<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 June 30, 1998 Commission file number 0-9964
BESICORP GROUP INC.
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(Exact name of small business issuer as specified in its charter)
New York 14-1588329
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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 10, 1998 2,969,195
Transitional Small Business Disclosure Format Yes______ No ___X___
<PAGE>
PART I - FINANCIAL INFORMATION
Item I - FINANCIAL STATEMENTS
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BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
<C> <C>
June 30,1998 March 31,1998
---------------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 37,821,020 $ 812,971
Short-term investments 1,060,422 1,056,778
Investment in Niagara Mohawk Power Corporation common stock 68,948,064 0
Trade accounts and notes receivable (less allowance
for doubtful accounts of $23,000 as of June 30, 1998
and March 31, 1998) 512,621 369,539
Due from affiliates 208,213 870,295
Current portion of long-term notes receivable:
Others (includes interest of $13,423 and
$8,316, respectively) 144,233 102,053
Inventories 1,126,891 944,013
Deferred income taxes 93,600 93,600
Other current assets 435,599 485,052
---------------- ----------------
Total Current Assets 110,350,663 4,734,301
---------------- ----------------
Property, Plant and Equipment:
Land and improvements 237,159 237,159
Buildings and improvements 1,914,029 1,906,953
Machinery and equipment 1,342,629 1,226,115
Furniture and fixtures 247,365 246,701
---------------- ----------------
3,741,182 3,616,928
Less: accumulated depreciation and amortization 1,834,757 1,769,212
---------------- ----------------
Net Property, Plant and Equipment 1,906,425 1,847,716
---------------- ----------------
Other Assets:
Patents and trademarks, less accumulated
amortization of $1,828
and $1,691, respectively 7,686 7,823
Long-term notes receivable:
Affiliates - Net of allowance of $555,376 0 0
Others - Net of allowance of $1,944,624 93,360 129,886
Due from affiliates 0 375,000
Deferred costs 1,347,598 1,316,693
Deferred income taxes 916,600 916,600
Other assets 22,205 116,977
---------------- ----------------
Total Other Assets 2,387,449 2,862,979
---------------- ----------------
TOTAL ASSETS $ 114,644,537 $ 9,444,996
================ ================
See accompanying notes to consolidated financial statements.
2
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BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
<C> <C>
June 30,1998 March 31,1998
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,316,041 $ 1,403,504
Current portion of long-term debt 3,146,760 111,367
Current portion of accrued reserve and warranty expense 148,858 152,891
Taxes other than income taxes 108,914 114,811
Income taxes payable 1,230,446 172,246
---------------- ----------------
Total Current Liabilities 5,951,019 1,954,819
Investment in Partnerships 101,734,008 33,870
Long-Term Accrued Reserve and Warranty Expense 156,722 152,402
Long-Term Debt 706,553 3,766,074
---------------- ----------------
Total Liabilities 108,548,302 5,907,165
---------------- ----------------
Shareholders' Equity:
Common stock, $.10 par value: authorized
5,000,000 shares; issued
3,234,958 shares 323,495 323,495
Additional paid in capital 5,446,099 5,492,072
Retained earnings (deficit) 1,945,207 (615,259)
--------------- ----------------
7,714,801 5,200,308
Less: Treasury stock at cost
(267,784 and 278,234 shares respectively) (1,618,566) (1,662,477)
---------------- ----------------
Total Shareholders' Equity 6,096,235 3,537,831
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 114,644,537 $ 9,444,996
================ ================
See accompanying notes to consolidated financial statements.
3
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BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
Three months ended June 30,
------------------------------------------
1998 1997
---------------- ----------------
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Revenues:
Product sales $ 987,793 $ 1,390,619
Development and management fees 2,043,334 727,527
Other revenues 186,712 48,459
Income from partnerships 3,543,240 2,746,608
Interest and other investment income 44,810 46,584
Other income 0 2,159
---------------- ----------------
Total Revenues 6,805,889 4,961,956
---------------- ----------------
Costs and Expenses:
Cost of product sales 939,975 1,196,214
Selling, general and
administrative expenses 1,887,689 2,102,225
Interest expense 94,383 97,026
Other expenses 434 0
---------------- ----------------
Total Costs and Expenses 2,922,481 3,395,465
---------------- ----------------
Income before Income Taxes 3,883,408 1,566,491
Provision for Income Taxes 1,322,942 538,790
---------------- ----------------
Net Income $ 2,560,466 $ 1,027,701
================ ================
Basic Earnings per Common Share $ .86 $ .35
================ ================
Basic Weighted Average Number of Shares Outstanding (in Thousands) 2,966 2,935
================ ================
Diluted Earnings per Common Share $ .84 $ .34
================ ================
Diluted Weighted Average Number of Shares
Outstanding (in Thousands) 3,020 3,035
================ ================
Dividends per Common Share 0 0
================ ================
See accompanying notes to consolidated financial statements.
4
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BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Three months ended June 30,
------------------------------------------
1998 1997
---------------- ----------------
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Operating Activities:
Net income $ 2,560,466 $ 1,027,701
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of discounts on notes (549) (549)
Depreciation and amortization 65,682 73,246
Realized and unrealized (gains) losses 963 (1,273)
Partnership income recognized (3,543,240) (2,746,608)
Distributions from partnerships 2,280,914 2,161,021
Changes in assets and liabilities:
Short-term investments (4,607) (17,371)
Accounts and notes receivable 888,894 1,088,064
Inventories (182,877) 158,086
Accounts payable and accrued expenses (87,464) (137,981)
Taxes payable/refundable 1,052,303 150,281
Other assets and liabilities, net 113,607 (152,525)
---------------- ----------------
Net cash provided by operating activities 3,144,092 1,602,092
---------------- ----------------
Financing Activities:
Repayment of borrowings (24,128) (31,125)
Purchase of common stock (37,562) 0
Issuance of common stock 35,500 0
---------------- ----------------
Net cash used by financing activities (26,190) (31,126)
---------------- ----------------
Investing Activities:
Acquisition of property, plant
and equipment (124,253) (95,075)
MRA distributions from partnerships 102,962,464 0
Investment in Niagara Mohawk Power Corporation Common Stock (68,948,064) 0
---------------- ----------------
Net cash provided (used) by investing activities 33,890,147 (95,075)
---------------- ----------------
Increase in Cash and Cash Equivalents 37,008,049 1,475,891
Cash and Cash Equivalents - Beginning 812,971 210,533
---------------- ----------------
Cash and Cash Equivalents - Ending $ 37,821,020 $ 1,686,424
================ ================
Supplemental Cash Flow Information:
Interest paid $ 95,239 $ 91,001
Income taxes paid 264,742 382,023
See accompanying notes to consolidated financial statements.
5
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<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 June 30, 1998,
and March 31, 1998; the results of operations for the three-month periods
ended June 30, 1998 and 1997; and the statement of cash flows for the
corresponding three-month periods.
The balance sheet at March 31, 1998 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, 1998.
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 photovoltaic systems, and fabricates,
manufactures, markets and distributes alternative energy products through a
domestic and international network.
C. Basic/Diluted Earnings per Common Share
Effective December 15, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. The
Statement requires 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. The reporting requirements of SFAS No. 128 are reflected on the face
of the Consolidated Statement of Operations. For the three-month period ended
June 30, 1998, Diluted Earnings per Share was $.84 as compared to Basic Earnings
per Share of $.86, a dilution of $.02 per share. For the three months ended June
30, 1997, Diluted Earnings per Share was $.34 as compared to Basic Earnings per
Share of $.35, a dilution of $.01 per share. The dilution in the three-month
periods ended June 30, 1998 and June 30, 1997 is due to the net incremental
effect of incentive stock options and warrants of 53,864 and 99,983,
respectively.
D. The results of operations for the three-month period ended June 30, 1998 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, 1998 and March 31, 1998, consist of:
June 30, 1998 March 31, 1998
------------- --------------
Assembly parts $356,015 $298,239
Finished goods 770,876 645,774
______________ ______________
$1,126,891 $944,013
========= =========
<PAGE>
F. Deferred Costs
Deferred costs and reimbursable costs at June 30, 1998 and March 31, 1998 were
as follows:
Internal Costs Third
Payroll Expenses Party Costs Total
_______ ________ ___________ ________
Balance March 31, 1998 $483,550 $217,511 $615,632 $1,316,693
Additions 39,272 4,009 32,972 76,253
Reimbursements (45,348) (45,348)
________ ________ ________ ___________
Balance June 30, 1998 $477,474 $221,520 $648,604 $1,347,598
======= ======= ======= =========
G. Investments in Partnerships
The Company has partnership interests in six completed gas-fired cogeneration
plants located in New York State. At June 30, 1998 and March 31, 1998, the
balance of recorded investments was comprised of the following:
June 30, 1998 March 31, 1998
____________ _____________
Capital contributions and investments $2,976,813 $2,976,813
Partnership distributions (133,394,591) (28,151,213)
Recognized share of income (losses) 28,683,770 25,140,530
____________ ____________
$(101,734,008) $(33,870)
============ ===========
The aggregate financial position and results of operations for the partnerships
as reported in the financial statements issued by the respective partnerships as
at March 31, 1998 (unaudited) and December 31, 1997 (audited) and for the three
months and year then ended were as follows:
Three Months Ended Year Ended
March 31, 1998 December 31, 1997
______________ _________________
Total Partnerships:
Assets $515,226,597 $520,329,768
Plant and equipment 387,722,438 391,492,464
Secured debt 495,472,033 508,289,568
Partners' deficit (11,886,417) (17,572,222)
Revenues 41,037,949 149,469,661
Income 9,933,537 20,238,179
Company's Share:
Partners' deficit (4,891,074) (7,354,035)
Income 4,565,538 10,113,516
The operating assets of the partnerships in which the Company has investments
have secured the projects' debt, and the expected significant losses incurred
by the partnerships in the early years of operation were funded by that
debt. Consequently, the Company, having no obligation to fund the losses or
pay the partnerships' debt, did not generally record the losses in the
financial statements. The income from partnerships, which has been recorded
on the financial statements during the first quarter of Fiscal 1999 in the
amount of $3,543,240, has been recognized on partnerships where income has
exceeded prior unrecognized accumulated losses. No income was reported on one
partnership where current income of $1,020,604 did not exceed prior
unrecognized accumulated losses.
The amounts pertaining to one partnership, which is involved in extensive
litigation, were excluded from the partnership's financial position and results
of operations presented above.
<PAGE>
As previously disclosed, the Company was a party to a Master Restructuring
Agreement ("MRA") which was entered into on July 10, 1997 between Niagara Mohawk
Power Corporation ("NIMO") and 16 independent power producers ("IPPs) holding
29 Power Purchase Agreements ("PPAs) including the Company's five PPAs. On May
8, 1998, NIMO announced that third party conditions had been satisfied or
waived by 14 IPPs holding 27 PPAs and, on May 14, 1998, NIMO's Board of
Directors approved the MRA. On June 30, 1998, the MRA was consummated. Pursuant
to the terms of the MRA, the Company's five PPAs, which had provided a total of
323 Megawatts of capacity and energy to NIMO, were terminated. As a result of
the MRA and related transactions, and the current operations of the project
partnerships, the Company has received through July 31, 1998 (i) 4,615,770
shares of NIMO common stock (the "NIMO Shares") and (ii) net cash of
approximately $59 million, of which approximately $9 million will be retained at
the partnership level primarily in regard to ongoing obligations of the
projects. The closing price of the NIMO Shares on June 30, 1998 was $14.94 for
an aggregate value of approximately $69 million. The net proceeds received by
the Company as a result of the MRA reflect the fact that a substantial portion
of the gross proceeds received by the partnerships from NIMO was used to
terminate most obligations with third parties including lenders, fuel suppliers
and transporters, thermal hosts and others. With the exception of development
fees of $1.8 million received from the Beaver Falls project, which were
recognized as revenue during the first quarter of Fiscal 1999, and development
fees of $.9 million received from the Syracuse project which were recorded as a
receivable from the project in Fiscal 1998, the MRA cash proceeds of $34 million
received on June 30, 1998, as well as the NIMO Shares which were constructively
received on that date, were accounted for as partnership distributions.
Additional MRA and operating results cash proceeds of $13 million were received
during July 1998. Consistent with the Company's accounting policy of recording
partnership activity one quarter later than recorded by the partnerships, the
Company will recognize the earnings impact of the MRA consummation which is
preliminarily estimated to be in the range of $135 million to $140 million on a
pre-tax basis, during the second quarter of Fiscal 1999. The estimate gives
effect to a write-down to be taken to reflect the impaired value of the two
power plants owned by certain project partnerships due to the termination of the
PPAs. Other partnerships still hold leasehold interests in three power plants.
As previously disclosed, the project partnerships are currently attempting to
sell all five power plants. It is anticipated that proceeds to be received from
the sale of these plants will be substantially less than the net book value of
the plants prior to the consummation of the MRA. The Company is continuing to
analyze the financial and tax impact as a result of these transactions.
<PAGE>
H. Notes Receivable
As previously disclosed, the Company does not believe that proceeds of a
proposed settlement of litigation involving Rochester Gas & Electric Corp. and
one of the project partnerships are likely to exceed the claims of the secured
and unsecured creditors of the partnership. As a result, the Company believes
its ability to recover combined loans of $2.5 million to the project and
adjacent steam host will be jeopardized if the proposed settlement is approved
and established reserves during the year ended March 31, 1998 to cover losses
that may result from the possible uncollectibility of the loans.
I. 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.
J. Segments of Business
The Company specilializes in the development of power projects and energy
technologies. Working with partners, the Company develops independent power
projects (the "Project Segment"). The Company also provides engineering, system
design, project management and turn-key installation of photovoltaics, and
fabricates, manufacturers, markets and distributes alternative energy products
through a domestic and international network (the "Product Segment"). A summary
of industry segment information for the three months ended June 30, 1998 and
1997 is as follows:
Project Product
June 30, 1998 Segment Segment Eliminations Total
Net revenues $5,705,001 $1,100,888 $6,805,889
Net income (loss) 3,030,174 (469,708) 2,560,466
Identifiable assets 149,802,683 2,613,350 (37,771,496) 114,644,537
Capital expenditures 88,749 35,504 124,253
Depreciation and
amortization 44,614 21,068 65,682
June 30, 1997
Net revenues $3,534,685 $1,427,271 $4,961,956
Net income (loss) 1,483,076 (455,375) 1,027,701
Identifiable assets 42,857,459 3,805,956 (34,461,814) 12,201,601
Capital expenditures 18,364 76,711 95,075
Depreciation and
amortization 45,416 27,830 73,246
<PAGE>
K. Legal Proceedings
See Part II, 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 June 30, 1998 increased by
$1,532,765, or 149%, to $2,560,466 from the net income of $1,027,701 recorded
for the three months ended June 30, 1997. The factors which contributed to these
changes in net income are discussed below.
First Quarter Developments and Subsequent Events
As previously diclosed, the Company was a party to a Master Restructuring
Agreement ("MRA") which was entered into on July 10, 1997 between Niagara Mohawk
Power Corporation ("NIMO") and 16 independent power producers ("IPPs") holding
29 Power Purchase Agreements ("PPAs") including the Company's five PPAs. On
May 8, 1998, NIMO announced that third party conditions had been satisfied or
waived by 14 IPPs holding 27 PPAs, and on May 14, 1998 NIMO's Board of Directors
approved the MRA. On June 30, 1998, the MRA was consummated. Pursuant to the
terms of the MRA, the Company's five PPAs, which had provided a total of 323
Megawatts of capacity and energy to NIMO, were terminated. As a result of the
MRA and related transactions, and the current operations of the project
partnerships, the Company has received (i) 4,615,770 shares of NIMO common stock
(the "NIMO Shares") and (ii) net cash of approximately $59 million, of which
approximately $9 million will be retained at the partnership level primarily in
regard to ongoing obligations of the projects. The closing price of the NIMO
Shares on June 30, 1998 was $14.94 for an aggregate value of approximately $69
million. The net proceeds received by the Company as a result of the MRA reflect
the fact that a substantial portion of the gross proceeds received by the
partnerships from NIMO was used to terminate most obligations with third parties
including lenders, fuel suppliers and transporters, thermal hosts and others.
With the exception of development fees of $1.8 million received from the Beaver
Falls project, which were recognized as revenue during the first quarter of
Fiscal 1999 and development fees of $.9 million were received from the Syracuse
project, which were recorded as a receivable in Fiscal 1998, the MRA cash
proceeds of $34 million received on June 30, 1998, as well as the NIMO Shares
which were constructively received on that date, were accounted for as
partnership distributions. Additional MRA and operating results cash proceeds of
$13 million were received during July 1998. Consistent with the Company's
accounting policy of recording partnership activity one quarter later than
recorded by the partnerships, the Company will recognize the earnings impact of
the MRA consummation, which is preliminarily estimated to be in the range of
$135 million to $140 million on a pre-tax basis, during the second quarter of
Fiscal 1999. This estimate gives effect to a write-down to be taken to reflect
the impaired value of the two power plants owned by certain project
partnerships due to the termination of the PPAs. Other partnerships still
hold leasehold interests in three power plants. As previously disclosed, the
project partnerships are currently attempting to sell all five power plants.
It is anticipated that proceeds to be received from the sale of these plants
will be substantially less than the net book value of the plants prior to the
consummation of the MRA. The Company is continuing to analyze the financial and
tax impact as a result of these transactions. On July 10, 1998, following the
consummation of the MRA, the Company repaid the $3 million balance outstanding
at June 30, 1998 on the Working Capital Loan from Stewart and Stevenson, Inc.
("S&S").
The Company is exploring various restructuring alternatives, as well as the sale
of certain power plants in which it has interest. No assurance van be given that
any restructuring alternatives will be effectuated.
<PAGE>
REVENUES
Consolidated
____________
Consolidated revenues increased by $1,843,933, or 37%, to $6,805,889 during the
three months ended June 30, 1998 as compared to $4,961,956 during the three
months ended June 30, 1997.
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 June 30, 1998 increased by $1,315,807 to
$2,043,334 as compared to $727,527 for the three months ended June 30, 1997. The
increase during the period is due primarily to a development fee of $1.8 million
received from the Beaver Falls project in connection with the MRA. The Company
received development fees of $600,000 from the Beaver Falls project during the
three months ended June 30, 1997. The Company also earned $243,334 in management
fees during the three months ended June 30, 1998 in connection with its projects
compared to $127,527 during the three months ended June 30, 1997. The Company
received no reimbursements in excess of deferred costs during the quarters ended
June 30, 1998 and 1997.
Income from Partnerships. During the three-month period ended June 30, 1998, the
Company recognized $3,543,240 of income from partnerships, an increase of
$796,632 compared to $2,746,608 recognized for the three months ended June 30,
1997. The increase during the current three-month period is due primarily to
income of $1,752,728 and $533,797 recorded on the Beaver Falls and Natural Dam
projects, respectively. This represented respective increases of $769,681 and
$209,237 over income of $983,047 and $324,560 recorded on the Beaver Falls and
Natural Dam projects, respectively, for the three months ended June 30, 1997.
The increases were partially offset by decreases in income on the other
projects.
Except for the income to be recognized in the second quarter of Fiscal 1999
from operations of the projects and in connection with the MRA consummation,
the partnerships will generate no future income as a result of the MRA
consummation and the resulting termination of the PPAs.
Interest and Other Investment Income
Interest and Other Investment Income during the three months ended June 30, 1998
decreased by $1,774 to $44,810 compated to $46,584 for the three months ended
June 30, 1997. The decrease in the current period is due primarily to lower
average interest rates during the period.
Product Segment
_______________
Product Sales. Revenues for the Company's energy technology products
(the "Product Segment") sales activities during the three-month period ended
June 30, 1998 decreased by $402,826 to $987,793 as compared to $1,390,619 for
the three months ended June 30, 1997. The decrease for the period is due
primarily to lower sales of solar thermal and heat transfer products of
$597,690, a result of the Company's decision to discontinue those product lines.
That decrease was partially offset by an increase of $194,864 in sales of solar
electric products.
<PAGE>
Other Revenues. Other revenues derived from the Project and Product Segments
increased by $138,253 for the three-month period ended June 30, 1998 versus
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, Northrup Grumman Corporation 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.
COSTS AND EXPENSES
Cost of Product Segment Sales
Cost of product sales for the three-month periods ended June 30, 1998 and 1997
was $939,975 and $1,196,214, respectively, or 95% and 86% of revenues
attributable to product sales. The increase in cost of sales percentage is due
primarily to the discontinuance of the solar thermal and heat transfer product
lines. Sales of these products during the first quarter of Fiscal 1997
contributed to the higher margins experienced during that period.
Costs of Project Segment Development and Management Fees
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
$214,536, or 10%, to $1,887,689 for the three-month period ended June 30, 1998
as compared to $2,102,225 for the three-month period ended June 30, 1997. As
discussed below, both the Project and Product segments contributed to the
decrease in the three-month period ended June 30, 1998.
Project Segment. For the Project Segment, SG&A for the three-month periods ended
June 30, 1998 and June 30, 1997 was $1,268,918 and $1,419,478, respectively,
representing 67% and 68% of the total SG&A. The decrease of $150,560 in
the quarter ended June 30, 1998 was due primarily to a decrease in legal fees of
$422,704 and decreased compensation expense of $55,191. These decreases were
partially offset by increased consulting fees of $297,459, primarily consisting
of investment banker fees incurred as a result of the Company's exploration
of strategic restructuring opportunities.
Product Segment. SG&A expenses for the Company's Product Segment for the
three-month periods ended June 30, 1998 and 1997 were $618,771 and $682,747,
respectively, representing 33% and 32% of the total SG&A. This decrease
of $63,976 in the current three-month period is due primarily to the
discontinuance of the Company's heat transfer product lines, partially offset
by higher selling expenses in the Company's solar electric business.
<PAGE>
Interest Expense
Interest expense for the three-month period ended June 30, 1998 decreased by
$2,643 to $94,383 compared to $97,026 for the three-month period ended June 30,
1997. The decrease in the three-month period is due primarily to lower average
interest rates during the period.
Provision for Income Taxes
The provision for income taxes increased during the three months ended
June 30, 1998 by $784,152 to $1,322,942 compared to $538,790 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased by $101,620,162 from $2,779,482
at March 31, 1998, to $104,399,644 at June 30, 1998 primarily as a result of the
consummation of the MRA.
During the quarter ended June 30, 1998, cash of $3,144,092 was provided from
operations. The net income of $2,560,466 when adjusted for non-cash revenue/
expense items of $3,477,144, including income from partnerships of $3,543,240,
resulted in a cash loss of $916,678. Major factors offsetting this cash loss
were distributions from the partnerships of $2,280,914,and the receipt of a
development fee receivable at March 31, 1998 of $900,000.
During the current quarter, the Company's financing activities resulted in a
decrease in cash of $26,190, primarily due to the repayment of borrowings.
Investing activities during the current quarter resulted in an increase in
cash of $33,890,147 due to distributions of $102,962,464 received from
partnerships in connection with the MRA consummation offset by the investment in
the NIMO Shares of $68,948,064 and the acquisition of property plant and
equipment of $124,253.
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 and on July 10, 1998, following
consummation of the MRA, the Company repaid the balance of $3,000,000
outstanding under the agreement. As discussed herein, due to the nature of
the proposed settlement involving RG&E and the Allegany project, the Company
believes that its ability to recover all or part of the financing provided to
the Allegany project will be jeopardized and, as a result, has reserved for the
possible uncollectibility of the related loans (See Note H, Notes Receivable).
As previously discussed, the consummation of the MRA and related transactions
and partnership operating results for the quarter ended June 30, 1998, resulted
in the receipt of approximately $37 million on June 30, 1998, $13 million during
July 1998 and the NIMO Shares valued at approximately $69 million. In accordance
with its established investment objectives and guidelines, the Company has
invested the cash proceeds, as well as other surplus cash in money market funds
and commercial paper. The Company's five PPAs with NIMO were
terminated as a result of the comsummation of the MRA and, consequently there
will be no future periodic distributions to the Company from the operations of
the projects. The Company is exploring various corporate restructuring
alternatives. Pending any such restructuring, the Company expects that capital
requirements for its operations and for repayment of long-term debt will be met
by its current cash and short-term investment position.
<PAGE>
As previously discussed, the Company has accounted for the MRA termination
proceeds of cash and the NIMO Shares received on June 30, 1998 as a partnership
distribution. This treatment has resulted in a negative (credit) balance in
"Investment in Partnerships" of $101,734,008 at June 30, 1998. When the earnings
impact of the MRA consummation is recognized and reflected in operations in the
second quarter of Fiscal 1999, the negative balance will be reduced to the
extent of income recognized.
Year 2000
Many existing computer systems and software applications use two digits, rather
than four, to record years, i.e., 98 instead of "1998." Unless modified, such
systems will not properly record or interpret years after 1999, which could lead
to business disruptions. This is known as the Year 2000 issue.
The Company relies on computer hardware, software and related technology
primarily in its internal operations, such as billing and accounting. During
Fiscal 1998, the Company formed a Year 2000 Management Committee to address the
potential financial and business consequences of Year 2000 and to direct the
implementation of appropriate solutions, including hardware and software
upgrades. The Company expects to complete such upgrade purchases during 1998
with testing to be done during 1999.
The Company is also communicating with its vendors, suppliers and customers to
both monitor and encourage their respective remedial efforts regarding the Year
2000 issue. Failure by vendors and suppliers to successfully address the issue
could result in delays in various products and services becoming available to
the Company. Failure by customers could disrupt their ability to maximize their
use of the Company's products and services. There can be no assurance that
failure of systems of third parties on which the Company's systems and
operations rely upon to be Year 2000 compliant will not have a material adverse
effect on the Company's business's operating results or financial condition.
Except for capital expenditures associated with computer hardware and software
upgrades which are planned for Fiscal 1999 and which may be partially Year
2000-related, the Company does not anticipate that the incremental expenses
related to the Year 2000 issue for Fiscal 1999 will be significant. Such
incremental expenses incurred during Fiscal 1998 were not significant.
PART II - OTHER INFORMATION
Item 1. - LEGAL PROCEEDINGS
For a more extensive discussion of various legal proceedings in which the
Company is involved, including the proceedings described below, see "Item 3.
Legal Proceedings" of the Company's Annual Report on Form 10-KSB for the year
ended March 31, 1998.
The Company, through its partnership interest ("Partnership
Interest") in Kamine/Besicorp Allegany L.P.("KBA"), which owns the Allegany
Congeneration Facility (the "Facility"), is a participant in legal proceedings
involving a power purchase agreement (the "Power Agreement") pursuant to which
the Facility was to supply Rochester Gas & Electric Corp. ("RG&E") with power.
The parties to these proceeding include, among others RG&E, General Electric
Capital Corp. ("GECC"), and Kamine Development Corp. Pursuant to a First
Amended and Restated Plan of Reorganization (the "Plan") filed with the United
States Bankruptcy Court for District of New Jersey (Case No. 95-28703(WT)), a
settlement (the "Settlement Agreement") has been proposed pursuant to which,
among other things, the Power Agreement will be terminated and the rights of KBA
thereunder will be discharged. The Company will not generate any income from the
Facility nor will it incur any liabilities (exclusive of amounts previously
reserved) if the Settlement Agreement is consummated.
The Company directly and through its Partnership Interest is involved in
a legal proceeding involving the construction of a greenhouse. The parties
to this proceeding include Amerlaan Agro-Projecten B.V., the contractor
(the "Contractor") responsible for constructing the greenhouse, KBA and Kamine
Development Corp., among others. The Plan provides for a settlement (the
"Greenhouse Settlement") of this litigation pursuant to which KBA is to transfer
the greenhouse to the Contractor and GECC is to pay the Contractor $2 million.
The Company will not be able to use the greenhouse if the Greenhouse Settlement
is consummated and does not anticipate that it will incur any material
liabilities (exclusive of amounts previously reserved) as a result of this
settlement.
The Company opposes the Plan, Settlement Agreement and the
Greenhouse Settlement, but its ability to prevent these settlements from being
consummated or the Plan from being approved may be limited. The Company is
consulting with counsel as to its options with respect to opposing the Plan and
pursuing claims it may have against one or more of the parties to these
settlements.
<PAGE>
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
Exhibit 27 Financial Data Schedule
(b.) Reports on Form 8-K
On April 22, 1998 and May 11, 1998 the Company filed reports on Form
8-K, disclosing, respectively, the commencement and settlement of legal
proceedings involving three power project partnerships in which the Company has
ownership interests.
On May 21, 1998, the Company filed a report on Form 8-K, announcing
that Michael F. Zinn had accepted an invitation from the Board of Directors to
resume his position as Chairman of the Board , President and Chief Executive
Officer, effective immediately.
<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 Group Inc., Registrant
Date: August 19, 1998 /s/ Michael F. Zinn
Michael F. Zinn
President
(principal executive officer)
Date: August 19, 1998 /s/ Michael J. Daley
Michael J. Daley
Chief Financial Officer
(principal financial officer)
Date: August 19, 1998 /s/ James E. Curtin
James E. Curtin
Vice President and Controller
(principal accounting officer)
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