SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999 Commission file number 000-25209
BESICORP LTD.
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(Exact name of small business issuer as specified in its charter)
New York 14-1809375
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(State or other jurisdiction of (Internal Revenue Service
incorporation or organization) Employer Identification No.)
1151 Flatbush Road, Kingston, New York 12401
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(Address of principal executive office) (Zip Code)
Issuer's Telephone Number, including area code: (914) 336-7700
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No_____
Common stock outstanding as of August 12, 1998 136,382
Transitional Small Business Disclosure Format Yes______ No __X___
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BESICORP LTD.
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
<S>
<C> <C>
June 30,1999 March 31,1999
------------ -------------
ASSETS
Current Assets:
Cash and cash equivalents $2,894,589 $ 1,824,139
Trade accounts and notes receivable (less allowance
for doubtful accounts of $32,000 as of June 30, 1999
and March 31, 1999) 963,075 988,589
Due from affiliates 62,868 374,250
Notes receivable: (includes interest of $8,122
at
June 30, 1999 and $4,057 at March 31, 111,448 107,951
1999)
Inventories 1,683,117 1,165,761
Other current 438,766 465,566
assets --------- ---------
Total Current Assets 6,153,863 4,926,256
--------- ---------
Property, Plant and Equipment:
Land and improvements 229,660 229,660
Buildings and improvements 1,914,029 1,914,029
Machinery and equipment 573,469 726,958
Furniture and fixtures 237,423 237,423
Construction in progress 526 0
--------- ---------
2,955,107 3,108,070
Less: accumulated depreciation and amortization (1,401,443) (1,520,385)
--------- ---------
Net Property, Plant and Equipment 1,553,664 1,587,685
--------- ---------
Other Assets:
Patents and trademarks, less accumulated
amortization of $2,638 at
June 30, 1999 and $2,350, at March 31, 18,272 12,530
1999
Investment in partnerships 1,999,905 4,009,810
Deferred costs 186,757 0
Other assets 87,225 76,620
--------- --------
Total Other Assets 2,292,159 4,098,960
--------- ----------
TOTAL ASSETS $ 9,999,686 $ 10,612,901
========= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
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BESICORP LTD.
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
<S>
<C> <C>
June 30,1999 March 31,1999
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,420,065 $ 763,531
Current portion of long-term debt 42,000 20,000
Current portion of accrued reserve and warranty expense 87,009 111,215
Taxes other than income taxes 98,516 103,207
Income taxes payable 5,437 5,300
--------- ---------
Total Current Liabilities 1,653,027 1,003,253
Long-Term Accrued Reserve and Warranty Expense 174,462 174,462
Long-Term Debt 51,070 115,308
--------- ---------
Total 1,878,559 1,293,023
Liabilities --------- ---------
Shareholders' Equity:
Common stock, $.01 par value: authorized
5,000,000 shares; issued and outstanding 136,382
at June 30, 1999 and 121,382 at March 31, 1999 1,364 1,214
Additional paid in capital 10,135,677 9,490,827
Unamortized deferred compensation (623,500) 0
Retained earnings (deficit) (1,392,414) (172,163)
--------- ---------
Total Shareholders' Equity 8,121,127 9,319,878
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,999,686 $ 10,612,901
========= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
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BESICORP LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
<S>
<C> <C>
Three months ended June 30,
1999 1998
----- -----
Revenues:
Product sales $2,125,072 $ 987,793
Other revenues 60,929 124,701
Interest and other investment 23,400 6,773
income
Other income 0 24,867
--------- ---------
Total Revenues 2,209,401 1,144,134
--------- ---------
Costs and Expenses:
Cost of product sales 1,850,827 947,831
Selling, general
and
administrative expenses 1,567,730 1,342,274
Interest expense 287 94,383
Other expenses 50 433
--------- ---------
Total Costs and Expenses 3,418,894 2,384,921
--------- ---------
Loss before Income Taxes (1,209,493) (1,240,787)
Provision (Credit) for Income Taxes 10,758 (422,000)
--------- ----------
Net Loss $ (1,220,251) $ (818,787)
========= ===========
Basic Loss per Share $ (9.44) $ (6.75)
========= ========
Basic Weighted Average Number of Shares Outstanding (in Thousands) 129,294 121,382
========= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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BESICORP LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
<S>
<C> <C>
Three months ended June 30,
1999 1998
------ -----
Operating Activities:
Net loss $ (1,220,251) $(818,787)
Adjustments to reconcile net loss to net
cash used by operating
activities:
Amortization of discounts on (549) (549)
notes
Stock compensation 21,500 0
Depreciation and amortization 45,624 50,464
Changes in assets and
liabilities:
Accounts and notes receivable 333,948 (308,739)
Inventories (517,356) (182,878)
Accounts payable and accrued expenses 656,534 (87,465)
Taxes payable/refundable (4,554) (4,899)
Other assets and (200,798) 41,377
-------- --------
liabilities, net
Net cash used by operating (885,902) (1,311,476)
activities -------- ---------
Financing Activities:
Repayment of borrowings (42,238) (24,128)
Net transactions with Besicorp Group Inc. 0 1,452,317
-------- ---------
Net cash provided (used) by financing activities (42,238) 1,428,189
-------- ---------
Investing Activities:
Distribution from partnerships 2,009,905 0
Acquisition of property, plant
and equipment (11,315) 0
---------- ---------
Net cash provided by investing activities 1,998,590 0
---------- ---------
Increase in Cash and Cash Equivalents 1,070,450 116,713
Cash and Cash Equivalents - Beginning 1,824,139 104,428
--------- --------
Cash and Cash Equivalents - Ending $ 2,894,589 $ 221,141
========= ========
Supplemental Cash Flow Information:
Interest paid $ 287 $ 95,239
Income taxes paid 5,930 0
See accompanying notes to consolidated financial statements.
</TABLE>
5
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BESICORP LTD.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The accompanying unaudited financial statements have been prepared in
accordance with the generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the accompanying consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of Besicorp Ltd. (together with its
subsidiaries, the "Company") as of June 30, 1999, and March 31, 1999; the
results of operations for the three-month periods ended June 30, 1999 and 1998;
and the statement of cash flows for the corresponding three-month periods.
The balance sheet at March 31, 1999 has been derived from the audited financial
statements at that date, but does not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. For further information, refer to the audited consolidated financial
statements and footnotes thereto included in the Form 10-KSB filed by the
Company for the year ended March 31, 1999.
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.
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.
6
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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.
B. Business
--------
Besicorp Ltd. specializes in the development, assembly, manufacture, marketing
and resale of photovoltaic products and systems ("Product Segment") and the
development of power plant projects ("Project Segment").
Basic/Diluted Earnings per Common Share
- ---------------------------------------
Effective December 15, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. The
Statement required companies with a complex capital structure to report both
Basic Earnings per Share and Diluted Earnings per Share. Diluted Earnings per
Share considers the effect of potential common shares such as stock options and
warrants. Loss per common share for the three months ended June 30, 1999 is
based on the weighted average number of shares of 129,294 outstanding during
that period. Loss per common share for the three months ended June 30, 1998 is
computed based on 121,823 shares being issued as adjusted after the Distribution
and Spin-Off. Since there were no potential Common Shares as of June 30, 1999
and March 31, 1999, Basic and Diluted Earnings per Share are the same for both
fiscal years.
D. The results of operations for the three-month period ended June 30, 1999 is
not necessarily indicative of the results to be expected for any other interim
period or for the full year.
E. Inventories
-----------
Inventories are carried at the lower of cost (first-in, first-out method), or
market. Inventories at June 30, 1999 and March 31, 1999, consist of:
June 30, 1999 March 31, 1999
------------- --------------
Assembly parts $ 380,820 $ 263,761
Finished goods 1,302,297 902,000
--------- ---------
$1,683,117 $1,165,761
========= =========
F. Deferred Costs
--------------
Deferred costs and reimbursable costs at June 30, 1999 and March 31, 1999 were
as follows:
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
Internal Costs Third
Payroll Expenses Party Costs Total
------- -------- ----------- --------
Balance March 31, 1999 $0 $0 $0 $0
Additions 72,618 2,970 111,169 186,757
Expensed 0 0 0 0
Reimbursements 0 0 0 0
------ ----- ------- -------
Balance June 30, 1999 $72,618 $2,970 $111,169 $186,757
====== ====== ======= =======
</TABLE>
In accordance with its existing policy, the Company is deferring all costs, as
presented above, incurred with respect to the development of a recycled
newsprint manufacturing plant and adjacent 475 megawatt natural gas-fired
cogeneration power plant in Ulster County, New York (the "Kingston Project").
7
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G. Investments in Partnerships
---------------------------
Except for one partnership, which management anticipates will be liquidated
around October 1, 1999, all partnerships, which owned or leased five
cogeneration natural gas power plants, were liquidated during the three months
ended June 30, 1999, and the applicable liquidating distributions of
approximately $2,000,000 were received by the Company on June 1, 1999. The
investment in partnerships of $1,999,905 at June 30, 1999 primarily represents
(a) approximately a maximum of $550,000 which management expects will be
received by Besicorp Ltd. upon liquidation of the one unliquidated partnership
and which may be reduced by certain expenses incurred by the partnership and (b)
approximately $1.44 million (the "Liquidated Partnership Funds") held in cash
escrow accounts which were established in connection with three liquidated
partnerships. The Liquidated Partnership Funds, if any, are to be released, if
any, to Besicorp Ltd. between June 2000 and May 2002 subject to the satisfaction
of certain conditions, as to which no assurance can be given.
H. Revenue Recognition
-------------------
Revenues on sales of products are recognized at the time of shipment of goods.
Development and management fee revenue is recognized when deemed payable under
the applicable agreement.
I. Segments of Business
--------------------
The Company specializes in the development, assembly, manufacture, marketing and
resale of photovoltaic products and systems ("Product Segment") and the
development of power plant projects ("Project Segment"). Segments are reported
based on the subsidiary involved with the activity of that segment, with no
intersegment revenues and expenses. A summary of industry segment information
for the three months ended June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
Project Product
June 30, 1999 Segment Segment Eliminations Total
- ------------- ------- ------- ------------ -----
Net revenues $ 50,487 $ 2,158,914 $ 2,209,401
Loss before taxes 860,677 348,816 1,209,493
Income tax provision (credit) 9,217 1,741 10,758
Net income (loss) (869,694) (350,557) (1,220,251)
Identifiable assets 18,901,734 3,412,340 $(12,314,388) 9,999,686
Investment in partnerships 1,999,905 - 1,999,905
Capital expenditures 0 11,315 11,315
Depreciation and amortization 21,809 23,815 45,624
June 30, 1998
Net revenues $ 43,246 $ 1,100,888 $1,144,134
Loss before taxes 772,947 467,840 1,240,787
Income tax provision (credit) (423,867) 1,867 (422,000)
Net income (loss) (349,079) (469,708) (818,787)
Identifiable assets 16,662,928 2,613,350 $(13,509,386) 5,766,892
Investment in partnerships - - -
Capital expenditures 0 0 0
Depreciation and amortization 22,699 27,765 50,464
K. Legal Proceedings
See Part II, Item 1 which is incorporated by reference.
</TABLE>
8
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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The information set forth below is, except to the extent otherwise expressly
provided or as the content otherwise requires, current as of June 30, 1999. For
information regarding the Company's (as defined) activities subsequent to such
date (including without limitation, 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 the
Company), please see the Company's filings with the Securities and Exchange
Commission (the "Commission") subsequent to such date.
RESULTS OF OPERATIONS
- ---------------------
First Quarter Developments and Subsequent Events
On June 24, 1999, the Company announced that it had received from its Chairman
of the Board and Chief Executive Officer, 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
"Transaction").
The offer further 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. As currently structured, the Company would be the beneficiary of any
residual funds which remain in said escrow. Josephthal & Co., Inc. 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.
On July 15, 1999, the Company announced that Kellogg Brown & Root Inc. ("KBR")
of Houston, Texas has been chosen to provide engineering and construction
services to the Kingston Project. KBR will provide the preliminary design for
the facilities and will support the environmental permitting process now
underway. Also in connection with the Kingston Project, ENSR Corporation of
Acton, Massachusetts has been retained to assist the project principals in
applications for environmental permits and approvals required for plant
construction. For more details on the Kingston Project, see the Company's Annual
Report on Form 10-KSB for fiscal year ended March 31, 1999.
REVENUES
- --------
Consolidated
Consolidated revenues increased by $1,065,267, or 93%, to $2,209,401 during the
three months ended June 30, 1999 as compared to $1,144,134 during the three
months ended June 30, 1998.
Product Sales. Revenues from product sales during the three-month period ended
June 30, 1999 increased by $1,137,279, or 115%, to $2,125,072 as compared to
$987,793 for the three months ended June 30, 1998. The increase for the period
is due primarily to increased sales volume of photovoltaic products primarily as
a result of increases to the sales and marketing support staff made primarily
during the fourth quarter of Fiscal 1998 and to the general increase in demand
for solar electric products associated with Year 2000 expectations. No assurance
can be given that such revenue trend will continue.
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 derived from the Project and Product Segments decreased by $63,772, or
51%, for the three-month period ended June 30, 1999 to $60,929 from $124,701 for
the same period last year. Other revenues are primarily comprised of contract
revenue received from various sources, including the New York State Energy
Research and Development Authority and Motorola, Inc. in accordance with funding
agreements with the Company. Contract revenue may vary from quarter to quarter
based upon the degree of completion of the various tasks outlined in the
applicable agreements.
9
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Interest and Other Investment Income. Interest and other investment income
during the three months ended June 30, 1999 increased by $16,627, or 245%, to
$23,400 compared to $6,773 for the three months ended June 30, 1998. The
increase in the current period is due primarily to higher invested principal
balances.
10
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COSTS AND EXPENSES
- ------------------
Cost of Product Segment Sales
- -----------------------------
Cost of product sales for the three-month periods ended June 30, 1999 and 1998
was $1,850,827 and $947,831, respectively, or 87% and 96% of revenues
attributable to product sales. The decrease in cost of sales percentage is due
primarily to the overall increase in products sales which has resulted in
increased coverage of fixed costs resulting in higher margins. Improved
efficiencies in the manufacturing process also contributed to higher margins.
Selling, General and Administrative Expenses
- ---------------------------------------------
Selling, general and administrative expenses ("SG&A") increased by $225,456, or
17%, to $1,567,730 for the three-month period ended June 30, 1999 as compared to
$1,342,274 for the three-month period ended June 30, 1998.
The increase in the current period is due primarily to increased professional
fees of $125,814, increased marketing expenses of $45,241 in the Company's
Product Segment, and expenses of $39,322 associated with the Company's lease
agreement with Besicorp Group Inc.
Interest Expense
- ----------------
Interest expense for the three-month period ended June 30, 1999 decreased by
$94,096, or 100%, to $287 compared to $94,383 for the three-month period ended
June 30, 1998. The decrease in the current three-month period is due primarily
to the Company's repayment of all its interest bearing debt during the second
and third quarter of Fiscal 1999.
Provision (Credit) for Income Taxes
- -----------------------------------
The provision for income taxes increased during the three months ended June 30,
1999 by $432,758, or 103%, to $10,758 compared to the credit for income taxes of
$422,000 for the same period last year. The Company provides federal and state
income taxes based on enacted statutory rates adjusted for projected benefits of
tax operating loss carry forwards and other credits. The tax benefit associated
with the operating loss for the current period was offset by a corresponding
increase in valuation allowance.
Net Loss
- --------
The Company's net loss for the three months ended June 30, 1999 increased by
$401,464, or 49%, to $1,220,251 from the net loss of $818,787 for the three
months ended June 30, 1998. The factors contributing to the decrease in net loss
are discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital increased by $577,833 from $3,923,003 at March 31,
1999, to $4,500,836 at June 30, 1999 primarily as a result of increases in cash
and inventory partially offset by an increase in accounts payable and accrued
expenses.
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 $750,000 (the "Commitment") in
connection with the Kingston Project. Management currently anticipates that of
the sum to be expended in connection with the Kingston Project, $250,000 (the
"Initial Commitment"), will be expended within the next month and the balance
will be expended during the twelve months thereafter. Management has not
specifically identified the manner in which it will fund its material capital
commitments with respect to the Kingston Project, other than for the balance of
the Commitment which it is anticipated will be funded by the Parent Loans (as
defined). One possibility contemplated by management with respect to 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 (the "Financial Close") would come in the
form of advances of cash or services from, among other sources, vendors
interested in participation 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
11
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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.) Amounts paid through
July 31, 1999 to third parties in connection with the Kingston Project have
totaled approximately $149,000. The Company has cash of approximately $1.6
million (as of August 13, 1999). Other than cash generated by the Company's
photovoltaic activities, which is generally expended in these activities, and a
liquidating distribution of approximately $100,000 to $300,000, which may be
received from one partnership around 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 August 13, 1999),
the Company will have sufficient funds to continue operations for approximately
two to three months from August 13, 1999. After the expiration of the applicable
period, Besicorp Ltd. may, without additional funds or a significant reduction
of its operating expenses, not 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, the Company has
developed a salary deferment plan under which executive officers and certain key
employees have begun to defer portions of their salary ranging in amounts from
15% to 67%. The deferral arrangements are for a one-year term and are resulting
in a monthly cash savings of approximately $35,000 to $40,000. The Company is
also evaluating the Transaction (see "First Quarter Developments and Subsequent
Events"). As discussed previously, Besicorp Ltd. has retained a financial
advisor to render financial and other general advise, 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 attempted but not
developed any alternatives to its liquidity and capital reserve problems and no
assurance can be given that any alternatives will be identified.
During the quarter ended June 30, 1999, cash of $885,902 was used in operations
primarily as a result of the net loss for the period of $1,220,251, partially
offset by changes in other assets and liabilities which produced a positive cash
flow of $267,774 and non-cash items of $66,575.
The Company's investing activities provided cash of $1,998,590 during the
quarter primarily as a result of distribution from partnerships of $2,009,905,
partially offset by the acquisition of property, plant and equipment of $11,315.
The distributions received from partnerships during the quarter are
non-recurring in nature and primarily represent the Company's share of the
proceeds of the sale of certain pollution control emission allowances and
distributions made upon liquidation of certain partnerships.
During the current quarter, the Company's financing activities resulted in a
decrease in cash of $42,238, due to the repayment of borrowings.
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 $1.5 million would replace space currently
occupied under a cancelable lease.
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 A1998." 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.
12
<PAGE>
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 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.
13
<PAGE>
Short of any third party disaster that the Company is unable to control and for
which the Company cannot develop contingency plans, such as the failure of a
utility providing power or telecommunications, the Company does not believe its
business will be detrimentally impacted by potential Year 2000 problems. The
most reasonably likely worst case Year 2000 scenario would be minor delays in
production and distribution (and for a brief period higher costs) which could
reduce revenues and income, and perhaps a reduction in sales.
Through 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.
14
<PAGE>
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.5 Memorandum of Understanding by and between Empire State
Newsprint LLC and Besicorp Development, Inc.
27.1 Financial Data Schedule - 3 months ended June 30, 1998*
27.2 Financial Data Schedule - 3 months ended June 30, 1999*
* Incorporated by reference to the corresponding exhibits filed on August 6,
1999 with the Quarterly Report on Form 10-QSB for the period ended June 30,
1999.
b. Reports on Form 8-K
On July 14, 1999, the Company filed a report on Form 8-K/A to amend the
report on Form 8-K filed on March 22, 1999. The report contained the Combined
Financial Statements and Exhibits of the Distributed Businesses of Besicorp
Group Inc.
15
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Besicorp Ltd., Registrant
Date: January 25, 2000 /s/ Michael F. Zinn
---------------- -------------------
Michael F. Zinn
President
(principal executive officer)
Date: January 25, 2000 /s/ James E. Curtin
---------------- -------------------
James E. Curtin
Vice President and Controller
(principal accounting officer)
16
MEMORANDUM OF UNDERSTANDING
THIS MEMORANDUM OF UNDERSTANDING ("MOU") is made and entered into as of this 3
day of February, 1999 by and between Empire State Newsprint LLC ("ESN") and
Besicorp Development, Inc. ("Besicorp").
WHEREAS ESN intends to develop a newspaper recycling plant ("Paper Mill") in
Kingston, New York, and
WHEREAS Besicorp intends to develop a power plant (Power Plant) adjacent to the
Paper Mill, and
WHEREAS ESN has an option to purchase from Tilcom 750 acres of real property
("Real Property") in the City of Kingston and Town of Ulster.
NOW THEREFORE:
1. ESN and Besicorp agree to enter into a formal agreement ("Agreement") to
form a joint development partnership to mutually pursue both the Paper Mill
and Power Plant projects on a fully combined and integrated basis and to
jointly purchase and develop the Real Property (all together, the
"Project"). The Parties agree to offer the first right of refusal to joint
ventures as equal partners with any and all other projects so undertaken on
the Real Property.
2. ESN and Besicorp hereby commit to one another to diligently work to execute
the Agreement, which will incorporate the terms set forth in paragraphs
3 through 20.
3. The partnership will be on a 50/50 ownership in a to-be-formed special
purpose company (SPC), which will encompass both the paper and power
portions in a truly integrated and common company. Should facility design,
construction, financing or permitting circumstances preclude a successful
financial closing of a fully integrated facility, and the decision is
taken to proceed with only the paper mill, or only the power plant, the
ownership interest(s) of the facility being completed will be on an equal
ownership basis for both Parties.
4. The SPC in turn will consist of two companies (sub-SPCs), one for executing
the actual Paper Mill and one for the Power Plant.
5. ESN shall have primary responsibility for the sub-SPC for the Paper Mill
and Besicorp shall have the same for the Power Plant.
6. The profits and/or losses of each sub-SPC shall be rolled up into the SPC.
7.The SPC shall be jointly managed by ESN and Besicorp management under
a joint-venture management agreement to be established.
<PAGE>
8. The SPC will be responsible for all contracts, costs and related efforts for
all work related to the development of the Project including, but not
limited to, the permitting, EPC contracts, legal, owner's engineer and PR.
It is the intent that such 3rd party contracts will be negotiated to
maximize the amount of contractor's "at risk" and Adeferred@ expenses.
9. The SPC will execute the land purchase option and make all payments.
10. The SPC will be responsible to raise all debt and equity for the Project.
11. Besicorp shall commit $750,000 to the project. Besicorp agrees to make an
initial capital investment of $250,000 payable at the execution of the
Agreement and thereafter monthly or more often as conditions require
pursuant to draw requests submitted by the SPC. $100,000 of the initial
capital investment of $250,000 shall be directed to the SPC and the
remaining $150,000 shall be placed in an escrow account which shall be
irrevocably committed to the business of the SPC except in the event of
project termination, in which case residual funds shall be returned to
Besicorp. The $750,000 shall be used to fund all Project development
expenses and working capital requirements not covered by 3rd party
development capital and shall be paid to the SPC. The monthly draws may
include replenishment of working capital for the SPC to a level of $50,000.
Draws shall be made pursuant to a budget approved by the management of the
SPC or for other approved development expense categories of which shall be
defined in the Agreement.
In the event Besicorp fails to fund any draw submitted by the SPC, and such
failure to fund remains uncured for 30 days after written notice, Besicorp
shall forfeit its rights to participate in the SPC as an equal partner. In
that event all prior Besicorp funding and billed time shall be converted to
a development loan to be repaid out of the financial closing.
Besicorp reserves the right to terminate such funding with 30 days written
notice based on its sole and reasonable discretion in the event of a
material adverse change in the Project or it reaches a determination that
the Project can not be permitted or financed. If at financial close
Besicorp has contributed less than $750,000, there will be an adjustment
between ESN and Besicorp to equalize funding levels.
12. ESN represents that it has made a $750,000 out-of-pocket cash investment
in the newsprint project and shall provide documentation upon request.
13. ESN agrees that it will try to use the matching grant it obtained from the
Office of Recycling Market Development and that these funds, if possible,
will be made available to offset applicable Project development costs.
14. Besicorp and/or ESN may from time to time, as the parties shall agree,
decide to contribute additional (over and above that specified herein)
development capital to the SPC.
15. Besicorp and ESN shall enter into a temporary loan agreement in the form
attached hereto as Exhibit "A," and incorporated herein by this reference,
whereby Besicorp shall loan to ESN $22,500.00 to make an option payment to
extend ESN's option to purchase the Real Property. This loan shall be
superceded by the Agreement.
<PAGE>
16. The SPC may decide to delay or cancel either the paper project portion or
the power project portion of the Project if the economic circumstances
indicate that it is the proper thing to do.
17. Either party may at its sole discretion decide to withdraw from the joint
partnership if such party reasonably determines that the Project is not
economically viable. If the remaining party completes the Project, then
the withdrawing party may recover its development costs in accordance with
paragraph 19.
18. If the Paper Mill and/or the Power Plant, combined and /or independently,
successfully reach financial closure, the Parties hereby agree that ESN
and Besicorp shall retain the full and exclusive rights to the Sales and
Marketing of their respective portions of the facility for a period of
twenty-five years. Such rights shall be subject to the approval of project
lenders and subsequent equity investors. The arrangements shall be both
commercially reasonable and shall reflect bona fide requirements for the
projects to have such third-party services provided on a contract basis.
Rates charged to the SPC for such services shall be comparable to what an
arms length party would charge for similar services.
19. The parties shall structure the financing arrangements to maximize
development capital and internal cost reimbursement. Development funds
realized at financial closure shall be shared prorata between the parties
according to the total development cost incurred by each party, and then
in accordance with the ownership % of ESN and Besicorp. Besicorp and ESN
additionally commit such internal resources (key personnel, office space,
clerical support staff, photocopy and fax machines, etc.) as are
reasonably required for continued development of the Project. Such
internal resources shall be calculated in accordance with Besicorp's and
ESN's customary rates. Such internal expenses shall be mutually agreed to
be budgeted annually with reimbursement for such internal resources to be
made at financial closure.
20. ESN's deferred legal fees in the amount of approximately $400,000 will be
transferred to the SPC.
Signatories: For ESN /s/ James Hustin
------------
James Hustin
President
Date 2/16/99
For Besicorp /s/ Michael F. Zinn
--------------- Date 2/16/99
Michael F. Zinn
President
