SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999 Commission file number 000-25209
BESICORP LTD.
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(Exact name of small business issuer as specified in its charter)
New York 14-1809375
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(State or other jurisdiction of (Internal Revenue Service
incorporation or organization) Employer Identification No.)
1151 Flatbush Road, Kingston, New York 12401
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(Address of principal executive office) (Zip Code)
Issuer's Telephone Number, including area code: (914) 336-7700
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act 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 for the past 90 days.
Yes __X__ No____
Common stock outstanding as of September 30, 1999 136,382
Transitional Small Business Disclosure Format Yes_____ No ___X_
1
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BESICORP LTD.
CONSOLIDATED BALANCE SHEET
(unaudited)
September 30, March 31,
1999 1999
____________ _________
ASSETS
Current Assets:
Cash and cash equivalents $ 800,399 $ 1,824,139
Trade accounts and notes receivable (less allowance
for doubtful accounts of $28,906 as of September 30, 1999
and $32,000 at March 31, 1999) 1,390,706 988,589
Due from affiliates 66,470 374,250
Notes receivable: (includes interest of $5,770 at
September 30, 1999 and $4,057 at March 31, 1999) 87,320 107,951
Inventories 1,818,608 1,165,761
Other current assets 439,579 465,566
---------- ---------
Total Current Assets 4,603,082 4,926,256
---------- ---------
Property, Plant and Equipment:
Land and improvements 229,660 229,660
Buildings and improvements 1,914,029 1,914,029
Machinery and equipment 603,654 726,958
Furniture and fixtures 237,424 237,423
Construction in progress 23,369 0
---------- ---------
3,008,136 3,108,070
Less: accumulated depreciation and amortization (1,438,589) (1,520,385)
----------- ----------
Net Property, Plant and Equipment 1,569,547 1,587,685
----------- ----------
Other Assets:
Patents and trademarks, less accumulated
amortization of $2,940 at
September 30, 1999 and $2,350, at March 31, 1999 18,120 12,530
Investment in partnerships 1,692,414 4,009,810
Deferred costs 382,719 0
Other assets 74,554 76,620
---------- ---------
Total Other Assets 2,167,807 4,098,960
---------- ----------
TOTAL ASSETS $ 8,340,436 $ 10,612,901
========== ==========
See accompanying notes to consolidated financial statements.
2
BESICORP LTD.
CONSOLIDATED BALANCE SHEET
(unaudited)
September 30, March 31,
1999 1999
------------ --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,002,200 $ 763,531
Current portion of long-term debt 42,000 20,000
Current portion of accrued reserve and warranty expense 72,946 111,215
Taxes other than income taxes 105,885 103,207
Income taxes payable 8,149 5,300
---------- ---------
Total Current Liabilities 1,231,180 1,003,253
Long-Term Accrued Reserve and Warranty Expense 190,606 174,462
Long-Term Debt 51,070 115,308
---------- ---------
Total Liabilities 1,472,856 1,293,023
---------- ---------
Shareholders' Equity:
Common stock, $.01 par value: authorized
5,000,000 shares; issued 136,382
at September 30, 1999 and 121,382 at March 31, 1999 1,364 1,214
Additional paid in capital 10,135,677 9,490,827
Unamortized deferred compensation (587,308) 0
Retained earnings (deficit) (2,677,853) (172,163)
---------- ----------
6,871,880 9,319,878
Less: treasury stock at cost (100 shares and 0 shares,
respectively) (4,300) 0
---------- ----------
Total Shareholders' Equity 6,867,580 9,319,878
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,340,436 $10,612,901
========== ==========
See accompanying notes to consolidated financial statements.
3
BESICORP LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three months ended September 30,
1999 1998
Revenues: ---------------------------------
Product sales $ 2,162,837 $ 1,097,897
Other revenues 145,134 129,386
Interest and other investment income 39,822 6,431
----------- ---------
Total Revenues 2,347,793 1,233,714
Costs and Expenses:
Cost of product sales 1,846,388 1,034,036
Selling, general and administrative expenses 1,708,453 3,120,139
Loss from partnerships 75,187 0
Interest expense 0 9,924
Other expense 28 8,374
--------- ---------
Total Costs and Expenses 3,630,056 4,172,473
--------- ---------
Loss Before Income Taxes (1,282,263) (2,938,759)
Provision (Credit) for Income Taxes 3,176 (993,300)
--------- ----------
Net Loss $ (1,285,439) $ (1,945,459)
========= =========
Basic Loss per Share $ (9.43) $ (16.03)
Basic Weighted Average Number of Shares ========== =========
Outstanding 136,370 121,382
========== =========
See accompanying notes to consolidated financial statements.
BESICORP LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Six months ended September 30,
1999 1998
------------------------------
Revenues:
Product sales $ 4,287,909 $ 2,085,690
Other revenues 206,063 278,954
Interest and other investment income 63,222 13,204
--------- ---------
Total Revenues 4,557,194 2,377,848
--------- ---------
Costs and Expenses:
Cost of product sales 3,697,215 1,981,867
Selling, general and administrative expenses 3,276,183 4,462,413
Loss from partnerships 75,187 0
Interest expense 287 104,307
Other expense 78 8,807
---------- ---------
Total Costs and Expenses 7,048,950 6,557,394
---------- ---------
Loss Before Income Taxes (2,491,756) (4,179,546)
Provision (Credit) for Income Taxes 13,934 (1,415,300)
---------- ---------
Net Loss $ (2,505,690) $ (2,764,246)
========= =========
Basic Loss per Share $ (18.86) $ (22.77)
Basic Weighted Average Number of Shares ========== =========
Outstanding 132,851 121,382
========= =========
See accompanying notes to consolidated financial statements.
4
BESICORP LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Six months ended September 30,
1999 1998
_____________________________
Operating Activities:
Net loss $ (2,505,690) $(2,764,246)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization of discounts on notes (833) (1,098)
Loss on investment in partnerships 75,187 0
Stock compensation 53,392 0
Provision for uncollectibles (3,094) 45,929
Depreciation and amortization 73,274 81,091
Changes in assets and liabilities:
Accounts and notes receivable 156,331 (270,527)
Inventories (652,847) (297,645)
Accounts payable and accrued expenses 238,669 (140,869)
Taxes payable/refundable 5,527 12,519
Other assets and liabilities, net (401,451) 1,546,647
--------- ---------
Net cash used by operating activities (2,961,535) (1,788,199)
--------- ---------
Financing Activities:
Repayment of borrowings (42,238) (3,049,076)
Net transactions with Besicorp Group Inc. 0 4,862,765
--------- ---------
Net cash provided (used) by financing activities (42,238) 1,813,689
--------- ---------
Investing Activities:
Distribution from partnerships 2,034,579 0
Acquisition of property, plant
and equipment (54,546) (70,637)
--------- ---------
Net cash provided (used) by investing activities 1,980,033 (70,637)
--------- ---------
Decrease in Cash and Cash Equivalents (1,023,740) (45,147)
Cash and Cash Equivalents - Beginning 1,824,139 104,428
--------- ---------
Cash and Cash Equivalents - Ending $ 800,399 $ 59,281
========= =========
Supplemental Cash Flow Information:
Interest paid $ 287 $ 161,955
Income taxes paid 6,456 0
See accompanying notes to consolidated financial statements.
5
BESICORP LTD.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A.
The accompanying unaudited financial statements have been prepared in accordance
with the generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of Besicorp Ltd. (together with its
subsidiaries, the "Company") as of September 30, 1999, and March 31, 1999; the
results of operations for the three- and six-month periods ended September 30,
1999 and 1998; and the statement of cash flows for the corresponding six-month
periods.
The balance sheet at March 31, 1999 has been derived from the audited financial
statements at that date, but does not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. For further information, refer to the audited consolidated financial
statements and footnotes thereto included in the Form 10-KSB, as amended, filed
by the Company for the year ended March 31, 1999.
Besicorp Group Inc. (Oldco), the former parent of Besicorp Ltd., was a party
to an Agreement and Plan of Merger dated November 23, 1998, as amended, (the
"Plan of Merger") among Besicorp Group Inc., BGI Acquisition LLC ("Acquisition")
and BGI Acquisition Corp. ("Merger Sub"), a wholly owned subsidiary of
Acquisition. Pursuant to the Plan of Merger, Merger Sub was merged into Besicorp
Group Inc., which then became a wholly owned subsidiary of Acquisition (the
"Merger"). Because Acquisition did not want to acquire certain assets or assume
certain liabilities of Besicorp Group Inc., it was a condition precedent to the
Merger that Besicorp Group Inc., prior to the Merger, spin-off its photovoltaic
and independent power development businesses (the "Distributed Businesses") to
its shareholders. Therefore, Besicorp Group Inc. formed Besicorp Ltd. to assume
the operations of the Distributed Businesses by having Besicorp Group Inc.
assign to Besicorp Ltd. all of its assets relating to the Distributed Businesses
and substantially all of Besicorp Group Inc.'s other assets (other than Besicorp
Group Inc.'s cash, securities, the subsidiaries which held Besicorp Group Inc.'s
interests in partnerships which owned or leased five cogeneration natural gas
power plants (the "Retained Subsidiaries") and certain other assets (including
in particular, other claims of and awards made to Besicorp Group Inc. in the
aggregate stated amount of approximately $1 million)), and by having Besicorp
Ltd. (the "Company") assume substantially all of Besicorp Group Inc.'s
liabilities other than the following liabilities (collectively, the "Permitted
Liabilities"): (i) the liabilities of Besicorp Group Inc. and any Retained
Subsidiary (actual or accrued) for unpaid federal income taxes for Besicorp
Group Inc.'s 1999 fiscal year based on the consolidated net income of Besicorp
Group Inc. through the effective date of the Merger (i.e. March 22, 1999), (ii)
the liabilities of Besicorp Group Inc. or its subsidiaries for New York State
income taxes for the 1999 fiscal year, and (iii) certain intercompany
liabilities. The Plan of Merger contemplated that prior to the consummation of
the Merger Besicorp Group Inc. would effect this contribution of assets to the
Company (and the assumption of these liabilities by the Company) and distribute
all of Besicorp Ltd.'s stock to Oldco's shareholders. Therefore, following the
contribution, which took place shortly prior to the Merger which was consummated
on March 22, 1999, Besicorp Group Inc. distributed 100% of Besicorp Ltd.'s
common stock (the "Distribution"), and Besicorp Ltd. became a separate, publicly
held company.
Besicorp Ltd. and subsidiaries consolidated financial statements at and prior
to the Distribution reflect the operations, financial position and cash flows
of Besicorp Ltd. and subsidiaries as if they were a separate entity. Such
financial statements were derived from the consolidated financial statements
of Besicorp Group Inc. using historical results of operations and historical
basis in the assets and liabilities of the business operated by Besicorp Ltd.
The financial information for the year ended March 31, 1999 may not necessarily
reflect the consolidated results of operations, financial position, cash flows
and changes in shareholders' equity of Besicorp Ltd. had Besicorp Ltd. been a
separate entity during that period.
6
Amounts shown as net transactions with Besicorp Group Inc. represent the net
effect of cash generated or used by the Distributed Businesses and transferred
to or from Besicorp Group Inc.
B. Business
Besicorp Ltd. specializes in the development, assembly, manufacture, marketing
and resale of photovoltaic products and systems ("Product Segment") and the
development of power plant projects ("Project Segment").
C. Basic/Diluted Earnings per Common Share
Effective December 15, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. The
Statement required companies with a complex capital structure to report both
Basic Earnings per Share and Diluted Earnings per Share. Diluted Earnings per
Share considers the effect of potential common shares such as stock options and
warrants. Loss per common share for the three- and six-month periods ended
September 30, 1999 is based on the weighted average number of shares of 136,370
and 132,851 outstanding during those respective periods. Loss per common share
for the three- and six-month periods ended September 30, 1998 is computed based
on 121,382 shares being issued as adjusted after the Distribution and Spin-Off.
Since there were no potential Common Shares as of September 30, 1999 and
September 30, 1998, Basic and Diluted Earnings per Share are the same for both
fiscal years.
D. The results of operations for the three- and six-month periods ended
September 30, 1999 are not necessarily indicative of the results to be expected
for any other interim period or for the full year.
E. Inventories
Inventories are carried at the lower of cost (first-in, first-out method), or
market. Inventories at September 30, 1999 and March 31, 1999, consist of:
September 30, 1999 March 31, 1999
__________________ ______________
Assembly parts $ 411,472 $ 263,761
Finished goods 1,407,136 902,000
--------- ---------
$1,818,608 $1,165,761
========= =========
F. Deferred Costs
Deferred costs and reimbursable costs at September 30, 1999 and March 31, 1999
were as follows:
Internal Costs Third
Payroll Expenses Party Costs Total
------- -------- ----------- -----
Balance March 31, 1999 $0 $0 $0 $0
Additions 160,907 13,041 208,771 382,719
Expensed 0 0 0 0
Reimbursements 0 0 0 0
-------- ------- ------- -------
Balance September 30, 1999 $160,907 $13,041 $208,771 $382,719
======== ======= ======= =======
In accordance with its existing policy, the Company is deferring all costs, as
presented above, incurred with respect to the development of a recycled
newsprint manufacturing plant and adjacent 475 megawatt natural gas-fired
cogeneration power plant in Ulster County, New York (the "Kingston Project").
7
G. Investments in Partnerships
Except for one partnership, which management anticipates will be liquidated
around December 1, 1999, all partnerships, which owned or leased five
cogeneration natural gas power plants, were liquidated during the three months
ended June 30, 1999, and the applicable liquidating distributions of
approximately $2,000,000 were received by the Company on June 1, 1999. The
investment in partnerships of $1,692,414 at September 30, 1999 primarily
represents (a) approximately $250,000 which management expects will be received
by Besicorp Ltd. upon liquidation of the one unliquidated partnership and which
may be increased or reduced depending upon the level of expenses incurred by the
partnership and (b) approximately $1.46 million (the "Liquidated Partnership
Funds") held in cash escrow accounts which were established in connection with
three liquidated partnerships. The Liquidated Partnership Funds are to be
released, if any, to Besicorp Ltd. between June 2000 and May 2002 subject to the
satisfaction of certain conditions, as to which no assurance can be given.
H. Revenue Recognition
Revenues on sales of products are recognized at the time of shipment of goods.
Development and management fee revenue is recognized when deemed payable under
the applicable agreement.
I. Segments of Business
The Company specializes in the development, assembly, manufacture, marketing and
resale of photovoltaic products and systems ("Product Segment") and the
development of power plant projects ("Project Segment"). Segments are reported
based on the subsidiaries involved with the activity of the segment, with no
intersegment revenues and expenses. A summary of industry segment information
for the six months ended September 30, 1999 and 1998 is as follows:
Project Product
September 30, 1999 Segment Segment Eliminations Total
- ------------------ ------- ------- ------------ -----
Net revenues $ 107,213 $4,449,981 $4,557,194
Loss before taxes (1,900,436) (591,320) 0 (2,491,756)
Income tax provision (credit) 12,193 1,741 13,934
Net income (loss) (1,912,629) (593,061) (2,505,690)
Identifiable assets 18,970,736 2,196,060 $(12,826,360) 8,340,436
Investment in partnerships 1,692,414 0 0 1,692,414
Capital expenditures 17,729 36,817 54,546
Depreciation and amortization 57,916 15,358 73,274
September 30, 1998
Net revenues $ 87,935 $2,289,913
0 $2,377,848
Loss before taxes (3,275,002) (904,544) (4,179,546)
Income tax provision (1,417,067) 1,767 (1,415,300)
Net income (loss) (1,857,835) (906,411) (2,764,246)
Identifiable assets 17,130,957 2,213,466 $(15,193,811) 4,150,612
Investment in partnerships 0 0 0 0
Capital expenditures 35,508 35,129 70,637
Depreciation and amortization 64,064 16,977 81,091
K. Legal Proceedings
See Part II, Item 1 which is incorporated by reference.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Second Quarter Developments and Subsequent Events
On October 11, 1999, the Company announced that it had entered into an agreement
and plan of merger (the "Agreement") with Besicorp Holdings, Ltd. (the "Parent")
and Besi Acquisition Corp., a wholly-owned subsidiary of Parent. The Agreement
is generally structured as a cash merger whereby Besi Acquisition Corp. will be
merged into Besicorp Ltd., which will then be wholly-owned by Besicorp Holdings,
Ltd. Michael F. Zinn, the President and CEO of Besicorp Ltd., controls Besicorp
Holdings, Ltd.
Generally, pursuant to the terms of the Agreement, shareholders of the Company
(other than shares of Company common stock owned by the Parent) will receive
approximately $58.83 in cash for each share of stock that they own plus the
right to receive additional cash distributions, if any, during the next several
years in the event the surviving corporation receives certain funds. No
assurance can be given that any such funds will be received.
Consummation of the merger is subject to the satisfaction of a number of
conditions, including approval by the Company's shareholders. No assurance can
be given that the merger will be consummated.
On July 15, 1999, the Company announced that Kellogg Brown & Root Inc. ("KBR")
of Houston, Texas has been chosen to provide engineering and construction
services to the Kingston Project. The Kingston Project involves the construction
of a 100 percent recycled newsprint paper manufacturing facility and an
integrated 475 MW combined-cycle cogeneration facility to supply steam and
electricity to the paper facility and electricity to the deregulated power
market. KBR is to provide the preliminary design for the facilities and support
the environmental permitting process relating to the project. ENSR Corporation
of Acton, Massachusetts has been retained to assist the Kingston Project
principals in applying for the environmental permits and approvals required for
the project.
On October 18, 1999, the Company announced the engagement of
PricewaterhouseCoopers Securities LLC to provide project financing and related
financial services for the Kingston Project. PricewaterhouseCoopers Securities
LLC is to provide financial advisory services for the project, including
placement of debt, equity or equity-related securities with institutional or
strategic investors necessary to bring the project to financial closing.
REVENUES
Consolidated
Consolidated revenues increased by $1,114,079, or 90%, to $2,347,793 during the
three months ended September 30, 1999 as compared to $1,233,714 during the three
months ended September 30, 1998. Consolidated revenues for the six months ended
September 30, 1998 increased by $2,179,346, or 92%, to $4,557,194, as compared
to $2,377,848 during the six months ended September 30, 1998.
Product Sales. Revenues from product sales during the three-month period ended
September 30, 1999 increased by $1,064,940, or 97%, to $2,162,837 as compared to
$1,097,897 for the three months ended September 30, 1998. During the six-month
period ended September 30, 1999, revenues increased by $2,202,219 to $4,287,909,
as compared to $2,085,690 for the six months ended September 30, 1998. The
increase for both periods is due primarily to increased sales volume of
photovoltaic products primarily as a result of increases to the sales and
marketing support staff made primarily during the fourth quarter of Fiscal 1998
and to the general increase in demand for solar electric products associated
with Year 2000 expectations. No assurance can be given that the Company will be
able to maintain such revenue levels or that revenues will not decrease.
9
Other Revenues. Other revenues are primarily comprised of contract revenue
received from various sources, including the New York State Energy Research and
Development Authority and Motorola, Inc. in accordance with funding agreements
with the Company. Other revenues increased by $15,748, or 12%, for the
three-month period ended September 30, 1999 and decreased by $72,891, or 26%,
for the six-month period ended September 30, 1999 versus the same periods last
year. Contract revenue may vary from quarter to quarter based upon the degree of
completion of the various tasks outlined in the applicable agreements.
Interest and Other Investment Income. Interest and other investment income
during the three months ended September 30, 1999 increased by $33,391 to $39,822
compared to $6,431 for the three months ended September 30, 1998. Interest and
other investment income during the six months ended September 30, 1999 increased
by $50,008 to $63,222 compared to $13,204 for the six months ended September 30,
1998. The increases in both the current periods are due primarily to higher
invested principal balances and to interest earned on the Liquidated Partnership
Funds (see Note G, Investments in Partnerships, of the Notes to the Unaudited
Consolidated Financial Statements included herein).
COSTS AND EXPENSES
Cost of Product Segment Sales
Cost of product sales for the three-month periods ended September 30, 1999 and
1998 were $1,846,388 and $1,034,036, respectively, or 85% and 94% of revenues
attributable to product sales. During the six-month periods ended September 30,
1999 and 1998, cost of product sales was $3,697,215 and $1,981,867,
respectively, or 86% and 95% of revenues attributable to product sales. The
decrease in cost of sales percentage in both periods is due primarily to the
overall increase in product sales which has resulted in increased coverage of
fixed costs resulting in higher margins and to a lesser extent, to improved
efficiencies in the manufacturing process also contributed to higher margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased by $1,411,686,
or 45%, to $1,708,453 for the three-month period ended September 30, 1999 as
compared to $3,120,139 for the three-month period ended September 30, 1998.
During the six-month period ended September 30, 1999, SG&A decreased by
$1,186,230 or 27% to $3,276,183, as compared to $4,462,413 for the six-month
period ended September 30, 1998.
SG&A for the three and six months ended September 30, 1999, decreased from the
corresponding periods in the prior year primarily because the results for the
prior year include the write-off, during the second quarter of Fiscal 1999, of
project costs previously deferred of $1,402,085. These costs were written off
due to the uncertain political and economic conditions in the countries where
the projects are located. Management determined, in accordance with its
accounting policy, that due to the uncertain development of the projects, the
carrying amounts may be impaired. For the six-month period ended September 30,
1999, this decrease was partially offset by increased marketing expense of
$148,300 in the Company's Product Segment, increased professional fees of
$126,264 and increased equipment rental expense of $54,545 associated with the
Company's lease agreement with Besicorp Group Inc.
Loss from Partnerships
Loss from partnerships for the three- and six-month periods ended September 30,
1999 increased to $75,187 from $0 for the comparable prior periods. The loss is
comprised primarily of adjustments made to reflect the expected realizable value
of the one unliquidated partnership investment, partially offset by income
recognized in connection with certain agreements with Niagara Mohawk Power
Corporation, the cash for which was received on November 10, 1999.
10
Interest Expense
Interest expense for the three-month period ended September 30, 1999 compared to
the three-month period ended September 30, 1998 decreased by $9,924 to $0.
Interest expense for the six-month period ended September 30, 1999 decreased by
$104,020 to $287 compared to $104,307 for the six-month period ended September
30, 1998. The decrease in both the three- and six-month periods is due primarily
to the Company's repayment of all its interest bearing debt during the second
and third quarter of Fiscal 1999.
Provision for Income Taxes
The provision for income taxes increased during the three months ended September
30, 1999 by $996,476, or 100%, to $3,176 compared to the credit for income taxes
of $993,300 for the same period last year. During the six-month period ended
September 30, 1999, the provision for income taxes increased by $1,429,234 to
$13,934 compared to the credit for income taxes of $1,415,300 for the same
period last year. The Company provides federal and state income taxes based on
enacted statutory rates adjusted for projected benefits of tax operating loss
carry forwards and other credits. The tax benefit associated with the operating
loss for the current period was offset by a corresponding increase in valuation
allowance.
Net Loss
The Company's net loss for the three months ended September 30, 1999 decreased
by $660,020, or 34%, to $1,285,439 from the net loss of $1,945,459 for the three
months ended September 30, 1998. During the six-month period ended September 30,
1999, the Company's net loss decreased by $258,556, or 9%, to $2,505,690 from
the net loss of $2,764,246 for the six months ended September 30, 1998. The
factors contributing to the decrease in net loss are discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company does not have any short-term material capital commitments other than
the construction of the SunWize Facility (as defined), overhead and employee
costs associated with monitoring its power plant initiatives and projects and
the development of new projects and approximately $750,000 in third party costs
(of which approximately $238,000 has been expended through September 30, 1999)
in connection with the Kingston Project. The balance of the commitment will be
expended during the next nine to twelve months. Other than cash generated by the
Company's photovoltaic activities, which is generally expended in these
activities, and a liquidating distribution of approximately $250,000, which
management assumes will be received from one partnership around December 1999,
management anticipates no significant cash inflows in the near future. Given the
Company's current net cash use rate of approximately $500,000 to $600,000 per
month, management estimates that the Company has sufficient funds to continue
operations only until mid-December 1999. After such time, Besicorp Ltd. may,
without additional funds, not be able to pay its obligations as they become due.
The following action has been taken to address the Company's cash flow and
liquidity problems (though these actions may be insufficient to correct these
problems):
(i) Pursuant to the Agreement, the Parent agreed to lend the Company such
amounts as the Company reasonably requests in order to satisfy its
obligations with respect to certain operating expenses of the Company
and its subsidiaries; provided however, that Parent is not required to
make loans within a thirty day period in excess of $350,000, loans
with a cumulative amount in excess of $1,050,000, or under certain
other circumstances relating to the status of the proposed merger.
(ii) The Company implemented, as of July 5, 1999, a salary deferment plan
under which executive officers and certain key employees have been
deferring portions of their salary ranging in amounts from 15% to 67%.
Effective October 10, 1999 the Chief Executive Officer increased his
deferment to 100%. The deferral arrangements are for a one-year term
and are resulting in a monthly cash savings of approximately $45,000
to $50,000.
Other than the consummation of the Agreement, the loans to be made by the Parent
and the salary deferment program, the Company has not developed any other
acceptable alternatives to its liquidity and capital resource problems.
11
The Company's working capital decreased by $551,101 from $3,923,003 at March 31,
1999, to $3,371,902 at September 30, 1999 primarily as a result of a decrease in
cash, an increase in accounts payable and accrued expenses partially offset by
increases in inventory and accounts receivable. At November 12, 1999, the
Company had approximately $580,000 in cash.
During the six months ended September 30, 1999, cash of $2,961,535 was used in
operations primarily as a result of the net loss for the period of $2,505,690
and net changes in other assets and liabilities which produced a negative cash
flow of $653,771. These were partially offset by non-cash items of $197,926.
The Company's investing activities provided cash of $1,980,033 during the
six-month period ended September 30, 1999 primarily as a result of distributions
from partnerships of $2,034,579, partially offset by the acquisition of
property, plant and equipment of $54,546. The distributions received from
partnerships are non-recurring in nature and primarily represent the Company's
share of the proceeds from the sale of certain pollution control emission
allowances and distributions made upon liquidation of certain partnerships.
For the six months ended September 30, 1999, the Company's financing activities
resulted in a decrease in cash of $42,238, due to the repayment of borrowings.
The Company is currently arranging, through an industrial development agency
bond, financing for the construction of a 30,000 sq. ft. facility at the site of
the corporate headquarters in Kingston to house the solar electric product
development and manufacturing operations ("SunWize"). This facility is estimated
to cost approximately $2.0 million and would replace space currently occupied
under a lease whose term expires May 31, 2000. The bond that will fund
construction of the facility will be secured by a letter of credit to be issued
by HSBC Bank USA. The letter of credit will be secured by the building and the
interest of SunWize in the real property upon which the building will sit.
The Company has no significant capital commitments for Fiscal 2000 other than
those which may arise in the ordinary course of business and the Kingston
Project.
Year 2000
The disclosure set forth below includes actions taken by Oldco (including
actions taken by Oldco=s Year 2000 Management Committee) with respect to Year
2000 issues.
Many existing computer systems and software applications use two digits, rather
than four, to record years, i.e., "98" instead of "1998." Unless modified, such
systems will not properly record or interpret years after 1999, which could lead
to business disruptions, including, among other things, a temporary inability to
process transactions, send invoices, determine whether payments have been
received or engage in similar normal business activities. This is known as the
Year 2000 issue.
The Company relies on computer hardware, software, and related technology
primarily in its internal operations, such as billing and accounting. During
Fiscal 1998, the Company formed a Year 2000 Management Committee to address the
potential financial and business consequences of Year 2000 issues, such as the
disruptions mentioned above, the failure to receive essential supplies and
services or the loss of customers, with respect to both the Company's hardware,
software, applications and interfaces (collectively, "IT Systems") and
non-information technology systems such as telemetry, security, power and
transportation (collectively, the "Non-IT Systems"). In general, the Year 2000
Management Committee is dividing its efforts with respect to both the IT Systems
and the Non-IT Systems into three phases: (1) inventory and assessment ("Phase
One"), (2) strategy and contingency planning ("Phase Two") and (3) upgrades,
conversions and other solutions, at the end of which the systems are tested to
confirm Year 2000 compliance ("Phase Three").
With respect to the IT Systems, the Company completed its evaluation of its
hardware, software and other IT Systems and has migrated from a 486 PC
environment to an Intel Pentium environment. All workstations and software have
been replaced as necessary to assure Y2K compliance. All key vendors have
supplied written documentation of their Y2K compliance. The Company expects to
test systems through January 2000.
12
With respect to the Non-IT Systems, the Company relies on outside providers for
its basic needs such as electricity, telephone service and other utilities. As
part of its evaluation of its Non-IT Systems, the Year 2000 Management Committee
generally contacted the utilities and other providers through written
correspondence.
All Non-IT systems indicate that they are compliant.
The Company has communicated with certain of its vendors, suppliers, and
customers to both monitor and encourage their respective remedial efforts
regarding Year 2000 issues. The Company has contacted by letter or phone all of
its significant vendors and suppliers and its largest customers to determine the
extent to which the Company's systems might be vulnerable as a result of third
parties' failure to resolve their own Year 2000 issues. The Company's
photovoltaic business is dependent on components provided by photovoltaic module
suppliers. Failure by vendors and suppliers to successfully address their Year
2000 issues could result in delays in their providing various products and
services to the Company. However, the Company has determined that it is not
necessary to seek replacement vendors to assure availability of products and
services. At present, the Company has no reason to believe it will not be able
to obtain all necessary products and services, either from the present vendors
and suppliers, or replacement vendors and suppliers. Failure by customers could
disrupt their ability to maximize their use of the Company's products and
services and lead to a reduction in revenues; therefore, the Company has sent a
newsletter to its product customers to help develop each customer's awareness of
Year 2000 issues and their implications.
The Year 2000 Management Committee believes that the Company's internal
operations will not be affected by Year 2000 problems. The Company does not rely
solely on its IT Systems in order to produce products it sells or to develop
project opportunities. In fact, in July 1998, the Company's IT Systems
temporarily ceased to function due to a lightning strike that destroyed many
components of the system, and while inconvenienced, the business operated,
deadlines were met, and relationships were cultivated.
The Company does not intend to develop a contingency plan. Based on the
Company's research, evaluation, and actions in preparation for Year 2000, at
present, the Company has no reason to believe it will not be able to obtain all
necessary products and services from present vendors and suppliers. In the
unlikely event that replacement vendors and suppliers are required, a situation
that our current vendors and suppliers do not believe will occur, the Company
believes such replacements can be made with little difficulty. Further, the
Company does not rely solely on its IT systems in order to produce products it
sells or to develop project opportunities. Many functions are done by hand or
via in person communication. Transitioning to manual accounting can be
accommodated in the event of an unexpected Year 2000 emergency.
Short of any third party disaster that the Company is unable to control and for
which the Company cannot develop contingency plans, such as the failure of a
utility providing power or telecommunications, the Company does not believe its
business will be detrimentally impacted by potential Year 2000 problems. The
most reasonably likely worst case Year 2000 scenario would be minor delays in
production and distribution (and for a brief period higher costs) which could
reduce revenues and income, and perhaps a reduction in sales.
Through October 1, 1999 the Company has spent $194,327 on Year 2000 compliance.
Of this amount, $138,836 was spent during Fiscal 1999.
The Company does not expect additional expenditures for the balance of Fiscal
2000.
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PART II - OTHER INFORMATION
Item 1. - LEGAL PROCEEDINGS
For a more extensive discussion of various legal proceedings in which the
Company is involved, including the proceedings described below, see "Item 3.
Legal Proceedings" of the Company's Annual Report on Form 10-KSB for the year
ended March 31, 1999.
On March 29, 1993 James Lichtenberg commenced a shareholder's derivative action
now pending in New York Supreme Court, Ulster County, entitled Lichtenberg v.
Michael F. Zinn, Steven I. Eisenberg, and Martin E. Enowitz, et al. (the
"Lichtenberg Litigation"). Oldco is named as nominal defendant in this
shareholder's derivative action and the other defendants were directors and
officers of Oldco at the time the action was filed. The complaint alleges that
the directors breached their fiduciary duties to Oldco by, among other things,
the issuance of stock to themselves in lieu of cash compensation, allegedly for
inadequate consideration, and by the accounting treatment given to Oldco's
interest in various partnerships which owned and operated cogeneration
facilities, which allegedly depressed the price of Oldco's stock. The plaintiff
is seeking an award of damages to Oldco, including punitive damages and
interest, an accounting and the return of assets to Oldco, the appointment of
independent members to the Oldco Board, the cancellation of shares allegedly
improperly granted, and the award to the plaintiff of costs and expenses of the
lawsuit including legal fees. The Court dismissed this action based on the
recommendation of the Oldco's Board's special litigation committee (comprised of
independent outside directors of Oldco) that concluded that the continuation of
such litigation was not in the best interests of Oldco. The plaintiff's appeal
of this decision was dismissed in April 1999 by the Appellate Division, Third
Department. The plaintiff's motion with the Appellate Division, Third Department
seeking leave to appeal to the Court of Appeals has been denied. On August 17,
1999, plaintiff moved for leave to appeal directly to the Court of Appeals,
which motion was denied in November 1999.
***
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Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
Exhibit Exhibit
Number -------
- ------
2.1 Form of Contribution and Distribution Agreement by and between
Besicorp Ltd. (the "Company")and Besicorp Group Inc.("BGI").**
2.2 Agreement and Plan of Merger dated as of October 7, 1999 by
and between the Company, Besicorp Holdings, Ltd., and Besi
Acquisition Corp.***
3(i) Certificate of Incorporation of the Company.*
3(ii) By-Laws of the Company.*
10.1 Form of Indemnification Agreement by and among the Company,
BGI Acquisition LLC ("LLC") and BGI Acquisition Corp.
("Acquisition")*
10.2 Form of Escrow Agreement by and among the Company, BGI, LLC
and Acquisition.*
10.3 Form of Lease by and between the Company and BGI.**
10.4 1999 Incentive Plan.**
27 Financial Data Schedule - 6 Months ended September 30, 1999
27.1 Financial Data Schedule - 6 Months ended September 30, 1998
*Incorporated by reference to the corresponding exhibit filed with the Form
10-SB of the Company filed on December 23, 1998.
**Incorporated by reference to the corresponding exhibit filed with Post-
Effective Amendment No. 2 to the Form 10-SB/A of the Company filed on March
22, 1999.
***Incorporated by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K filed on or about October 19, 1994.
(b.) Reports on Form 8-K
On or about October 19, 1999, the Company filed a report on Form 8-K
announcing under "Item 5. Other Events" that it had entered into the Agreement.
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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.
Besicorp Ltd., Registrant
Date: November 18, 1999 /s/ Michael F. Zinn
----------------- -------------------
Michael F. Zinn
President
(principal executive officer)
Date: November 18, 1999 /s/ James E. Curtin
----------------- -------------------
James E. Curtin
Vice President and Controller
(principal accounting officer)
16