<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
Commission file number 0-9964
BESICORP GROUP INC.
______________________________________________________________________________
(Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
New York 14-1588329
</TABLE>
______________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C>
(State or other jurisdiction of (Internal Revenue Service
incorporation or organization) Employer Identification No.)
</TABLE>
1151 Flatbush Road, Kingston, New York 12401
______________________________________________________________________________
(Address of principal executive office) (Zip Code)
Issuer's Telephone Number, including area code: (914) 336-7700
N/A
_____________________________________________________________________________
(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.
<PAGE>
Yes __X__ No____
<TABLE>
<CAPTION>
<S> <C>
Common stock outstanding as of November 11, 1997 2,956,720
Transitional Small Business Disclosure Format Yes______ No ___X___
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
September 30, 1997 March 31,1997
------------------ -------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,574,693 $ 210,533
Short-term investments 1,037,170 1,012,814
Trade accounts and notes receivable (less allowance for
doubtful accounts of $39,346) 408,876 604,263
Due from affiliates 163,331 1,338,802
Current portion of long-term trade notes receivable: Others
(includes interest of $17,291 and $11,201, respectively) 104,773 97,016
Inventories 1,062,093 1,180,265
Deferred income taxes 362,600 362,600
Other current assets 342,756 316,601
------------------- --------------
Total Current Assets 5,056,292 5,122,894
------------------- --------------
Property, Plant and Equipment:
Land and improvements 279,910 279,910
Buildings and improvements 1,902,665 1,890,065
Machinery and equipment 1,162,116 961,335
Furniture and fixtures 235,773 195,941
Construction in progress 8,079 8,079
------------------ -------------
3,588,543 3,335,330
Less accumulated depreciation and amortization 1,533,404 1,398,576
------------------ --------------
Net Property, Plant and Equipment 2,055,139 1,936,754
------------------- --------------
Other Assets:
Patents and trademarks, less accumulated amortization of
$658,702 and $651,526, respectively 41,892 47,184
Long-term notes receivable:
Affiliates 555,376 555,376
Others 2,149.156 2,168,246
Deferred costs 1,682,460 1,480,728
Deferred income taxes 369,700 369,700
Other assets 174,347 155,917
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Total Other Assets 4,972,931 4,777,151
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TOTAL ASSETS $ 12,084,362 $ 11,836,799
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------------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
September 30, 1997 March 31,1997
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LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 1,622,780 $ 1,745,142
Current portion of long-term debt 146,554 115,598
Current portion of accrued reserve and warranty expense 149,364 215,733
Taxes other than income taxes 100,201 101,786
Income taxes payable 680,966 366,786
------------------- ---------------
Total Current Liabilities 2,699,865 2,545,045
Investment in Partnerships 1,361,110 2,559,282
Long-Term Accrued Reserve and Warranty Expenses 158,337 165,950
Long-Term Debt 3,812,176 3,834,483
------------------- ---------------
Total Liabilities 8,031,488 9,104,760
------------------ ---------------
Shareholders' Equity:
Common stock, $.10 par value: authorized 5,000,000
shares; issued 3,234,954 shares 323,495 323,495
Additional paid-in capital 4,869,690 4,925,524
Retained earnings (deficit) 522,167 (810,645)
------------------ -------------
5,715,352 4,438,374
Less: treasury stock at cost (278,234 shares and 300,298
shares, respectively) (1,662,478) (1,706,335)
------------------ -------------
Total Shareholders' Equity 4,052,874 2,732,039
------------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,084,362 $ 11,836,799
------------------ -------------
------------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
-----------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Revenues:
Product sales $ 878,047 $ 1,061,183
Development and management fees 180,479 77,017
Other revenues 86,924 87,683
Income from partnerships 2,242,994 2,201,589
Interest and other investment income 48,330 36,159
Other income 0 240
-------------- --------------
Total Revenues 3,436,774 3,463,871
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Costs and Expenses:
Cost of product sales 877,685 1,023,826
Selling, general and administrative expenses 1,982,570 2,255,712
Interest expense 99,489 89,447
Other expense 10,506 0
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Total Costs and Expenses 2,970,250 3,368,985
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Income Before Income Taxes 466,524 94,886
Provision for Income Taxes 161,413 18,161
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Net Income $ 305,111 $ 76,725
-------------- --------------
-------------- --------------
Income per Common Share $ .10 $ .03
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------------- -------------
Weighted Average Number of Shares Outstanding (in
Thousands) 2,947 2,915
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------------- -------------
Dividends per Common Share $ NONE $ NONE
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Six months ended September 30,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Product sales $ 2,268,666 $ 2,429,425
Development and management fees 908,006 223,050
Other revenues 135,383 179,062
Income from partnerships 4,989,602 4,206,080
Interest and other investment income 94,914 67,840
Other income 0 5,772
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Total Revenues 8,396,571 7,111,229
------------ -------------
Costs and Expenses:
Cost of product sales 2,073,899 2,188,805
Selling, general and administrative expenses 4,084,795 4,123,770
Interest expense 196,515 179,859
Other expense 8,347 0
------------ ------------
Total Costs and Expenses 6,363,556 6,492,434
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Income Before Income Taxes 2,033,015 618,795
Provision for Income Taxes 700,203 138,161
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Net Income $ 1,332,812 $ 480,634
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------------- -------------
Income per Common Share $ .45 $ .16
------------ ------------
------------ ------------
Weighted Average Number of Shares Outstanding (in
Thousands) 2,941 2,915
------------ ------------
------------ ------------
Dividends per Common Share $ NONE $ NONE
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended September 30,
------------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Operating Activities:
Net income $ 1,332,812 $ 480,634
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of discounts on notes (1,098) (1,098)
Realized and unrealized losses 8,881 3,827
Depreciation and amortization 146,972 192,683
Partnership income recognized (4,989,602) (4,206,080)
Distributions from partnerships 3,791,430 3,977,988
Changes in assets and liabilities:
Short-term investments (20,549) (239,462)
Accounts and notes receivable 1,383,289 (67,983)
Inventory 118,172 107,259
Accounts payable and accrued expenses (122,361) 475,909
Taxes payable/refundable 312,595 (291,040)
Other assets and liabilities, net (322,183) (281,128)
------------- --------------
Net cash provided by operating activities 1,638,358 151,509
------------- --------------
Financing Activities:
Increase in borrowings 122,000 108,000
Repayment of borrowings (179,726) (61,417)
Purchase of common stock (140,077) (1,250)
Issuance of common stock 128,100 7,549
----------- -----------
Net cash provided (used) by financing activities (69,703) 52,882
----------- --------------
Investing Activities:
Capital contributions to partnerships 0 (2,500)
Acquisition of property, plant and equipment (204,495) (16,725)
------------- --------------
Net cash used by investing activities (204,495) (19,225)
------------- --------------
Increase in Cash and Cash Equivalents 1,364,160 185,166
Cash and Cash Equivalents - Beginning 210,533 90,579
----------- -----------
Cash and Cash Equivalents - Ending $ 1,574,693 $ 275,745
----------- -----------
----------- -----------
Supplemental Cash Flow Information:
Interest paid $ 188,871 $ 257,844
Income taxes paid 386,023 420,421
Additions to property, plant, and equipment which
were financed and not included above $ 66,375 $ 0
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
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 Group Inc. (together with its
subsidiaries, the "Company") as of September 30, 1997, and March 31, 1997; the
results of operations for the three- and six-month periods ended September 30,
1997 and 1996; and the statement of cash flows for the corresponding six-month
periods. Certain items in the Fiscal 1997 financial statements have been
restated to conform with the Fiscal 1998 presentation.
The balance sheet at March 31, 1997 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 financial statements
and footnotes thereto included in the Form 10-KSB filed by the Company for the
year ended March 31, 1997.
B. Business
The Company specializes in the development of power projects and energy
technologies. Working with partners, the Company develops independent power
projects. The Company also provides engineering, system design, project
management and turnkey installation of photovoltaics and thermal energy systems,
and fabricates, manufactures, markets and distributes alternative energy
projects through a domestic and international network.
C. The results of operations for the three- and six-month periods ended
September 30, 1997 are not necessarily indicative of the results to be expected
for any other interim period or for the full year.
D. Inventories
Inventories are carried at the lower of cost (first-in, first-out method), or
market. Inventories at September 30, 1997 and March 31, 1997, consist of:
<TABLE>
<CAPTION>
September 30, March 31, 1997
1997
<S> <C> <C>
Assembly parts $ 379,982 $ 479,689
Finished goods 682,111 700,576
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$ 1,062,093 $ 1,180,265
-------------- ---------------
-------------- ---------------
</TABLE>
E. Deferred Costs
<PAGE>
Deferred costs and reimbursable costs at September 30,1997 and March 31, 1997
were as follows:
<TABLE>
<CAPTION>
Internal Costs Third
Payroll Expenses Party Costs Total
<S> <C> <C> <C> <C>
Balance March 31, 1997 $ 917,671 $ 267,947 $ 295,110 $1,480,728
Additions 147,676 20,687 77,339 245,702
Expensed 0 0 0 0
Reimbursements (41,500) 0 (2,470) (43,970)
--------- -------- ----------- ---------
Balance June 30, 1997 $1,023,847 $ 288,634 $ 369,979 $1,682,460
------------ ----------- -------------- ------------
------------ ----------- -------------- ------------
</TABLE>
F. Investments in Partnerships
The Company has partnership interests in six completed gas-fired cogeneration
plants located in New York State. At September 30, 1997 and March 31, 1997, the
balance of recorded investments was comprised of the following:
<TABLE>
<CAPTION>
September 30, March 31, 1997
1997
<S> <C> <C>
Capital contributions and investments $ 2,976,813 $ 2,976,813
Partnership distributions (24,409,206) (20,617,776)
Recognized share of income (losses) 20,071,283 15,081,681
-------------- --------------
$ (1,361,110) $ (2,559,282)
-------------- --------------
-------------- --------------
</TABLE>
The aggregate financial position and results of operations for the partnerships
as reported in the financial statements issued by the respective partnerships as
at June 30, 1997 (unaudited) and December 31, 1996 (audited) and for the six
months and year then ended were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
<S> <C> <C>
Total Partnerships:
Assets $ 527,174,612 $ 535,270,470
Plant and equipment 395,299,324 400,616,762
Secured debt 522,634,389 516,799,694
Partners' deficit (19,785,568) (22,332,572)
Revenues 73,164,750 150,595,750
Income 10,463,342 15,701,763
Company's Share:
Partners' deficit (8,554,368) (9,789,803)
Income 5,168,503 8,393,340
</TABLE>
The operating assets of the partnerships in which the Company has investments
secure the projects' debt, and the expected significant losses incurred by the
partnerships in the early years of operation are funded by that debt.
Consequently, the Company, having no obligation to fund the losses or pay the
partnerships' debt, does not generally record the losses in the financial
statements. The income from partnerships, which has been recorded on the
financial statements during the six months ended September 30, 1997 in the
amount of $4,989,602, has been recognized on partnerships where income has
exceeded prior unrecognized accumulated losses. No income was
<PAGE>
reported on one partnership where current income of $175,513 did not exceed
prior unrecognized accumulated losses.
In addition, one of the partnerships, as a result of the denial of a motion for
a preliminary injunction and as a result of the construction lender exercising
certain rights under a pledge agreement, filed a voluntary petition to
reorganize under Chapter 11 of the Bankruptcy Code and is seeking enforcement of
the power purchase agreement ("PPA"). As a result, amounts pertaining to this
partnership are excluded from the partnerships' financial position and results
of operations presented above.
On August 1, 1996 Niagara Mohawk Power Corporation ("NIMO") offered to terminate
44 of its PPA's with 19 independent power producers ("IPP's"), including five
contracts held by the Company's partnerships. NIMO is the principal purchaser of
power produced by the Company's five operating projects. On March 10, 1997 an
agreement in principle was announced whereby NIMO would restructure or terminate
the 44 PPA's. On July 10, 1997 it was announced that a master restructuring
agreement ("MRA") was entered into between NIMO and 16 IPP's holding 29 PPA's,
including the Company's five PPA's, formalizing the agreement in principle with
respect to those parties. The IPP's will receive combinations of cash and common
stock. Certain IPP's also will enter into restructured contracts. On September
25, 1997 NIMO announced that it had reached an agreement in principle with the
staff of the New York Department of Public Service on a rate and restructuring
plan (including recommended approval of the MRA) which will be documented, filed
publicly, and be subject to a review process prior to being voted on by the
Commission. Any restructuring, pursuant to this agreement, remains subject to
the approval of third parties for both the Partnerships and NIMO, and there can
be no assurance as to the consummation of the MRA or to the ultimate impact such
consummation, if any, will have on the Company's operations.
G. 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 agreement.
H. Legal Proceedings
See Part ll, Item 1 which is incorporated by reference.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net income for the three months ended September 30, 1997 increased
by $228,386, or 298%, to $305,111 from the net income of $76,725 recorded for
the three months ended September 30, 1996. Net income for the six months ended
September 30, 1997 of $1,332,812 represents an increase of $852,178, or 177%,
from the net income of $480,634 for the six months ended September 30, 1996. The
factors which contributed to these changes in net income are discussed below.
Second Quarter Developments and Subsequent Events
<PAGE>
On October 22, 1997, the Company and its Chairman, Chief Executive Officer, and
President, Michael F. Zinn, were sentenced in the United States District Court,
Southern District, White Plains, New York in connection with the
previously-disclosed guilty pleas entered for offenses relating to illegal
contributions to the 1992 election campaign of Congressman Maurice Hinchey. The
Company was fined $36,000, and Mr. Zinn was fined $36,673 and sentenced to a
six-month term of incarceration (commencing November 12, 1997), and a two- year
term of supervised release thereafter. Effective November 11, 1997, Mr. Zinn
tendered his resignation as Chairman of the Board, Director, Chief Executive
Officer and President of the Company.
Effective with Mr. Zinn's resignation, Michael J. Daley, who had served as Vice
President, Chief Financial Officer and Corporate Secretary of the Company was
appointed Chief Executive Officer and President of the Company and will continue
to serve as Chief Financial Officer of the Company. In addition, on November 7,
1997, Mr. Daley was appointed Director, replacing Harold Harris, who resigned
from the Board due to declining health.
In related actions effective November 11, 1997, Steven G. Nachimson, who had
served as Corporate Counsel and Assistant Corporate Secretary, became General
Counsel and Corporate Secretary of the Company; James E. Curtin, who had served
as Corporate Controller of the Company, became a Vice President of the Company
in addition to serving as Controller; and Joseph P. Novarro, who had served as
Vice President, Project Development, was appointed an Executive Officer of the
Company and will retain the same title.
While the $36,000 fine assessed by the Court against the Company will not have a
material impact on the Company's operations, the Company is uncertain as to what
effect or consequences the sentencings or the management transitions will have
on its current or future business activities.
On August 1, 1996 NIMO offered to terminate 44 of its PPA's with 19 IPP's,
including five contracts held by the Company's partnerships. NIMO is the
principal purchaser of power produced by the Company's five operating projects.
On March 10, 1997 an agreement in principle was announced whereby NIMO would
restructure or terminate the 44 PPA's. On July 10, 1997 it was announced that
an MRA was entered into between NIMO and 16 IPP's holding 29 PPA's, including
the Company's five PPA's, formalizing the agreement in principle with respect to
those parties. The IPP's will receive combinations of cash and common stock.
Certain IPP's also will enter into restructured contracts. On September 25, 1997
NIMO announced that it had reached an agreement in principle with the staff of
the New York Department of Public Service on a rate and restructuring plan
(including recommended approval of the MRA) which will be documented, filed
publicly, and be subject to a review process prior to being voted on by the
Commission. Any restructuring, pursuant to this agreement, remains subject to
the approval of third parties for both the Partnerships and NIMO, and there can
be no assurance as to the consummation of the MRA or to the ultimate impact such
consummation, if any, will have on the Company's operations.
At the Company's Annual Meeting of Shareholders held September 23, 1997, it was
announced that the Company and Kamine Development Corp. have engaged
PaineWebber, Incorporated to solicit participants for a potential business
combination involving its independent power projects which supply
<PAGE>
electricity to NIMO. It is not known whether a successful business combination
will be completed, nor can the form or financial value of a potential business
combination be determined at this time.
REVENUES
Consolidated
Consolidated revenues decreased by $27,097, or 1%, to $3,436,774 during the
three months ended September 30, 1997 as compared to $3,463,871 during the three
months ended September 30, 1996. Consolidated revenues for the six months ended
September 30, 1997 increased by $1,285,342 from $7,111,229 to $8,396,571, an
increase of 18%, compared to the same period in the prior year.
Project Segment
Development and Management Fees. Revenues attributable to Development and
Management Fees for the Company's independent power projects ("Project Segment")
during the three months ended September 30, 1997 increased by $103,462 to
$180,479 as compared to $77,017 for the three months ended September 30, 1996.
The Company received no development fees or reimbursements in excess of deferred
costs during the quarters ended September 30, 1997 and 1996.
Revenues attributable to Development and Management Fees during the six months
ended September 30, 1997 increased by $684,956 to $908,006 as compared to
$223,050 for the six months ended September 30, 1996. The increase during the
six months ended September 30, 1997 is due primarily to development fees of
$600,000 received from the Beaver Falls project in connection with conversion of
the construction financing to term financing. The Company also earned $308,006
in management fees during the six months ended September 30, 1997 in connection
with its projects compared to $223,050 during the six months ended September 30,
1996. The Company received no reimbursements in excess of deferred costs during
the six months ended September 30, 1997 and September 30, 1996.
Income from Partnerships. During the three-month period ended September 30,
1997, the Company recognized $2,242,994 of income from partnerships, an increase
of $41,405 compared to $2,201,589 recognized for the three months ended
September 30, 1996.
During the six-month period ended September 30, 1997, the company recognized
$4,989,602 of income from partnerships, an increase of $783,522 compared to
$4,206,080 for the six months ended September 30, 1996. The increase during the
current six-month period is primarily due to income of $1,765,039 recorded on
the Beaver Falls project, an increase of $659,030 as compared to income of
$1,106,009 recorded on that project for the six months ended September 30, 1996.
While it is anticipated that certain partnerships will continue to generate
income over the balance of the year, the Company can not reliably estimate the
future operations of the cogeneration partnerships to determine the Company's
share of future earnings. Results for the current quarter are not necessarily
indicative of results for other quarters or for the fiscal year.
Product Segment
Revenues for the Company's energy technology products (the "Product
<PAGE>
Segment") sales activities during the three-month period ended September 30,
1997 decreased by $183,136 to $878,047 as compared to $1,061,183 for the three
months ended September 30, 1996. The decrease for the period is due primarily to
lower sales of heat transfer products of $146,560 and solar thermal products of
$56,217. The reduction in sales of heat transfer
products is due primarily to the Company's decision to discontinue the non-
agricultural portion of this product line in the third quarter of Fiscal 1997.
The reduction in sales of solar thermal products is the result of competitive
pricing activity and several new competing product entries in the pool heating
market.
During the six-month period ended September 30,1997, revenues decreased by
$160,759 to $2,268,666 as compared to $2,429,425 for the six months ended
September 30, 1996. The decrease is due to lower sales of solar thermal products
of $293,959 and heat transfer products of $206,101, due primarily to the factors
discussed above. These decreases were partially offset by increased sales of
solar electric products of $309,939. The increase in sales of solar electric
products is due primarily to increased distribution sales as a result of the
expansion of the Company's marketing staff and increased spending for
advertising and promotional programs.
Other Revenues
Other revenues derived from the Project and Product Segments decreased by $759
and S43,679 for the respective three- and six-month periods ended September 30,
1997 versus the same periods last year. The decrease in the current year is due
primarily to decreased revenue received from the New York State Energy Research
and Development Authority ("NYSERDA") in accordance with funding agreements with
the Company. Revenues received from NYSERDA may vary from quarter to quarter
based upon the degree of completion of the varied tasks outlined in these
agreements.
Interest and Other Investment Income
Interest and other investment income during the three months ended September 30,
1997 increased by $12,171 to $48,330 compared to $36,159 for the three months
ended September 30, 1996. During the six months ended September 30, 1997,
interest and other investment income increased by $27,074 to $94,914 compared to
$67,840 for the six months ended September 30, 1996. The increase in both
current periods is due primarily to higher invested principal balances during
those periods.
COSTS AND EXPENSES
Cost of Product Segment Sales
Cost of product sales for the three-month periods ended September 30, 1997 and
1996 was $877,685 and $1,023,826, respectively, or 99% and 96% of revenues
attributable to product sales. During the six-month periods ended September 30,
1997 and 1996, cost of product sales were $2,073,899 and $2,188,805,
respectively, or 91% and 90% of product sales. The increase in the cost of sales
percentage for both periods is due to the product sales mix. Solar electric
products, which generate a significantly lower margin than the Company's other
product lines, comprised a higher percentage of the sales of the total Segment
compared to the corresponding periods of the prior year.
Costs of Project Segment Development and Management Fees
<PAGE>
Other than the settlement of deferred costs in conjunction with potential
project closings, there are no current specific costs and expenses identified
with development and management fee revenue. Costs and expenses associated with
this segment are the normal selling, general and administrative expenses of the
Company.
Selling, General and Administrative Expenses
Consolidated. Selling, general and administrative expenses ("SG&A") decreased by
$273,142, or 12%, to $1,982,570 for the three-month period ended September 30,
1997 as compared to $2,255,712 for the three- month period ended September 30,
1996. During the six-month period ended September 30, 1997, SG&A decreased by
$38,975, or 1%, to $4,084,795, as compared to $4,123,770 for the six-month
period ended September 30, 1996. As discussed below, decreases in SG&A in the
Project Segment were partially offset by increases in the Product Segment SG&A
for both periods.
Project Segment. For the Project Segment, SG&A for the three-month periods ended
September 30, 1997 and September 30, 1996 was $1,267,993 and $1,590,114,
respectively, representing 64% and 70% of the consolidated totals. The decrease
in the quarter ended September 30, 1997 was due primarily to lower compensation
expense of $424,032, resulting primarily from a change in accounting estimate
made to record certain compensation expense in the period incurred. This change
was adopted during the quarter ended September 1996, resulting in higher
compensation expense during that quarter. This was partially offset by payments
totaling $100,000 made to the Company's project partner for development expenses
in connection with the Syracuse and Beaver Falls projects.
During the six-month periods ended September 30, 1997 and 1996, SG&A was
$2,687,471 and $2,953,449, respectively, representing 66% and 72% of
consolidated totals. The decrease during the six months ended September 30, 1997
is due primarily to decreased compensation expense of $206,066, primarily the
result of the change in accounting estimate discussed above, and to a decrease
in legal fees and other expenses related to the Federal criminal proceeding, as
described in Part l, Item 3. Legal Proceedings of the Company's Annual Report on
Form 10-KSB for the year ended March 31, 1997.
Product Segment. SG&A expenses for the Company's Product Segment for the
three-month periods ended September 30, 1997 and 1996 were $714,577 and
$665,598, respectively, representing 36% and 30% of the consolidated totals.
During the six months ended September 30, 1997 and 1996, the Company's Product
Segment SG&A expenses were $1,397,324 and $1,170,321, respectively, representing
34% and 28% of the consolidated totals. This increase in both the current three-
and six-month periods is due primarily to the addition of several management
positions, as well as increases in the sales and marketing support staff of the
Company's solar electric business. Increased advertising and promotional
spending during both current periods also contributed to higher SG&A expenses.
These increases were partially offset by decreases in solar electric research
and development expenses and solar thermal warranty expenses.
Interest Expense
Interest expense for the three-month period ended September 30, 1997 increased
by $10,042 to $99,489 compared to $89,447 for the three month period ended
<PAGE>
September 30, 1996. Interest expense for the six- month period ended September
30, 1997 increased by $16,656 to $196,515 compared to $179,859 for the six
months ended September 30,1996. The increase in both the three- and six- month
periods is due primarily to higher interest payments associated with increased
borrowing under the Stewart and Stevenson, Inc. ("S&S") loan.
Provision for Income Taxes
The provision for income taxes increased during the three months ended September
30, 1997 by $143,252 to $161,413 compared to $18,161 for the same period last
year. During the six-month period ended September 30, 1997, the provision for
income taxes increased by $562,042 from $138,161 to $700,203 compared to 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
carryforwards and other credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased by $221,422 from $2,577,849 at March 31,
1997, to $2,356,427 at September 30, 1997.
During the six months ended September 30, 1997, cash of $1,638,358 was provided
from operations, primarily the result of the net income for the period of
$1,332,812, distributions received from partnerships of $3,791,430 and the net
change in other assets and liabilities of $1,348,963, reflecting the receipt of
a development fee of $1,250,000 from one project (which was recorded as an
account receivable at March 31, 1997), partially offset by Federal income tax
deposits of $375,000. These net increases in cash were partially offset by
adjustments for non-cash items, primarily comprised of partnership income of
$4,989,602.
During the current six-month period, the Company's financing activities resulted
in a decrease in cash of $69,703 due to a net repayment of borrowings and to
purchase of the Company's common stock associated with the repurchase of option
shares.
Investing activities during the current six-month period resulted in a decrease
in cash of $204,495 due to the acquisition of property, plant and equipment.
Financing for construction of the development projects is generally provided by
loans to the particular partnerships which are secured by the project assets
only. Except for the financing provided to the Allegany project, the Company
generally does not incur significant capital costs associated with construction
of these projects. The Company provided financing to the Allegany project in
Fiscal 1993 and 1994 utilizing $2,500,000 of its $3,000,000 line of credit under
the S&S loan agreement. On February 20, 1997 the Company borrowed the remaining
$500,000 available under the agreement.
The Company is currently seeking financing for the construction of a 20,000 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 more than $1,000,000, would replace space currently
occupied under a cancelable lease. The Company has no other significant capital
commitments for Fiscal 1998.
<PAGE>
The Company expects that capital requirements for its operations, for repayment
of long-term debt and for project development costs will be met by its current
cash and short-term investment position as well as by anticipated cash flows
from ownership distributions from operations of the projects and the anticipated
cash flows from projects currently under development, and by future borrowings
against project interests and other corporate financings, as available. However,
as a result of the uncertainty created by the status of the NIMO contracts and
the sentencing in connection with the guilty pleas entered for offenses related
to the illegal political contributions as disclosed elsewhere herein, there can
be no assurance that cash flows from future operations of the Company or its
ability to borrow in amounts and on terms acceptable to it will not be adversely
affected.
PART II- OTHER INFORMATION
Item 1. - LEGAL PROCEEDINGS
Reference is made to Part I, Item 3. Legal Proceedings of the Company's Annual
Report on Form 10-KSB for the year ended March 31, 1997, which is incorporated
in its entirety except in regard to the litigations discussed below, which are
restated, as appropriate, either in their entirety or relevant portions thereof,
except as amended to reflect recent developments.
On or about May 2, 1996 certain officers, directors, employees, former employees
of the Company, and certain spouses and affiliates thereof, were served
subpoenas by the U. S. Attorney's office for the production of documents and/or
potential testimony before a United States Grand Jury in White Plains, New York.
The Company complied with the document request contained in the subpoena. On May
15, 1997 the United States District Court, Southern District, New York, returned
an indictment against the Company and its Chairman, Chief Executive Officer and
President, Michael F. Zinn. charging each with five counts of conspiring to
violate the Federal campaign finance laws and making false statements in
connection with the 1992 Congressional campaign of Maurice D. Hinchey.
On June 19, 1997 the Company and Mr. Zinn each entered guilty pleas to two
felony counts in United States District Court for the Southern District of New
York, White Plains, New York. The Company entered a guilty plea to one count of
causing a false statement to be made to the Federal Election Commission ("FEC")
and one count of filing a false tax return, both in connection with
contributions to the 1992 election campaign of Congressman Maurice Hinchey. Mr.
Zinn similarly entered a guilty plea to one count of causing a false statement
to be made to the FEC and one count of causing the filing of a false tax return
in connection with contributions to the 1992 election campaign of Congressman
Maurice Hinchey.
On October 22, 1997 the Company and Mr. Zinn were sentenced by the Court in
connection with the guilty pleas entered. The Company was fined $36,000. Mr.
Zinn was fined $36,673 and sentenced to a six-month term of incarceration
(commencing November 12, 1997), and a two-year term of supervised release
thereafter. Effective as of November 11, 1997, Mr. Zinn tendered his resignation
as Chairman of the Board, Director, Chief Executive Officer and President of the
Company.
Effective with Mr. Zinn's resignation, Michael J. Daley, who had served as Vice
President, Chief Financial Officer and Corporate Secretary of the Company
<PAGE>
was appointed Chief Executive Officer and President of the Company and will
continue to serve as Chief Financial Officer of the Company. In addition, on
November 7, 1997, Mr. Daley was appointed Director, replacing Harold Harris, who
resigned from the Board due to declining health.
In related actions effective November 11, 1997, Steven G. Nachimson, who had
served as Corporate Counsel and Assistant Corporate Secretary, became General
Counsel and Corporate Secretary of the Company; James E. Curtin, who had served
as Corporate Controller of the Company, became a Vice President of the Company
in addition to serving a Controller; and Joseph P. Novarro, who had served as
Vice President, Project Development, was appointed an Executive Officer of the
Company and will retain the same title.
While the $36,000 fine assessed by the Court against the Company will not have a
material impact on the Company's operations, the Company is uncertain as to what
effect or consequences the sentencings or the management transitions will have
on its current or future business activities.
***
On August 8, 1997 John Bansbach commenced a shareholder derivative action in the
New York Supreme Court, Ulster County, entitled John Bansbach v. Michael Zinn,
et al., Index No. 97-8075. The Company is named as a nominal defendant in this
matter, which also names Michael F. Zinn, an officer and Director of the Company
at the time the action was filed, Michael J. Daley, an officer of the Company,
and Gerald A. Habib, Harold Harris, and Richard E. Rosen, all Directors of the
Company (collectively, the named officers and Directors"). The suit arises in
connection with the criminal investigation, indictments and guilty pleas
described above. The plaintiff seeks to hold the named officers and Directors
liable to the Company for all sums advanced to Mr. Zinn in connection with his
defense of the criminal proceedings, and to Mr. Daley, who was subpoenaed for
information in connection with this matter, for all legal expenses, costs and
fines incurred by the Company itself in connection with the criminal
proceedings, and for all harm to the Company's reputation and goodwill resulting
from the criminal proceedings. On September 29, 1997 the Company and the named
officers and Directors moved to dismiss the action. The Company believes that
meritorious defenses have been asserted and will vigorously litigate the matter.
***
The Allegany Cogeneration Facility was completed in December 1994. The Company
holds a 50% equity interest in the project through the project partnership,
Kamine/Besicorp Allegany L.P. ("KBA"). Under the terms of the project's power
purchase agreement (the "Agreement"), power was to be supplied to Rochester Gas
and Electric ("RG&E"). On September 7,1994, RG&E filed an action in the supreme
court of the State of New York, County of Monroe, against KBA, Kamine Allegany
Cogen Co., Inc., Beta Allegany Inc., Kamine Development Corp. and Allegany
Cogeneration Inc. The complaint, as amended, asks for a declaratory judgment
rescinding or reforming the Agreement on the grounds of mutual mistake,
impossibility, frustration, commercial impracticability and anticipatory breach
and also asserts claims for breach of contract and material misrepresentations
concerning the size of the plant. On January 3, 1995, KBA served its amended
answer and counterclaimed for breach of contract.
<PAGE>
On January 20, 1995, the defendants filed a motion for summary judgment seeking
the dismissal of RG&E's complaint. On March 16, 1995, the Court denied
defendants' motion, and KBA appealed the denial. By order dated May 30, 1997,
the Appellate Division affirmed the lower Court's decision. RG&E thereafter
filed a motion to amend its complaint, which motion was subsequently stipulated
to by KBA. On June 26, 1997, KBA removed the action to the United States
District Court for the Western District of New York based on RG&E's adding of a
federal claim. KBA's time in which to respond to the amended complaint has not
yet expired. Management of the Company believes RG&E's actions have no basis,
and KBA intends to vigorously defend this matter.
***
On November 21, 1995, RG&E filed a motion with the Bankruptcy Court asking that
the Court abstain from hearing the state law claims raised in the adversary
proceedings and permit the parties to litigate those claims in the pending New
York Supreme Court action. KBA opposed RG&E's motion, and the Bankruptcy court
denied RG&E's request. On appeal, however, the District Court reversed and
remanded to the Bankruptcy Court for further consideration. On remand, the
Bankruptcy Court ruled on March 19, 1997, that the state law claims raised in
the adversary proceeding should be litigated in the pending New York State Court
action. The Bankruptcy Court also lifted the automatic stay so that the State
Court action could proceed. In May 1996, RG&E filed an $8 million proof of claim
in the bankruptcy case seeking to recoup certain moneys it had paid while the
temporary restraining order granted in the Western District action was in
effect. Management believes KBA has meritorious claims against RG&E and
maintains meritorious defenses against the claims asserted by RG&E. KBA intends
to vigorously litigate these matters. As of September 29, 1997, the Bankruptcy
Court has approved up to $32.9 million in debtor-in-possession interim
financing, which is to be extended by General Electric Capital Corporation
("GECC"), at its discretion, through December 31, 1997.
***
On December 2, 1994, Ammerlaan Agro-Projecten B.V. ("Ammerlaan"), the contractor
hired by Allegany Greenhouse Inc. ("AGI") to construct the greenhouse, filed a
mechanics lien in the amount of $4,352.976 against the real property on which
the greenhouse is located. On January 17, 1995, Ammerlaan initiated an action in
the Supreme Court of the State of New York, County of Allegany, against KBA,
AGI, Kamine Development Corp., the Company, Industrial Development Agency of
Allegany County, GECC, Pooler Enterprises Inc., and Fillmore Gas Company, Inc.
to foreclose on its mechanics lien and to recover certain money allegedly owed
it. On September 25, 1995, KBA filed counterclaims against Ammerlaan, alleging
that Ammerlaan failed to design and construct the greenhouse in accordance with
the contract specifications and applicable building codes. On November 3, 1995,
Ammerlaan filed a motion for preliminary injunction seeking to enjoin KBA,
Kamine Development Corp., AGl's new management, and the Company from engaging in
construction activities at the greenhouse site without Ammerlaan's consent. On
November 3, 1995, the Court granted a temporary restraining order prohibiting
the foregoing parties from engaging in such activities pending the hearing on
the preliminary injunction. The hearing on the preliminary injunction, however,
<PAGE>
was subsequently stayed as a result of KBA's bankruptcy filing. The Bankruptcy
Court subsequently granted KBA permission to undertake repairs to the greenhouse
over Ammerlaan's objections, and authorized the expenditure of $650,000 for that
purpose. On April 9, 1997, Ammerlaan filed a motion with the Bankruptcy Court
asking that the automatic stay be lifted with respect to the Allegany County
action. KBA opposed Ammerlaan's motion, which was heard by the Bankruptcy Court
on May 29, l997. On September 3, 1997, the Bankruptcy Court denied Ammerlaan's
motion. In declining to lift the stay, however, the Bankruptcy Court expressly
noted that Ammerlaan was free to pursue its claims for damages against the
non-debtor defendants in the Allegany County action. On September l0, 1997,
Ammerlaan filed a motion with the Allegany County state court seeking to sever
its claims against the non-debtor defendants, including the Company. Ammerlaan's
motion is presently scheduled to be heard on December 16, 1997. Management
believes that KBA has meritorious claims against Ammerlaan and meritorious
defenses to Ammerlaan's claims.
***
In April 1990 the Company commenced an action in United States District court,
Northern District of New York, against Tecogen, Inc. ("Tecogen") and its parent
company Thermo Electron Corporation, styled Besicorp Group Inc. et al. v.
Tecogen Incorporated, et al. for breach of contract and breach of warranty in
connection with the Company's purchase of a cogeneration system installed in St.
Francis Hospital by Tecogen on a "turnkey" basis. The Company sought
compensatory damages. Tecogen counterclaimed for the unpaid purchase price and
extras in the amount of approximately $187,000 plus interest. In October 1992
St. Francis Hospital shut down the operation of the cogeneration system. In
April 1993 the court excluded consequential and incidental damages and limited
the Company's recoverable damages. The case was tried without jury in March 1995
in the United States District Court in Syracuse, New York. At the conclusion of
trial the Company sought actual damages in excess of $1,000,000. In July 1993
the Company commenced a separate action in United States District Court,
District of New Jersey, against Tecogen, a licensed engineer who was an employee
of Tecogen, and Cortese Corporation for negligence indemnification, and
professional malpractice. The New Jersey suit has been stayed pending the
decision in the New York Court.
On October 10, 1997 the United States District Court for the Northern District
of New York ruled on the March 1995 trial and held that Tecogen was liable to
the Company in the amount of $30,000 for certain breaches of warranty regarding
the cogeneration system purchased by the Company for Tecogen in 1988 and that
the Company was liable for payment of the last installment on the purchase price
of $156,750. Certain other lesser issues were resolved, both for and against the
Company, but not involving damages. The Company is moving to set aside the money
judgment against it. As a result of this decision in the New York action, the
related action in New Jersey Federal Court is no longer stayed, and the Company
will proceed with this matter.
Other than as disclosed above, there have been no material changes in the legal
proceedings to which the Company is a party as identified in Form 10-KSB for the
year ended March 31, 1997 and the Form 10-QSB for the quarter ended June 30,
1997.
<PAGE>
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 23, 1997 the Company held an Annual Meeting of Shareholders in
Kingston, New York. The shareholders voted on two matters.
The following votes were cast for the nominees for election of directors, and
all such nominees were elected.
<TABLE>
<CAPTION>
Michael F. Zinn 2,118,530 votes for 409,699 votes withheld
<S> <C> <C>
Gerald A. Habib 2,119,575 votes for 408,654 votes withheld
Harold Harris 2,121,585 votes for 406,644 votes withheld
Richard E. Rosen 2,121,555 votes for 406,674 votes withheld
</TABLE>
Shares not voted by brokers for this item were 0.
The votes cast on the ratification of the selection of Citrin Cooperman &
Company, LLP, as independent public accountants for the Company for the Fiscal
Year ending March 31, 1998 was as follows:
2,128,407 shares voted for the ratification and appointment
387,272 shares voted against the ratification and appointment
12,550 shares abstained from voting
Shares not voted by brokers for this item were 0.
The two matters voted upon were passed.
Item 5. - OTHER INFORMATION INSTEAD OF FORM 8-K
On November 10, 1997 the Company announced that Harold Harris, a member of the
Company's Board of Directors, resigned from the Board due to declining health.
The remaining members of the Board elected Michael J. Daley to the Board to
complete the remainder of Mr. Harris' term of office, which runs until the next
annual meeting of shareholders. Mr. Harris' resignation from, and Mr. Daley's
appointment to, the Board were effective as of November 7,1997. As indicated
elsewhere herein, the Board named Mr. Daley President, Chief Executive Officer,
and Chief Financial Officer of the Company effective November 11, 1997,
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a.) Exhibits
Exhibit 27 Financial Data Schedule
<S> <C> <C>
(b.) Reports on Form 8-K
Besicorp Group Inc. did not file any reports on Form 8-K for the quarter
ended September 30, 1997.
</TABLE>
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
<PAGE>
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
Besicorp Group Inc., Registrant
<S> <C>
Date: November 13, 1997 /s/ Michael J. Daley
Michael J. Daley
President, Chief Executive Officer,
and Chief Financial Officer
(principal executive and financial officer)
Date: November 13, 1997 /s/ James E. Curtin
James E. Curtin
Vice President and Controller
(principal accounting officer)
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-QSB AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 1,574,693
<SECURITIES> 1,037,170
<RECEIVABLES> 448,222
<ALLOWANCES> 39,346
<INVENTORY> 1,062,093
<CURRENT-ASSETS> 5,056,292
<PP&E> 3,588,543
<DEPRECIATION> 1,533,404
<TOTAL-ASSETS> 12,084,362
<CURRENT-LIABILITIES> 2,699,865
<BONDS> 3,812,176
0
0
<COMMON> 323,495
<OTHER-SE> 3,729,379
<TOTAL-LIABILITY-AND-EQUITY> 12,084,362
<SALES> 2,268,666
<TOTAL-REVENUES> 8,396,571
<CGS> 2,073,899
<TOTAL-COSTS> 2,073,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,515
<INCOME-PRETAX> 2,033,015
<INCOME-TAX> 700,203
<INCOME-CONTINUING> 1,332,812
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,332,812
<EPS-PRIMARY> .45
<EPS-DILUTED> 0
</TABLE>
