SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A/2
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File No. 000-25209
Besicorp Ltd.
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(Name of small business issuer in its charter)
New York 14-1809375
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1151 Flatbush Road
Kingston, New York 12401
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(Address of principal executive offices) Zip Code
Issuer's telephone number, including area code: (914) 336-7700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Check whether the issuer (1) has 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.
X Yes No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year is $5,716,603.
As of July 27, 1999, 136,382 shares of Common Stock were outstanding. The
aggregate market value of the shares held by non-affiliates of the issuer is not
determinable because the shares are not traded on any exchange or automated
quotation system.
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Item 1. Description of Business.
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The information set forth below is, except to the extent otherwise
expressly provided or as the context otherwise requires, current as of March 31,
1999. For information regarding Besicorp Ltd. ("Besicorp" or the "Company")
activities subsequent to such date (including without limitation, information
regarding the Amended and Restated Agreement and Plan of Merger entered into by
the Company and entities controlled by Michael F. Zinn, the Chairman of the
Board, Chief Executive officer and President of Company), please see the
Company's filings with the Securities and Exchange Commission (the "Commission")
subsequent to such date. Capitalized terms used without being defined herein
shall have the meanings ascribed to such term by the Company's Annual Report on
Form 10-KSB filed with the Commission on or about July 14, 1999 or the amendment
thereto filed with the Commission on or about July 29, 1999, as the case may be.
Recent Developments
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Michael F. Zinn, the Chairman of the Board, Chief Executive Officer and
President of Besicorp, recently made an offer to purchase the business and
assets of the Company, subject to all of its liabilities, for an aggregate
purchase price of $6.2 million in cash or approximately $45.46 per share. The
offer provides that the holders of the shares of the Company's Common Stock
outstanding prior to the consummation of the proposed transaction would be
entitled to participate on a pro-rata basis in the funds, if any, that may be
released from the approximately $6.5 million escrow fund established in
connection with the merger involving the Company's former parent, Besicorp Group
Inc. See "Business - Potential Non-Recurring Funds". Josephthal & Co., Inc.
("Josephthal") has been retained to, among other things, assist in evaluating
the offer. No assurance can be given that such transaction or any other
transaction will be consummated. See "Management's Discussion and Analysis or
Plan of Operations - Liquidity and Capital Resources."
Background
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Besicorp specializes in (i) the development, assembly, manufacture,
marketing and resale of photovoltaic products and systems ("Photovoltaic
Activities") and (ii) the development of power plant projects of various types,
ranging from gas-fired cogeneration plants to coal-fired power plants to the
development of other non-nuclear power plants ("Power Development Activities").
See Note 14 of Notes to Consolidated Financial Statements of Besicorp Ltd. for
financial information regarding these activities.
Prior to March 22, 1999, the Company was a wholly owned subsidiary of
Besicorp Group Inc., a New York corporation ("Oldco") that was listed on the
American Stock Exchange. Oldco was a party to an agreement and plan of merger
dated November 23, 1998, as amended, by and among Oldco, BGI Acquisition LLC
("Acquisition"), a Wyoming limited liability company, and BGI Acquisition Corp.
("Merger Sub"), a New York corporation and a wholly owned subsidiary of
Acquisition (the "Plan of Merger"), pursuant to which it was acquired by
Acquisition (the "Merger"). Besicorp was organized in New York in 1998 in order
to satisfy a condition to the consummation of the Merger that required the
distribution of Oldco's photovoltaic and independent power development
businesses (the "Distributed Businesses") to Besicorp before the Merger. On
March 22, 1999, Oldco declared a dividend of one share of Company Common Stock
for each 25 shares of Oldco Common Stock outstanding (the "Spin-Off"). As a
result of the Spin-Off, Besicorp became an independent publicly held company.
Besicorp is thus the successor to businesses that have been in operation for
more than six years and the following description contains historical
information about the subsidiaries of Besicorp when they were subsidiaries of
Oldco. See Note 1 of Notes to Consolidated Financial Statements of Besicorp Ltd.
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Photovoltaic Activities
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Photovoltaic systems are systems that convert sunlight directly into
electricity. The fundamental element of a photovoltaic system is the
semiconductor device, or cell, which generates a variable electric current that
is directly proportionate to the quantity of sunlight energy absorbed. Solar
cells are electrically interconnected to form a module unit in which the cell
groupings are formatted to achieve desired electrical power specifications, such
as voltage and current. The solar module is the power-generating component of a
complete photovoltaic system. Complete systems consist of one or more solar
modules; controllers to monitor, regulate and control the electric output; and,
in most systems, batteries to store the energy generated by the solar modules.
Occasionally, backup generators or invertors, which convert DC electric power to
AC power, are included as integral components of a system.
The market for photovoltaic products and systems is primarily directed
towards those electric power applications where access to utility power is
relatively expensive, inconvenient or not available. Electric power systems that
use photovoltaic technology include residential homes, communications systems
(e.g., satellite earth stations, microwave relay stations, roadside emergency
telephones and cellular network repeater stations), power systems for remote
areas (e.g., forests and parks and rural areas) and remote monitoring systems
that are used in production, consumption and the collection of scientific data
(e.g., monitor remote gas pipelines and weather stations).
The Company develops, assembles, markets and distributes photovoltaic
modules, power systems and related products for a variety of applications. The
Company develops solar power supply products for the portable computer, wireless
electronics and telecommunications industries, solar power accessories for motor
vehicles, electric boats and telemetry, as well as a polymer encapsulation
production processes for photovoltaic modules that can be integrated into other
products for consumer, commercial and industrial use. In addition, the Company
markets and sells prepackaged solar electric power products and systems, system
components, and system accessories ranging from small battery chargers, to water
pumping kits, to outdoor lighting, to portable power generators, to PV power
stations.
In addition to utilizing the Company's resources, products are
developed using government grants, industry funded projects, and technology
demonstration contracts to the extent practicable. In connection therewith, the
Company has entered into various funding and development arrangements with the
New York State Energy Research and Development Authority ("NYSERDA"). NYSERDA is
a public benefit corporation created by the New York State Legislature; its
principal goal is to help businesses, municipalities and residents of New York
State solve their energy and environmental problems while developing innovative
products and services that can be commercialized by New York State businesses.
The arrangements with NYSERDA generally require the Company to develop,
manufacture, test and deliver various types of photovoltaic products (e.g.,
solar powered telephone power supply systems, skid mounted photovoltaic systems,
controllers and photovoltaic home systems) in consideration for which NYSERDA
reimburses the Company with respect to a negotiated percentage of the
development cost of such product. Funds advanced by NYSERDA are recorded for
financial statement purposes as "other revenues" at the time of receipt and such
advances are to be repaid, depending on the project, from revenues or profits,
if any, derived from the products developed under these agreements. See Note 13
of the Notes to Consolidated Financial Statements of Besicorp Ltd.
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Suppliers
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The Company purchases solar electric modules and other photovoltaic
supplies from several large manufacturers, of which Siemens Solar Industries
("Siemens") is the principal supplier. Besicorp has supply agreements with its
two largest suppliers. Besicorp is not currently dependent on any suppliers for
its power plant initiatives.
Sales and Distribution
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In addition to direct sales to original equipment manufacturers,
industrial companies and governmental agencies, the Company markets and sells
products through dealers and distributors nationwide. At March 31, 1999,
approximately 143 solar energy dealers and distributors, predominantly located
in North America, offered Besicorp's products. The Company also employs an
in-house sales and customer support staff responsible for generating sales and
assuring customer satisfaction. The distribution market is also supported by the
Company through a catalogue maintained by the Company to provide information
about sizing and installation of remote solar energy systems.
Prices for Products and Systems
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The Company's products and systems range from complete photovoltaic
systems that may cost as much as $50,000 to solar power supply products that
range in price from $50 to $5,000 to pre-packaged solar electric power products
that may cost as little as $50.
Customers and Backlog
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The Company fills orders from inventory and draws from its inventory to
fabricate and manufacture customers' orders; therefore, backlog is generally
filled within the following quarter. Certain sales may be drop-shipped from
manufacturers' locations. Backlog of orders was $2,001,072, $274,260 and
$382,410 as at March 31, 1999, 1998 and 1997, respectively. Customers for the
Company's products include original equipment manufacturers, industrial and
telecommunications companies, dealers, governmental agencies and consumers, such
as inhabitants of rural areas, individuals who engage in outdoors activities and
environmentally concerned consumers. During Fiscal 1999 and Fiscal 1998, sales
to Allmand Brothers accounted for 9% and 14%, respectively, of sales of
photovoltaic products. Besicorp does not have a contract or agreement with this
customer.
Competition
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The Company competes with approximately ten businesses engaged in the
distribution of photovoltaic products, of which four have a larger market share
than the Company. The Company believes that the market for value-added solar
electric products and systems is highly fragmented. The major competitive
factors are product price, service, technical capability and delivery.
Power Development Activities
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The Company, in conjunction with one or more partners, develops
independent power projects. The Company generally holds its ownership interests
in the form of partnership interests, through special-purpose entities. Usually,
financing for these entities is secured solely by their respective assets.
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In February 1999, the Company and Empire State Newsprint LLC ("Empire")
entered into a memorandum of understanding (the "Empire Memorandum") to form a
joint development partnership (a special purpose company (the SPC") in which
each party would have an initial 50% interest to develop a newsprint recycling
manufacturing plant ("Newsprint Facility") in Ulster County, New York and a 250-
megawatt natural gas-fired cogeneration power plant ("Empire Power Facility")
adjacent to the recycling plant which power plant would supply power to the
recycling plant and would also supply power for sale to power marketers for
resale into the recently deregulated power market (the "Kingston Project"). The
Empire Memorandum contemplates, among other things, that (i) the Company will
commit $750,000 (the "Commitment") to the project (in consideration for its 50%
interest in the SPC) of which $250,000 is payable at the time of execution of
the Empire Memorandum and the balance to be paid monthly thereafter (a "draw")
or more often as conditions require, (ii) if Besicorp fails to fund a draw
submitted by the SPC, it shall forfeit its rights to participate in the SPC as
an equal partner and all Besicorp funding and billed time is to be converted to
a development loan to be repaid at Financial Close (as defined below), (iii) at
Financial Close, Besicorp and its partner shall retain for 25 years rights to
the sales and marketing of the Empire Power Facility and the Newsprint Facility,
respectively, (iv) the parties will structure the financing arrangements to
maximize their development capital and internal cost reimbursement, (v)
development funds realized at Financial Close will be shared pro rata between
the parties according to the total development cost incurred by each party, and
then in accordance with their percentage ownership of this project and (vi) the
Company and Empire will enter into a definitive agreement delineating their
rights and responsibilities. The Company has the funds for the Initial
Commitment but has not specifically identified the manner in which it will fund
the $500,000 balance of the Commitment. One possibility contemplated by
management is that the $500,000 balance and the estimated $5 million to $7
million of total development costs required to bring the project to the point
where it is able to obtain long term financing for the actual construction of
the project ("Financial Close") would come in the form of advances of cash or
services from, among other sources, vendors interested in participating in the
construction of the project; such vendors generally would be repaid in whole or
in part at Financial Close. Either party's interest in this project may be
diluted if such party exchanges a portion of its interest in this project to
obtain financing for the project. No assurance can be given that the parties
will enter into a definitive agreement, that the Kingston Project will receive
the necessary approvals from the requisite governmental authorities, including
the New York State Department of Environmental Conservation and the New York
State Public Service Commission, that financing for the Kingston Project
(estimated to be approximately $650 million) will be obtained, that the Kingston
Project will be completed, or, if it is completed, that the Kingston Project
will prove profitable. See "Management's Discussion and Analysis or Plan of
Operation - Liquidity and Capital Resources."
At present, the Company has an interest in a development project (the
"Krishnapatnam Project") to build a coal fired power plant near the village of
Krishnapatnam located 120 miles north of Chennai (Madras) on India's eastern
coast. BBI Power Inc. ("BBI"), the project company developing the power plant
near Krishnapatnam, is 50% owned by the Company and 50% owned by Chesapeake
Power Investments Co. ("Chesapeake"). The Company acquired its interest in the
project in 1995 for nominal consideration and invested approximately $983,000 in
this project, all of which investment was written off by Oldco. Besicorp does
not anticipate increasing its investment in this project. However, it is
anticipated that, due to the size of the project and the amount of debt and
equity required to finance the project, the Company's ownership interest
will be reduced substantially as the result of the participation of equity
investors. Capital construction costs are currently estimated to be
approximately $700 million. Approval of one or more agencies of the Indian and
local governments is also required before the project can proceed. A power
purchase agreement has been entered into with respect to this project though
management believes that such agreement will have to be renegotiated.
Management is attempting to obtain further information regarding the status
of this project from Chesapeake but Chesapeake has not responded to such
requests. The May 1998 nuclear tests conducted by India resulted in the
imposition of economic sanctions by the United States, though such
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sanctions appear to have been waived by the United States through October 1999.
The ability to obtain project financing may be adversely affected by these
sanctions. Even if such sanctions are eliminated or the waiver thereof is
extended indefinitely, no assurance can be given that the governmental approval
will be granted, that financing will be obtained, that the project will be
completed, or, if it is completed, that the project will prove profitable.
The Company is always considering new power projects, both domestically
and internationally, and with entities that have served as the Company's
partners in past development projects and with entities that have never been
partners of the Company in any of its projects. As of July 14, 1999, such
possible initiatives are being discussed with several companies and the Company
and prospective partners had entered into letters of intent with respect to
trying to develop initiatives in Brazil and Mexico. The Company entered into a
Master Project Agreement with MPR Associates Inc. which calls for equal sharing
in development fees and ownership interest in all projects developed in Brazil
by such parties. Two potential projects in Brazil have been identified
(involving natural gas and bagasse fueled co-generation facilities)(bagasse is
the waste product created by a sugar mill) though such projects are in the early
stages of development (i.e., no power purchase agreements have been entered into
or are currently being negotiated with respect to these projects). Besicorp is
also in early stage marketing efforts in Mexico as it is in the process of
identifying project opportunities in that country. No assurance can be given
that any such letter of intent or the Master Project Agreement will result in
the development of any projects, or that if any projects are developed, they
will prove profitable.
The Company anticipates that projects would be developed with partners
and the Company would hold its ownership interests, primarily in the form of
partnership interests, through special-purpose entities formed to be the legal
owners of the projects. Partnerships may also issue additional interests in
projects during various stages of their development (e.g., in exchange for
providing capital to the partnership).
The developers prepare financial models of the project, document the
project and arrange appropriate development capital and construction and
long-term financing. In addition, developers negotiate power purchase
agreements, permitting arrangements, engineering and construction contracts and
financial participation and risk sharing agreements.
Construction, operation, engineering, and design of a project are
contracted to third parties. When development is substantially complete, the
projects typically obtain construction financing which is replaced with
long-term debt and/or equity financing when the construction is completed. To
the maximum extent possible, financing is arranged on a limited- recourse basis,
so that repayment is limited to the revenues generated by the particular
project(s) being financed. Except to the extent that a developer provides bridge
or other financing to a project, the debt of the partnership is collateralized
solely by the assets of the project(s), without guarantees of repayment by the
developer.
The Company would expect to earn development fees by taking an active
role in the early stage development of each project. Development fees are
generally paid from the proceeds of the project loans and are capitalized as
part of the cost of the project. The amounts and timing of such payments of
development fees are subject to negotiations with the parties to the transaction
and represent fees for services provided to the project. Other potential sources
of revenues and cash flows are (i) management fees for coordinating and
overseeing partnership activities during the construction and operating phases
of the projects and (ii) income and distributions from project operations.
Projects are expected to generate income from the operation of the facilities;
however, in early years of operation, the partnership may incur significant book
losses, and partners will not recognize income until such time as the operating
income of the projects exceeds
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accumulated losses. There can be no assurance that the Company will develop any
power projects or that it will earn development fees on new project
opportunities.
Risks of International Operations
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As a result of a decline in opportunity in the independent power
industry in the United States, the Company has devoted much of its efforts
(other than its efforts with respect to the Kingston Project) towards developing
foreign projects. The Krishnapatnam Project and any future foreign projects or
initiatives would be required to comply with the applicable regulations of the
jurisdictions where such projects and initiatives are developed. At present,
management believes its foreign operations are currently in compliance with all
material applicable regulations. However, the Company's foreign operations are
subject to the risks of international operations, including compliance with and
unexpected changes in, foreign regulatory requirements and currency control
regulations, trade barriers, fluctuations in exchange rates, political
instability, the potential for expropriation, local economic conditions, and
difficulties in staffing and managing foreign operations.
Projects overseas require considerable capital. Funding for
international projects may be obtained from various sources, including the
private sector (both domestically and internationally), government sponsors
(e.g., United States Trade and Development Agency, United States Agency for
International Development, the Export-Import Bank of the United States and the
Overseas Private Investment Corporation) and commercial banks. Obtaining such
funding often is more time consuming than obtaining funding for domestic
projects. There can be no assurance that sufficient funding will be available in
connection with any international development project. Nor can there be any
assurance that Besicorp will be successful in international project development.
Neither Besicorp nor Oldco has ever consummated a financing for an international
project development.
Potential Non-Recurring Funds
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In addition to the photovoltaic and power plant development businesses,
Besicorp pursuant to the Spin-Off, acquired certain of Oldco's assets entitling
it to the right to receive distributions from partnerships in which Oldco had
interests. As a result, Besicorp may, from time to time, obtain non-recurring
funds from these assets although no assurance can be given that any such funds
will be obtained.
The acquired assets include the interests in partnerships which
formerly owned power plants. Some of these partnerships retained the rights to
the Power Plants' allowances (the "Allowances") to emit N0x. In June 1999, the
Company received approximately $1.7 million principally from the sale of these
Allowances.
In addition, the Partnerships which owned five of the Power Plants,
Niagara Mohawk and certain other independent power producers (the "IPPs")
entered into a Master Restructuring Agreement (the "MRA") in July 1997, which
became effective on June 30, 1998, and which provided for, among other things,
the termination or restructuring of the Power Purchase Agreements and power
purchase agreements with the other IPPs. It is possible that in certain
circumstances certain hydro-energy developers that withdrew from the MRA will
agree to restructure or terminate their power purchase agreements with Niagara
Mohawk. If any of such developers do reach such an agreement with Niagara Mohawk
before July 1, 2003, Niagara Mohawk will pay the Partnerships and the other IPPs
certain specified amounts. If all of the developers were
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to enter into such agreements, the Company would be entitled to receive proceeds
of approximately $1 million. No agreement has been reached to date between any
of such developers and Niagara Mohawk. There can be no assurance that any of
such developers will enter into such an agreement before July 1, 2003 or that
the Company will ever receive any of such proceeds.
A partnership in which the Company holds an interest agreed in 1996 to
indemnify a third party for any tax liability associated with the third party's
tax treatment of its receipt of certain funds from the partnership. In
connection with this indemnification, the partnership, as required by the third
party, placed an aggregate of $1,838,000 ($1,884,000 as of December 31, 1999,
after giving effect to accrued interest) in escrow, of which the Company is
entitled, based on its proportionate ownership interest in the partnership, to
approximately $920,000 ($946,000 as of December 31, 1999, after giving effect to
accrued interest). The partnership is entitled to the escrowed funds (to the
extent not applied to satisfy this indemnification obligation) after the third
party settles any audit of its 1995 and 1996 tax returns. As of December 31,
1999, there has been no indication that any audit will be required. The
Company's proportionate interest in the cash in this escrow fund (i.e., $946,000
as of December 31, 1999, plus any accrued interest thereon) is to be released to
the Company if no audit has been commenced by June 15, 2000.
Certain partnerships in which the Company has interests are being or
have been liquidated. Funds were placed in escrow in May 1999 as a reserve for
potential liabilities of these liquidating partnerships (the "May 1999 Escrow").
Approximately $518,000 is to be distributed to the Company, to the extent that
these funds have not been disbursed to satisfy potential liabilities on or prior
to May 15, 2002.
Oldco placed $6.5 million in an Escrow Fund prior to the consummation
of the Merger. Amounts, if any, not needed to provide indemnification pursuant
to the Indemnification Agreement or to make certain payments will be released to
Besicorp after March 22, 2004 so long as certain conditions have been fulfilled.
Research and Development
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Expenditures for photovoltaic research and development were $609,399,
$697,182 and $646,817 for Fiscal 1999, Fiscal 1998 and Fiscal 1997,
respectively. These expenses include personnel expenses of $223,799, $330,428
and $301,055 for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. Of the
total amounts, expenses attributable to the Company's agreements with NYSERDA
were $331,538, $520,950 and $414,307 for Fiscal 1999, Fiscal 1998 and Fiscal
1997, respectively. No assurance can be given that funds for research and
development will be available to the Company from internal or external sources
and the failure to obtain such funds may have an adverse effect on the Company's
operations.
Intellectual Property
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While Besicorp does own certain intellectual property rights (e.g.,
patents, trademarks and trade secrets), management does not believe that these
rights are essential to Besicorp's current operations.
Government Regulation and Environmental Matters
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The development and manufacture of photovoltaic products are not
subject to U.S., state, foreign and local statutes and regulations (other than
statutes and regulations generally applicable to the development and manufacture
of products).
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The operations of the Company are also subject to various U.S., state,
foreign and local laws and regulations with respect to environmental matters,
including air and water quality and underground fuel storage tanks, and other
regulations intended to protect public health and the environment. Compliance by
the Company with such laws and regulations has not had a material adverse effect
upon the Company, and the Company believes it is in material compliance with all
such applicable laws and regulations. Based upon current laws and regulations
and the interpretations thereof, the Company has no reason to believe that the
costs of future environmental compliance would be likely to materially adversely
impact the business, results of operations, cash flows or financial position of
the Company. The partnerships or other special purpose entities formed to
develop power project initiatives may incur substantial costs to comply with
applicable environmental regulations.
Employees
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As of March 31, 1999, Besicorp had approximately 75 full-time and three
part-time employees. None of these employees are represented by a union. In the
opinion of management, its relationship with its employees is satisfactory.
Item 3. Legal Proceedings.
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Besicorp has, pursuant to the Contribution Agreement dated
March 22, 1999 (the "Contribution Agreement") by and among, Besicorp,
Acquisition, Acquisition Corp. a wholly owned subsidiary of Acquisition, Merger
Sub, and Oldco (Acquisition, Merger Sub and Oldco being collectively referred to
herein the "Merger Parties") agreed to assume all liabilities of Oldco, other
than certain specified liabilities (relating to certain taxes, intercompany
liabilities and merger costs) which were retained by Oldco. The total amount of
liabilities (other than contingent liabilities arising out of litigation
involving Oldco or Besicorp, which liabilities, if any, management believes
would be satisfied from the Escrow Fund (as defined below)) assumed by the
Company pursuant to the Contribution Agreement was approximately $1 million. In
addition, in connection with the Plan of Merger, Besicorp entered into an
Indemnification Agreement dated March 22, 1999 (the "Indemnification Agreement")
with Acquisition and Merger Sub whereby Besicorp agreed to indemnify the Merger
Parties for damages relating to various matters including, breaches of the
Merger Agreement and substantially all litigation of Oldco's that was pending at
the time of the merger (the "Merger") contemplated by the Merger Agreement.
Contemporaneously with the closing of the Merger, Oldco deposited $6.5 million
in escrow (the "Escrow Fund") to fund the indemnification obligations arising
out of the Indemnification Agreement. Therefore, management anticipates that
Besicorp would not be required to make any payments pursuant to the
Indemnification Agreement or to otherwise satisfy the liabilities assumed
pursuant to the Contribution Agreement because the Escrow Fund would be used to
satisfy such obligations. Notwithstanding the foregoing, Besicorp has, pursuant
to, among other things, the Indemnification Agreement agreed to indemnify the
Merger Parties with respect to the matters identified below and may be liable
for all damages, if any, in connection with such matters. Consequently, Besicorp
may be liable for all damages, if any, and expenses in connection with the
following matters to the extent such claims are not satisfied by the Escrow
Fund.
On March 5, 1999, James Lichtenberg and John Bansbach
commenced a class action in the United States District Court for the Southern
District of New York, entitled James Lichtenberg and John
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Bansbach v. Besicorp Group Inc., BGI Acquisition LLC, BGI Acquisition Corp. et
al. (the "March Litigation"). The two named plaintiffs are the plaintiffs in the
Bansbach Litigation (as defined) and the Lichtenberg Litigation (as defined).
The term "Bansbach Litigation" means the shareholder derivative action in the
New York Supreme Court, Ulster County, entitled John Bansbach v. Michael F. Zinn
, Michael J. Daley, Gerald A. Habib, Harold Harris, Richard E. Rosen, and
Besicorp Group Inc., Index No. 97-2573 and the term "Lichtenberg Litigation"
means the shareholder derivative action brought in New York Supreme Court,
Ulster County, entitled Lichtenberg v. Michael F. Zinn, Steven I. Eisenberg, and
Martin E. Enowitz, et al., Index No. 93-1987.
The complaint in the March Litigation ("March Complaint")
alleges that (i) the proxy statement sent to Oldco's shareholders in connection
with the meeting of Oldco's shareholders to adopt the Merger is materially
misleading because it fails to adequately disclose all available material
information regarding the effect of the Merger on the Bansbach Litigation and
the Lichtenberg Litigation (collectively, the "Derivative Litigation"); (ii) the
Merger was intentionally structured to accomplish the termination of the
Derivative Litigation; and (iii) Oldco and its directors breached their
fiduciary duty by (a) intentionally structuring the Merger so as to cause the
termination of the Derivative Litigation, (b) failing to retain independent
counsel to act on behalf of Oldco's minority shareholders, (c) failing to retain
an independent investment banker to opine on the fairness of the Merger to
Oldco's minority shareholders, (d) failing to form an independent committee to
ensure that the Merger was fair to and in the best interests of Oldco's minority
shareholders, and (e) providing for a $1 million bonus to Michael F. Zinn and a
$500,000 bonus to Michael J. Daley, which the March Complaint deems to be
excessive and/or unwarranted compensation.
The March Complaint seeks injunctive relief directing full
disclosure of the financial impact on Oldco's shareholders of the termination of
the Derivative Litigation and full disclosure of the alleged intentional
structuring of the Merger to cause the termination of the Derivative Litigation.
The March Complaint also seeks an order directing that the Derivative Litigation
be transferred to Besicorp, that the Merger consideration payable to Zinn,
Enowitz and Eisenberg be held in escrow, and that certain amounts at issue in
the Bansbach Litigation be held in escrow pending final adjudication of the
respective actions. The March Complaint also seeks unspecified money damages.
On March 18, 1999, the Court entered an order requiring that
(i) prior to the consummation of the Merger the contingent assets and/or
liabilities of Oldco comprised of Oldco's interests in the Derivative Litigation
be assigned to Besicorp, as contingent assets and/or liabilities thereof (the
"Assignment of the Derivative Litigation"); (ii) with respect to the
consideration that defendants Michael F. Zinn, Steven I. Eisenberg and Martin E.
Enowitz receive as a result of their tendering the shares of Oldco Common Stock
at issue in connection with the Merger, such defendants take no action to place
such consideration beyond the reach of the United States courts that would
render the defendants unable to satisfy any judgment which may be rendered in
the Lichtenberg Action; and (iii) plaintiffs to post a bond in the amount of
$100,000 within seven days of the date of the order. The Contribution Agreement
effected the Assignment of the Derivative Litigation.
In December 1998, Alan Fenster ("Fenster") commenced an action
in the New York Supreme Court, New York County, against Oldco, Merger Sub,
Acquisition, Josephthal and each of the members of the Oldco's Board of
Directors (the "Oldco Board"). In the complaint Fenster indicates that he is
seeking class certification. The complaint alleges that the Merger Consideration
is inadequate and less than Oldco's intrinsic value, that in adopting the Plan
of Merger the Oldco Board has been unduly influenced by Michael F. Zinn and the
Oldco Board has breached its fiduciary duty to its shareholders; the complaint
also alleges that Mr. Zinn and the other members of the Oldco Board will receive
unlawful additional consideration that the remaining shareholders will not
receive: (i) the Escrow Fund, that, according to the complaint, has been
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established primarily to benefit them, (ii) the acceleration of certain of their
options and warrants to acquire Oldco Common Stock ("Rights") and (iii) bonuses
for certain members of senior management. Fenster is seeking, among other
things, unspecified compensatory damages and an order that the defendants take
appropriate measures to maximize shareholder value. Oldco filed a motion for
summary judgment dismissing the complaint on the grounds that plaintiff's
alleged claims cannot be asserted in a class action, but rather must be alleged
in a shareholder derivative action subject to various preconditions and other
requirements.
In December 1998, an action was commenced in the New York
Supreme Court, Westchester County, entitled Energy Investment Research Inc. v.
Besicorp Group, Inc., Index No. 98/19707. The complaint alleges, among other
things, that Oldco is obligated to pay Energy Investment Research Inc. ("EIR")
1.5% of all net cash and/or securities received by Oldco from its general
partnership interests in the Carthage and South Glen Falls Partnerships. EIR
seeks, among other things, a declaratory judgment that it is entitled to 1.5% of
the distributions from a Master Restructuring Agreement entered into in July,
1997 which provided for, among other things, the termination or restructuring of
certain power purchase agreements, and has asked for payments in excess of
$750,000. Oldco answered this complaint, denied all of the material allegations
and asserted certain affirmative defenses. The parties are currently engaged in
discovery.
In June 1997, Oldco and Michael F. Zinn (then the Chairman of
the Board, Chief Executive Officer and President of Oldco and currently the
Chairman of the Board, Chief Executive Officer and President of Besicorp), each
entered a guilty plea, in the United States District Court for the Southern
District of New York, to one count of causing a false statement to be made to
the Federal Election Commission and one count of filing a false tax return, all
in connection with contributions to the 1992 election campaign of Congressman
Maurice Hinchey (the "Proceeding"). As a result of such pleas, Oldco was fined
$36,400, and Mr. Zinn was fined $36,673 (the "Fine") and sentenced to a
six-month term of incarceration (which commenced in November 1997 and has been
completed), and a two-year term (which commenced in May 1998) of supervised
release thereafter. He resigned as Chairman of the Board, Chief Executive
Officer and President of Oldco in November 1997 and was reappointed to such
positions in May 1998.
In August 1997, John Bansbach commenced the Bansbach
Litigation. Oldco was named as a nominal defendant in this matter and the other
named defendants either were officers and/or directors of Oldco at the time of
the alleged acts or omissions for which relief is sought or became officers
and/or directors of Oldco thereafter. The plaintiff sought to hold such persons
liable to Oldco: (a) for all sums advanced to or on behalf of Michael F. Zinn in
connection with his defense of the Proceeding; (b) for all sums advanced to or
on behalf of Michael Daley, who was subpoenaed for information in connection
with this matter; (c) for all legal expenses, costs and fines incurred by Oldco
itself in connection with the Proceeding; (d) for all harm to Oldco's reputation
and goodwill resulting from the Proceeding; (e) for punitive damages; and (f)
for plaintiff's attorneys' fees, costs and expenses. The trial court dismissed
the action, stating that the plaintiff had failed to make the requisite pre-suit
demand upon the Oldco Board and had failed to demonstrate that such a demand
would be futile. The plaintiff appealed this decision. On February 4, 1999, the
Appellate Division reversed the trial court's dismissal and reinstated the
action finding that the bare allegations of the complaint sufficiently alleged
that a pre-suit demand on the Oldco Board would have been futile. The parties
are currently engaged in the discovery process.
On March 29, 1993 James Lichtenberg commenced 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
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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 was denied and a further motion
in the New York Court of Appeals for leave to appeal the dismissal of the
complaint to that Court was denied on or about November 18, 1999.
On November 8, 1990 SNC., Ltd. ("SNC") commenced an action in
New York Supreme Court, New York County, against Oldco, and certain of the
partnerships and their affiliates and an unaffiliated contractor (the
"Contractor"). The complaint alleges that SNC was awarded the contracts to
construct two power plants and that the contracts were subsequently awarded to
the Contractor in breach of SNC's contract. SNC seeks an award of compensatory
damages in an undetermined amount in excess of $680,000 and punitive damages.
The Court granted the defendants' motion for summary judgment in part but denied
the motion insofar as it sought dismissal of plaintiff's claims for: (1) breach
of preliminary agreement to negotiate in good faith; (2) unjust
enrichment/quantum meruit; (3) promissory estoppel; and (4) fraud and negligent
misrepresentation. The Court's decision was upheld by the Appellate Court. The
case is proceeding through the litigation process in the Supreme Court, New York
County. Any liability arising out of this litigation would be first satisfied by
the May 1999 Escrow. See "Business - Potential Non-Recurring Funds."
Oldco is a party to a legal proceeding in New York Supreme
Court, Ulster County, that was commenced on June 20, 1995, seeking a
determination that Martin Enowitz ("Enowitz"), a former director and executive
officer of Oldco, is not entitled to 100,000 shares of Oldco Common Stock held
of record by him (the "Enowitz Shares"). The Company believes that such shares
were forfeited when he left the employ of the Company prior to the scheduled
vesting dates with respect to such shares and that, as a result, he was
obligated to resell the shares to the Company. (Enowitz asserts, among other
things, that such vesting schedule was not applicable to him because he was
disabled. Oldco, among other things, disputes Enowitz's allegation that he was
disabled.) Because of the uncertainty with respect to the ownership of these
shares, the Plan of Merger provided that the merger consideration payable in
respect of such shares is to be held in escrow pending resolution of the dispute
regarding the ownership of these shares and the rights, if any, of Acquisition,
Merger Sub and the Surviving Corporation to such Merger Consideration will be
assigned without recourse to Oldco's shareholders. Therefore, the merger
consideration of approximately $3.7 million (and the approximately 4,000 shares
of Company Common Stock) payable with respect to the Disputed Shares are held by
Continental Stock Transfer & Trust Co., Besicorp's transfer agent. If it is
determined that Mr. Enowitz was not entitled to the Disputed Shares, Oldco's
shareholders will receive, on a pro rata basis, such monies less Oldco's costs
(estimated to be less than $100,000) to repurchase such shares.
Besicorp may incur substantial legal fees and other expenses
in connection with the matters described above to the extent such expenses and
liabilities, if any, are not satisfied by the Escrow Fund.
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Item 6. Management's Discussion and Analysis or Plan of Operation.
---------------------------------------------------------
This narrative discusses the financial results of Besicorp
Ltd. The financial results for Fiscal 1998 (as defined) include the results
obtained from the Company's operations relating to solar thermal and heat
transfer products which historically the Company combined with its photovoltaic
operations. The Company discontinued the sale of solar thermal and heat transfer
products effective March 31, 1998 and, therefore, the Company was not engaged in
the business of selling these products in Fiscal 1999. The Company has not
generated any significant revenue from its power plant development activities.
Through Fiscal 1998, costs with respect to certain of these activities are
reflected as deferred costs. These costs were written off and are included in
Selling, General and Administrative Expenses ("SG&A") for Fiscal 1999 (as
defined). See Notes 1 and 3 of the Notes to the Consolidated Financial
Statements of Besicorp Ltd.
RESULTS OF OPERATIONS
- ---------------------
Twelve months ended March 31, 1999 ("Fiscal 1999") compared
with twelve months ended March 31, 1998 ("Fiscal 1998") compared with twelve
months ended March 31, 1997 ("Fiscal 1997").
Product Sales. For Fiscal 1999, revenues from product sales increased by
$1,264,924 (or 33%) to $5,103,275 from $3,838,351 for Fiscal 1998. The increase
in Fiscal 1999 is due to increased sales volume of photovoltaic products. This
increase is primarily the result of increases to the sales and marketing support
staff made primarily during the fourth quarter of Fiscal 1998. Fiscal 1998
revenues from product sales decreased by $636,575 (or 14%) to $3,838,351 from
$4,474,925 for Fiscal 1997. The decrease in Fiscal 1998 is due primarily to the
$836,372 decrease in sales of solar thermal and heat transfer products. Factors
contributing to the decrease in product sales during Fiscal 1998 include
increasingly competitive pricing activity for solar thermal and heat transfer
products and to the Company's discontinuance of the non-agricultural portion of
its heat transfer product line during the third quarter of Fiscal 1997. This
decrease was partially offset by a $199,797 (or 8%) increase during Fiscal 1998
in sales of photovoltaic products from the corresponding prior period. For
Fiscal 1999, 1998 and 1997, sales of photovoltaic products were $5,071,091,
$2,730,545 and $2,530,748, respectively. For Fiscal 1999, 1998 and 1997, sales
of solar thermal and heat transfer projects were $32,184, $1,107,806 and
$1,944,177, respectively. Sales of photovoltaic products constituted 99%, 71%,
and 57% of product sales for Fiscal 1999, Fiscal 1998 and Fiscal 1997,
respectively.
Other Revenues. Other revenues are primarily comprised of
contract revenue from the New York State Energy Research and Development Agency
("NYSERDA") and Motorola, Inc. in accordance with agreements they have with the
Company. Other revenues for Fiscal 1999 increased by $59,876 (or 14%) to
$486,030 from $426,154 for Fiscal 1998. Other revenues for Fiscal 1998 increased
by $115,232 (or 37%) to $426,154 from $310,922 for Fiscal 1997. The increase in
both periods was due to revenue received from NYSERDA, and for Fiscal 1999, from
Motorola, Inc. in accordance with cost sharing and development agreements with
these parties. See Note 11 of the Notes to the Consolidated Financial Statements
of Besicorp Ltd.
Interest and Other Investment Income. During Fiscal 1999,
Interest and other Investment Income decreased by $15,070 (or 42%) to $20,412
from $35,482 for Fiscal 1998. Interest and other investment income during Fiscal
1998 decreased by $7,194 (or 17%) to $35,482 from $42,676 for Fiscal 1997. The
decrease in both periods is due primarily to the lower principal balances on
notes receivable. See Note 4 of Notes to the Consolidated Financial Statements
of Besicorp Ltd.
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<PAGE>
Other Income. Other income for Fiscal 1999, Fiscal 1998 and
Fiscal 1997 was $106,886, $108,435 and $264,371, respectively. The amount
recorded in Fiscal 1997 includes income of $150,000 earned from the settlement
of a complaint against a competitor. Other income is generally comprised of
rental income derived from storage units owned by the Company.
Cost of Product Sales. The cost of product sales for Fiscal
1999, Fiscal 1998 and Fiscal 1997 was $4,839,016, $3,932,201 and $4,299,848,
respectively, or 95%, 102% and 96% of the revenues attributable to product sales
for the relevant period. The decrease in cost of sales percentage in Fiscal 1999
is due primarily to efficiencies achieved in the photovoltaic product
manufacturing process. The increase in Fiscal 1998 from Fiscal 1997 is due
primarily to increasingly competitive pricing of solar thermal and heat transfer
products and the discontinuance of the non-agricultural and heat transfer
product line discussed above. The increases for all periods was partially offset
by the improved efficiencies achieved in the photovoltaic product fabrication
and manufacturing process. The cost of the sales of photovoltaic products for
Fiscal 1999, Fiscal 1998 and Fiscal 1997 was $4,734,861, $2,725,263 and
$2,549,282, respectively, or 93%, 100% and 101% of the revenues attributable to
photovoltaic product sales for the relevant period.
Selling, General and Administrative Expenses. During Fiscal
1999, SG&A increased by $978,038 (or 12%) to $9,444,398 from $8,466,360 for
Fiscal 1998. SG&A during Fiscal 1998 increased by $942,097 or (13%) to
$8,466,360 from $7,524,263 for Fiscal 1997. SG&A includes remuneration of
executives and sales, marketing and project development staff, but not employees
involved in the production of the Company's products.
The increase during Fiscal 1999 from Fiscal 1998 is primarily
due to the $1,402,085 write-off of project costs previously deferred due to the
uncertain nature of the development of the projects and due to the uncertain
political and economic conditions in the countries where the projects are
located (principally India and Brazil). The Company determined, in accordance
with its existing policy that, due to the uncertain development of the projects,
the carrying amounts may be impaired. This increase was offset by the decrease
in SG&A associated with the discontinuance of the Company's solar thermal and
heat transfer product lines and the reclassification of certain labor charges
from SG&A to cost of product sales and a decrease in professional fees. See
"Liquidity and Capital Resources" and "Business B Power Development Activities"
for information regarding the status of the Company's power projects and
initiatives.
The increase in Fiscal 1998 from Fiscal 1997 is primarily due
to the write-off of project costs previously deferred of $519,293, a judgment of
$126,750 paid in connection with the resolution of certain litigation, the
write-down of property of $141,468 to its net realizable value in connection
with the discontinuance of the Company's solar thermal and heat transfer
technology product lines, increased Board of Directors' compensation and related
expenses of $241,529, increased compensation expense of $535,652 resulting from
the addition of management personnel, and additional sales and marketing support
staff in the photovoltaic business. This increase was partially offset by
decreased professional fees.
Interest Expense. Interest expense for Fiscal 1999 decreased
by $347,541 (or 72%) to $134,110 from $481,651 for Fiscal 1998. The decrease
during Fiscal 1999 is due primarily to the Company's repayment of $3 million the
Company borrowed from Stewart and Stevenson Services, Inc. (the "S&S Loan").
Interest expense for Fiscal 1998 increased by $157,737 to
$481,651 from $323,914 in Fiscal 1997. The increase is due primarily to interest
expense of $115,585 incurred in connection with a judgment related to the
resolution of certain litigation and to higher interest payments resulting from
increased borrowing under the S&S Loan.
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<PAGE>
Other Expense. Other expense increased during Fiscal 1998 to
$2,519,114 from $92,316 for Fiscal 1997, due primarily to the Company's decision
to reserve for the possible uncollectibility of a loan of $2.5 million in
connection with a power project which was ultimately written off in Fiscal 1999.
The reserve and subsequent write-off were recorded as a result of certain
litigation and the subsequent settlement thereof which resulted in the
impairment of the asset and the determination that the loan was uncollectible
(the "KBA Loan"). The KBA Loan was written off during the quarter ended December
31, 1998. See Note 4 of Notes to the Consolidated Financial Statements of
Besicorp Ltd.
Credit for Income Taxes. For Fiscal 1999, the credit for
income taxes decreased by $869,800 or 23% to $2,897,200 from $3,767,000 for
Fiscal 1998. During Fiscal 1998, the credit for income taxes increased by
$1,351,600 (or 56%) to $3,767,000 from $2,415,400 for Fiscal 1997. The credit
for income taxes in all periods represents the allocated benefits to the Company
of the losses which Besicorp Group Inc.
was able to use in filing its consolidated tax returns.
Net Loss. The Company's net loss for Fiscal 1999 decreased by
$1,409,265 or 20% to $5,814,739 from $7,224,004 for Fiscal 1998. The Company's
net loss for Fiscal 1998 increased by $2,491,958 (or 53%) to $7,224,004 from the
net loss of $4,732,046 for Fiscal 1997. The factors contributing to the
increases in net loss are discussed above.
INFLATION
- ---------
The Company's operations have not been, nor in the near term
are expected to be, materially affected by inflation. However, if the Company
develops business opportunities internationally, it may become subject to risks
of inflation in the foreign countries in which it operates.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the fiscal year ended March 31, 1999, the Company's
working capital on a historical basis increased by $3,468,012 from $454,991 at
March 31, 1998, to $3,923,003. The higher amount at March 31, 1999 is due
primarily to cash of $1.75 million contributed to Besicorp Ltd. as a result of
the spin off and to $314,000 of additional cash that was identified subsequent
to the merger and not included in the calculation of the merger consideration
(see Note 10 of Notes to the Consolidated Financial Statements of Besicorp
Ltd.). The Company is currently seeking 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. This
facility, estimated to cost no less than approximately $1.5 million, would
replace space currently occupied under a cancelable lease. No assurance can be
given that such financing will be obtained. Other than funds required to fund
the losses incurred by the Photovoltaic Activities and to construct this
facility, the Company's Photovoltaic Activities do not require any short term
material capital expenditures. The Company does not have any short-term material
capital commitments associated with the development of its power plant
initiatives and projects other than the overhead and employee costs associated
with monitoring such projects and the development of new projects and
approximately $1.7 million which management estimates will be expended in
connection with the Kingston Project during Fiscal 2000. (The memorandum of
understanding with respect to the Kingston Project contemplates that
approximately $750,000 in third party costs (of which $250,000 (i.e., the
Initial Commitment) is to be expended during the three months following July,
14, 1999) will be expended in Fiscal 2000 with respect to such project.) Through
June 30,1999, payments to third parties in connection with the Kingston Project
have totaled approximately $128,000 (see "Business - Power Development
Activities"). Management has not specifically identified the manner in which it
will fund its material capital commitments with respect to the Kingston Project,
other than the Initial Commitment for which funds have been allocated. One
possibility contemplated
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<PAGE>
by management is that the $500,000 balance of the Commitment and the estimated
$5 million to $7 million of total development costs required to bring the
project to Financial Close would come in the form of advances of cash or
services from, among other sources, vendors interested in participating in the
construction of the project; such vendors generally would be repaid in whole or
in part at Financial Close. No arrangements have yet been made to finance the
estimated $650 million cost of constructing the Kingston Project, though
management anticipates that it will have to surrender part of its interest in
this project in connection with the financing process. After giving effect to
the Initial Commitment and the receipt from certain partnerships in June 1999
of approximately $2 million representing the Company's share of the proceeds
from the sale of certain pollution control emission allowances, as well as
distributions made upon liquidation of certain partnerships, the Company has
cash of approximately $2 million as of July 14, 1999.
Neither of the Company's businesses currently generate
positive cash flow. Other than a liquidating distribution of approximately
$100,000 to $300,000, which may be received from one partnership in or about
October 1999, management anticipates no significant cash inflows in the near
future. Given the Company's net cash use rate of approximately $500,000 to
$600,000 per month as of (July 14, 1999), the Company will have sufficient funds
to continue operations for approximately three to four months from July 14,1999.
Thereafter, the Company may not, without additional funds or a significant
reduction of its operating expenses, be able to pay its obligations as they
become due. This would materially and adversely effect Besicorp Ltd. and
require it to curtail operations. As one means of reducing cash outflow,
effective May 31,1999, the Company implemented a salary deferment plan under
which executive officers and certain key employees will defer portions of
their salary ranging in amounts from 15% to 67%. The deferral arrangements are
for a one-year term and would result in a monthly cash savings of
approximately $35,000 to $40,000. The Company may also consider obtaining
debt or equity financing to fund the Company's ongoing operations after mid-
November 1999. However, management believes that debt financing will not be
available because (a) it believes that lenders will not lend the Company money
because of its financial condition and results of operations and (b) Michael
Zinn has indicated that he will not guaranty any debt financing (and management
believes that a condition precedent to the making of any third party loan would
be Mr. Zinn's personal guaranty of such loan). Management also believes that
raising equity capital would significantly dilute the equity of Besicorp's
existing shareholders. The Company is also exploring a potential transaction in
which a major shareholder would acquire all outstanding shares not already
owned by him (the "Transaction") (see "Business - Recent Developments").
Besicorp Ltd. has retained a financial advisor to render financial and other
general advice with respect to the Transaction, including an evaluation of
the fairness of the Transaction from a financial point of view, and to assist
the Company in responding to proposed alternative transactions, if any. No
assurance can be given that the Transaction will be completed or that
alternative transactions will be available. The Company has not identified any
solutions (other than those described above) to its liquidity and capital
resource problems described above and no assurance can be given that any
alternative solutions will be identified.
During Fiscal 1999, cash of $5,797,396 was used by operating
activities primarily as a result of the net loss for the period of $5,814,739,
an increase of $828,500 in accounts receivable, an increase of $221,748 in
inventories and a decrease of $471,389 in accounts payable. These decreases in
cash were partially offset by non-cash items, primarily comprised of the
write-off of project costs previously deferred of $1,402,085.
During Fiscal 1999, cash of $7,650,455 was provided by
financing activities, due primarily to cash transactions with Besicorp Group
Inc., which were partially offset by the repayment of borrowings.
During Fiscal 1999, the Company's investing activities used
cash of $133,348 to acquire property, plant and equipment.
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<PAGE>
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 has 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.
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 except voice mail, which is scheduled for an upgrade in the summer of
1999.
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
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<PAGE>
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 would reduce revenues and income, and perhaps a reduction in sales.
Through August 17, 1999, the Company has spent $193,681 on
Year 2000 compliance. Of this amount, $138,836 was spent during Fiscal 1999.
The Company expects that its expenditures for Year 2000
related issues will not exceed $50,000 in Fiscal 2000.
Item 7. Financial Statements.
---------------------
The required financial statements begin at page F-1.
Item 10. Certain Relationships and Related Transactions.
-----------------------------------------------
Entities owned by Michael F. Zinn (collectively "Airport Enterprises")
own and operate an airport where Besicorp's plane is maintained. Besicorp
provides the administrative services required in connection with the operation
of the airport and Airport Enterprises maintains Besicorp's plane and provides
Besicorp with the use of the airport. Airport Enterprises owed Besicorp (as of
March 31, 1999) and Oldco (as of March 31, 1998) $58,675 and $47,662,
respectively, net of airport usage and plane services (the "Services") performed
by Airport Enterprises on behalf of Besicorp and Oldco. The cost of these
Services were recorded for Fiscal 1999 and Fiscal 1998 as $59,925 and $31,939,
respectively. These sums do not bear interest. There is no specified date for
the repayment of such indebtedness as the Company, on an annual basis, offsets
against the amount owed to it by Airport Enterprises, the amount it owes to
Airport Enterprises. Mr. Zinn
17
<PAGE>
is the Chairman of the Board, President and Chief Executive Officer of Besicorp
and served in an identical capacity at Oldco.
Besicorp and Oldco, pursuant to applicable law and governing documents,
advanced legal expenses and disbursements on behalf of certain officers and
directors in connection with the Proceeding, the Lichtenberg Litigation and the
Bansbach Litigation. As of March 31, 1999 and 1998, such advances on behalf of
Michael F. Zinn in connection with the Proceeding were an aggregate of $338,517.
Of such sum, Mr. Zinn agreed to reimburse Oldco $186,000, subject to a
determination as to whether such reimbursement is required by the Business
Corporation Law of the State of New York (the"BCL"), and as of December 31,
1998, had reimbursed Oldco $45,000. In January 1999, after the receipt of a
report from independent legal counsel addressing the propriety under the BCL and
Oldco's by-laws of indemnifying Mr. Zinn, a committee of Oldco's Board of
Directors (composed of independent directors) determined that Mr. Zinn was
entitled to full indemnification with respect to the Proceeding and (i)
authorized the repayment to Mr. Zinn of the Fine and the refund of $45,000 he
had previously reimbursed Oldco; (ii) acknowledged that Mr. Zinn had no further
obligations with respect to the $141,000 Mr. Zinn had, subject to a
determination as the propriety of indemnification, agreed to reimburse Oldco;
and (iii) authorized the reimbursement of Mr. Zinn for the legal fees and
expenses (approximately $39,180) incurred by third parties in connection with
the Proceeding and which had been paid by him. All such reimbursements were made
during the fourth quarter of Fiscal 1999 and any related receivables were
written off and charged to expenses during that period. In addition, Oldco had
advanced legal fees and disbursements of approximately $217,663 incurred in
connection with such proceeding on behalf of certain directors, officers, and
current and former employees and their spouses who were actual or potential
witnesses in this matter.
In connection with the Lichtenberg Litigation, Oldco had advanced as of
March 31, 1999 an aggregate of $829,168 in legal fees and disbursements on
behalf of Oldco and Messrs. Zinn, Eisenberg and Enowitz (as directors and
officers or former directors and/or officers of Oldco).
In connection with the Bansbach Litigation, Oldco had advanced as of
March 31, 1999 an aggregate of $155,085 in legal fees and disbursements on
behalf of Oldco and Messrs. Zinn, Daley, Habib, Harris and Rosen (as director
and officers or former directors of Oldco).
With regard to the legal actions described above, Oldco, in accordance
with applicable law and to the extent required, has received undertakings from
each indemnified party for whom legal costs have been advanced to reimburse
Oldco to the extent reimbursement is required by the BCL. Oldco assigned to
Besicorp its right to receive any payment or benefits from the Lichtenberg
Litigation and Bansbach Litigation pursuant to the Contribution Agreement.
18
<PAGE>
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
BESICORP LTD.
<TABLE>
<CAPTION>
<S>
<C>
Index to the Consolidated Financial Statements
of Besicorp Ltd. .................................................................................. 19
Independent Auditors' Report............................................................................ F-1
Consolidated Balance Sheet as of
March 31, 1999 and 1998........................................................................ F-2
Consolidated Statement of Operations
for the Years Ended March 31, 1999 and 1998.................................................... F-4
Consolidated Statement of Shareholders Equity
for the Years Ended March 31, 1999 and 1998.................................................... F-5
Consolidated Statement of Cash Flows
for the Years Ended March 31, 1999 and 1998 ................................................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
</TABLE>
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BESICORP LTD.
By: /s/Michael F. Zinn
------------------
Name: Michael F. Zinn
Title: Chairman of the Board,
Chief Executive Officer and President
(principal executive officer)
Dated: January 24, 2000
By: /s/Michael J. Daley
----------------
Name: Michael J. Daley
Title: Executive Vice President
and Director
(principal financial officer)
Dated: January 24, 2000
By: /s/James E. Curtin
------------------
Name: James E. Curtin
Title:Vice President, Controller
(principal accounting officer)
Dated: January 24, 2000
<PAGE>
CITRIN COOPERMAN & COMPANY, LLP
Certified Public Accountants
529 Fifth Avenue, Tenth Floor
New York, NY 10017
212-697-1000
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
BESICORP LTD.
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of Besicorp Ltd. and
subsidiaries as at March 31, 1999 and 1998 and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the two years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Besicorp Ltd. and
subsidiaries as at March 31, 1999 and 1998 and the results of their operations
and their cash flows for the two years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has received (but will not in the future receive)
substantial financial support from the former parent company that raise
substantial doubt about its ability to continue as a going concern without such
support. Management's plans in regard to these matters are also described in
Note 15. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Citrin Cooperman & Company, LLP
CITRIN COOPERMAN & COMPANY, LLP
June 16, 1999
New York, New York
F-1
<PAGE>
BESICORP LTD.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
<S>
<C> <C>
ASSETS March 31, March 31,
1999 1998
--------- ----------
Current Assets:
Cash $1,824,139 $ 104,428
Trade accounts receivable (less allowance for doubtful
accounts of $32,000 at March 31, 1999 and
$23,000 at March 31, 1998) 988,589 369,494
Due from affiliates 374,250 47,662
Current portion of long-term notes receivable:
Others (includes interest of $4,057 at March 31, 1999
and $8,316 at March 31, 1998) 107,951 102,054
Inventories 1,165,761 944,013
Other current assets 465,566 485,052
--------- ---------
Total Current Assets 4,926,256 2,052,703
--------- ---------
Property, Plant and Equipment:
Land and improvements 229,660 237,160
Buildings and improvements 1,914,029 1,906,952
Machinery and equipment 726,958 714,620
Furniture and fixtures 237,423 246,702
--------- ---------
3,108,070 3,105,434
Less: accumulated depreciation and amortization (1,520,385) (1,478,950)
--------- ---------
Net Property, Plant and Equipment 1,587,685 1,626,484
--------- ---------
Other Assets:
Patents and trademarks, less accumulated
amortization of $2,350 at March 31, 1999
and $1,691 at March 31, 1998 12,530 7,823
Long-term notes receivable:
Affiliate - net of allowance of $555,376 at March 31, 1998 - -
Others - net of allowance of $1,944,624 at March 31, 1998 - 129,886
Deferred costs - 1,316,693
Investment in partnerships 4,009,810 -
Other assets 76,620 95,063
--------- ---------
Total Other Assets 4,098,960 1,549,465
--------- ---------
TOTAL ASSETS $ 10,612,901 $ 5,228,652
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
BESICORP LTD.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S>
<C> <C>
March 31, March 31,
1999 1998
--------- ---------
Current Liabilities:
Accounts payable and accrued expenses $ 763,531 $1,234,920
Current portion of long-term debt 20,000 109,208
Current portion of accrued reserve and warranty expense 111,215 152,891
Taxes other than income taxes 103,207 100,693
Income taxes payable 5,300 -
--------- ---------
Total Current Liabilities 1,003,253 1,597,712
Long-Term Accrued Reserve and Warranty Expense 174,462 152,402
Long-Term Debt 115,308 3,768,233
--------- ---------
Total Liabilities 1,293,023 5,518,347
--------- ---------
Shareholders' Equity:
Common stock, $.01 par value
authorized 5,000,000 shares;
issued and oustanding 121,382 shares 1,214 -
Additional paid-in capital 9,490,827 -
Besicorp Group Inc. investment - (289,695)
Retained earnings (deficit) (172,163) -
--------- --------
Total Shareholders' Equity 9,319,878 (289,695)
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,612,901 $ 5,228,652
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BESICORP LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S>
<C> <C>
Years Ended March 31,
1999 1998
---- ----
Revenues:
Product sales $5,103,275 $3,838,351
Other revenues 486,030 426,154
Interest and other investment income 20,412 35,482
Other income 106,886 108,435
Total Revenues 5,716,603 4,408,422
Costs and Expenses:
Cost of product sales 4,839,016 3,932,301
Selling, general and
administrative expenses 9,444,398 8,466,360
Interest expense 134,110 481,651
Other expense 11,018 2,519,114
Total Costs and Expenses 14,428,542 15,399,426
Loss Before Income Taxes (8,711,939) (10,991,004)
Credit for Income Taxes 2,897,200 3,767,000
Net Loss $ (5,814,739) $(7,224,004)
Net loss per share $ (47.90) $ (59.51)
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BESICORP LTD.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Years Ended March 21, 1999 and 1998
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C>
Additional Besicorp Retained
Common Stock Paid In Group Inc. Earnings
Shares Amount Capital Investment (Deficit) Total
------ ------ --------- ---------- --------- -----
Balance April 1, 1997 $ $ $ 2,221,758 $ $2,221,758
Net Loss (7,224,004) (7,224,004)
Net transactions with
Besicorp Group Inc. 4,712,551 4,712,551
Balance March 31, 1998 (289,695) 0 (289,695)
Net loss to March 22, 1999 (5,642,576) (5,642,576)
Net transactions with
Besicorp Group Inc. 15,424,312 15,424,312
Distribution of Besicorp Ltd.
stock by Besicorp Group Inc. 122,057 1,221 9,490,820 (9,492,041) 0
Net loss March 23, 1999
to March 31, 1999 (172,163) (172,163)
Payment in lieu of issuance
of shares (675) (7) (29,035) (29,042)
Additional capital
contibution 29,042 29,042
121,382 $ 1,214 $ 9,490,827 $ 0 $ (172,163) $ 9,319,878
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BESICORP LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
<S>
<C> <C>
Years Ended March 31,
1999 1998
---- ----
Operating Activities:
Net loss $(5,814,739) $(7,224,004)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization of discounts on notes (2,196) (2,196)
Provision for uncollectibles 9,000 2,483,654
Realized and unrealized (gains)/losses 7,500 6,066
Depreciation and amortization 165,307 243,793
Changes in assets and liabilities:
Accounts and notes receivable (828,500) 326,916
Inventories (221,748) 236,252
Accounts payable and accrued expenses (471,389) (510,223)
Taxes payable 7,814 (1,393)
Other assets and liabilities, net 1,351,555 (94,844)
--------- ---------
Net Cash Used
By Operating Activities (5,797,396) (4,535,979)
--------- ---------
Financing Activities:
Repayment of borrowings (3,742,133) (72,640)
Net transactions with Besicorp Group Inc. 11,392,588 4,712,551
---------- ---------
Net Cash Provided
By Financing Activities 7,650,455 4,639,911
---------- ---------
Investing Activities:
Acquisition of property, plant and equipment (133,348) (149,266)
Net Cash Used By Investing ----------- ---------
Activities (133,348) (149,266)
----------- ---------
Increase in Cash 1,719,711 45,334
Cash Beginning 104,428 59,094
---------- --------
Cash Ending $ 1,824,139 $ 104,428
Supplemental Cash Flow Information: ========== ========
Interest paid $ 94,689 $ 445,601
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
- ---------------------
Besicorp Group Inc., 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.
Effective March 22, 1999, Besicorp Group Inc. distributed to its shareholders
all of its interests in Besicorp Ltd. and certain subsidiaries. Prior to the
Distribution, Besicorp Ltd. and subsidiaries were wholly-owned subsidiaries
of Besicorp Group Inc.
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.
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.
F-7
<PAGE>
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
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").
Basis of Consolidations
- -----------------------
The consolidated financial statements include the accounts of Besicorp Ltd. and
its wholly-owned subsidiaries. Investments in partnerships are accounted for
under the equity method. All significant intercompany transactions and accounts
have been eliminated.
Use of Estimates
- ----------------
Management uses estimates in preparing the consolidated financial statements, in
conformity with generally accepted accounting principles. Significant estimates
include collectibility of accounts receivable, warranty costs, profitability on
long-term contracts, as well as recoverability of long-term assets and residual
values. The Company regularly assesses these estimates and, while actual results
may differ from these estimates, management does not anticipate a material
difference in its actual results versus estimates in the near term.
Inventories
- -----------
Inventories are carried at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation on such assets is
computed on a straight-line basis at rates adequate to allocate the cost over
their expected useful lives as follows: (i) land improvements - 15 years, (ii)
buildings and improvements - 20 years to 39 years; (iii) furniture and fixtures
- - three years to 35 years; and (iv) machinery and equipment - three years to 35
years.
Patents and Trademarks
- ----------------------
Costs of patents ($14,395 at March 31, 1999 and $9,029 at March 31, 1998) are
capitalized and amortized on a straight-line basis over the remaining useful
life of the patent of up to 17 years. Trademark costs ($485 at March 31, 1999
and $485 at March 31, 1998) are capitalized and amortized on a straight-line
basis over the estimated useful life of 35 years. During the year ended March
31, 1998, $690,467 of patent and trademark costs were written off upon the
discontinuance of the related product lines as a result of management's decision
to focus the Company's alternative energy business on photovoltaic products and
systems. The write-off of these costs is reflected in selling, general and
administrative expenses in that period.
Deferred Costs
- --------------
Consists of engineering and legal fees, licenses and permits, site testing, bids
and other charges, including salaries and employee expenses, incurred by the
Company in developing projects. These costs are deferred until the date the
project construction financing is arranged and then expensed against development
fees received, or, in some cases, such costs are reimbursed periodically or at
the time of closing. When in the opinion of management it is determined that a
project will not be completed, the deferred costs are expensed.
Impairment of Long-Lived Assets
- -------------------------------
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." The Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairments whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
F-8
<PAGE>
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
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 is computed based on 121,823 shares being issued
after reduction for payment of fractional shares as adjusted after the
Distribution and Spin-Off. Since there were no potential Common Shares as of
March 31, 1999, Basic and Diluted Earnings per Share are the same for both
fiscal years.
Product Warranties
- ------------------
Warranty expense for the Company's product sales is provided on the basis of
management's estimate of the future costs to be incurred under product
warranties presently in force. Adjustments to revenue or expense are reflected
in the period in which revisions to such estimates are deemed appropriate.
Revenue Recognition
- -------------------
Revenues on product sales are recognized at the time of shipment of goods. Other
revenues, primarily cost reimbursement billings, are recognized when deemed
payable under the applicable agreement.
Research and Development
- ------------------------
Research and development costs are expensed when incurred.
Statement of Cash Flows
- -----------------------
For purposes of the consolidated statement of cash flows, the Company considers
temporary investments with a maturity of three months or less when purchased to
be cash equivalents. There were no cash equivalents in any of the periods
presented.
Concentration of Credit Risk
- ----------------------------
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and trade receivables. The Company
places its cash and investments with high credit qualified financial
institutions and, by policy, limits the amount of credit exposure to any one
financial institution. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base, and their dispersion across many different industries
and regions. During Fiscal 1999, no sales to a customer equaled or exceeded 10%
of product sales. During the year ended March 31, 1998 ("Fiscal 1998"), one
customer accounted for approximately 14% of product sales.
Goodwill
- --------
The excess of the purchase price over the book value of a corporation acquired
at March 31, 1993 of $557,898 was added to the basis of the land and buildings
of such corporation based upon an independent appraisal of the property acquired
and is being amortized on a straight-line basis over the asset lives of 31.5
years. The remaining book value at March 31, 1999 and 1998 was $458,489 and
$475,057, respectively.
Income Taxes
- ------------
The Company's operations were included in the income tax returns filed by
Besicorp Group Inc. through the distribution date. During such time, income tax
expense (benefit) in the Company's consolidated financial statements was
calculated as if the Company had filed separate income tax returns. Deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and tax bases of
existing assets and liabilities. The tax benefits of tax operating loss
carryforwards are recorded to the extent available, less a valuation allowance
if it is more likely than not that some portion of the deferred tax asset will
not be realized.
F-9
<PAGE>
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 2 - INVENTORIES
-----------
Inventories consist of the following:
March 31, 1999 March 31, 1998
-------------- ---------------
Assembly parts $263,761 $298,239
Finished goods 902,000 645,774
---------- ---------
$1,165,761 $944,013
========= =======
NOTE 3 - DEFERRED COSTS
--------------
Deferred and reimbursable costs at March 31, 1999 and March 31, 1998 were as
follows:
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
Internal Costs Third
Payroll Expenses Party Costs Total
------- -------- ----------- -----
Balance March 31, 1997 $917,671 $267,947 $295,110 $1,480,728
Additions 259,335 34,706 388,238 682,279
Expensed (634,631) (85,142) (64,335) (784,108)
Reimbursements (58,825) - (3,381) (62,206)
----------- ------------ ----------- ------------
Balance March 31, 1998 483,550 217,511 615,632 1,316,693
Additions 75,504 11,851 43,716 131,071
Expensed (513,375) (229,362) (659,348) (1,402,085)
Reimbursements (45,679) - - (45,679)
----------- ------------ ----------- ------------
Balance March 31, 1999 $0 $0 $0 $0
=========== =========== =========== ============
</TABLE>
The Company wrote off all deferred costs during the second quarter of Fiscal
1999 due to the uncertain nature of the development of the projects and due to
the uncertain political and economic conditions in the countries where the
projects are located (principally India and Brazil). The Company determined, in
accordance with its existing policy, that due to the uncertain development of
the projects and uncertain economic conditions in the respective countries the
carrying amounts may be impaired.
NOTE 4 - NOTES RECEIVABLE
----------------
Long-term notes receivable consist of the following:
<TABLE>
<CAPTION>
<S>
<C> <C>
March 31, 1999 March 31, 1998
-------------- --------------
Due from affiliate (net of allowance of
$0 at March 31, 1999 and
$555,376 at March 31, 1998 (a) $0 $0
======= =======
Due from others:
- Greenhouse (net of allowance of
$0 at March 31, 1999 and
$1,944,624 at March 31, 1998 (a) $0 $0
- 9% notes receivable due from limited
partnerships, receivable in annual
installments through December, 1999 (b) 103,894 223,623
Less current portion - net of interest (103,894) (93,737)
------- -------
TOTAL $0 $129,886
======= =======
</TABLE>
F-10
<PAGE>
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(a) In connection with a project (the "Project"), the Company advanced an
aggregate of $2,500,000 (see Note 7(d)) of which, at March 31, 1998, $1,944,624
and $555,376 was owed to the Company by, respectively, an affiliated partnership
and an unrelated company ("Allegany"). During Fiscal 1998, Besicorp Group Inc.
reserved the full amount of such loan due to its impairment and wrote off the
combined loan during the third quarter of Fiscal 1999 because the Company
relinquised its rights thereunder pursuant to the plan of reorganization
approved by the United States Bankruptcy Court for the District of New Jersey
(Case No.95-28703 (WT)) the related settlements agreements. The Company did not
in Fiscal 1999 or Fiscal 1998 record any interest income with respect to such
advances.
(b) The Company contracted to design, build, and operate energy systems with
limited partnerships. Under the terms of the agreements with these partnerships,
the partnerships provided the Company with initial cash payments and issued
long-term notes. Additional interest on these notes was imputed at the rate of
2% per annum to yield an effective rate of 11% per annum on substantially all of
the long-term notes.
NOTE - 5 INVESTMENTS IN PARTNERSHIPS
---------------------------
The Company's interests in partnerships range from 35.715% to 50.2% and are
accounted for under the equity method. The investment in partnerships of
$4,009,810 at March 31, 1999 primarily represents the amounts paid by the
Company of $2,310,549 which equaled the tax bases of the partnership interests
of $2,310,549, which was contributed by Besicorp Group Inc. to the Company. In
addition, included in the investment balance is a receivable of $1,721,175 which
was also contributed to the Company by Besicorp Group Inc. and represents the
funds due from certain revenues earned by the partnerships in March 1999. The
partnerships are presently in liquidation. In June 1999, the Company received
distributions from the partnerships of approximately $2,000,000. Also included
in the investment balance are (a) approximately $550,000 which management
expects will be received bythe Company, reduced by certain expenses to be
incurred, upon liquidation of one partnership around October 1999 and (b)
approximately $1.4 million (the "Liquidated Partnership Funds") held in cash
escrow accounts which were established in connection with the liquidated
partnerships. The Liquidated Partnership Funds, if any, may be released to the
Company between June 2000 and May 2002 subject to the satisfaction of certain
conditions, as to which no assurance can be given.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
-------------------------------------
Accounts payable and accrued expenses were comprised of the following:
March 31, 1999 March 31, 1998
-------------- --------------
Trade accounts payable $220,107 $465,584
Accrued interest expense - 39,421
Accrued legal fees - 308,281
Accrued salaries 144,871 134,640
Due to affiliate - 56,624
Deposits and other payables 398,553 230,370
------- ---------
$763,531 $1,234,920
======= =========
F-11
<PAGE>
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 7 - LONG-TERM DEBT
--------------
<TABLE>
<CAPTION>
<S>
<C> <C>
Long-term debt consists of the following: March 31, 1999 March 31, 1998
-------------- --------------
- Installment loans at 0% to 10.54% maturing through
September 2000 (a) $0 $75,639
- Mortgage loan payable in monthly installments of
$4,180 including interest at prime plus 1.5% through
April 2007, when the unpaid balance was due (b) 0 315,455
- Second mortgage payable in monthly installments
of $1,771 plus interest at prime plus 1.5% through
March 2002, when the unpaid balance was due (b, c) 0 288,646
- Mortgage loan payable in monthly installments of $1,060 plus interest
at prime plus 1.5% to March 1998
and prime plus .5% thereafter through March 2001 (b, c) 0 50,680
- Obligation on SunWize asset acquisition (e) 135,308 147,021
- Working capital loan (d) 0 3,000,000
--------- ---------
Total 135,308 3,877,441
Less: Current maturities 20,000 109,208
--------- ----------
$115,308 $3,768,233
======= =========
</TABLE>
Long-term debt maturities at March 31, 1999, including current maturities, are
as follows:
March 31, 1999
--------------
2000 $20,000
2001 20,000
2002 20,000
2003 20,000
2004 20,000
Thereafter 35,308
$135,308
=======
With the exception of the SunWize acquisition obligation, which is the only debt
(other than trade and similar debt incurred in the ordinary course of business)
remaining subsequent to the Spin-Off, all debt was repaid during Fiscal 1999.
a. Collateral for the installment loans consists of automobiles, machinery and
equipment, computer equipment and furniture and fixtures with a net book value
of $60,468 at March 31, 1998. All these loans were repaid prior to December 31,
1998.
F-12
<PAGE>
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
b. Collateralized by mortgages on land and/or buildings with a net book value of
$1,153,622 at March 31, 1998. These mortgages were repaid prior to December 31,
1998.
c. As a part of his guarantees of the Company's debts of $339,326 at March 31,
1998, the a major shareholder has a security interest in various assets, patents
and personal property owned by the Company. These mortgages were repaid prior to
December 31, 1998 and the related security interests released.
d. On June 1, 1992, Besicorp Group Inc. and its partnership co-developer with
respect to certain projects, entered into a loan agreement with Stewart &
Stevenson Services, Inc. to borrow up to $3,000,000 each for working capital.
Interest on advances under the agreement were payable quarterly in arrears at
the rate of 2% above prime. The loan required payments of interest only during
the initial term. Principal was to be repaid based on termination dates of
operating and maintenance contracts on certain projects with an initial term of
six years that may be extended an additional six years. Loans were secured by
cash flows of certain of the partnerships in the event of default. During Fiscal
1993 and 1994 Besicorp Group Inc. borrowed $2,500,000 under the agreement to
fund development activities of one of the partnerships (see Note 4), and, in
February 1997, borrowed the remaining $500,000 available under the loan
agreement. The loan was repaid in full in July 1998.
e. Obligation payable on the acquisition of SunWize assets, payable on an annual
basis as a percentage of gross margins of the SunWize division. $11,713 was paid
in Fiscal 1999. $19,878 was paid in Fiscal 1998.
NOTE 8 - INCOME TAXES
------------
The credit for income taxes for the period through the Distribution represents
the allocated benefits of the respective losses which Besicorp Group Inc. was
able to use in filing its consolidated tax returns.
Tax benefits are allocated based on the taxable loss of the companies and
deferred taxes are provided on temporary differences in recognition of income
between book and tax. Such tax benefits and deferred taxes are charged or
credited to the amount due to or from Besicorp Group Inc. and included in the
net transactions with Besicorp Group Inc.
Deferred tax assets of approximately $415,000 primarily from equipment and
depreciation differences are offset by valuation allowances since it is more
likely than not that some portion of the deferred tax asset will not be
realized.
Upon conclusion of the Merger and Distribution, the Company became an
independent entity and will no longer have its results included with the
consolidated tax return of Besicorp Group Inc. The Company has an available net
operating loss of approximately $167,900 which expires 2019. The tax benefits of
the net operating loss carry forward of $57,000 have been offset by a
corresponding increase in valuation allowance.
NOTE 9 - CAPITALIZATION
The Company has authorized 1,000,000 shares of $.01 par value preferred stock,
of which none have been issued, and 5,000,000 shares of $.01 par value common
stock. Upon formation of the Company in November 1998, 500 shares of common
stock were issued to Besicorp Group Inc. for $500. In connection with the Merger
and the Distribution, approximately 122,057 shares of the Company are available
to be issued to the holders of Besicorp Group Inc. common stock on a one share
of the Company for 25 shares of Besicorp Group Inc. basis subject to adjustment
based upon the payment of cash in lieu of the issuance of fractional shares. At
March 22, 1999, $40,000 was placed in escrow with the transfer agent for payment
of cash in lieu of fractional shares. Stock certificates for 121,382 shares of
the Company's common stock have been received for distribution in exchange of
Besicorp Group Inc. shares after payment on the issuance of fractional shares.
The $29,042 of payment for fractional shares is an additional capital
contribution by Besicorp Group Inc. and the balance of the $40,000 was
transferred to the escrow account established to satisfy the Company's
obligations under the Indemnification Agreement.
F-13
<PAGE>
NOTE 10 - RELATED PARTIES
---------------
Net amounts due from affiliates at March 31, 1999 and March 31, 1998 relate to
receivables from companies owned by a major shareholder which provided certain
services to Besicorp Group Inc., and which will continue to provide services to
the Company, for airport usage, plane services and engineering consulting
services totaling $56,197 and $31,939 for the years ended March 31, 1999 and
1998, respectively.
Also, included in amounts due from affiliates at March 31, 1999 is $314,000 of
funds due from Besicorp Group Inc. Additional cash balances were identified
subsequent to the Merger which were not included in the calculation of the
Merger consideration. The funds were transferred to the Company subsequent to
the balance sheet date.
Included in other current assets at March 31, 1998 is a receivable of $164,211
from the President of the Company representing primarily the balance due on
$186,000 of legal fees incurred in connection with a certain legal proceeding
(the "Proceeding") which the President had agreed, subject to a determination
that such repayment was not required, to reimburse to the Company. In January
1999, after the receipt of a report from independent legal counsel addressing
the propriety under the BCL and Besicorp Group Inc.'s by-laws of indemnifying
the President, a committee of directors of Besicorp Group Inc. (composed of
independent directors) determined that the President was entitled to full
indemnification with respect to the Proceeding and (i) authorized the repayment
to the President of the fine of $36,673 he had paid in connection with the
Proceeding and the refund of $45,000 he had previously reimbursed Besicorp Group
Inc.; (ii) acknowledged that the President had no further obligations with
respect to the $141,000 he had, subject to a determination as the propriety of
indemnification, agreed to reimburse Besicorp Group Inc.; and (iii) authorized
the reimbursement of the President for the legal fees and expenses
(approximately $39,180) incurred by third parties in connection with the
Proceeding and which were paid by him. All such reimbursements were made during
the fourth quarter of Fiscal 1999 and any related receivables were written off
and charged to expense during the same period.
NOTE 11 - SUPPLEMENTARY INCOME STATEMENT INFORMATION
------------------------------------------
Fiscal 1999 Fiscal 1998
----------- -----------
Advertising costs $ 72,734 $142,154
Research and development expenses(1) 603,399 697,182
Warranty expense 3,767 53,701
Amortization of patents and trademarks 659 40,632
Maintenance and repairs 105,949 84,903
Taxes other than payroll and income taxes 57,761 57,721
(1) Expenditures for research and development were $603,399 in Fiscal 1999 and
$697,182 in Fiscal 1998. Personnel expenses, comprising the largest portion of
these amounts, were $223,799 in Fiscal 1999 and $330,428 in Fiscal 1998. Of the
total amounts, expenses attributable to the Company's agreements with the New
York State Energy Research and Development Authority were $331,539 for Fiscal
1999 and $520,950 in Fiscal 1998.
NOTE 12 - LEGAL PROCEEDINGS
-----------------
The Company is a party to numerous legal proceedings in the normal course of
business and certain shareholder suits.
F-14
<PAGE>
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
As part of the Plan of Merger, there is (i) an indemnification agreement which
obligates the Company to indemnify the purchaser from any damages it suffers
arising out of, among other things, Besicorp Group Inc.'s breach of
representations and warranties set forth in the Plan of Merger and certain
liabilities, taxes and litigation of Besicorp Group Inc. and (ii) an escrow
agreement governing the $6.5 million initially placed in escrow to satisfy the
Company's obligations under the indemnification agreement and provides for
payment of, among other things, certain litigation and related costs.
Management is of the opinion that there are meritorious defenses in the various
legal proceedings and that the balance in the escrow will cover any legal costs
and settlements that might result from these actions.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
-----------------------------
Other than the equipment lease described below, at March 31, 1999, the Company
has no significant minimum annual rental commitments under non-cancelable
operating leases for equipment and office space. The Company has three leases
for office and warehouse space. One lease calls for monthly rental of $575 for a
period of 12 months ending April 1999 and subsequently extended for another
year. The second lease calls for monthly rental of $410 per month for a period
of 12 months ending January 2000. The third lease was for an initial period of
six months, commencing on October 1, 1995 and ending on March 31, 1996. The term
automatically renews for successive periods of six months each. Either party may
terminate the lease at any time by giving the other party at least ninety days
notice in writing. The annual rent from September 1, 1995 forward is $102,000,
which will be adjusted in future periods based on the Consumer Price Index. Rent
expense on all operating leases for Fiscal 1999 and 1998 was $176,964 and
155,197, respectively.
Since March 1994 the Company has been entering into cost-sharing agreements with
the New York State Energy Research and Development Authority ("NYSERDA") with
completion dates extending through April 2001. The agreements provide for
payment to the Company by NYSERDA of $1,442,237 (approximately $1,015,822 has
been earned through March 31, 1999) for funding and development of photovoltaic
projects with estimated costs of $2,963,235. Funds advanced by NYSERDA are to be
repaid from revenues on sales of products developed under the agreements, if
any.
The Company has a 401(k) plan covering substantially all full-time employees for
which the Company makes matching contributions as defined. The Company's
expenses under the plan for Fiscal 1999 and 1998 were $98,868 and $72,692,
respectively.
As part of the Plan of Merger, certain equipment with an original cost of
$827,000 was retained by Besicorp Group Inc. and be leased to the Company.
Rentals under the two year lease will be approximately $63,474 per quarter
commencing July 1, 1999. The Company has the option to purchase the equipment
after the first year for $288,479. Besicorp Group Inc. has the option to require
the Company to purchase the equipment at the end of the lease for $55,000. The
lease is accounted for as an operating lease on the Company's books.
In February 1999, Besicorp Ltd. adopted the 1999 Incentive Plan to provide
for the issuance of up to 40,000 shares of Besicorp Ltd. common stock as an
equity incentive program. On May 14, 1999, restricted grants of 15,000 shares
were made under the plan.
NOTE 14 - 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 subsidiary involved with the activity of that segment, with no
intersegment revenues and expenses. Export product sales, principally to Europe
and the Pacific Rim, for the years ended March 31, 1999 and 1998 were $153,543
and $299,293, respectively. A summary of industry segment information for Fiscal
1999 and 1998 is as follows:
F-15
<PAGE>
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
For the Year Ended Project Product
March 31, 1999 Segment Segment Eliminations Total
- -------------- ------- ------- ------------ -----
Net revenues $165,161 $5,551,442 $ 5,716,603
Loss before taxes 6,856,945 1,854,994 8,711,939
Income tax credit 2,283,500 613,700 2,897,200
Net loss 4,573,445 1,241,294 5,814,739
Identifiable assets 18,315,811 2,635,574 $(10,338,484) 10,612,901
Investment in partnerships 4,009,810 - 4,009,810
Capital expenditures - 133,348 133,348
Depreciation and amortization 84,466 80,841 165,307
For the Year Ended Project Product
March 31, 1998 Segment Segment Eliminations
- -------------- ------- ------- ------------
Total
- -----
Net revenues $158,427 $4,249,995 $4,408,422
Loss before taxes 8,435,438 2,578,566 10,991,004
Income tax credit 2,868,000 899,000 3,767,000
Net loss 5,544,438 1,679,566 7,224,004
Identifiable assets 17,355,904 1,947,316 $(14,074,568) 5,228,652
Investment in partnerships - - -
Capital expenditures 39,478 109,788 149,266
Depreciation and amortization 152,662 91,131 243,793
</TABLE>
NOTE 15 - GOING CONCERN
-------------
The Company has suffered recurring losses from operations and has previously
received (but will not in the future receive) substantial financial support from
Besicorp Group Inc., which raises substantial doubt about the Company's ability
to continue as a going concern without such support. The Company is exploring a
potential transaction in which a major shareholder would acquire all outstanding
shares not already owned by him (the "Transaction"). In this regard, the Company
has retained a financial advisor to render financial and other general advice ,
including an evaluation of the fairness of the Transaction from a financial
point of view, and to assist the Company in responding to proposed alternative
transactions, if any. No assurance can be given that the Transaction will be
completed or that alternative transactions will be available.
NOTE 16 - PRO FORMA FINANCIAL INFORMATION
-------------------------------
The consolidated financial statements for the year ended March 31, 1999 include
the results of operations and cash flows for the period April 1, 1998 through
March 22, 1999, the date of Distribution, during which the Company was a part of
Besicorp Group Inc. and the period March 23, 1999 through March 31, 1999 during
which the Company was a stand alone entity. The results of operations are
summarized as follows:
<TABLE>
<CAPTION>
<S>
<C> <C> <C>
April 1, 1998 March 23, 1998
through through Year Ended
March 22, 1999 March 31, 1999 March 31, 1999
-------------- -------------- --------------
Revenues $ 5,512,576 $204,027 $ 5,716,603
Costs and expenses 14,057,352 371,190 14,428,542
---------- ------- ----------
Loss before income taxes (8,544,776) (167,163) (8,711,939)
Credit (provision) for income taxes 2,902,200 (5,000) 2,897,200
---------- ------- ---------
Net loss $(5,642,576) $(172,163) $ (5,814,739)
========= ======== =========
Net loss per share $ (46.48) $(1.42) $(47.90)
</TABLE>
F-16
