
<CAPTION>
                                                       (in Australian Dollars)
                                                           (000's omitted)
                                                    ----------------------------
                                                    Mar 31     June 30    Mar 31
                                                      1998        1997      1997
                                                    ------     -------    ------
<S>                                                 <C>        <C>        <C>
Trading Securities:
  Marketable Equity
    Securities, at cost                              $  --        $ --      $ 1
  Gross Unrealized Gains                                --          --        2
  Gross Unrealized Losses                               --          --       --
                                                     -----        ----      ---
  Marketable Equity Securities,
    at fair value                                    $  --        $ --      $ 3
                                                     =====        ====      ===
</TABLE>


                                       7
<PAGE>   8
                    BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                        March 31, 1998, June 30, 1997 and
                                 March 31, 1997


(4)  PROPERTY

      Property at March 31, 1998, June 30, 1997 and March 31, 1997 includes:

<TABLE>
<CAPTION>
                                                   (in Australian Dollars)
                                                       (000's omitted)
                                               ---------------------------------
                                               Mar 31      June 30       Mar 31
                                                 1998         1997         1997
                                               ------      -------       ------
<S>                                            <C>         <C>           <C>
Office Furniture & Equipment                    $ 341        $ 185        $ 175
Motor Vehicles                                     45           40           38
                                                -----        -----        -----

                                                  386          225          213
Less Accumulated Depreciation                    (209)        (174)        (162)
                                                -----        -----        -----

                                                $ 177        $  51        $  51
                                                =====        =====        =====
</TABLE>

(5)  SHORT TERM AND LONG TERM DEBT

      The following is a summary of Bayou's borrowing arrangements as of March
         31, 1998, June 30, 1997 and March 31, 1997.

<TABLE>
<CAPTION>
                                                       (in Australian Dollars)
                                                           (000's omitted)
                                                    ----------------------------
                                                    Mar 31    June 30     Mar 31
Long-Term                                             1998       1997       1997
                                                    ------    -------     ------
<S>                                                 <C>       <C>         <C>
Loan made from affiliate of Subsidiary
   Loan has no interest and has no fixed
   maturity date                                    $  302     $  268     $  268
Loan from corporations affiliated
   with the President of Bayou
   Interest accrues at the ANZ
   Banking Group Limited rate + 1%
   for overdrafts over $100,000
   Repayment of loan not required
   before June 30, 1998                              3,451      2,999      2,773
                                                    ------     ------     ------

   Total Long-Term                                  $3,753     $3,267     $3,041
                                                    ------     ------     ------
Short-Term

Notes Payable                                          648         --         --
Notes Payable - Affiliates                              --         --         --
                                                    ------     ------     ------

   Total Short-Term                                    648         --         --
                                                    ------     ------     ------

     Total                                          $4,401     $3,267     $3,041
                                                    ======     ======     ======
</TABLE>


                                       8
<PAGE>   9
                    BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                        March 31, 1998, June 30, 1997 and
                                 March 31, 1997


(6)  AFFILIATE TRANSACTIONS

      Bayou advances to and receives advances from various affiliates. All
         advances between consolidated affiliates are eliminated on
         consolidation. At March 31, 1998, Bayou had no outstanding advances to
         or from unconsolidated affiliated companies.


(7)  GOING CONCERN

      The accompanying consolidated financial statements have been prepared in
         conformity with generally accepted accounting principles which
         contemplates continuation of Bayou and Solmecs as going concerns.
         However, both Bayou and Solmecs have sustained recurring losses. In
         addition, neither Bayou or Solmecs have any net working capital and
         both have retained stockholders' deficits which raises substantial
         doubts as to their ability to continue as going concerns.

      Bayou anticipates that it will be able to defer repayment of certain of
         its short term loan commitments until it has sufficient liquidity to
         enable these loans to be repaid or other arrangements to be put in
         place.

      In addition Bayou has historically relied on loans and advances from
         corporations affiliated with the President of Bayou. Based on
         discussions with these affiliate companies, Bayou believes this source
         of funding will continue to be available.

      Other than the arrangements noted above, Bayou has not confirmed any other
         arrangements for ongoing funding. As a result Bayou may be required to
         raise funds by additional debt or equity offerings in order to meet its
         cash flow requirements during the forthcoming year.


(8)  COMMITMENTS

      Solmecs has entered into the following commitments:

      (a) In accordance with an agreement dated November 5, 1981, between the
          Company, Ben Gurion University and B.G. Negev Technology and
          Applications Ltd. (BGU), the subsidiary in Israel is conducting
          research and development projects on the campus of Ben-Gurion
          University in consideration for a fee for the use of the facilities.
          The Company owns the patents connected with these projects and agreed
          to pay royalties to BGU at the rate of 1.725% on sales of products and
          at the rate of 11.5% on income from licensing fees.

      The Company also agreed to assume the obligation of BGU to pay royalties
          to the Ministry of National Infrastructure on products developed from
          these R&D projects for its participation in the research and
          development costs of BGU. The royalties are to be paid at the rate of
          1% on sales of products and at the rate of 5% on income from licensing
          fees. As of March 31, 1998, this liability amounted to approximately
          $318,000 (including linkage to the Consumer Price Index and interest
          at 4% per annum). Subsequent to the repayment of the liability, the
          Company is to pay royalties to the Ministry of National Infrastructure
          at a reduced rate of 0.3% on sales of products and at the rate of 2%
          on income from licensing fees.

      Through March 31, 1998, there were no sales or income on which royalties
          were payable to BGU and the Ministry of National Infrastructure.


                                       9
<PAGE>   10
                    BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                        March 31, 1998, June 30, 1997 and
                                 March 31, 1997


(8)  COMMITMENTS (CONTINUED)

      (b) International Lead Zinc Research Organization (ILZRO)

      In connection with a research contract with ILZRO, Solmecs' subsidiary
          agreed to pay ILZRO a fee for any lead used in future production by
          the subsidiary. The total fee commitment is limited to $1,864,000.
          Through March 31, 1998, the subsidiary has not used any lead for which
          it is required to pay fees.

      (c) Chief Scientist of the Government of Israel

      For the period from 1981 to 1991, Solmecs' subsidiary received
          participations from the Chief Scientist of $2,274,420 towards the cost
          of a research and development project. In return, the subsidiary is
          required to pay royalties at the rate of 2% of sales of know-how or
          products derived from the project. Through March 31, 1998, there were
          no sales on which royalties were payable.

(9)  SUBSEQUENT EVENTS

      In March 1997, Bayou commenced negotiations with SCNV Acquisition Corp
          ("SCNV") for the sale of Bayou's subsidiary Solmecs to SCNV. A letter
          of intent was signed on May 5, 1997 and agreements to effect the sale
          are in the process of being negotiated. It is intended that, as part
          of the sale of Solmecs, Bayou will acquire a 24% interest in SCNV.

      The sale of Solmecs is subject to the approval of shareholders of Bayou.
          Following the signing of formal contracts for the sale of Solmecs,
          Bayou will prepare and distribute an Information Memorandum for the
          purpose of seeking shareholder approval. In the event that the sale of
          Solmecs is consummated, of which there can be no assurance, the
          Company intends to seek other business activities for the Company,
          which may be in the fields of energy conversion and conservation
          and/or other industries, including the mineral exploration industry.
          It is the policy of the Board of Directors of the Company that the
          Company will not engage in any activities the scope and nature of
          which would subject the Company to the registration and reporting
          requirements of the Investment Company Act of 1940.

      In the event that the sale of Solmecs is consummated, of which there can
          be no assurance, Bayou intends to seek other business activities,
          which may be in the fields of energy conversion and conservation
          and/or other industries, including the mineral exploration industry.
          It is the policy of the Board of Directors of Bayou that it will not
          engage in any activities the scope and nature of which would subject
          the Company to the registration and reporting requirements of the
          Investment Company Act of 1940.


                                       10
<PAGE>   11
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

FUND COSTS CONVERSION

The consolidated statements of income 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 during the periods indicated:

          9 months ended March 31, 1997 A$1.00 = U.S. $.7860
          9 months ended March 31, 1998 A$1.00 = U.S. $.6622


RESULTS OF OPERATION

NINE  MONTHS ENDED MARCH 31, 1998 VS. NINE MONTHS ENDED MARCH  31, 1997.

Total revenues amounted to A$48,000 for the nine months ended March 31, 1998,
compared to A$12,000 for the nine months ended March 31, 1997. The major reasons
for the increase were photovoltaics sales and income from the Dead Seas Project.

Costs and expenses decreased from A$1,142,000 in the nine months ended March 31,
1997, to A$1,043,000 in the nine months ended March 31, 1998. The decrease is
the net result of:

      (a) an increase in interest expense from A$189,000 in the nine months
          ended March 31, 1997, to A$231,000 in the nine months ended March 31,
          1998, as a result of the increase in long term debt of the Company.

      (b) an increase in legal, accounting and professional expenses from
          A$51,000 for the nine months ended March 31, 1997, to A$97,000 in the
          nine months ended March 31, 1998, due to costs involved with the
          disposal of Solmecs Corporation N.V.

      (c) a decrease in amortization of goodwill from A$400,000 for the nine
          months ended March 31, 1997, to A$nil for the nine months ended March
          31, 1998, as a result of goodwill associated with the acquisition of
          Solmecs in 1987 being fully amortized.

      (d) an increase in administrative costs including salaries from A$196,000
          in the nine months ended March 31, 1997, to A$606,000 in the nine
          months ended March 31, 1998, due to:

          (i)  the reorganisation of the operations whereby the administration
               of Solmecs (Israel) Ltd was moved from Ben-Gurion University to
               Omer Industrial Park to provide greater accommodation for
               research, development and administration together with associated
               costs; and

          (ii) marketing expenses of the boiler and magnesium pump projects.

      (e) a decrease in research and development from A$297,000 for the nine
          months ended March 31, 1997, to A$99,000 for the nine months ended
          March 31, 1998, due to less research and development being undertaken
          by both staff and subcontractors.

As a result of the foregoing, the loss from operations decreased from
$A1,130,000 in the nine months ended March 31, 1997, to A$995,000 in the nine
months ended March 31, 1998. The Company did not realise a foreign exchange gain
or loss for the nine months ended March 31, 1997, compared with a foreign
exchange gain of A$873,000 for the nine months ended March 31, 1998 caused by
the movement in the Australian dollar compared with the US dollar. All of the
Company's loan accounts are denominated in US dollars.

The Company incurred a net loss of A$1,130,000 for the nine months ended March
31, 1997, compared with a loss of A$121,000 for the nine months ended March 31,
1998.


                                       11
<PAGE>   12
LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 1998 the Company had short term obligations of A$1,140,000
comprising Short Term Notes and accounts payable and accrued expenses and long
term obligations of A$3,753,000 consisting of an amount of A$3,451,000 to Chevas
Pty Ltd of which the President and the Chief Executive Officer of the Company
Mr. J I Gutnick is a Director and A$302,000 to an affiliate of Solmecs.

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 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 1998 and 1999.

The Company will still be required to locate substantial additional financing to
permit Solmecs to complete the development of the next stage of the LMMHD
project together with other projects that Solmecs is developing.

Other than the arrangements above the Company has not confirmed any further
arrangements for ongoing funding. As a result the Company may be required to
raise funds from additional debt or equity offerings and/or increase the
revenues from operations in order to meet its cash flow requirements during the
forthcoming year.


CAUTIONARY SAFE HARBOR STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.

Certain information contained in this Form 10-Q is 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-Q 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 the strength of the domestic and foreign
economies, slower than anticipated completion of research and development
projects, the availability of financing for such projects 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-K on file with the
Securities and Exchange Commission.


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<PAGE>   13
                                     PART II


Item 1.     LEGAL

            Not Applicable

Item 6.     EXHIBITS AND REPORTS ON FORM 8-K

            The Company did not file any Report on Form 8-K during the nine
months ended March 31, 1998.

Item 5.     OTHER INFORMATION


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<PAGE>   14
                                 (FORM 10-Q)

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 thereinto duly authorised.

                          BAYOU INTERNATIONAL, LTD.

                          By: (Signed)

                              Joseph I. Gutnick
                              Chairman of the Board, President and
                              Chief Executive Officer
                              (Principal Executive Officer)

Dated: May 25, 1998       By: (Signed)

                              Peter Lee, Director, Assistant Secretary and Chief
                              Financial Officer
                              (Principal Financial Officer)


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