BAYCORP HOLDINGS LTD - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12527

BAYCORP HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)

DELAWARE 02-0488443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

ONE NEW HAMPSHIRE AVENUE, SUITE 125
PORTSMOUTH, NEW HAMPSHIRE 03801
(Address of principal (Zip Code)
executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(603) 766-4990

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)

AMERICAN STOCK EXCHANGE
(Name of each exchange on which registered)

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 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 [ ]

Indicate by check mark if disclosure of delinquent filers to
Item 405 of Regulations S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

As of March 19, 2004, the approximate aggregate market value of
the voting stock held by non-affiliates of the registrant was
$7,129,658 based on the last reported sale price of the
registrant's Common Stock on the American Stock Exchange as of
June 30, 2003 (the last business day of the registrant's most
recently completed second fiscal quarter.) There were 611,697
shares of Common Stock outstanding as of March 19, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Incorporated Document Location in Form 10-K
------------------ ---------------
Portions of the Registrant's Part III
Proxy Statement furnished to
Stockholders in connection with
the Annual Meeting to be held May
17, 2004.

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1

PART I

ITEM 1. BUSINESS.

INTRODUCTION

BayCorp Holdings, Ltd. ("BayCorp" or the "Company") is a
holding company incorporated in Delaware in 1996. Until 2003,
BayCorp had two principal operating subsidiaries that generated
and traded wholesale electricity, Great Bay Power Corporation
("Great Bay") and Little Bay Power Corporation ("Little Bay").
Their principal asset was a combined 15% joint ownership interest
in the Seabrook Nuclear Power Project in Seabrook, New Hampshire
(the "Seabrook Project" or "Seabrook") until November 1, 2002,
when BayCorp sold Great Bay's and Little Bay's interest in
Seabrook. That ownership interest entitled Great Bay and Little
Bay to approximately 174 megawatts ("MWs") of the Seabrook
Project's power output. Great Bay and Little Bay were exempt
wholesale generators ("EWGs") under the Public Utility Holding
Company Act of 1935 ("PUHCA"). The companies sold their power in
the competitive wholesale power markets. Great Bay and Little
Bay were each wholly-owned by BayCorp. In December 2002, BayCorp
legally dissolved Great Bay and Little Bay.

Great Bay was incorporated in New Hampshire in 1986 and was
formerly known as EUA Power Corporation. Little Bay was
incorporated in New Hampshire in 1998. Great Bay sold its power,
including its 12.1% share and Little Bay's 2.9% share of the
electricity output of the Seabrook Project, in the wholesale
electricity market, primarily in the Northeast United States.
Little Bay sold its power solely to Great Bay under an
intercompany agreement. Neither BayCorp nor Great Bay or Little
Bay had operational responsibilities for the Seabrook Project.
Great Bay sold all but approximately 10 MWs of its share of the
Seabrook Project capacity in the wholesale short-term market. In
addition to selling its power generated by Seabrook, Great Bay
purchased power on the open market for resale to third parties.

In October 2002, BayCorp created two new subsidiaries, Great
Bay Power Marketing, Inc. ("GBPM") and BayCorp Ventures, LLC.
("BCV"). GBPM was created to hold the purchased power agreement
that Great Bay had with Unitil Power Corporation ("Unitil") and
to arrange for the power supply to satisfy the agreement. See
"Pre-November 2002 and Current Business - Purchased Power
Agreements" below. Effective January 1, 2003, GBPM assumed the
Unitil contract and holds the letter of credit established to
secure GBPM's obligations under the Unitil contract. BayCorp
created BCV to serve as a vehicle through which the Company can
make investments following the Seabrook sale and the expiration
of the Company's tender offer (see "Recent Developments").

In September 2003, BayCorp created a third subsidiary, Great
Bay Hydro Corporation ("Great Bay Hydro"). Great Bay Hydro,
formed for this purpose, has entered into a purchase and sale
agreement, dated as of October 30, 2003, with Citizens
Communications Company ("Citizens") to acquire the generating
facilities in Vermont owned by the Vermont Electric Division of
Citizens (see "Recent Developments").

BayCorp also owns shares representing approximately 49.7% of
the voting power of all outstanding common and preferred shares
of HoustonStreet Exchange, Inc. ("HoustonStreet").
HoustonStreet, incorporated in Delaware in 1999, is an equity
investment of BayCorp. HoustonStreet developed and operates
HoustonStreet.com, an Internet-based independent crude oil and
refined products trading exchange in the United States.

RECENT DEVELOPMENTS

Great Bay Hydro Corporation

Great Bay Hydro, a subsidiary of BayCorp formed for this
purpose, has entered into a purchase and sale agreement, dated as
of October 30, 2003, with Citizens Communications Company to
acquire all of the generating facilities in Vermont owned by the
Vermont Electric Division of Citizens. The generating facilities
include an operating hydroelectric facility of approximately 4
MWs located in Newport, Vermont, diesel engine generators
totaling approximately 7 MWs located in Newport, Vermont and non-
operating hydroelectric facilities in Troy, Vermont and West
Charleston, Vermont. Under the terms of the purchase and sale
agreement, Great Bay Hydro will pay a nominal purchase price and
Citizens will transfer the hydroelectric facilities and
related 650 acres of real property to Great Bay Hydro and has
agreed to indemnify Great Bay Hydro for the reasonably
anticipated costs of complying with the requirements of the new
operating license issued by the Federal Energy Regulatory
Commission ("FERC") on November 21, 2003. These plants will
provide a physical hedge for meeting a portion of BayCorp's
supply obligations under the long-term contract to supply 9.06
MWs to Unitil. Great Bay Hydro has received FERC approvals for
the transfer of the facilities and has applied for and is
awaiting approval from the State of Vermont for the transfer of
the facilities and the designation of Great Bay

2

Hydro as an EWG. Great Bay Hydro must also seek approval for EWG
status from FERC. It is anticipated that the closing of this
transaction will occur in the second quarter of 2004.

Enron Claim

In January 2002, BayCorp reported that Great Bay received
notice on December 21, 2001 from Enron Power Marketing, Inc.
("Enron") that Enron was terminating its contracts with Great
Bay. Enron owed Great Bay $1,075,200 for power delivered prior
to Enron's Chapter 11 bankruptcy filing on December 2, 2001.
Great Bay also has an unliquidated claim against Enron for
damages resulting from the termination of the contracts. During
the fourth quarter of 2001, BayCorp recorded an expense of
$1,100,000 to establish a reserve for doubtful accounts due to
the uncertainty of collecting remaining amounts owed by Enron to
Great Bay for power delivered prior to Enron's Chapter 11
bankruptcy filing. Enron filed a plan of reorganization on July
11, 2003, which is subject to the approval of creditors and the
bankruptcy court. In October 2003, BayCorp sold a portion of its
power delivery claim in the amount of $1,041,600 to an
institutional investor for $343,700, which it received in
December 2003. BayCorp recorded this transaction as a recovery
of bad debt. BayCorp retains the remaining portion of the power
delivery claim as well as the claim for damages. Any recovery by
the Company on account of this remaining claim against Enron is
uncertain.

Issuer Tender Offer

On January 31, 2003, BayCorp commenced an issuer tender offer
to purchase up to 8,500,000 shares of its common stock at a price
of $14.85 per share (the "Tender Offer" or "Offer"). The Company
disclosed in the Offer to Purchase mailed to stockholders that
the Board may decide to reduce the number of shares purchased in
the Offer to preserve the Company's ability to use its
approximately $90 million in net operating loss ("NOL")
carryforwards. The Offer was scheduled to expire on March 3,
2003.

On March 4, 2003, in view of the response to the Offer and the
significant proration that would have been necessary to preserve
the Company's NOL carryforwards, the Board determined and
announced that it would not exercise its reserved right to
prorate the shares tendered in the Offer to preserve the
Company's ability to use the NOL carryforwards without
limitation. The Company extended the expiration date of the
Tender Offer to March 18, 2003 to provide stockholders additional
time to tender shares that had not been tendered or to withdraw
shares that had been tendered. At the extended expiration date
of March 18, 2003, 9,207,508 shares had been properly tendered
and not withdrawn (including options surrendered for repurchase
and cancellation.) The Company exercised its discretion to
purchase up to an additional 2% of outstanding shares, purchasing
a total of 8,673,887 shares (and surrendered options) at a
purchase price of $14.85, representing approximately 94.3% of the
shares (and options) tendered, excluding odd lots, which were
purchased without proration. Payment for all such shares and
options was completed by March 24, 2003. The Company distributed
approximately $123,622,000 to tendering stockholders and option
holders. As of December 31, 2003 the Company had 641,937 shares
outstanding and cash and cash equivalents and restricted cash of
approximately $9,969,000.

Sale of Seabrook

In October 2000, the Company announced that it reached an
agreement with Northeast Utilities ("NU") under which the
Company's generating subsidiaries, Great Bay and Little Bay,
would include their aggregate 15% ownership share of the Seabrook
Project in the auction of NU's subsidiaries' shares of the
Seabrook Project. As a result of the auction, which was
conducted in 2001 and 2002, FPL Energy Seabrook, LLC ("FPL Energy
Seabrook"), a subsidiary of FPL Group, Inc., agreed to purchase
88.2% of the 1,161 MW Unit 1 and 88.2% of the partially
constructed Unit 2, for $836.6 million subject to certain
adjustments, with payment deliverable fully in cash at closing.
The purchase price included the projected fuel and non-fuel
inventories at closing and Unit 2 components. Great Bay, Little
Bay and the other sellers were responsible for making their then
required decommissioning fund top off payments on or before the
date of sale closing and to transfer their respective
decommissioning trust funds to FPL Energy Seabrook. FPL Energy
Seabrook assumed nearly all of the Company's Seabrook liabilities
including the decommissioning liability for the acquired portion
of Seabrook. On November 1, 2002, the Company closed the sale of
its interests in Seabrook and received approximately $113 million
in cash for its interests in the Seabrook Project (the "Seabrook
Closing"). The Company funded certain escrows for potential
closing adjustments and paid other costs of approximately $4.3
million. The remaining escrow amounts are included in prepayments
and the potential closing adjustments are included in
miscellaneous current liabilities. The amount escrowed was based
on an estimate of those expenses. A final reconciliation of and
termination of all such escrow accounts is scheduled to occur in
the second quarter of 2004 in accordance with the terms of the
Escrow Agreements among the selling owners. Although the Company
expects the amounts accrued for final closing adjustments as of
December 31, 2003 to be adequate, should actual expenses be
greater than the amount escrowed, additional funds will be
required.

3

PRE-NOVEMBER 2002 AND CURRENT BUSINESS

Until November 1, 2002, BayCorp's principal wholesale
electricity generation and trading assets were its 100% equity
interests in Great Bay and Little Bay. The business of Great Bay
and Little Bay consisted of managing their joint ownership
interests in the Seabrook Project and the sale in the wholesale
power market of their share of electricity produced by the
Seabrook Project. Neither Great Bay nor Little Bay had
operational responsibility for the Seabrook Project. Great Bay
was a party to one long-term power contract for approximately 10
MW of Great Bay's share of the Seabrook Project capacity. GBPM
assumed Great Bay's obligations under that contract which was
amended, effective November 1, 2002 to provide for 9.06 MW of
firm (non-unit-specific) power. See "Purchased Power Agreements"
below. During the period that it owned interests in Seabrook,
Great Bay's business strategy was to utilize unit contingent and
firm forward sales contracts to maximize the value of its 174 MW
power supply.

In order to supply firm power during unscheduled outages at the
Seabrook Project, Great Bay purchased power from the spot market
and resold that power to its firm power customers. Spot market
sales are subject to price fluctuations based on the relative
supply and demand of electricity. As a result of spot market
power price fluctuations, Great Bay on occasion had to purchase
power at prices exceeding prices paid by Great Bay's firm power
customers during outages. Although Great Bay bore the primary
risk of these price fluctuations, Great Bay maintained insurance
in 2001 to protect Great Bay during periods of extreme price
volatility, subject to certain deductibles and coverage limits.
In December 2001, Great Bay cancelled this insurance. Great Bay
did not enter into any firm power contracts for 2002 given the
expected sale of the Seabrook Project in 2002.

After the Seabrook Closing on November 1, 2002, BayCorp's
principal operating assets have been its purchased power contract
with Unitil and its equity interest in HoustonStreet.

Purchased Power Agreements

Great Bay was party to a purchased power contract, dated as of
April 1, 1993 (the "Unitil PPA" or "PPA"), with Unitil that
provided for Great Bay to sell to Unitil 0.8696% of the energy
and capacity of Seabrook, or approximately 10 MWs. The Unitil
PPA commenced on May 1, 1993 and ran through October 31, 2010.
The price for power was subject to increase in accordance with a
formula that provided for adjustments at less than the actual
rate of inflation. Unitil has an option to extend the Unitil PPA
for up to 12 years until 2022.

In anticipation of the Seabrook sale, the Unitil PPA was
amended as of November 1, 2002. The amendment primarily modified
the existing Unitil PPA to reduce the amount of power delivered
to 9.06 MWs and the price that Unitil pays for power to $50.34
per MW hour, and provide that Great Bay would supply the power
regardless of whether Seabrook is providing the power. The
amendment also provided alternative security for Unitil's
benefit, to replace and discharge the Third Mortgage that secured
Great Bay's performance of the Unitil PPA. In connection with
the amended Unitil PPA, the Company was required to deposit $2.5
million into a restricted account for the benefit of Unitil
should Great Bay default. The amount is reflected as restricted
cash in the accompanying balance sheet. The amendment received
FERC approval. Great Bay assigned the Unitil PPA to GBPM as of
January 1, 2003.

On March 17, 2003, Unitil announced the approval of a contract
with Mirant Americas Energy Marketing, LP ("Mirant"), which
provided for the sale of Unitil's existing power supply
entitlements, including the PPA with GBPM, effective on May 1,
2003. GBPM's PPA with Unitil has not been assigned to Mirant.
Rather, Unitil has appointed Mirant as their agent for purposes
of administering the PPA with GBPM and Mirant is purchasing
Unitil's entitlement under the PPA.

NEPOOL

As of December 1, 2002, GBPM is a member of the New England
Power Pool ("NEPOOL") and a party to the Restated NEPOOL
Agreement (the "NEPOOL Agreement"). Great Bay had also been a
member of NEPOOL prior to the termination of its membership
effective January 1, 2003. NEPOOL is a voluntary association of
companies engaged in the electricity business in New England and
its membership is open to all investor-owned, municipal and
cooperative electric utilities in New England and other companies
that transact business in the region's bulk power market.
Certain end users of electricity may also become NEPOOL members.
The NEPOOL Agreement imposes certain obligations on its
participants concerning generating capacity reserves and the
right to use major transmission lines.

New England's independent system operator, ISO New England,
Inc. ("ISO-NE"), was established in July 1997 and is responsible
for maintaining the safety and reliability of the transmission
grid and bulk power market within the NEPOOL region. ISO-NE
performs these functions under a services contract with NEPOOL.
ISO-NE administers a bid-based wholesale market system in New
England that is designed to provide a competitive and efficient
generation

4

market through an hourly clearing price mechanism. On March 1,
2003, ISO-NE implemented a revised market system, known as
Standard Market Design , which incorporates location-base
pricing, congestion management and day ahead and real time energy
markets.

Northeast RTO

In January 2001, in response to FERC Order No. 2000, ISO-NE and
six companies owning transmission facilities in New England (the
"Transmission Owners") filed a joint petition for a declaratory
order to form a Regional Transmission Organization ("RTO") for
the NEPOOL control area. In July 2001, FERC issued a series of
orders that rejected stand-alone RTO proposals filed by ISO-NE,
the New York ISO ("NYISO"), and the PJM Interconnection ("PJM")
and directed these three northeastern power pools to participate
in a mandatory mediation process with the goal of forming a
single Northeast RTO ("NE RTO"). However, in early January 2002,
PJM signaled its intent to move away from the NE RTO and instead
work to create an RTO with the Midwest ISO. ISO-NE and NYISO
continued evaluating the NE RTO and filed a proposal with FERC in
August 2002, but withdrew the proposal in November 2002 and
announced that they had abandoned plans to consolidate into a
single RTO. In January 2003, ISO-NE and the NEPOOL Transmission
Owners announced that they would work together to develop a joint
petition to the FERC to form an RTO for New England. The joint
petition was submitted to FERC on October 31, 2003 and remains
under consideration.

Energy and Utility Regulation

The Seabrook Project and Great Bay and Little Bay, as part
owners of a licensed nuclear facility, were subject to the broad
jurisdiction of the NRC, which is empowered to authorize the
siting, construction and operation of nuclear reactors after
consideration of public health and safety, environmental and
antitrust matters. Great Bay and Little Bay had been affected to
the extent of their proportionate share by the cost of any such
requirements made applicable to the Seabrook Project.

Great Bay and Little Bay were also subject to the jurisdiction
of the FERC under Parts II and III of the Federal Power Act and,
as a result, were required to file with FERC all contracts for
the sale of electricity. FERC had the authority to suspend the
rates at which Great Bay and Little Bay proposed to sell power,
to allow such rates to go into effect subject to refund and to
modify a proposed or existing rate if FERC determined that such
rate was not "just and reasonable." FERC's jurisdiction also
includes, among other things, the sale, lease, merger,
consolidation or other disposition of facilities, interconnection
of certain facilities, account and services and property records.
As successor to Great Bay with respect to the Unitil PPA, GBPM is
similarly subject to FERC regulation.

Because they both were EWG's, Great Bay and Little Bay were not
subject to the jurisdiction of the Securities and Exchange
Commission ("SEC") under PUHCA. In order to maintain their EWG
status, Great Bay and Little Bay had to engage exclusively in the
business of owning and/or operating all or part of one or more
"eligible facilities" and to sell electricity only at wholesale
(i.e. not to end users) and activities incidental thereto. An
"eligible facility" is a facility used for the generation of
electric energy exclusively at wholesale or used for the
generation of electric energy and leased to one or more public
utility companies. The term "facility" may include a portion of
a facility. In the case of Great Bay and Little Bay, their
combined 15% joint ownership interest in the Seabrook Project
comprised an "eligible facility."

Over the past several years, New Hampshire and a number of
other New England states have implemented deregulation of the
electric retail utility industry. In addition, NEPOOL
restructured to create and maintain open, non-discriminatory,
competitive, unbundled wholesale markets for energy, capacity,
and ancillary services. The NEPOOL wholesale market commenced
operation in May 1999. All of the deregulation initiatives open
retail and wholesale electricity markets to competition in the
affected states.

Nuclear Waste Disposal

Costs associated with nuclear plant operations included amounts
for nuclear waste disposal, including spent fuel, as well as for
the ultimate decommissioning of the plants. The liability for
the disposal of any low level waste that remained at Seabrook
after November 1, 2002 was transferred to FPL Energy Seabrook
upon closing.

Decommissioning

NRC licensing requirements and restrictions are also applicable
to the decommissioning of nuclear generating units at the end of
their service lives, and the NRC has adopted comprehensive
regulations concerning decommissioning planning, timing, funding
and environmental review. Changes in NRC requirements or
technology can increase estimated decommissioning costs.

5

Until November 1, 2002, Great Bay and Little Bay were
responsible for their pro rata share of the decommissioning and
cancellation costs for Seabrook. FPL Energy Seabrook assumed
this decommissioning liability as of the Seabrook Closing.

Equity Investment in HoustonStreet

BayCorp owns shares representing approximately 49.7% of the
voting power of all outstanding common and preferred shares of
HoustonStreet. HoustonStreet developed and operates
HoustonStreet.com, an Internet-based, independent crude oil and
refined products trading exchange in the United States.

HoustonStreet operates in a very competitive market. Its main
competitors are numerous OTC telephone brokers. HoustonStreet
believes, however, that it is currently the only online exchange
for the OTC physical crude oil and refined products markets.
Other online exchanges focus primarily on natural gas, power, and
financial crude oil markets such as swaps and options.
HoustonStreet is focused primarily on the physical crude oil and
refined products markets.

HoustonStreet's crude oil platform includes several trading
floors, organized by grade and location. The platform allows for
user-customization where the user specifies which markets should
appear together on a floor regardless of grade or location.
HoustonStreet's refined products platform includes several
trading floors, organized by commodity, pipeline and geographic
location. Bids and offers are segmented by trading period (month
and cycle) and by grade. In 2003, HoustonStreet had trading
volumes of over 107 million barrels of crude oil and refined
products with revenues of approximately $880,600. This
represents a decrease of 9.1% in barrels traded and a decrease of
5.9% in revenues as compared to 2002. As of December 31, 2003,
HoustonStreet had five employees.

On March 30, 2001, HoustonStreet raised approximately $2.9
million in additional funding, including $450,000 from BayCorp,
by selling senior secured notes, warrants to purchase
HoustonStreet preferred stock and warrants to purchase
HoustonStreet common stock. Collectively, these securities are
referred to as the "HoustonStreet Series C Units." In March
2001, BayCorp authorized HoustonStreet to convert BayCorp's $7
million loan made in 2000, along with approximately $1 million in
accrued interest and penalties on the note and past due
management fees, into $8 million of Series C Units. The senior
secured promissory note issued to the Company by HoustonStreet on
March 30, 2001, with a face value of $8.4 million, is one of a
series of notes. These notes bear interest on the outstanding
principal from the date issued until the notes are paid in full
at prime plus 5%. The outstanding principal and interest of this
note to BayCorp as of December 31, 2003 was approximately $10.8
million of the approximate $13.4 million total in senior secured
promissory notes outstanding at HoustonStreet. Accrued interest
is payable, at the sole option of the holder, in cash or in
warrants to purchase shares of Series C convertible preferred
stock. The notes are secured by a first priority security
interest in all the assets of HoustonStreet. The notes were
originally due and payable in December 2001, and the maturity
date was subsequently extended to January 15, 2004.

The notes were not paid when due, and in February 2004,
HoustonStreet was formally notified of the payment default.
BayCorp and the other senior secured noteholders have reserved
their rights and are considering all of their options to maximize
recovery on the notes, including a restrucuring that would
potentially provide effective control of HoustonStreet to the
noteholders.

EMPLOYEES AND MANAGEMENT

As of March 19, 2004, BayCorp had eight employees. GBPM, Great
Bay Hydro and BCV had no employees. As of March 19, 2004,
HoustonStreet had five employees.

Executive Officers of the Registrant

The executive officers of BayCorp are:

NAME AGE POSITION
- ---- --- --------
Frank W. Getman Jr. 40 Chairman of the Board,
Chief Executive Officer
and President
Anthony M. Callendrello 52 Chief Operating Officer
and Secretary
Patrycia T. Barnard 48 Vice President of Finance
and Treasurer

Frank W. Getman Jr. has served as Chief Executive Officer and
President of the Company since May 1998. Mr. Getman has served
as Chairman of the Board since May 2000 and has served as Chief
Operating Officer of the Company from

6

September 1996 to March 2000 and Vice President, Secretary and
General Counsel of Great Bay from August 1995 to September 1996.
From September 1991 to August 1995, Mr. Getman was an attorney
with the law firm of Hale and Dorr LLP, Boston, Massachusetts.
Mr. Getman holds J.D. and M.B.A. degrees from Boston College and
a B.A. in Political Science from Tufts University.

Anthony M. Callendrello has served as the Company's Chief
Operating Officer since April 2000 and as the Secretary of the
Company since May 2000. Mr. Callendrello has over 20 years
experience in the nuclear industry. With over 16 years at the
Seabrook Project, Mr. Callendrello most recently served as the
plant's Manager of Environmental, Government and Owner Relations.
From 1980 to 1983, Mr. Callendrello was employed with Stone &
Webster Engineering Corporation, which provided engineer and
architect services to utility and other industries. Mr.
Callendrello holds a Master of Engineering - Mechanical degree
and a Bachelor of Engineering degree from Stevens Institute of
Technology.

Patrycia T. Barnard has served as Vice President of Finance and
Treasurer of the Company since January 2001. Ms. Barnard served
as Director of Accounting since May 1996 and has served as
Treasurer since 1998. Ms. Barnard has over 20 years experience
in multi-national, corporate accounting and finance. From 1978
until 1993, Ms. Barnard was employed by BTR, Plc., a conglomerate
of highly diversified manufacturing companies, most recently as
Assistant Controller for Clarostat Mfg. Co. Inc., a vertically
integrated electronic manufacturing company located in Plano, TX
and Juarez, Mexico. Ms. Barnard holds an M.B.A and a Masters in
Accounting from New Hampshire College. She also holds a B.S. in
Business Administration from the University of New Hampshire.

BayCorp entered into Management and Administrative Services
Agreements (the "Services Agreements") with GBPM, BCV and
HoustonStreet in 2003. Under the Services Agreements with GBPM
and BCV, BayCorp provides a full range of management services,
including general management and administration, accounting and
bookkeeping, budgeting and regulatory compliance. GBPM was billed
$420,000 and BCV $120,000 for these services in 2003. Under the
Services Agreement with HoustonStreet, BayCorp provides
HoustonStreet with administrative, accounting and bookkeeping,
budgeting and human resource services. HoustonStreet was billed
$30,000 in 2003 for these services. Each Services Agreement has
a one-year term and provides for automatic one-year renewals.
HoustonStreet entered into a Computer Technology Services
Agreement with BayCorp in 2003 to provide BayCorp with computer
technology services including but not limited to all software and
hardware repairs and updates and server and networking connection
issues, as may be required by BayCorp on an as needed basis.
BayCorp was billed $30,000 for these services in 2003.

AVAILABLE INFORMATION

BayCorp does not maintain an Internet address and, therefore,
BayCorp's annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports
are not available on a Company Internet website. BayCorp will
provide paper copies of the Company's filings free of charge upon
request.

ITEM 2. PROPERTIES.

Until November 1, 2002, BayCorp's principal assets included its
100% equity interests in Great Bay and Little Bay. In turn,
Great Bay's and Little Bay's principal asset was a combined 15%
joint ownership interest in the Seabrook Project. On November 1,
2002, BayCorp sold Great Bay's and Little Bay's interest in
Seabrook. In December 2002, BayCorp legally dissolved Great Bay
and Little Bay.

BayCorp currently owns three subsidiaries including Great Bay
Power Marketing, Inc., which purchases and markets power on the
open market, BayCorp Ventures, LLC, which serves as a vehicle for
the Company's investments and Great Bay Hydro Corporation, which
was formed for the purpose of acquiring the generating facilities
in Vermont owned by the Vermont Electric Division of Citizens
Communications Company. HoustonStreet Exchange, Inc., an equity
investment of BayCorp, operates HoustonStreet.com, an independent
internet-based crude oil and refined products trading exchange.

As of March 11, 2004, BayCorp's corporate headquarters was
located in Portsmouth, New Hampshire, where it occupies
approximately 1,000 square feet of leased office space.
BayCorp's management believes that the corporate headquarters in
Portsmouth, New Hampshire meets its current requirements and that
additional space can be obtained to meet requirements for the
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS.

Not Applicable.

7

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

Following are the reported high and low sales prices of BayCorp
common stock ("MWH") on the American Stock Exchange as reported
in the Wall Street Journal daily as traded, for each quarter of
2002 and 2003:

As of March 19, 2004, the Company had 20 holders of record of
its common stock. The Company believes that as of March 19,
2004, the Company had approximately 580 beneficial holders of its
common stock. The number of beneficial owners substantially
exceeds the number of record holders because many of the
Company's stockholders hold their shares in street name. BayCorp
has never paid cash dividends on its common stock. Any future
dividends depend on future earnings, BayCorp's financial
condition and other factors.

Equity Compensation Plan Information. The following table
provides information about the Company's common stock that may be
issued upon the exercise of options and rights under all of the
Company's existing equity compensation plans as of December 31,
2003.

(1) Includes the Company's 1996 Stock Option Plan and the 2001
Nonstatutory Stock Option Plan.

ITEM 6. SELECTED FINANCIAL DATA.

SELECTED FINANCIAL DATA

The following table presents selected financial data of the
Company as of and for the years ended December 31, 2003, 2002,
2001, 2000 and 1999. The information below should be read in
conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's
financial statements, including the notes thereto, contained
elsewhere in this Report.

8

SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

In October 2000, the Company announced that it reached an
agreement with NU under which the Company's generating
subsidiaries, Great Bay and Little Bay, would include their
aggregate 15% ownership share of the Seabrook Project in the
auction of NU's subsidiaries' shares of the Seabrook Project.
FPL Energy Seabrook agreed to purchase 88.2% of the 1,150 MW Unit
1 and 88.2% of the partially constructed Unit 2, for $836.6
million subject to certain adjustments, with payment deliverable
fully in cash at closing. On November 1, 2002, the Company
closed the sale of its interests in Seabrook and received cash
consideration of approximately $113 million for its interests in
the Seabrook Project. See "Item 1. Recent Developments - Sale
of Seabrook."

Until November 1, 2002, BayCorp's principal wholesale
electricity generation and trading assets were its 100% equity
interests in Great Bay and Little Bay. The business of Great Bay
and Little Bay consisted of managing their joint ownership
interests in the Seabrook Project and the sale in the wholesale
power market of their share of electricity produced by the
Seabrook Project. Neither Great Bay nor Little Bay had
operational responsibility for the Seabrook Project. Great Bay
was a party to one long-term power contract for approximately 10
MWs of Great Bay's share of the Seabrook Project capacity.
During the period that it owned interests in Seabrook, Great
Bay's business strategy was to utilize unit contingent and firm
forward sales contracts to maximize the value of its 174 MW power
supply.

In October 2002, BayCorp created two new subsidiaries, Great
Bay Power Marketing, Inc. and BayCorp Ventures, LLC. GBPM was
created to hold the purchased power agreement that Great Bay had
with Unitil and arrange for the power supply to satisfy the
agreement. Effective January 1, 2003, GBPM assumed Great Bay's
obligations under that contract which was amended, effective
November 1, 2002 to provide for 9.06 MW of firm (non-unit-
specific) power and holds the letter of credit established to
secure GBPM's obligations under the Unitil contract. See "Item
1. Pre-November 2002 and Current Business - Purchased Power
Agreements." BayCorp created BCV to serve as a vehicle through
which the Company can make investments following the Seabrook
sale and the expiration of the Company's Tender Offer. In
December 2002, BayCorp formally dissolved Great Bay and Little
Bay.

In September 2003, BayCorp created a third subsidiary, Great
Bay Hydro Corporation, which has entered into a purchase and sale
agreement, dated as of October 30, 2003, with Citizens
Communications Company to acquire the generating facilities in
Vermont owned by the Vermont Electric Division of Citizens. The
generating facilities include an operating hydroelectric facility
of approximately 4 MWs located in Newport, Vermont,
diesel engine generators totaling approximately 7 MWs located in
Newport, Vermont and non-operating hydroelectric facilities in
Troy, Vermont and West Charleston, Vermont. Under the terms of
the purchase and sale agreement, Great Bay Hydro will pay a
nominal purchase price and Citizens will transfer the
hydroelectric facilities and related 650 acres of real property
to Great Bay Hydro and has agreed to indemnify Great Bay Hydro
for the reasonably anticipated costs of complying with the
requirements of the new operating license issued by FERC on
November 21, 2003. These plants will provide a physical hedge
for meeting a portion of BayCorp's supply obligations under the
long-term contract to supply 9.06 megawatts to Unitil. Great Bay
Hydro has received FERC approvals for the transfer of the
facilities and has applied for and is awaiting approval from the
State of Vermont for the transfer of the facilities and the
designation of Great Bay Hydro as an EWG.

9

Great Bay Hydro must also seek approval for EWG status from
FERC. It is anticipated that the closing of this transaction
will occur in the second quarter of 2004.

HoustonStreet, which developed and operates HoustonStreet.com,
an Internet-based independent crude oil and refined products
trading exchange in the United States, is an equity investment of
BayCorp. As of December 31, 1999, the Company owned 100% of
HoustonStreet. HoustonStreet raised additional equity in 2000
from outside investors and as a result, as of December 4, 2000,
the Company's ownership fell below 50%, to 45.9%. Subsequently,
the Company deconsolidated HoustonStreet as of December 4, 2000,
started accounting for this investment on the equity method and
suspended recognition of additional HoustonStreet losses as of
that date. As of December 31, 2003, the Company owned
approximately 49.7% of the voting power of all outstanding common
and preferred shares of HoustonStreet.

In January 2003, the FASB issued Interpretation No. ("FIN")
46, Consolidation of Variable Interest Entities - An
Interpretation of ARB No. 51, as amended by FIN 46R. The
interpretation requires that a company consolidate the financial
statements of an entity that cannot finance its activities
without outside financial support, and for which that company
provides the majority of support. The Company has deemed that
its investment, HoustonStreet, is not a variable interest entity.
Therefore, the Company will not consolidate HoustonStreet.

BayCorp reported a net loss for the year ended December 31,
2003, reported net income for the years ended December 31, 2002
and 2001 and reported net losses for the years ended December 31,
2000 and 1999. The net loss in 2003 was primarily attributable
to the cost of purchased power and the non-cash charge to
earnings for unrealized losses on its firm forward power sales
contract exceeding the revenue from that contract. The net
income in 2002 was primarily attributable to the gain on sale of
the Seabrook assets to FPL Energy Seabrook. The net income in
2001 was primarily attributable to increased revenues and the
realized gain in 2001 on firm forward energy trading contracts.
The 2000 net loss was primarily attributable to the non-cash
charge to earnings for unrealized losses on firm forward trading
contracts and the costs associated with a Seabrook refueling
outage during the final ten weeks of 2000 as well as the loss
associated with the Company's equity investment in HoustonStreet.
The 1999 net loss was primarily due to costs associated with a
refueling outage during the fall of 1999 and to HoustonStreet
losses.

The following discussion focuses solely on operating revenues
and operating expenses that are presented in a substantially
consistent manner for all of the periods presented.

RESULTS OF OPERATIONS

Operating Revenues

BayCorp's operating revenues in 2003 were approximately
$4,001,000 and were derived solely from the Company's long-term
power sales contract with Unitil. Operating revenues in 2002
were approximately $48,788,000 and were primarily from the sale
of the Company's share of Seabrook generation. On November 1,
2002, the Company closed the sale of its interests in Seabrook
and received approximately $113 million in cash for its interests
in the Seabrook Project. See "Item 1. Recent Developments - Sale
of Seabrook."

The Company realized a higher average selling price for
electricity in 2003 as compared to 2002. During the twelve
months ended December 31, 2003, the average selling price
increased 31.9% to 5.04 cents per kilowatt hour ("kWh") as
compared to an average selling price of 3.82 cents per kWh for
the twelve months ended December 31, 2002. The Company's cost of
power (determined by dividing total operating expenses by kWhs
sold during the applicable period) increased 204% to 11.26 cents
per kWh in 2003 as compared to 3.70 cents per kWh in 2002. The
increase was primarily the result of decreased kWhs sold in 2003
as 2003 Company sales were solely to Unitil under the Unitil PPA.

BayCorp's operating revenues for 2002 decreased by
approximately $30,692,000, or 38.6%, to $48,788,000 as compared
to $79,480,000 for 2001. The decrease was primarily attributable
to a decrease in purchased power, a decrease in selling prices
and ownership of the Seabrook plant for only ten months of the
year in 2002. The Company purchased a significant amount of
power to cover firm contracts primarily due to unscheduled
outages in 2001, and also purchased power for resale in 2001,
thus increasing revenues. Purchased power expenses for the
twelve months ended December 31, 2001 were approximately
$27,008,000 as compared to approximately $4,706,000 for the
twelve months ended December 31, 2002. Power was purchased
primarily in the fourth quarter of 2002 to cover firm power
supply commitments following the sale of Seabrook. The capacity
factor at the Seabrook Project was 90.1% of the rated capacity
for the twelve months ended December 31, 2002 as compared to a
capacity factor of 85.8% for the twelve months ended December 31,
2001.

10

Sales of electricity were 1,278,732,000 kWhs in 2002 as compared
to 1,854,967,500 kWhs in 2001.

The Company realized a lower average selling price in 2002 as
compared to 2001. During the twelve months ended December 31,
2002, the average selling price decreased 11% to 3.82 cents per
kWh as compared to an average selling price of 4.29 cents per kWh
for the twelve months ended December 31, 2001. The Company's
cost of power increased 17.8% to 3.70 cents per kWh in 2002 as
compared to 3.14 cents per kWh in 2001. The increase was the
result of decreased kWhs sold in 2002.

Expenses

BayCorp's total operating expenses were approximately
$8,948,000 in 2003 and approximately $47,327,000 in 2002.
Included in 2003 operating expenses was approximately $3,901,000
for purchased power. The Company purchased power to satisfy its
obligation under its long-term power sales contract with Unitil
at an average purchase price of 4.91 cents per Kwh. The Unitil
PPA meets the definition of an energy-trading contract under
Emerging Issues Task Force ("EITF") issue no. 98-10 and 00-17.
Accordingly, the Company marks this contract to market and
recognized an unrealized loss of $2,189,400 in 2003. In
accordance with the FASB's EITF issue no. 02-03, the inception
gain (initial value of $2.1 million) on the contract has been
deferred and is being recognized over the life of the contract.
The Company recognized approximately $263,000 of deferred gain on
the Unitil contract in 2003. Also included in 2003 operating
expenses were approximately $2,705,000 in administrative and
general expenses, which included approximately $785,800 in
Company salaries and related benefits, $409,600 in non-cash
charges for the variable accounting for stock options and
approximately $179,000 for an accrual for estimated payments to
Mr. Getman and Mr. Callendrello for achieving certain goals and
financial incentives for specific objectives established by the
Board under the Company's Key Employee Retention and Incentive
Plan. The Company has accrued approximately $411,000 for such
incentive payments. Corporate insurance expense was
approximately $226,400 in 2003. Legal and other outside services
were approximately $1,379,200 primarily for services associated
with the Company's 2003 Tender Offer, SEC filing requirements and
costs associated with new business development efforts.
Administrative and general expenses were reduced by approximately
$343,700 after receiving these funds in recovery of a previously
recorded bad debt. See "Item 1. Recent Developments - Enron
Claim." Taxes other than income were approximately $416,000
primarily for taxes associated with Seabrook closing costs.
Operating expenses in 2002 included ten months of Seabrook
operating costs in addition to BayCorp corporate expenses.

Interest and dividend income decreased approximately $380,000,
or 43%, to approximately $503,000 in 2003 as compared to
approximately $883,000 in 2002, primarily due to higher average
cash balances in 2002 and higher earnings on investments
available to the Company. Other Income in 2003 was approximately
$276,000 primarily due to a NEIL distribution representing the
Company's share of distributions under mutual insurance company
policies associated with Seabrook. Other Income in 2002 included
approximately $59,774,000 from the sale by BayCorp of its
ownership interest in Seabrook.

BayCorp's total operating expenses for 2002 decreased
approximately $11,015,000, or 18.9%, in comparison with 2001.
This decrease was primarily the result of a decrease in purchased
power expenses in 2002 as compared to 2001 and having only ten
months of operations in 2002. Purchased power expenses decreased
approximately $22,302,000, or 82.6%, from $27,008,000 in 2001 to
$4,706,000 in 2001. This decrease was primarily attributable to
the Company, in anticipation of the sale of its Seabrook assets,
entering into fewer firm energy contracts in 2002 as compared to
2001. Offsetting this reduction in expenses was a decrease in
the gain on the mark to market of forward firm energy trading
contracts. In 2001, the Company recognized gains on firm forward
energy trading contracts of $12,879,000 as compared to $115,000
in 2002. This decrease was primarily due to a decrease in the
number of firm energy contracts that the Company was a party to
in 2002 as compared to 2001.

Production and transmission costs decreased approximately
$3,501,000, or 13.8%, from $25,435,000 in 2001 to $21,934,000 in
2002. Depreciation and amortization charges decreased
approximately $596,000, or 16%, from $3,730,000 in 2001 to
$3,134,000 in 2002. Taxes other than income decreased $437,000,
or 12.4%, from $3,516,000 in 2001 to $3,080,000 in 2002. These
decreases in Seabrook related operating costs were primarily
related to the Company's ownership of Seabrook for ten months in
2002 as compared to twelve months in 2001. Decommissioning cost
accretion increased $844,000, or 25.9%, from $3,261,000 in 2001
to $4,105,000 in 2002. This accretion is a non-cash charge that
reflected Great Bay's and Little Bay's liability related to the
closure and decommissioning of the Seabrook Project in then
current year dollars over the licensing period during which the
Seabrook Project is licensed to operate. Decommissioning trust
fund income decreased $466,000, or 29.1%, from $1,599,000 in 2001
to $1,133,000 in 2001. The decrease in interest earned on the
decommissioning trust fund reflected the lower rate of return on
investments. Administrative and general expenses increased
approximately $1,746,000, or 17.7%, from $9,870,000 in 2001 to
$11,616,000 in 2002. This increase was primarily attributable to
$2.4 million of non-cash compensation expense related to variable
accounting for certain stock options offset by reduced expenses
attributable to ownership of Seabrook for only ten months during
2002.

11

Interest and dividend income increased approximately $363,000,
or 69.8%, from $520,000 in 2001 to $883,000 in 2002, primarily
due to higher average cash balances, including the proceeds from
the sale of the Seabrook assets in November 2002. Other
deductions decreased approximately $134,000, to a net deduction
in 2002 of $45,000 as compared to a net deduction in 2001 of
$179,000. This decrease is due to ten months of expenses at
Seabrook in 2002 and lower administrative fees charged to
HoustonStreet.

On November 1, 2002, the Company closed the sale of its
interests in Seabrook and received cash consideration of
approximately $113 million for its interests in the Seabrook
Project. The Company realized a gain on the sale of its Seabrook
assets of approximately $59,774,000. See "Item 1. Recent
Developments - Sale of Seabrook."

Net Operating Losses

At December 31, 2002 and 2003, the Company had net operating
losses for federal income tax purposes of approximately $159
million and $167 million, respectively, before limitations. The
Company's federal net operating loss carryforwards will expire
during the years ending December 31, 2004 through 2023 if not
used to offset future taxable income. The Company believes that
the Tender Offer in March 2003 and related transactions resulted
in an ownership change within the meaning of Internal Revenue
Code ("IRC") Section 382. As such, the Company may be precluded
from utilizing its loss carryforwards originating prior to the
ownership change. The Company estimates that approximately $165
million of the Company's NOL is subject to an annual limitation
for purposes of IRC Section 382 of approximately $390,000 through
2023. As a result of these limitations, all or a portion of the
Company's federal and state net operating loss carryforwards
incurred prior to the Tender Offer may expire unused. Additional
net operating loss carryforwards and other tax attributes
generated subsequent to the Tender Offer may be limited in the
event of certain future changes in the ownership of significant
stockholders.

LIQUIDITY AND CAPITAL RESOURCES

On November 1, 2002, the Company closed the sale of its
interests in Seabrook and received cash consideration of
approximately $113 million for its interests in the Seabrook
Project. See "Item 1. Recent Developments - Sale of Seabrook."
BayCorp's total cash increased approximately $119,483,100 during
2002, and as of December 31, 2002, the Company had approximately
$136,664,000 in cash and cash equivalents and restricted cash.

On January 31, 2003, BayCorp commenced an issuer tender offer
to purchase up to 8,500,000 shares of its common stock at a price
of $14.85 per share. The Company disclosed in the Offer to
Purchase mailed to stockholders that the Board may decide to
reduce the number of shares purchased in the Offer to preserve
the Company's ability to use its approximately $90 million in net
operating loss carryforwards. The Offer was scheduled to expire
on March 3, 2003.

On March 4, 2003, in view of the response to the Offer and the
significant proration that would have been necessary to preserve
the Company's NOL carryforwards, the Board determined and
announced that it would not exercise its reserved right to
prorate the shares tendered in the Offer to preserve the
Company's ability to use the NOL carryforwards without
limitation. The Company extended the expiration date of the
Tender Offer to March 18, 2003 to provide stockholders additional
time to tender shares that had not been tendered or to withdraw
shares that had been tendered. At the extended expiration date
of March 18, 2003, 9,207,508 shares had been properly tendered
and not withdrawn (including options surrendered for repurchase
and cancellation.) The Company exercised its discretion to
purchase up to an additional 2% of outstanding shares, purchasing
a total of 8,673,887 shares (and surrendered options) at a
purchase price of $14.85, representing approximately 94.3% of the
shares (and options) tendered, excluding odd lots, which were
purchased without proration. Payment for all such shares and
options was completed by March 24, 2003. The Company distributed
approximately $123,622,000 to tendering stockholders and option
holders. In addition, the Company received cash of approximately
$1,776,000 from stock option exercises in 2003. The Company
repurchased an additional 5,000 shares of its stock for $66,000
in November 2003.

As of December 31, 2003 the Company had cash and cash
equivalents and restricted cash of approximately $9,969,000 and
there were 641,937 shares outstanding.

BayCorp's long-term power sales contract with Unitil accounted
for 100% of total operating revenues in 2003. The cash generated
from electricity sales under this contract was not sufficient to
meet the Company's ongoing cash requirements in 2003. The
Company sold power under this contract in 2003 at 5.04 cents per
kWh and incurred purchased power costs at an average purchase
price of 4.91 cents per kWh.

12

The Company had a net loss in 2003 of approximately
$4,168,000. There was a non-cash charge for an unrealized loss
on the mark-to-market of the Unitil PPA of approximately
$2,189,400 and a non-cash recognition of deferred gain on the
Unitil PPA of approximately $263,000. The value of this contract
is based on current projections of power prices over the life of
the contract. Forward power prices increased during
2003 primarily due to increases in the forward price of natural
gas. Power generating plants that use natural gas as a fuel
source are increasingly on the margin and therefore setting the
forward price of power in NEPOOL. Accordingly, the price of
power in NEPOOL is highly dependent on the price of natural gas.
Other non-cash charges included compensation expense of
approximately $409,600 for the variable accounting of certain
employee stock options and an accrual of approximately $179,000
for estimated payments to Mr. Getman and Mr. Callendrello (see
"Expenses").

A decrease of approximately $834,000 in prepaids and other
assets was primarily attributable to a partial settlement of post
Seabrook closing adjustments of approximately $2,354,000, and was
offset in part by an increase in prepayments and other assets of
approximately $1,510,000 to set up a deposit at NEPOOL to meet
its financial assurance policy. An increase in accounts payable
and accruals of approximately $551,600 was primarily attributable
to the payable for purchased power of approximately $345,000 and
the additional accrual for executive incentive payments referred
to above.

Accrued taxes decreased approximately $2,246,000 primarily due
to the payment of $2,226,000 made in March 2003 for the estimated
2002 New Hampshire tax liability. The Company filed its 2002
tax return in September 2003 and is requesting a refund of
approximately $941,000 from the State of New Hampshire for
overpayment of 2002 state income taxes. The State of New
Hampshire Department of Revenue Administration ("NHDRA") began an
examination of the Company's 2000, 2001 and 2002 tax returns in
December 2003. The review has not been completed, and the
requested refund has not been paid to the Company. The NHDRA has
not proposed any adjustments to the returns. The Company
believes that positions taken with respect to tax matters are
valid and supportable. However, given the current uncertainty as
to the outcome of the audit, the Company has not recorded the
expected refund as of December 31, 2003. Miscellaneous and other
liabilities decreased approximately $2,051,000 primarily due to a
$1,741,000 reduction in certain post closing Seabrook liabilities
that were estimated at the time of the Seabrook closing.

Following the sale of Seabrook and the completion of the
Company's Tender Offer, the Company has evaluated and pursued a
number of energy-related investment opportunities. The Company
continues to focus on the acquisition of electric generating
assets, an area where it feels that it has a solid understanding
of the market and the value of and risks related to those assets.
BayCorp is interested in acquiring either complete or partial
ownership of generating facilities. There are a large number of
generating assets currently offered for sale. These plants
consist of both merchant and contracted facilities using a
variety of fuels and located both domestically and
internationally. There is also growing competition for the
acquisition of these assets, with a number of new participants
entering the market, including private equity funds, hedge funds,
insurance companies and investment banks. The Company is focused
on pursuing opportunities and assets that it believes will
provide a return to stockholders commensurate with the risks.

Generally, the Company has targeted the following assets: (1)
merchant plants in regions with developed wholesale power markets
such as New England, New York, PJM and Texas that are fueled by
means other than natural gas (e.g. hydro, coal, nuclear), (2)
international assets that have long-term off-take contracts with
sovereign governments or sovereign-backed utilities, and (3)
either merchant or contracted renewable assets that qualify for
renewable energy credits. The Company believes that renewable
energy will become an increasingly important part of our national
energy policy and is seeking to position itself to take advantage
of this major national and global trend. BayCorp is also
considering other energy-related investments and the further
development of HoustonStreet.

BayCorp's first acquisition in the post-Seabrook period will
be the acquisition of the generating plants owned by Citizens
Communications through BayCorp's wholly-owned subsidiary, Great
Bay Hydro (see "Part 1. Recent Developments - Great Bay Hydro
Corporation"). Great Bay Hydro has entered into a purchase and
sale agreement, dated as of October 30, 2003, with Citizens to
acquire all of the generating facilities in Vermont owned by the
Vermont Electric Division of Citizens. The generating facilities
include an operating hydroelectric facility of approximately 4
MWs located in Newport, Vermont, diesel engine generators
totaling approximately 7 MWs located in Newport, Vermont and non-
operating hydroelectric facilities in Troy, Vermont and West
Charleston, Vermont. Under the terms of the purchase and sale
agreement, Great Bay Hydro will pay a nominal purchase price and
Citizens will transfer the hydroelectric facilities and
related 650 acres of real property to Great Bay Hydro. Citizens
has agreed to indemnify Great Bay Hydro for the reasonably
anticipated costs of complying with the requirements of the new
operating license issued by the FERC on November 21, 2003. These
plants will provide a physical hedge for meeting a portion of
BayCorp's

13

supply obligation under the long-term contract to supply 9.06 MWs
to Unitil. Great Bay Hydro has received FERC approvals for the
transfer of the facilities and has applied for and is awaiting
approval from the State of Vermont for the transfer of the
facilities and the designation of Great Bay Hydro as an EWG.
Great Bay Hydro must also seek approval for EWG status from
FERC. It is anticipated that the closing of this transaction
will occur in the second quarter of 2004.

The Company may pursue investments that would require
additional equity or debt financing. The Company believes that
such financing is available, but there can be no assurance that
the Company would be successful in obtaining such financing. If
the Company is not successful in obtaining additional financing,
the Company may not be able to pursue certain investment
alternatives. In such case, the Company may be limited to
opportunities that it can pursue given its current resources.
The income from the Company's current and near-term expected
operating businesses (the Unitil PPA and Great Bay Hydro
acquisition) is insufficient to pay current operating expenses.
If the Company is unsuccessful in identifying and making
additional investments, the Company may seek alternative
strategies, including liquidation. If the Company decides to
liquidate, cash may be reserved to pay for the expected expenses
of liquidation and other liabilities of the Company, including
potential runoff insurance policies and severance obligations
that would be triggered.

The Company reduced the number of employees from eleven as of
December 31, 2001 to nine as of December 31, 2002 and to an
equivalent of six full time employees as of December 31, 2003.
As a cost savings measure, the Company relocated in March 2003 to
smaller office space in Portsmouth, New Hampshire and reduced the
salaries of Mr. Getman and Mr. Callendrello.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

This Annual Report contains forward-looking statements. For
this purpose, any statements contained in this report that are
not statements of historical fact may be deemed to be forward-
looking statements. Without limiting the foregoing, the words
"believes," "anticipates," "plans," "expects," "intends" and
similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could
cause the results of BayCorp and/or its subsidiaries to differ
materially from those indicated by such forward-looking
statements. These factors include, without limitation, those set
forth below and elsewhere in this report.

Business Opportunities and Development. As described in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources," the
Company has evaluated and pursued energy-related investment
opportunities, has focused on the acquisition of electric
generating assets and is considering other energy-related
investments and the further development of HoustonStreet. There
can be no assurance that the Company will be able to identify
business opportunities that it believes to be attractive, or that
it will be successful in pursuing any such opportunities, in view
of factors that include competition for the acquisition of
assets, the fact that many energy-related activities are subject
to government regulatory requirements, the Company's limited
resources and the probable need to obtain debt or equity
financing in order to pursue certain opportunities. Moreover,
the acquisition of generating facilities owned by Citizens
Communications described in this Annual Report cannot be assured,
and the closing of that transaction is dependent upon the
satisfaction of numerous conditions, including obtaining all
required regulatory approvals.

History of Losses. BayCorp reported an operating loss in 2003
and reported operating income for 2002 and 2001. Prior to 2001,
BayCorp had never reported an operating profit for any year since
its incorporation.

Liquidity Need. As of December 31, 2003, BayCorp had
approximately $10 million in cash and cash equivalents,
restricted cash and short-term investments. The Company believes
that such cash, together with the anticipated proceeds from the
sale of electricity by GBPM will be sufficient to enable the
Company and its wholly owned subsidiaries to meet their cash
requirements in 2004. The direction of the Company's business
and circumstances, foreseen or unforeseen, may cause cash
requirements to be materially higher than anticipated and the
Company or its wholly-owned subsidiaries may be required to raise
additional capital, either through a debt financing or an equity
financing, to meet ongoing cash requirements. There is no
assurance that the Company or its subsidiaries would be able to
raise such capital or that the terms on which any additional
capital is available would be acceptable. Moreover, the
Company's need to raise additional capital in order to pursue
certain opportunities may affect the Company's competitive
position with respect to such opportunities. If additional funds
are raised by issuing equity securities, dilution to then
existing stockholders will result.

14

Primary Reliance on a Single Asset. BayCorp's principal
source of revenue is GBPM's contract to sell power to Unitil.
Accordingly, BayCorp's results of operations significantly depend
on the successful and continued performance under the Unitil
contract.

Risks Associated with Post-Closing Obligations from the
Seabrook Sale. On November 1, 2002, Great Bay and Little Bay
sold their interests in the Seabrook Project. In the Purchase
and Sale Agreement for the Seabrook Project, the buyer, FPL
Energy Seabrook agreed to indemnify Great Bay and Little Bay
against certain claims specified in the agreement. Great Bay and
Little Bay also agreed to indemnify FPL Energy Seabrook against
certain claims specified in the Purchase and Sale Agreement. If
a claim is brought against Great Bay and Little Bay for which FPL
Energy Seabrook is required to indemnify Great Bay and Little Bay
but FPL Energy Seabrook fails to provide such indemnity, or if
Great Bay is required to indemnify FPL Energy Seabrook pursuant
to the agreement, then the Company's results of operations could
be materially different. In addition, Great Bay and Little Bay
have deposited funds into an escrow account for the payment of
Seabrook expenses incurred prior to Closing. The amount escrowed
was based on an estimate of those expenses. A final
reconciliation of and termination of all such escrow accounts is
scheduled to occur in the second quarter of 2004 in accordance
with the terms of the Escrow Agreements among the selling owners.
Although the Company expects the amounts accrued for final
closing adjustments as of December 31, 2003 to be adequate,
should actual expenses be greater than the amount escrowed,
additional funds will be required.

Extensive Government Regulation. The electric energy industry
is subject to extensive regulation by federal and state agencies.
GBPM is subject to the jurisdiction of the FERC and, as a result,
is required to file with FERC all contracts for the sale of
electricity. FERC's jurisdiction also includes, among other
things, the sale, lease, merger, consolidation or other
disposition of facilities, interconnection of certain facilities,
accounts, service and property records.

Risks Related to HoustonStreet. HoustonStreet's revenues
depend on continued and expanded use of Internet-based wholesale
energy trading platforms. Electronic trading of wholesale energy
is new and evolving, and thus may not achieve widespread market
acceptance or emerge as a sustainable business. In addition,
HoustonStreet will need to enhance trading liquidity in order to
increase and sustain revenues. As a technology dependent
business, HoustonStreet's business could suffer due to computer
or communications systems interruptions or failures,
technological change or adverse competitive developments.
Further, as electronic commerce evolves, federal, state and
foreign agencies could adopt regulations covering issues such as
user privacy, content and taxation of products and services. If
enacted, government regulations could materially adversely affect
HoustonStreet's business. Although HoustonStreet currently is
not aware that it infringes any other patents, it is possible
that HoustonStreet's technology infringes patents held by third
parties. If HoustonStreet were to be found infringing, the owner
of the patent could sue HoustonStreet for damages, prevent
HoustonStreet from making, selling or using the owner's patented
technology or could impose substantial royalty fees for those
privileges. If any of the foregoing risks materialize, or other
risks develop that adversely affect HoustonStreet, or if
HoustonStreet fails to grow its revenues and net income, BayCorp
could lose all of the value of its investment in HoustonStreet.

CRITICAL ACCOUNTING POLICIES

Preparation of the Company's financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosures of
contingent assets and liabilities and revenues and expenses.
Note 1 to the Consolidated Financial Statements is a summary of
the significant accounting policies used in the preparation of
the Company's financial statements. The following is a
discussion of the most critical accounting policies used
historically by the Company.

Decommissioning

Great Bay and Little Bay recognized a liability based on the
present value of the estimated future cash outflows required to
satisfy their obligations using a risk free rate. As of December
31, 2001, the estimated undiscounted cash outflows for Great Bay
and Little Bay, for decommissioning, based on the November 2001
NDFC study, with decommissioning expenditures starting in 2024
and being completed in 2046, was $418.3 million, which discounted
at an average rate of 5.25%, over the funding period, to December
31, 2001, represented a liability of $85.5 million. As of
December 31, 2003 and 2002, the decommissioning liability was $0
as a result of the sale of Seabrook and FPL Energy Seabrook's
assumption of all decommissioning liability on November 1, 2002.

Great Bay and Little Bay accreted their share of the Seabrook
Project's decommissioning liability. The accretion was a non-
cash charge and recognized their liability related to the closure
and decommissioning of the nuclear plant in current year dollars
over the licensing period of the plant. The non-cash accretion
charge recorded in the accompanied consolidated statements of
income was $0, $4,105,000 and $3,261,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.

15

Stock Options

The Company accounts for its stock option plans under
Accounting Principles Board Opinion No. 25 and related
interpretations for options issued prior to 2003, and as such no
compensation cost had been recognized for options granted at fair
market value that had not been modified. In prior years, the
Company repriced certain options, accelerated the vesting of
others, made limited recourse loans for certain individuals to
exercise options and issued contingent options. The Company
recorded compensation expense related to these options. On
August 14, 2002 the Company announced that it would expense the
fair value of all stock options granted beginning January 1, 2003
in accordance with SFAS No. 123, "Accounting for Stock Based
Compensation." Awards under the Company's plans vest over
periods ranging from one to three years. Therefore, the cost
related to stock-based employee compensation included in the
determination of net income for 2002 and 2003 differs from that
which would have been recognized if the fair value based method
had been applied to all awards since the original effective date
of Statement 123.

In October 2001, the Company issued 240,000 non-qualified
options pursuant to the 2001 Non-Statutory Stock Option Plan.
These options have an exercise price of $9.05 and vested upon the
closing of the sale of the Seabrook Project. The Company
recorded compensation expense related to contingent and repriced
options of $77,000, $2,467,700 and $358,000 for 2003, 2002 and
2001, respectively.

In April 2003 and July 2003, the Company issued 132,000 and
10,000 options, respectively, pursuant to the 1996 Stock Option
Plan and the 2001 Non-Statutory Stock Option Plan. These options
have an exercise price of $14.45. The Company accounts for these
options using the fair value method and recorded compensation
expense in 2003 of $153,000 for these options.

Seabrook Outage Costs

The Company's historical operating results and the
comparability of these results on an interim and annual basis
have been directly impacted by the operations of the Seabrook
Project, including the cyclical refueling outages (generally 18
months apart) as well as unscheduled outages. During outage
periods at the Seabrook Project, Great Bay and Little Bay had no
electricity for resale from the Seabrook Project and consequently
no related revenues. Therefore the impact of outages on the
Company's and Great Bay's and Little Bay's results of operations
and financial position were, at times, materially adverse.

Great Bay and Little Bay accrued for the incremental costs of
the Seabrook Project's scheduled outages over the periods between
those outages. However, Great Bay and Little Bay continued to
expense the normal Seabrook operating and maintenance expenses as
incurred. Therefore, the Company incurred losses during
scheduled outage periods as a result of the combination of the
lack of revenue and the recognition of normal recurring operation
and maintenance costs as well as the continuing depreciation of
the utility plant.

Principles of Consolidation

BayCorp's Consolidated Financial Statements include the
accounts of the Company and all its subsidiaries. The Company
had a 15% joint ownership interest in Seabrook, a 1,150 megawatt
nuclear generating unit. The Company recorded in its financial
statements its proportional share of Seabrook's assets,
liabilities and expenses. The Company consolidates all majority-
owned and controlled subsidiaries and applies the equity method
of accounting for investments between 20% and 50%. All
significant intercompany transactions have been eliminated. All
sales of subsidiary stock are accounted for as capital
transactions in the consolidated financial statements.

In January 2003, the FASB issued Interpretation No. ("FIN")
46, Consolidation of Variable Interest Entities - An
Interpretation of ARB No. 51, as amended by FIN 46R. The
interpretation requires that a company consolidate the financial
statements of an entity that cannot finance its activities
without outside financial support, and for which that company
provides the majority of support. The Company has deemed that
its investment, HoustonStreet , is not a variable interest
entity. Therefore, the Company will not consolidate
HoustonStreet.

Energy Marketing

Until November 1, 2002, the Company utilized unit contingent
and firm forward sales contracts to maximize the value of its 174
MW power supply from the Seabrook Project. The Company currently
utilizes forward and spot market

16

purchases to maximize the value of the Unitil PPA. Forward
purchase contracts and the Unitil PPA are recorded at fair value.
The initial fair value gain of the Unitil PPA has been deferred
and is being amortized over the life of the agreement. For the
year ended December 31, 2003, the Company had an unrealized loss
on the mark-to-market of the Unitil contract of $2,189,000 and
had recognized a portion of the deferred gain on the Unitil
contract of $263,000. The deferred gain on the Unitil PPA was
$1,798,000 as of December 31, 2003. For the year ended December
31, 2002, the Company had an unrealized loss on the mark to
market of purchase contracts of $7,533 and an unrealized loss on
the mark-to-market of the Unitil PPA of $79,000 and had
recognized a portion of the deferred gain on the Unitil contract
of $44,000. The deferred gain on the Unitil PPA was $2,061,000
as of December 31, 2002.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK.

COMMODITY PRICE RISK

The prices of electricity are subject to fluctuations resulting
from changes in supply and demand. In 2003, GBPM tracked market
exposure for any forward firm energy trading contracts in a mark-
to-market model that is updated daily with current market prices
and is reflected in the company's balance sheet. In prior years,
Great Bay sold a portion of its electricity through forward,
fixed-price energy trading contracts. See "Note 5 - Energy
Marketing." The positive, or negative, value of the portfolio of
forward firm power commitments represents an estimation of the
gain, or loss, that GBPM and Great Bay would have experienced if
open firm commitments were covered at then-current market prices.
GBPM had an unrealized loss of $2,189,000 on its forward firm
fixed energy sales contract as of December 31, 2003. Great Bay
had an unrealized loss on its forward firm fixed energy sales
contract of approximately $79,000 as of December 31, 2002.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Financial statements and supplementary data is presented in
Part IV, Item 15 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES.

Dismissal of Arthur Andersen LLP; Engagement of Deloitte &
Touche LLP. As previously disclosed on the Current Report on
Form 8-K/A filed on July 26, 2002, BayCorp Holdings, Ltd. (the
"Company") engaged Deloitte & Touche LLP as the Company's
independent public accountants for the 2002 fiscal year, and
dismissed Arthur Andersen LLP ("Andersen"), which served as the
Company's independent public accountants for the 2000 and 2001
fiscal years. The decision to change accountants was recommended
by the Company's Audit Committee and approved by the Company's
Board of Directors.

The audit reports issued by Andersen on the consolidated
financial statements for the years ended December 31, 2001 and
2000 did not contain an adverse opinion or disclaimer of opinion
nor were they qualified or modified as to uncertainty, audit
scope or accounting principles.

During each of the years ended December 31, 2001 and 2000, and
during the subsequent interim period through July 25, 2002, there
were no disagreements between the Company and Andersen on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements,
if not resolved to Andersen's satisfaction, would have caused
Andersen to make reference to the subject matter of the
disagreement in connection with its reports on the Company's
consolidated financial statements for such periods.

None of the reportable events described in Item 304(a)(1)(v)
of Regulation S-K occurred during the Company's two most recent
fiscal years or during the subsequent interim period through July
25, 2002. During the fiscal years ended December 31, 2001 and
2000, and during the subsequent interim period through July 25,
2002, the Company did not consult with Deloitte & Touche LLP with
respect to the application of accounting principles to a
specified transaction or regarding any of the other matters or
events set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.

Resignation of Deloitte & Touche LLP; Engagement of Vitale,
Caturano & Company. As previously reported on the Current Report
on Form 8-K filed on January 16, 2003, as amended on Form 8-K/A
filed on January 17, 2003, on January 9, 2003, Deloitte & Touche
LLP ("Deloitte ") notified the Company that Deloitte resigned as
the Company's independent auditor. Deloitte had been engaged as
the Company's independent public accountants since July 25, 2002.
On January 14, 2003, the Company engaged Vitale, Caturano &
Company ("Vitale, Caturano") as the Company's independent public
accountants to conduct the audit for the Company's 2002 fiscal
year and a re-audit for the 2001 and 2000 fiscal years. The
reasons for the change in accountants are explained below.

17

In September 2002, the Securitites and Exchange Commission
("SEC" or the "Commission") notified the Company that the SEC
planned to conduct a routine review of the Company's Annual
Report on Form 10-K for the year ended December 31, 2001 (the
"2001 Annual Report") and the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2002. During the review
process, the Company received and responded to comments made by
SEC staff ("Staff") about those reports. The SEC and the Company
agreed to certain adjustments that the Company would make to its
2001 Annual Report in response to Staff's comments. The Company
had to then file a Form 10-K/A containing amendments (the
"Amendments") to its 2001 Annual Report after Vitale, Caturano
completed an audit of the restated financial statements for 2001
and 2000 and issued their opinion that was to be included in the
Form 10-K/A.

On November 15, 2002, the Company announced its intention to
commence an issuer tender offer for its own shares (the "Tender
Offer") in January 2003. The Company determined that it was in
the Company's best interests that the Amendments be filed before
the Company commenced the Tender Offer. The Company's goal was
to commence the Tender Offer as soon as possible. However,
Deloitte informed the Company that because of the significance to
the Company of its interest in the Seabrook Project in 2000 and
2001, Deloitte would not be willing to report on an audit of the
Company's 2002 financial statements unless the re-audits for 2000
and 2001 are conducted in a manner that places no reliance on the
2000 and 2001 audit reports on Seabrook's financial statements
issued by Arthur Andersen. The Chairman of the Company's Audit
Committee discussed this matter with Deloitte and the Company
authorized Deloitte to respond fully to inquiries of Vitale,
Caturano concerning this matter. Moreover, Deloitte indicated
that they would be unable to complete their audit of the
Company's 2002 financial statements and re-audit of 2001 and 2000
within a time frame that would allow the Company to commence the
Tender Offer before March 2003. None of the Commission's
comments related to the Company's reporting of Seabrook financial
information. A partner at Vitale, Caturano was the concurring
partner at Arthur Andersen for the Seabrook audit for the periods
covered by the Amendments. This partner has also been involved
with the Company's audits since 1994. Because of that partner's
experience with audits of the Company and of Seabrook, Vitale,
Caturano undertook to conduct the re-audits of the Company for
2001 and 2000 in a time frame that would allow the Company to
commence the Tender Offer as planned. In addition, the cost to
the Company would be substantially reduced based on estimates
received from both firms.

Deloitte's resignation followed the Company's discussion with
Deloitte of its intention to dismiss Deloitte as the Company's
auditor. Deloitte had been engaged by the Company since July
2002 and had not issued a report on any of the Company's
financial statements and, therefore, there has been no report
containing an adverse opinion or disclaimer of opinion, or a
report that was qualified or modified as to uncertainty, audit
scope, or accounting principles. There have been no
disagreements between the Company and Deloitte on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which disagreements,
if not resolved to Deloitte's satisfaction, would have caused
Deloitte to make reference to the subject matter of the
disagreement in connection with its reports on the Company's
consolidated financial statements for any period.

The Company believes that the change in accountants is in the
best interests of the Company and its stockholders. The decision
to engage Vitale, Caturano was recommended by the Company's Audit
Committee and approved by the Company's Board of Directors.

The Company previously provided a copy of the disclosures
contained in this Form 10-K to Deloitte and requested Deloitte to
furnish a letter stating whether Deloitte agrees with the
Company's statements as required by Item 304(a)(3) of Regulation
S-K. Deloitte has provided a letter that acknowledges, with
respect to the disclosures in Form 8-K/A filed on January 17,
2003, agreement with the statements made in the first two
sentences in the first paragraph, the first two sentences and the
last sentence in the second paragraph, the first, fourth, fifth,
sixth and seventh sentences in the third paragraph, and all of
the fourth paragraph.

The Company provided a copy of the disclosures contained in the
Form 8-K to Vitale, Caturano and requested Vitale, Caturano to
furnish a letter stating whether Vitale, Caturano agreed with the
Company's statements as required by Item 304(a)(2)(D) of
Regulation S-K. Vitale, Caturano provided a letter acknowledging
its agreement with the disclosures made on the Company's Form 8-
K/A filed on January 17, 2003.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

The Chairman, CEO, and President and the Vice President of
Finance of the Company have reviewed and evaluated the
effectiveness of disclosure controls and procedures (as defined
in the Securities Exchange Act of 1934 (the "Exchange Act") Rules
240.13a-14(c) and 15d-14 (c)) within 90 days before the

18

filing of this annual report. Based on that evaluation, the
Chairman, CEO, and President and the Vice President of Finance
have concluded that their current disclosure controls and
procedures are, in all material respects, effective and timely,
providing them with material information relating to that
required to be disclosed in the reports the Company files or
submits under the Exchange Act.

The Company's management, including the Chairman, CEO and
President and the Vice President of Finance, does not expect that
the Company's disclosure controls and procedures or its internal
controls will prevent all error and all fraud. A control system,
no matter how well conceived and operated, provides reasonable,
not absolute, assurance that the objectives of the control system
are met. The design of a control system reflects resource
constraints; the benefits of controls must be considered relative
to their costs. Because there are inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within the Company have been or will be detected. These inherent
limitations include the realities that judgments in decision-
making can be faulty and that breakdowns occur because of simple
error or mistake. Controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of
controls is based in part upon certain assumptions about the
likelihood of future events. There can be no assurance that any
design will succeed in achieving its stated goals under all
future conditions; over time, controls may become inadequate
because of changes in conditions or deterioration in the degree
of compliance with the policies or procedures. Because of the
inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be
detected.

Changes in Internal Controls

There have not been any significant changes in the Company's
internal controls or, to its knowledge, in other factors that
have materially affected, or are reasonably likely to materially
affect, these controls subsequent to the date of their
evaluation. The Company is not aware of any significant
deficiencies or material weaknesses and, therefore, no corrective
actions were taken.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

(a) Directors. The information with respect to directors
required under this item is incorporated by reference to the
section captioned "Election of Directors" in the Company's Proxy
Statement with respect to the Annual Meeting of Stockholders to
be held on May 17, 2004.

(b) Executive Officers. The information with respect to
executive officers required under this item is incorporated by
reference to Part I, Item 1 of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION.

The information required under this item is incorporated
herein by reference to the section entitled "Election of
Directors - Compensation of Directors," "-Executive
Compensation," "-Employment Agreements," "-Report of the
Compensation Committee" and "-Stock Performance Graph" in the
Company's Proxy Statement with respect to the Annual Meeting of
Stockholders to be held May 17, 2004.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

The information required under this item is incorporated
herein by reference to Part II, Item 5. of this Annual Report on
Form 10-K and the section entitled " Security Ownership of
Certain Beneficial Owners and Management" in the Company's Proxy
Statement with respect to the Annual Meeting to be held on May
17, 2004.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required under this item is incorporated
herein by reference to the section entitled "Certain
Relationships and Related Transactions" in the Company's Proxy
Statement with respect to the Annual Meeting to be held on May
17, 2004.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

19

The information required under this item is incorporated
herein by reference to the section entitled "Matters Relating to
the Independent Auditors" in the Company's Proxy Statement with
respect to the Annual Meeting of Stockholders to be held May 17,
2004.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.

(a)Documents filed as a part of this Form 10-K:

1. Financial Statements. The Consolidated Financial Statements
listed in the Index to Consolidated Financial Statements
and Financial Statement Schedules are filed as part of this
Annual Report on Form 10-K.

2. Exhibits. The Exhibits listed in the Exhibit Index
immediately preceding such Exhibits are filed as part of
this Annual Report on Form 10-K.

(b)Reports on Form 8-K:

There were no reports on Form 8-K filed during the three month
period ended December 31, 2003.

20

INDEX TO FINANCIAL STATEMENTS

BAYCORP HOLDINGS, LTD.

21

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
BayCorp Holdings, Ltd.

We have audited the accompanying consolidated balance sheets of
BayCorp Holdings, Ltd. (a Delaware corporation) and its wholly-
owned subsidiaries, as of December 31, 2003 and 2002, and the
related consolidated statements of operations and comprehensive
income (loss), changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2003.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of BayCorp Holdings, Ltd. and its wholly-owned
subsidiaries as of December 31, 2003 and 2002, and the results of
their operations and cash flows for the three years in the period
ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States.

VITALE, CATURANO & COMPANY P.C.

Boston, Massachusetts
January 30, 2004

F-1

BAYCORP HOLDINGS, LTD.

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-2

BAYCORP HOLDINGS, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-3

BAYCORP HOLDINGS, LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-4

BAYCORP HOLDINGS, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)

(The accompanying notes are an integral part of these consolidated financial
statements).

F-5

BAYCORP HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. THE COMPANY

BayCorp Holdings, Ltd. ("BayCorp" or the "Company") is a
holding company incorporated in Delaware in 1996. Until January
1, 2003, BayCorp had two principal operating subsidiaries that
generated and traded wholesale electricity, Great Bay Power
Corporation ("Great Bay") and Little Bay Power Corporation
("Little Bay"). Their principal asset was a combined 15% joint
ownership interest in the Seabrook Nuclear Power Project in
Seabrook, New Hampshire (the "Seabrook Project" or "Seabrook")
until November 1, 2002, when BayCorp sold Great Bay's and Little
Bay's interest in Seabrook. That ownership interest entitled
Great Bay and Little Bay to approximately 174 MWs of the Seabrook
Project's power output. Great Bay and Little Bay were exempt
wholesale generators ("EWGs") under the Public Utility Holding
Company Act of 1935 ("PUHCA"). The companies sold their power in
the competitive wholesale power markets. Great Bay and Little
Bay were each wholly-owned by BayCorp. In December 2002, BayCorp
legally dissolved Great Bay and Little Bay.

Great Bay was incorporated in New Hampshire in 1986 and was
formerly known as EUA Power Corporation. Little Bay was
incorporated in New Hampshire in 1998. Great Bay sold its power,
including its 12.1% share and Little Bay's 2.9% share of the
electricity output of the Seabrook Project, in the wholesale
electricity market, primarily in the Northeast United States.
Little Bay sold its power solely to Great Bay under an
intercompany agreement. Neither BayCorp nor Great Bay or Little
Bay had operational responsibilities for the Seabrook Project.
Great Bay sold all but approximately 10 MWs of its share of the
Seabrook Project capacity in the wholesale short-term market. In
addition to selling its power generated by Seabrook, Great Bay
purchased power on the open market for resale to third parties.

The Seabrook Project is a nuclear-fueled, steam electricity,
generating plant located in Seabrook, New Hampshire, which was
originally planned to have two Westinghouse pressurized water
reactors, Seabrook Unit 1 and Seabrook Unit 2 (each with a rated
capacity of 1,150 MWs), utilizing ocean water for condenser
cooling purposes. Seabrook Unit 1 entered commercial service on
August 19, 1990. Seabrook Unit 2 was canceled. Great Bay became
a wholesale generating company when Seabrook Unit 1 commenced
commercial operation on August 19, 1990. In 1993, the Company
became an EWG under the Energy Policy Act of 1992.

The Seabrook Project was owned by Great Bay, Little Bay and
nine other utility companies. Great Bay's and Little Bay's
combined joint ownership interest of 15% was the third largest
interest among the participants, exceeded only by the
approximately 40% interest held by affiliates of Northeast
Utilities ("NU") and the 17.5% interest held by The United
Illuminating Company.

In October 2002, BayCorp created two new subsidiaries, Great
Bay Power Marketing, Inc. ("GBPM") and BayCorp Ventures, LLC.
("BCV"). GBPM was created to hold the purchased power agreement
that Great Bay had with Unitil Power Corporation ("Unitil") and
to arrange for the power supply to satisfy the agreement.
Effective January 1, 2003, GBPM assumed the Unitil contract and
holds the letter of credit established to secure GBPM's
obligations under the Unitil contract. BayCorp created BCV to
serve as a vehicle through which the Company can make investments
following the Seabrook sale and the expiration of the Company's
tender offer.

In September 2003, BayCorp created a third subsidiary, Great
Bay Hydro Corporation ("Great Bay Hydro"). Great Bay Hydro,
formed for this purpose, has entered into a purchase and sale
agreement, dated as of October 30, 2003, with Citizens
Communications Company ("Citizens") to acquire the generating
facilities in Vermont owned by the Vermont Electric Division of
Citizens. The generating facilities include an operating
hydroelectric facility of approximately 4 MWs located in Newport,
Vermont, diesel engine generators totaling approximately 7 MWs
located in Newport, Vermont and non-operating hydroelectric
facilities in Troy, Vermont and West Charleston, Vermont. Under
the terms of the purchase and sale agreement, Great Bay Hydro
will pay a nominal purchase price and Citizens will transfer the
hydroelectric facilities and related 650 acres of real property
to Great Bay Hydro and has agreed to indemnify Great Bay Hydro
for the reasonably anticipated costs of complying with the
requirements of the new operating license currently issued by the
Federal Energy Regulatory Commission ("FERC") on November 21,
2003. These plants will provide a physical hedge for meeting a
portion of BayCorp's supply obligations under the long-term
contract to supply 9.06 MWs to Unitil. Great Bay Hydro has
received FERC approvals for the transfer of the facilities and
has applied for and is awaiting approval from the State of
Vermont for the transfer of the facilities and the designation of
Great Bay Hydro as an EWG. Great Bay Hydro must also seek
approval for EWG status from

F-6

FERC. It is anticipated that the closing of this transaction
will occur in the second quarter of 2004.

BayCorp also owns shares representing approximately 49.7% of
the voting power of all outstanding common and preferred shares
of HoustonStreet Exchange, Inc. ("HoustonStreet") as of December
31, 2003. HoustonStreet, incorporated in Delaware in 1999, is an
equity investment of BayCorp. HoustonStreet developed and
operates HoustonStreet.com, an Internet-based independent crude
oil and refined products trading exchange in the United States.
As of December 31, 1999, the Company owned 100% of HoustonStreet.
HoustonStreet raised additional equity in 2000 from outside
investors and as a result, as of December 4, 2000, the Company's
ownership fell below 50%, to 45.9%. Subsequently, the Company
deconsolidated HoustonStreet as of December 4, 2000, started
accounting for this investment on the equity method and suspended
recognition of additional HoustonStreet losses as of that date.

On March 30, 2001, HoustonStreet raised approximately $2.9
million in additional funding, including $450,000 from BayCorp,
by selling senior secured notes, warrants to purchase
HoustonStreet preferred stock and warrants to purchase
HoustonStreet common stock. Collectively, these securities are
referred to as the "HoustonStreet Series C Units." In March
2001, BayCorp authorized HoustonStreet to convert BayCorp's $7
million loan made in 2000, along with approximately $1 million in
accrued interest and penalties on the note and past due
management fees, into $8 million of Series C Units. The Company
wrote the loan, accrued interest and receivables from
HoustonStreet down to zero as of December 31, 2000 and as such,
the conversion of these amounts had no accounting impact on
BayCorp. The senior secured promissory note issued to the
Company by HoustonStreet on March 30, 2001 with a face value of
$8.4 million, is one of a series of notes. These notes bear
interest on the outstanding principal from the date issued until
the notes are paid in full at prime plus 5%. The outstanding
principal and interest of this note as of December 31, 2003 was
approximately $10.8 million of the approximate $13.4 million in
senior secured promissory notes outstanding at HoustonStreet.
Accrued interest is payable, at the sole option of the holder, in
cash or in warrants to purchase shares of Series C convertible
preferred stock. The notes are secured by a first priority
security interest in all the assets of HoustonStreet. The notes
were originally due and payable in December 2001, and the
maturity date was subsequently extended to January 15, 2004. The
notes were not paid when due, and in February 2004, HoustonStreet
was formally notified of the payment default. BayCorp and the
other senior secured noteholders have reserved their rights and
are considering all of their options to maximize recovery on the
notes, including a restructuring that would potentially provide
effective control of HoustonStreet to the noteholders.

Holders of shares of Series A and B Convertible Preferred
Stock of HoustonStreet may request that HoustonStreet redeem such
shares in three equal annual installments on each of the fourth,
fifth and sixth anniversaries of their initial issuance based on
original purchase prices or, at any time, based on the $0.01 par
value. The date for notices of the first annual installment
redemption has passed without any request for redemption. The
management of HoustonStreet believes that the redemption prices
are far in excess of the market value of the Series A and B
Preferred Stock, and HoustonStreet does not currently have either
the resources or the legal ability to be able to pay such
redemption, if requested. Either the redemption or repurchase of
preferred shares or reorganization could result in BayCorp
regaining majority ownership and control of HoustonStreet. In
that event, BayCorp would be required to consolidate
HoustonStreet in the BayCorp financial statements.

B. SALE OF SEABROOK OWNERSHIP

In October 2000, the Company announced that it reached an
agreement with NU under which the Company's generating
subsidiaries, Great Bay and Little Bay, would include their
aggregate 15% ownership share of the Seabrook Project in the
auction of NU's subsidiaries' shares of the Seabrook Project. As
a result of the auction, which was conducted in 2001 and 2002,
FPL Energy Seabrook, LLC ("FPL Energy Seabrook"), a subsidiary of
FPL Group, Inc., agreed to purchase 88.2% of the 1,161 MW Unit 1
and 88.2% of the partially constructed Unit 2, for $836.6 million
subject to certain adjustments, with payment deliverable fully in
cash at closing. The purchase price included the projected fuel
and non-fuel inventories at closing and Unit 2 components. Great
Bay, Little Bay and the other sellers were responsible for making
their then required decommissioning fund top off payments on or
before the date of sale closing and to transfer their respective
decommissioning trust funds to FPL Energy Seabrook. FPL Energy
Seabrook assumed nearly all of the Company's Seabrook liabilities
including the decommissioning liability for the acquired portion
of Seabrook. On November 1, 2002, the Company closed the sale of
its interests in Seabrook and received approximately $113 million
in cash for its interests in the Seabrook Project (the "Seabrook
Closing"). The Company funded certain escrows for potential
closing adjustments and paid other costs of approximately $4.3
million. The remaining escrow amounts are included in prepayments
and the potential closing adjustments are included in
miscellaneous current liabilities. The amount escrowed was based
on an estimate of those expenses. A final reconciliation of and
termination of all such escrow accounts is expected to occur in
the second quarter of 2004 in accordance with the terms of the
Escrow Agreements among the selling owners. Although the Company
expects the amounts accrued for final closing adjustments as of
December 31, 2003 to be adequate, should actual expenses be
greater than the amount escrowed, additional funds will be
required.

F-7

The following unaudited pro forma income statement assumes the
disposition of the Seabrook investment occurred on December 31,
2001. The unaudited pro forma financial information is presented
for comparative purposes only and is not intended to be
indicative of actual results of continuing operations that would
have been achieved had the sale been consummated as of December
31, 2001, nor do they purport to indicate results which may be
attained in the future.

(1)Pro forma income statement amounts represent short term
sales and sales under the Unitil contract along with related
purchased power. The Administrative & General expenses
include the costs incurred by BayCorp to manage its
investment in Seabrook. Pro forma results do not consider
the cost reductions which would be required if the Company no
longer held its Seabrook investment. Pro forma results also
do not include assumed earnings on the proceeds from the sale
of Seabrook.

C. REGULATION

Great Bay and Little Bay were subject to the regulatory
authority of the FERC, the Nuclear Regulatory Commission ("NRC"),
the New Hampshire Public Utilities Commission ("NHPUC") and other
federal and state agencies as to rates, operations and other
matters. GBPM is subject to the regulatory authority of the
FERC. Great Bay's and Little Bay's cost of service, however, was
not regulated. GBPM's cost of service is not regulated. As
such, Great Bay's, Little Bay's and GBPM's accounting policies
were and are not subject to the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 71, "Accounting for
the Effects of Certain Types of Regulation."

D. USE OF ESTIMATES

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and

F-8

assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

E. DEPRECIATION

Utility plant was depreciated on the straight-line method at
rates designed to fully depreciate all depreciable properties
over the lesser of estimated useful lives or the Seabrook
Project's remaining NRC license life, which expires in 2026.

Capital projects constituting retirement units were charged to
electric plant. Minor repairs were charged to maintenance
expense. When properties were retired, the original costs, plus
costs of removal, less salvage, were charged to the accumulated
provision for depreciation.

F. AMORTIZATION OF NUCLEAR FUEL

The cost of nuclear fuel was amortized to expense based on the
rate of burn-up of the individual assemblies comprising the total
core. Great Bay and Little Bay also provided for the cost of
disposing of spent nuclear fuel at rates specified by the United
States Department of Energy ("DOE") under a contract for disposal
between Great Bay and Little Bay, through their managing agent
North Atlantic Energy Service Corporation ("NAESCO"), and the
DOE.

G. AMORTIZATION OF MATERIALS AND SUPPLIES

Great Bay and Little Bay recorded an expense designed to fully
amortize the cost of the material and supplies inventory that was
expected to be on hand at the expiration of the Plant's NRC
operating license.

H. DECOMMISSIONING

Great Bay and Little Bay recognized a liability based on the
present value of the estimated future cash outflows required to
satisfy their obligations using a risk free rate. As of December
31, 2001, the estimated undiscounted cash outflows for Great Bay
and Little Bay, for decommissioning, based on the November 2001
NDFC study, with decommissioning expenditures starting in 2024
and being completed in 2046, was $418.3 million, which discounted
at an average rate of 5.25%, over the funding period, to December
31, 2001, represented a liability of $85.5 million. As of
December 31, 2003 and December 31, 2002, the decommissioning
liability was $0 as a result of the sale of Seabrook and FPL
Energy Seabrook's assumption of all decommissioning liability on
November 1, 2002.

Great Bay and Little Bay accreted their share of the Seabrook
Project's decommissioning liability. The accretion is a non-cash
charge and recognized their liability related to the closure and
decommissioning of their nuclear plant in current year dollars
over the licensing period of the plant. The non-cash accretion
charge recorded in the accompanied consolidated statements of
income was $0, $4,105,000 and $3,261,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.

I. OPERATING REVENUES

Revenues are recorded on an accrual basis based on billing
rates provided for in contracts and approved by FERC. During the
year ended December 31, 2003, the Company had one long-term sales
contract with Unitil which accounted for 100% of total 2003
operating revenues. During the year ended December 31, 2002, two
customers accounted for 46% and 37% of total operating revenues.
For the year ended December 31, 2001, three customers accounted
for 32%, 16% and 15% of total operating revenues.

J. TAXES ON INCOME

The Company accounts for taxes on income under the liability
method required by SFAS No. 109, "Accounting for Income Taxes."
Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting
and tax basis of assets and liabilities and are measured using
enacted tax rates. A valuation allowance is established against
deferred tax assets unless the Company believes it is more likely
than not that the benefit will be realized.

K. CASH EQUIVALENTS AND SHORT TERM INVESTMENTS

F-9

For purposes of the Statements of Cash Flows, the Company
considers all highly liquid short-term investments with an
original maturity of three months or less to be cash equivalents.
The carrying amounts approximate fair value because of the short-
term maturity of the investments.

All other short-term investments with a maturity of greater
than three months were classified as available-for-sale and
reflected as a current asset at market value. Changes in the
market value of such securities were reflected in equity. There
were no short-term investments, and accordingly no unrealized
gains or losses on short-term investments, for the years ended
December 31, 2003, 2002 and 2001. The cost of short-term
investments that were sold was based on specific identification
in determining realized gains and losses recorded in the
accompanying statement of operations. The net realized gain is
recorded as a component of interest and dividend income. The net
realized loss on the sale of available-for-sale investments of
$296,200 in 2002 resulted from gross realized gains of $50,000
and gross realized losses of $346,200. The net realized gain on
the sale of available-for-sale investments of $12,400 in 2001
resulted from gross realized gains of $19,400 and gross realized
losses of $7,000.

L. SEABROOK OUTAGE COSTS

The Company's operating results and the comparability of these
results on an interim and annual basis were directly impacted in
2002 and 2001 by the operations of the Seabrook Project,
including the cyclical refueling outages (generally 18 months
apart) as well as unscheduled outages. During outage periods at
the Seabrook Project, Great Bay and Little Bay had no electricity
for resale from the Seabrook Project and consequently no related
revenues. Therefore the impact of outages on the Company's and
Great Bay's and Little Bay's results of operations and financial
position were materially adverse.

Great Bay and Little Bay accrued for the incremental costs of
the Seabrook Project's scheduled outages over the periods between
those outages. However, Great Bay and Little Bay continued to
expense the normal Seabrook operating and maintenance expenses as
incurred. Therefore, the Company incurred losses during
scheduled outage periods as a result of the combination of the
lack of revenue and the recognition of normal recurring operation
and maintenance costs as well as the continuing depreciation of
the utility plant. At the Seabrook Project, a scheduled
refueling outage began on May 4, 2002. Seabrook resumed full
operating capacity on June 6, 2002. The 2002 outage cost
approximately $32 million. The Company's share was approximately
$4.8 million.

M. SEGMENT INFORMATION

The Company has adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the reporting of information about
operating segments in annual and interim financial statements.
Operating segments are defined as components of an enterprise for
which separate financial information is available that is
evaluated regularly by the chief operating decision maker(s) in
deciding how to allocate resources and in assessing performance.
SFAS No. 131 also requires disclosures about products and
services, geographic areas and major customers. The Company
operates only in the wholesale electricity segment in the
Northeast United States.

N. EARNINGS PER SHARE

Basic earnings (loss) per share is computed by dividing net
earnings by the weighted number of common shares outstanding for
all periods presented. Diluted earnings (loss) per share
reflects the dilutive effect of shares under option plans.
Potentially dilutive shares outstanding during 2003 were excluded
from dilutive earnings (loss) per share because their effect
would be antidilutive.

Based on an average market price of common stock of $13.06 per
share for the year ended December 31, 2003, $14.74 per share for
the year ended December 31, 2002 and $9.11 per share for the year
ended December 31, 2001, the following table reconciles the
weighted average common shares outstanding to the shares used in
the computation of the basic and diluted earnings per share
outstanding.

F-10

O. ACCUMULATED OTHER COMPREHENSIVE INCOME

In accordance with SFAS No. 130, "Reporting Comprehensive
Income" the Company reports changes in stockholders' equity from
all sources during the period other than those resulting from
investments by stockholders (i.e., issuance or repurchase of
common shares and dividends.) The composition of other
comprehensive income is as follows:

P. RECLASSIFICATIONS

Certain reclassifications have been made in prior years'
financial statements to conform to classifications and
presentation used in the current year.

Q. PRINCIPLES OF CONSOLIDATION

BayCorp's Consolidated Financial Statements include the
accounts of the Company and all of its subsidiaries. The Company
had a 15% joint ownership interest in Seabrook, a 1,150-megawatt
nuclear generating unit. The Company recorded in its financial
statements its proportional share of Seabrook's assets,
liabilities and expenses. The Company consolidates all majority-
owned and controlled subsidiaries and applies the equity method
of accounting for investments between 20% and 50%. All
significant intercompany transactions have been eliminated. All
sales of subsidiary stock are accounted for as capital
transactions in the consolidated financial statements.

In January 2003, the FASB issued Interpretation No. ("FIN")
46, Consolidation of Variable Interest Entities - An
Interpretation of ARB No. 51, as amended by FIN 46R. The
interpretation requires that a company consolidate the financial
statements of an entity that cannot finance its activities
without outside financial support, and for which that company
provides the majority of support. The Company has deemed that
its investment, HoustonStreet, is not a variable interest entity.
Therefore, the Company will not consolidate HoustonStreet.

At December 31, 1999, BayCorp owned 100% of HoustonStreet. As
of December 31, 2001 and as of December 31, 2002, the Company
owned approximately 45.9% of HoustonStreet. As of December 31,
2003, the Company owned approximately 49.7% of HoustonStreet. Of
the 50.3% of HoustonStreet that is not owned by the Company,
approximately 3.3% is owned by Elliott Associates L.P. Inc., who
was a 5% or more stockholder of the Company until March 18, 2003.
The remaining 47% is owned by unrelated parties. As a result of
the above decrease in ownership, during 2000, the Company
deconsolidated HoustonStreet. At December 31, 2001, December 31,
2002 and at December 31, 2003, the Company accounts for this
investment on the equity method. The Company has an agreement
with HoustonStreet under which it is providing certain accounting
and administrative services to HoustonStreet for the periods
April 1999 to December 2003. Income related to such services was
$30,000 for the year ended December 31, 2003, $60,000 for the
year ended December 31, 2002 and $165,000 for the year ended
December 31, 2001.

R. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of the Company's financial
instruments as of December 31, 2003 and 2002 are as follows:

F-11

The carrying amounts for all assets other than energy trading
contracts approximate fair value because of the short maturity of
these instruments. The fair value of the energy trading contract
is based on current projections of power prices over the life of
the contract.

S. DETAIL OF MISCELLANEOUS CURRENT LIABILITIES

Miscellaneous current liabilities consisted of the following as
of December 31, 2003 and 2002:

Accrued Seabrook costs represent management's best estimate of
final Seabrook closing costs.

T. ENRON CLAIM

In January 2002, BayCorp reported that Great Bay received
notice on December 21, 2001 from Enron Power Marketing, Inc.
("Enron") that Enron was terminating its contracts with Great
Bay. Enron owed Great Bay $1,075,200 for power delivered prior
to Enron's Chapter 11 bankruptcy filing on December 2, 2001.
Great Bay also has an unliquidated claim against Enron for
damages resulting from the termination of the contracts. During
the fourth quarter of 2001, BayCorp recorded an expense of
$1,100,000 to establish a reserve for doubtful accounts due to
the uncertainty of collecting remaining amounts owed by Enron to
Great Bay for power delivered prior to Enron's Chapter 11
bankruptcy filing. Enron filed a plan of reorganization on July
11, 2003, which is subject to the approval of creditors and the
bankruptcy court. In October 2003, BayCorp sold a portion of its
power delivery claim in the amount of $1,041,600 to an
institutional investor for $343,700, which it received in
December 2003. BayCorp recorded this transaction as a recovery
of bad debt. BayCorp retains the remaining portion of the power
delivery claim as well as the claim for damages. Any recovery by
the Company on account of this remaining claim against Enron is
uncertain.

U. ISSUER TENDER OFFER

On January 31, 2003, BayCorp commenced an issuer tender offer
to purchase up to 8,500,000 shares of its common stock at a price
of $14.85 per share (the "Tender Offer" or "Offer"). The Company
disclosed in the Offer to Purchase mailed to stockholders that
the Board may decide to reduce the number of shares purchased in
the Offer to preserve the Company's ability to use its
approximately $90 million in net operating loss ("NOL")
carryforwards. The Offer was scheduled to expire on March 3,
2003.

On March 4, 2003, in view of the response to the Offer and the
significant proration that would have been necessary to preserve
the Company's NOL carryforwards, the Board determined and
announced that it would not exercise its reserved right to
prorate the shares tendered in the Offer to preserve the
Company's ability to use the NOL carryforwards without
limitation. The Company extended the expiration date of the
Tender Offer to March 18, 2003 to provide stockholders additional
time to tender shares that had not been tendered or to withdraw
shares that had been tendered. At the extended expiration date
of March 18, 2003, 9,207,508 shares had been properly tendered
and not withdrawn (including options surrendered for repurchase
and cancellation.) The Company exercised its discretion to
purchase up to an additional 2% of outstanding shares, purchasing
a total of 8,673,887 shares (and surrendered options) at a
purchase price of $14.85, representing approximately 94.3% of the
shares (and options) tendered, excluding odd lots, which were
purchased without proration. Payment for all such shares and
options was completed by March 24, 2003. The Company distributed
approximately $123,622,000 to tendering stockholders and option
holders. As of December 31, 2003 the Company had 641,937 shares
outstanding and cash and cash equivalents and restricted cash of
approximately $9,969,000.

V. ACCOUNTING FOR STOCK OPTIONS

The Company accounts for its stock option plans under
Accounting Principles Board Opinion No. 25 and related
interpretations for options issued prior to 2003 and as such no
compensation cost had been recognized for options granted at fair
market value that had not been modified. In prior years, the
Company repriced certain options, accelerated the vesting of
others, made limited recourse loans for certain individuals to
exercise options and issued contingent options. The Company
recorded compensation expense related to these options. On
August 14, 2002 the Company announced that it would expense the
fair value of all stock options granted beginning January 1, 2003
in accordance with SFAS No. 123, Accounting for Stock Based
Compensation as amended by SFAS 148. Awards under the Company's
plans vest over periods

F-12

ranging from one to three years. Therefore, the cost related to
stock-based employee compensation included in the determination
of net income for 2002 and 2003 differs from that which would
have been recognized if the fair value based method had been
applied to all awards since the original effective date of
Statement 123.

Had compensation cost for these plans been determined
consistent with SFAS No. 123, Accounting for Stock Based
Compensation, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts
(dollars are in thousands, except per share amounts.)

Accumulated deferred income taxes consisted of the following at December 31,
2003 and 2002:

The federal income tax provision set forth above represents 0%
of pre-tax loss in the years ended December 31, 2003 and 2002.
The following table reconciles the statutory federal income tax
rate to those percentages:

At December 31, 2002 and 2003, the Company had net operating
losses for federal income tax purposes of approximately $159
million and $167 million, respectively, before limitations. The
Company's federal net operating loss carryforwards will expire
during the years ending December 31, 2004 through 2023 if not
used to offset future taxable income. The Company believes that
the Tender Offer in March 2003 and related transactions resulted
in an ownership change within the meaning of Internal Revenue
Code ("IRC") Section 382. As such, the Company may be precluded
from utilizing its loss carryforwards originating prior to the
ownership change. The Company estimates approximately $165
million of the Company's NOL is subject to an annual limitation
for purposes of IRC Section 382 of approximately $390,000 through
2023. As a result of these limitations, all or a portion of the
Company's federal and state net operating loss carryforwards
incurred prior to the Tender Offer may expire unused. Additional
net operating loss carryforwards and other tax attributes
generated subsequent to the Tender Offer may be limited in the
event of certain future changes in the ownership of significant
stockholders.

The Company has recorded a valuation allowance against its
deferred tax assets. Management considers all available
evidence, historical and prospective, with greater weight given
to historical evidence, as well as the matters described in the
preceding paragraph, in determining whether it is more likely
than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of the Company's
deferred tax assets is dependent upon resolution of the matters
described in the preceding paragraph and generation of future
taxable income.

Approximately $2.7 million of the Company's deferred tax
assets and related valuation allowance relate to net operating
losses attributable to the exercise of employee stock options.
The tax benefit of this amount, when recognized, will be
accounted for as a credit to additional paid in capital.

The Company has filed its 2002 tax returns and is expecting a
refund of approximately $941,000 from the State of New Hampshire
for overpayment of 2002 state income taxes. The State of New
Hampshire Department of Revenue Administration ("NHDRA") began a
review of the Company's 2000, 2001 and 2002 tax returns in
December 2003. The review has not been completed, and the
requested refund has not been paid to the Company. The NHDRA has
not proposed any adjustments to the returns. The Company
believes that positions taken with respect to tax matters are
valid and supportable. However, given the current uncertainty as
to the outcome of the audit, the Company has not recorded the
expected refund as of December 31, 2003.

3. ENERGY MARKETING

Until November 1, 2002, the Company utilized unit contingent
and firm forward sales contracts to maximize the value of its 174
MW power supply from the Seabrook Project. It currently utilizes
firm forward and spot purchases to maximize the value of the
Unitil Purchased Power Agreement ("Unitil PPA"). The net
unrealized loss on trading activities for the year ended December
31, 2003 was $1,926,000 and is included in the accompanying
consolidated statement of operations for 2003. The net
unrealized gain on trading activities for the year ended December
31, 2002 was $115,300 and is included in the accompanying
consolidated statement of operations for 2002. The Company had
not entered into any forward firm energy trading contracts as of
December 31, 2001. The net change in unrealized gain on trading
activities for the year ended December 31, 2001 was $12,879,000
and is included in the accompanying consolidated statement of
operations for 2001.

The Company purchases a portion of its power needed for resale
from ISO New England ("ISO NE".) ISO NE requires financial
assurance to protect the New England Power Pool ("NEPOOL")
against a payment default of one of its participants. The
Company has provided this assurance in the form of a cash deposit
at ISO NE. The amount of this deposit was approximately
$1,508,000 as of December 31, 2003. The amount of collateral
needed is calculated based upon formulas developed by ISO NE and
NEPOOL. This deposit is reflected as an Other Long Term Asset in
the Company's financial statements.

4. PURCHASED POWER AGREEMENTS

Great Bay was party to a purchased power contract, dated as of
April 1, 1993, with Unitil that provided for Great Bay to sell to
Unitil 0.8696% of the energy and capacity of Seabrook,
approximately 10 MW. The Unitil PPA commenced on May 1, 1993 and
runs through October 31, 2010. The price for power was subject
to increase in accordance with a formula that provided for
adjustments at less than the actual rate of inflation. Unitil had
an option to extend the Unitil Purchased Power Agreement for an
additional 12 years until 2022.

F-14

In anticipation of the Seabrook Sale, the Unitil PPA was
amended as of November 1, 2002. The amendment primarily modified
the existing power supply contract to reduce the amount of power
delivered to 9.06 MWs, reduce the price that Unitil pays for
power to $50.34 per MW hour, and provide that Great Bay will
supply the power regardless of whether Seabrook was providing the
power. The amendment also provided alternative security for
Unitil's benefit, to replace and discharge the Third Mortgage
that secured Great Bay's performance of the contract. In
connection with the amended contract, the Company was required to
deposit $2.5 million into a restricted account for the benefit of
Unitil should the Company default. The amount is reflected as
restricted cash in the accompanying balance sheet. The amendment
received FERC approval. Great Bay assigned the Unitil PPA to
GBPM as of January 1, 2003.

This contract meets the definition of an energy-trading
contract under Emerging Issues Task Force ("EITF") issue no. 98-
10 and 00-17. In accordance with the FASB's EITF issue no. 02-03
the inception gain (initial value of $2.1 million) on the
contract has been deferred and will be recognized over the life
of the contract. The fair value of the contract was $3,400 as of
December 31, 2003 and $2.2 million as of December 31, 2002. The
deferred gain on the contract was $1.8 million as of December 31,
2003 and $2.1 million as of December 31, 2002. These amounts are
reflected in the Company's balance sheet.

5. STOCK OPTION PLAN

On April 24, 1995, the Board of Directors of the Company
established the 1995 Stock Option Plan (the "1996 Plan"), which
received stockholder approval at the Company's annual meeting on
April 16, 1996. On May 2, 2001 the Board of Directors of the
Company established the 2001 Non-Statutory Stock Option Plan (the
"2001 Plan"), which received stockholder approval at the
Company's annual meeting on April 24, 2002. The purpose of these
plans is to secure for the Company and its stockholders the
benefits arising from capital stock ownership by employees,
officers and directors of, and consultants or advisors to, the
Company who are expected to contribute to the Company's future
growth and success. Options granted pursuant to the 1996 Plan
may be either incentive stock options meeting the requirements of
Section 422 of the Internal Revenue Code or nonstatutory options,
which are not intended to meet the requirements of Section 422.
Options granted pursuant to the 2001 plan will be non-statutory
options that are not intended to meet the requirements of Section
422 of the Internal Revenue Code. The 1996 Plan and the 2001
Plan are administered by the Board of Directors of the Company
and may be modified or amended by the Board in any respect,
subject to stockholder approval in certain instances in the case
of the 1996 Plan.

On December 3, 1998, the Board of Directors of the Company
voted to reprice all of the outstanding options of the Company,
at that date, as the then outstanding options were "out of the
money." The Board of Directors determined that the then
outstanding options no longer had the desired motivational effect
or compensatory benefit for the employees. The repricing of the
options was based on the current market value of the stock as of
December 18, 1998. Simultaneously with the repricing, 139,583
existing options were forfeited. During 2000, the Board of
Directors of the Company accelerated the vesting period of the
options held by certain employees of the Company.

The Company accounts for its stock option plans under
Accounting Principles Board Opinion No. 25 and related
interpretations for options issued prior to 2003 and as such no
compensation cost had been recognized for options granted at fair
market value that had not been modified. In prior years, the
Company repriced certain options, accelerated the vesting of
others, made limited recourse loans for certain individuals to
exercise options and issued contingent options. The Company
recorded compensation expense related to these options. On
August 14, 2002 the Company announced that it would expense the
fair value of all stock options granted beginning January 1, 2003
in accordance with SFAS No. 123, Accounting for Stock Based
Compensation as amended by SFAS 148. Awards under the Company's
plans vest over periods ranging from one to three years.
Therefore, the cost related to stock-based employee compensation
included in the determination of net income for 2002 and 2003
differs from that which would have been recognized if the fair
value based method had been applied to all awards since the
original effective date of Statement 123.

In October 2001, the Company issued 240,000 non-qualified
options pursuant to the 2001 Non-Statutory Stock Option Plan.
These options have an exercise price of $9.05 and vested upon the
closing of the sale of the Seabrook Project. In April 2002, the
Company issued 80,000 options to management under the 2001 plan.
The options have an exercise price of $12.22.

In March 2002, the Company issued loans of $756,029 to its
President, Frank Getman, and a director, John Tillinghast, in
order for them to exercise 150,384 options for common stock.
These loans had limited recourse and were repaid in November
2002. The options that were exercised were part of the above
repricing.

F-15

FASB Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation ("FIN 44"), effective
July 1, 2000 and applied prospectively (except for direct or
indirect option repricings and the definition of an employee in
which case the effective date is December 15, 1998), addresses
compensation issues regarding the definition of an employee,
modifications to plan awards, changes in grantee status, business
combinations and share repurchase features. For transactions
subject to the December 15, 1998 effective date, no compensation
expense is recognized for the period between December 15, 1998
and July 1, 2000. FIN 44 requires variable accounting when
direct or indirect reductions of the exercise price occur. In
accordance with APB 25 and FIN 44, the Company recorded
compensation expense related to contingent and repriced options
of $77,000, $2,467,700 and $358,000 for 2003, 2002 and 2001,
respectively.

In April 2003 and July 2003, the Company issued 132,000 and
10,000 options, respectively, pursuant to the 1996 Stock Option
Plan and the 2001 Non-Statutory Stock Option Plan. These options
have an exercise price of $14.45. The Company accounts for these
options using the fair value method and recorded compensation
expense in 2003 of $153,000 for these options.

Had compensation cost for these Plans been determined
consistent with SFAS No. 123, Accounting for Stock Based
Compensation, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts
(dollars are in thousands, except per share amounts.)

A summary of the Company's stock option plan at December 31, 2003, 2002 and
2001, and changes during the years then ended, is presented in the table and
narrative below:

The following table summarizes information concerning outstanding and
exercisable options at December 31, 2003, 2002 and 2001:

F-16

The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following assumptions used for grants in 2003, 2002 and 2001
respectively: weighted average risk-free interest rates of 3.4,
4.9 and 4.9 percent, expected dividend yields of 0 % and expected
lives of five, seven and seven years and expected volatility of
24%, 47% and 67%, respectively.

6. COMMITMENTS AND CONTINGENCIES

BayCorp and its wholly owned subsidiaries currently lease
office space under a short-term noncancelable operating lease
that is renewable every six months. Rental expense under
operating lease agreements for the years ended December 31, 2003,
2002 and 2001 was $52,800, $81,144 and $101,325, respectively.

Future minimum commitments for operating leases as of December
31, 2003 are as follows:

YEAR ENDING OPERATING LEASES
----------------- ----------------
December 31, 2004 $8,800

7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

HoustonStreet developed and operates HoustonStreet.com. During
1999, HoustonStreet developed and operated a platform for the
trading of electricity over the Internet. As of December 31,
1999, the Company owned 100% of HoustonStreet.

During 2000, the Company loaned $7,000,000 to HoustonStreet at
an annual interest rate of 10%. As of December 31, 2000, the
Company also had approximately $570,000 in receivables due from
HoustonStreet.

HoustonStreet raised additional capital in 2000 to fund its
development and operations. In February 2000, HoustonStreet
raised $11,0000,000 in cash by issuing 4,814,815 shares of common
stock at $0.415 per share and 2,400,001 shares of Series A
preferred stock at $3.75 per share. The Company's ownership in
HoustonStreet at the end of February 2000 was 58.1%. In March
2000, HoustonStreet raised $5,600,005 in cash by issuing 266,667
shares of its common stock at $3.75 per share and 1,226,668
shares of Series A preferred stock at $3.75 per share. The
Company's ownership in HoustonStreet at the end of March 2000 was
53.5%. In April 2000, HoustonStreet raised $13,500,000 by
issuing 133,334 shares of Series A preferred stock at $3.75 per
share and 1,083,334 shares of Series B preferred stock at $12.00
per share. The Company's ownership in HoustonStreet at the end
of April 2000 was 50.2%. In May 2000, HoustonStreet received
approximately $4,998 from the exercise of an employee stock
option. The Company's ownership in HoustonStreet at the end of
May 2000 was 50.0%. On December 4, 2000, HoustonStreet signed an
agreement with Enron Net Works LLC to have electricity and
natural gas prices that are posted on EnronOnline automatically
posted on HoustonStreet. HoustonStreet issued Enron 1,781,043
shares of common stock in exchange for this agreement. As a
result, as of December 4, 2000, the Company's ownership in
HoustonStreet was 45.9%. The Company reflected its proportionate
share of subsidiary equity resulting from the additional equity
raised by HoustonStreet as a capital transaction in accordance
with SEC Staff Accounting Bulletin Topic 5:H. These sell down
gains resulted in an unrealized gain for 2000 of approximately
$6.7 million

F-17

recorded as additional paid in capital in the accompanying
statement of changes in stockholders' equity.

On December 4, 2000 HoustonStreet sold an amount of its own
stock such that BayCorp no longer had majority ownership in or
control over HoustonStreet. As of December 4, 2000, the Company
deconsolidated HoustonStreet and started accounting for this
investment on the equity method.

In June 2001, HoustonStreet issued 426,667 shares of its common
stock to settle amounts owed to a creditor of HoustonStreet. The
Company's ownership in HoustonStreet at the end of June 2001 was
45%. In December 2001, HoustonStreet cancelled 850,521 shares of
common stock previously issued to Enron in 2000. Enron
terminated the agreement between HoustonStreet and Enron based on
allegations that HoustonStreet had defaulted under the agreement.
The agreement provided for the cancellation of certain shares
upon this termination by Enron. HoustonStreet believes that
Enron wrongfully terminated its agreement with HoustonStreet and
is pursuing its rights and remedies under the contract. Also in
December 2001, HoustonStreet repurchased 281,650 shares of Series
A preferred stock from certain investors for $3.00. The
Company's ownership in HoustonStreet at the end of December 2001
was 47.5%. In May 2002, HoustonStreet issued 500,000 shares of
common stock. The Company's ownership in HoustonStreet at the
end of December 2002 was 46.4%. In 2003, HoustonStreet
repurchased 1,422,796 shares of Preferred A and B stock for a
total of $5. The Company's ownership in HoustonStreet at the end
of December 2003 was 49.7%.

Under the equity method in 2001, the Company did not recognize
HoustonStreet operating losses as the Company was no longer a
majority owner and did not have voting control of HoustonStreet.
In March 2001, the Company loaned an additional $450,000 in cash
to HoustonStreet as part of a senior secured debt financing. The
secured creditors, including BayCorp, have a first priority
secured interest in all of HoustonStreet's assets. The Company
recorded this loan as an equity loss in HoustonStreet in 2001
because it was uncertain if and when this amount would be
recovered given the termination of the agreement with Enron that
followed in June 2001. The table below reflects the pro rata
portion of operating losses attributable to BayCorp's interest in
HoustonStreet for 2003, 2002 and 2001.

As of December 31, 2001, HoustonStreet had ceased operation of
its electricity trading platform and focused exclusively on its
crude oil and refined products trading platform.

BayCorp entered into a Management and Administrative Services
Agreement (the "Services Agreement") with HoustonStreet in 2003.
Under the Services Agreement with HoustonStreet, BayCorp provides
HoustonStreet with administrative, accounting and bookkeeping,
budgeting and human resource services. HoustonStreet was billed
$30,000 in 2003 for these services. The Services Agreement has a
one-year term and provides for automatic one-year renewals.
HoustonStreet entered into a Computer Technology Services
Agreement with BayCorp in 2003 to provide BayCorp with computer
technology services including but not limited to all software and
hardware repairs and updates and server and networking connection
issues, as may be required by BayCorp on an as needed basis.
BayCorp was billed $30,000 for these services in 2003.

The Company had no investments or receivables from
HoustonStreet recognized on the accompanying balance sheet as of
December 31, 2003 and 2002.

8. UNAUDITED SELECTED QUARTERLY FINANCIAL INFORMATION

The following selected quarterly financial information is
unaudited and includes all adjustments consisting of normal
recurring accruals which are, in the opinion of management,
necessary for a fair statement of results of operations for such
periods (dollars are in thousands, except per share data):

F-18

On November 1, 2002, the Company closed the sale of its
interests in Seabrook and received cash consideration of
approximately $108.3 million for its interests in the Seabrook
Project. The Company realized a gain on the sale of its Seabrook
assets of approximately $59,774,000, or $7.12 and $6.81 per basic
and diluted share, respectively.

F-19

HOUSTONSTREET EXCHANGE, INC.

CONSOLIDATED BALANCE SHEET - UNAUDITED
(DOLLARS IN THOUSANDS)

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-20

HOUSTONSTREET EXCHANGE, INC.

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-21

HOUSTONSTREET EXCHANGE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - UNAUDITED
(DOLLARS IN THOUSANDS)

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-22

HOUSTONSTREET EXCHANGE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-23

HOUSTONSTREET EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2003

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. DESCRIPTION OF BUSINESS

HoustonStreet Exchange, Inc. ("HoustonStreet" or the
"Company") was incorporated in Delaware on April 27, 1999.
HoustonStreet developed and operates HoustonStreet.com, an
Internet-based, independent crude oil and refined products
trading exchange in the United States. In 2001, HoustonStreet
significantly downsized its organization and shut down its
electricity trading platforms, shifting it business focus to its
crude oil and refined products trading platforms.

HoustonStreet operates in a very competitive market. Its main
competitors are numerous OTC telephone brokers. HoustonStreet
believes, however, that it is currently the only online exchange
for the OTC physical crude oil and refined products markets.
Other online exchanges focus primarily on natural gas, power, and
financial crude oil markets such as swaps and options.
HoustonStreet is focused primarily on the physical crude oil
markets and refined products markets.

HoustonStreet's crude oil platform includes several trading
floors, organized by grade and location. The platform allows for
user-customization where the user specifies which markets should
appear together on a floor, regardless of grade or location.
HoustonStreet's refined products platform includes several
trading floors, organized by commodity, pipeline and geographic
location. Bids and offers are segmented by trading period (month
and cycle) and by grade. In 2003, HoustonStreet had trading
volumes of over 107 million barrels of crude oil and refined
products with revenues of approximately $880,600. This
represents a decrease of 9.1% in barrels traded and a decrease of
5.9% in revenues as compared to 2002. As of December 31, 2003,
HoustonStreet had five employees.

HoustonStreet's revenues depend on continued and expanded use
of Internet-based wholesale energy trading platforms. Electronic
trading of wholesale energy is new and evolving, and thus may not
achieve widespread market acceptance or emerge as a sustainable
business. In addition, HoustonStreet will need to enhance
trading liquidity in order to increase and sustain revenues. As
a technology dependent business, HoustonStreet's business could
suffer due to computer or communications systems interruptions or
failures, technological change or adverse competitive
developments. Further, as electronic commerce evolves, federal,
state and foreign agencies could adopt regulations covering
issues such as user privacy, content and taxation of products and
services. If enacted, government regulations could materially
adversely affect HoustonStreet's business.

The Company has incurred losses of approximately $58 million
from inception through December 31, 2003. These losses have been
funded through borrowings from BayCorp Holdings, Ltd. ("BayCorp")
(an affiliated company) and the sale of common and preferred
stock and series C units of the Company.

B. USE OF ESTIMATES

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets, liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.

C. CASH AND CASH EQUIVALENTS

For purposes of the Statement of Cash Flows, the Company
considers all highly liquid short-term investments with an
original maturity of three months or less to be cash equivalents.
The carrying amounts approximate fair value because of the short-
term maturity of the investments.

D. REVENUE RECOGNITION

Operating revenue consists of commissions for thousands of
barrels (BBLS) traded on HoustonStreet.com and is recognized once
the terms of the trade have been accepted by both parties.

F-24

E. SELLING AND MARKETING EXPENSES

Selling and marketing expenses include advertising and
promotional expenditures, payroll and expenses related for
personnel engaged in marketing, customer service and related
activities.

F. PRODUCT DEVELOPMENT EXPENSES

Product development expenses include payroll and related
expenses for Web site development and information technology
personnel and Web content and design expenses.

G. DEBT RESTRUCTURING

Debt restructuring is included in other income in 2003, 2002
and 2001. Due to its significantly reduced operations and
limited cash, HoustonStreet negotiated with its vendors and
settled certain accounts payables for less than the recorded
amounts due.

H. INCOME TAXES

The Company records income taxes in accordance with SFAS No.
109, Accounting for Income Taxes. Under SFAS No. 109, the
liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax
basis of assets and liabilities and are measured using enacted
tax rates. A valuation allowance is established against deferred
tax assets unless the Company believes it is more likely than not
that the benefit will be realized.

I. PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries,
HoustonStreet B.V. and HoustonStreet N.V. The Company determined
that the functional and the reporting currency of its European
subsidiaries was the U.S. dollar. The effects of translation on
its financial statements are immaterial to the consolidated
statements as a whole. All intercompany balances and
transactions have been eliminated. HoustonStreet B.V. and
HoustonStreet N.V. completed voluntary dissolutions in May 2002.

J. LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, requires that
long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company reviewed its
software assets, including the Enron Link intangible asset, at
December 31, 2001 and determined that there was an impairment of
approximately $3.0 million related to such assets. The related
charge is included in operating expenses in the accompanying
consolidated statement of operations for the year ended December
31, 2001. There were no further impairment charges in 2002 or
2003.

K. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist mainly of cash and
cash equivalents, accounts receivable, accounts payable and notes
payable. The carrying amount of the Company's cash and cash
equivalents, accounts receivable and accounts payable
approximates fair value due to the short-term nature of these
instruments. During 2003 and 2002, the Series C notes payable
bore interest at prime plus 5%.

F-25

The estimated fair value of the Company's financial
instruments as of December 31, 2003 and 2002 are as follows:

Due to the nature of the debt arrangements and the Company's
current business, it is not practicable to determine a fair
market value for the Series C Notes.

L. DETAIL OF MISCELLANEOUS CURRENT LIABILITIES

Miscellaneous current liabilities consisted of the following
as of December 31, 2003 and 2002:

M. SEGMENT INFORMATION

The Company has adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the reporting of information about
operating segments in annual and interim financial statements and
requires restatement of prior year information. Operating
segments are defined as components of an enterprise for which
separate financial information is available that is evaluated
regularly by the chief operating decision maker(s) in deciding
how to allocate resources and in assessing performance. SFAS No.
131 also requires disclosures about products and services,
geographic areas and major customers. The Company has no
separate operating segments.

N. ACCUMULATED OTHER COMPREHENSIVE INCOME

In accordance with SFAS No. 130, "Reporting Comprehensive
Income", the Company reports changes in stockholders' equity from
all sources during the period other than those resulting from
investments by stockholders (i.e., issuance or repurchase of
common shares and dividends.) There have been no changes in
stockholders' equity during the period other than those resulting
from investments by stockholders.

O. RECLASSIFICATIONS

Certain reclassifications have been made in prior years'
financial statements to conform to classifications and
presentation used in the current year.

P. PROPERTY AND DEPRPECIATION

HoustonStreet property consists of computer equipment and
software. This property was fully depreciated as of December 31,
2002. No additional property was added in 2003. Depreciation
and amortization expense was $0, $792,955 and $2,924,700 for the
years ended December 31, 2003, 2002 and 2001, respectively.

2. TRANSACTION WITH ENRON

On December 4, 2000, HoustonStreet entered into an agreement
with Enron, whereby North American electricity and natural gas
prices posted on EnronOnline would have been automatically posted
on HoustonStreet. HoustonStreet believes it satisfied its
obligations under its agreement with Enron, but Enron elected to
terminate the agreement in May 2001. HoustonStreet invoked the
arbitration clause for settling disputes in its contract with
Enron, but that claim has been stayed by Enron's Chapter 11.
HoustonStreet filed a proof of claim in Enron's Chapter 11 case
in October 2002. On November 25, 2003, Enron filed an objection
to HoustonStreet's proof of claim with the Bankruptcy Court
seeking disallowance of HoustonStreet's claim. HoustonStreet
filed a response to the objection and a hearing is currently
scheduled for March 25, 2004. Any recovery on the claim is
highly uncertain. As a result of this uncertainty, HoustonStreet
wrote off its Intangible Investment - Enron in 2001 and took a
charge to earnings in 2001 of $965,000.

F-26

3. NOTES PAYABLE

Series C Promissory Notes ("Notes") were issued on March 30,
2001 for cash. These Notes bear interest on the outstanding
principal from the date issued until the Note is paid in full at
three percent above the rate of interest publicly announced from
time to time by FleetBoston in Boston, Massachusetts as its prime
rate. Each Note was due and payable on December 31, 2001,
subsequently amended to January 15, 2004 and the interest rate
amended to prime plus five percent. Accrued interest is payable,
at the sole option of the holder, in cash or in warrants to
purchase shares of Series C convertible preferred stock, only at
the time payment of the principal is made or due. These Notes
have a first priority security interest among the holders of the
Notes in all the assets of HoustonStreet.

The Notes were issued in units with warrants to purchase
4,019,841 common shares having an exercise price of $2.50 per
share and 80,396,767 Series C preferred shares having an exercise
price $0.15 per share. Both Series C and Common Stock warrants
can be exercised for cash or by surrender of the Senior Secured
Notes that were sold in units with the warrants. Common stock
warrants may also be exercised by cashless exercise. The
warrants are transferable. The exercise prices of and number of
shares for which the warrants are exercisable are adjusted in the
event of stock dividends or splits. Series C warrants are also
subject to adjustment in the event of diluting issues of common
stock (or securities convertible to common stock) at prices lower
than the then existing warrant exercise price to such lower
issuance price. The warrants have no rights to receive dividends
or voting rights. The Common Stock warrants expire March 30,
2006 and Series C Preferred Stock warrants expire 7 days
following payment of the Series C Note. In accordance with APB
14, The Company has allocated the proceeds from the Series C
Notes to the notes and warrants based upon their relative fair
values, resulting in an allocation of $6,378,586 to Series C
Notes and $4,780,929 to Series C Warrants. The fair value of the
warrants was estimated using the Black Scholes valuation model
with the following assumptions used: expected lives of 3 years,
expected annualized volatility of 60%, annual rate of quarterly
dividends of 0 and discount rate - bond equivalent yield of 4%.

In addition to normal debt covenant requirements, in
connection with the issuance of the Series C Units, HoustonStreet
covenanted to cooperate and use its best efforts to facilitate
the imposition of the first priority lien on all the assets of
HoustonStreet as contemplated by the Senior Secured Note and
Warrant Agreement and the ancillary agreements. HoustonStreet is
in compliance with these covenants. The Series C debt has no
financial covenants.

The assets that secure the Series C Units include all of
HoustonStreet's real and personal property, including, without
limitation (i) accounts now owned or hereafter acquired by the
Company, including accounts receivable, contract rights, notes,
drafts and other, (ii) obligations or indebtedness owed to
HoustonStreet, (iii) books and records of HoustonStreet, (iv)
equipment owned by HoustonStreet, (v) general intangibles, (vi)
proceeds and all other profits, products, rents or receipts
arising from the collection, and (vii) trademarks and trademark
licenses.

The Company received cash of $2,928,200 and the Company
converted existing debt in the amount of $8,231,400 into notes
upon issuance of the Series C Notes. Commitments for the initial
closing were approximately $2,928,200 and as of April 13, 2001,
HoustonStreet had received these committed funds. Commitments
for the second closing were approximately $1,107,500 and payment
was tied to the successful implementation of a posting agreement
between HoustonStreet and Enron. In 2000, HoustonStreet signed
an agreement with Enron to provide a link with EnronOnline
("EOL") enabling electricity and natural gas prices listed on EOL
to be simultaneously posted on HoustonStreet. Although
HoustonStreet successfully completed the link, Enron provided
HoustonStreet with a notice of termination of the agreement after
the link was completed but prior to the link going live.
Accordingly, the second closing did not occur.

The notes were not paid when due, and in February 2004,
HoustonStreet was formally notified of the payment default.
BayCorp and the other senior secured noteholders have reserved
their rights and are considering all of their options to maximize
recovery on the notes, including a restrucuring that would
potentially provide effective control of HoustonStreet to the
noteholders.

On September 21, 2000, the Company entered into a Promissory
Note and Revolving Credit Agreement with BayCorp in the amount of
$7,000,000 at a 10% annual interest rate, due December 31, 2000.
In April 2001, BayCorp converted the $7,000,000 loan made in
2000, along with approximately $1,000,000 in accrued interest and
penalties on the note and past due management fees, into
approximately $8,000,000 of HoustonStreet Series C Units.

4. EMPLOYEE AND DIRECTOR RETENTION AND INCENTIVE PLAN

In March 2002, the Board of Directors of the Company
established the 2002 Employee and Director Retention and
Incentive Plan (the "2002 Plan"). The purpose of this plan is to
advance the interest of the Company's stockholders by enhancing
the Company's ability to retain and motivate persons who make (or
are expected to make) important contributions to the Company.
The 2002 Plan seeks to align employee and director interests with
those of the Series C investors.

F-27

The 2002 Plan established Series C Incentive Plan Rights
("Series C Rights") which mirror the pecuniary interests of
current Series C units. The Series C Rights have no voting
rights or privileges. The Series C Rights accrue interest at the
same rate as Series C units and vest according to the existing
stock option grant vesting schedules. In the event of a sale or
liquidation, the employees vested Series C Rights would
participate on the same basis as the Series C Units, providing
the holder pro rata participation in the sale or liquidation
alongside the Series C Unit holders. In the event that the
majority of Series C Unit holders convert all or a part of their
Series C Units into Series C Preferred Stock, Series C Rights
holders would have the option from that point forward to convert
their pro rata share of vested Series C Rights into phantom
shares of Series C Preferred Stock.

Upon grant of Series C Rights, all $.15 per share stock option
grants were retired and Series C Rights were granted based on the
retired stock option grants. The Company has granted 1,645,716
Series C Rights to employees and directors. As of December 31,
2002, 1,260,000 Series C Rights were vested.

5. STOCK TRANSACTIONS AND STOCKHOLDERS' DEFICIT

AUTHORIZED CAPITAL

At December 31, 2003 and December 31, 2002, the authorized
capital stock of the Company consisted of 270,950,000 shares of
common stock and 156,134,188 shares of preferred stock, $0.01 par
value per share, of which 20,112,284 and 21,535,080 shares were
issued and outstanding, respectively.

PREFERRED STOCK

Preferred stock may be issued from time to time in one or more
series by the Board of Directors. Any shares of preferred stock
that may be redeemed, repurchased or acquired by the Company may
be reissued, except as otherwise provided by law. Different
series of preferred stock shall not be construed to constitute
different shares for the purpose of voting by classes unless
expressly provided. The Company has authorized for issuance
156,134,188 shares of preferred stock as of December 31, 2003, of
which there were 2,222,224 Series A convertible preferred
shares, authorized, issued and outstanding, $0.01 par value per
share, and 916,667 Series B convertible preferred shares, $0.01
par value per share, authorized, issued and outstanding. There
are no shares of Series C preferred stock issued and outstanding.

The Company repurchased 7,766,673 shares of preferred stock in
2003 for a nominal amount. The resulting gain has been recorded
by the Company as additional paid in capital.

SERIES A AND B CONVERTIBLE PREFERRED STOCK

The rights, preferences and privileges of the Series A and B
stock include the following:

DIVIDENDS

The holders of Series A and B stock will be entitled to
receive cash dividends, when and if declared by the Company's
Board of Directors. No cash dividends may be declared or
paid on any other class or series of HoustonStreet stock
unless the dividends have been declared and paid on the
Series A and B stock. The Company does not foresee declaring
or paying any dividends in the future.

OPTIONAL CONVERSION

Each share of Series A or B stock may be converted at any
time, at the option of the holder into one share of common
stock. This conversion rate is subject, with certain
exceptions, to weighted average antidilutive adjustment in
the event of subsequent issuances of capital stock for less
than $3.75 per share for the Series A stock and $12.00 per
share for the Series B stock. The Company may issue shares
of common stock in connection with a merger or acquisition or
to employees, directors and consultants at any price without
triggering an antidilutive adjustment. This conversion rate
is also subject to proportionate adjustment for stock splits,
stock dividends, combinations and similar recapitalizations.

MANDATORY CONVERSION

F-28

Series A and B stock not converted sooner will be
automatically converted into common stock upon the closing of
the Company's initial underwritten qualified public offering
of common stock pursuant to an effective registration
statement under the Securities Act of 1933. A qualified
initial underwritten public offering will be deemed to occur
when the Company sells common stock pursuant to an effective
registration statement under the Securities Act, resulting in
gross proceeds to the Company of at least $25.0 million, at a
price to the public of at least $9.50 per share (as adjusted
for stock splits, stock dividends, recapitalizations and
similar events). Under automatic conversion, no adjustments
will be made for accrued and unpaid dividends and no accrued
and unpaid dividends will be paid on the Series A or B stock.

VOTING

Each share of Series A and B stock is entitled to a number of
votes equal to the number of shares of common stock into
which each such share is then convertible (initially one).
Except as otherwise required by law or the Company's
Certificate of Incorporation, holders of Series A and B stock
vote together with the holders of common stock and all other
shares of capital stock as a single class. Holders of Series
A and B stock do not have cumulative voting rights. The
terms of the Series A and B stock may not be amended so as to
affect adversely the Series A and B stock without the
approval of the holders of 75% of the then outstanding shares
of Series A and B stock.

REDEMPTION

Each holder of outstanding shares of Series A or B stock may
request that the Company redeem the holder's outstanding
shares of Series A or B stock in three equal annual
installments on each of the fourth, fifth and sixth
anniversaries of their initial issuance based on the original
purchase price or, at any time, based on the $0.01 par value.
The date for notices of the first annual installment
redemption has passed without any request for redemption.
The management of HoustonStreet believes that the redemption
prices are far in excess of the market value of the Series A
and B Preferred Stock, and HoustonStreet does not currently
have either the resources or the legal ability to be able to
pay such redemption, if requested.

REGISTRATION RIGHTS

The holders of shares of Series A and B stock have certain
demand registration rights that enable them to require the
Company to register their shares at any time after the
earlier of (i) the third anniversary date of their initial
issuance or (ii) 180 days after the closing of the Company's
first underwritten public offering. In addition, holders of
Series A and B stock have piggyback registration rights with
respect to offerings by the Company, subject to customary
underwriter cutbacks and other restrictions.

LIQUIDATION PREFERENCE

In the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the holders of
Series A stock then outstanding are entitled to be paid out
of the assets of the Company available for distribution to
its stockholders, on a pari passu basis with the holders of
Series B stock then outstanding, after and subject to the
payment in full of all amounts required to be distributed to
the holders of capital stock (if any) ranking on liquidation
prior and in preference to the Series A stock, an amount
equal to $3.75 per share and $12.00 per share for the Series
A and B stock, respectively, plus any declared but unpaid on
such shares. After the payment of all liquidation
preferences, the Company's remaining assets available for
distribution among stockholders would be shared by the
Company's stockholders holding stock that ranks junior to the
Series A and Series B stock, including common stockholders.
A consolidation or merger of the Company with or into one or
more corporations, or a sale of all or substantially all of
the Company's assets, will be deemed to be a liquidation of
the Company. However, each holder of Series A or B stock may
elect otherwise as to that holder's shares of Series A or B
stock.

SERIES C CONVERTIBLE PREFERRED STOCK

There are no shares of Series C preferred stock issued and
outstanding. The rights, preferences and privileges of the
Series C stock include the following:

DIVIDENDS

The holders of Series C Preferred Stock will be entitled to
receive cash dividends, before any cash dividends shall be
declared and paid upon or set aside for the common stock in
any fiscal year and on a pari passu basis with the Series A
and B Preferred Stock, when and if declared by the Company's
Board of Directors.

F-29

OPTIONAL CONVERSION

Each share of Series C stock may be converted, at the option
of the holder at any time into one share of common stock.
This conversion rate is subject, with certain exceptions, to
a weighted average antidilutive adjustment in the event of
subsequent issuances of capital stock for less than the
applicable Series C conversion price in effect immediately
prior to the issuance or deemed issuance of such additional
shares.

MANDATORY CONVERSION

Series C stock not converted sooner will be automatically
converted into common stock upon the earlier of (i) the
closing of the Company's initial underwritten public offering
of common stock with gross proceeds of at least $25.0
million, at a price to the public of at least $9.50 per share
or (ii) at such time as less than 25% of the Series C shares
initially issued are outstanding.

VOTING

Each share of Series C stock is entitled to a number of votes
equal to the number of shares of common stock into which each
share is convertible. Except as otherwise required by law or
the Company's Certificate of Incorporation, holders of Series
C stock vote together with the holders of common stock and
all other shares of capital stock as a single class. The
terms of the Series C stock may not be amended so as to
affect adversely the Series C stock without the approval of
not less than a majority of the shares of Series C Preferred
Stock.

REDEMPTION

Each holder of at least 2% of the Series C stock may request
that the Company redeem in three annual installments equal to
33%, 50% and 100% (cumulatively) on each of March 31, 2004,
2005 and 2006. The redemption price is $0.15 per share of
Series C stock (subject to appropriate adjustment in the
event of stock dividends, stock splits, combinations or other
similar recapitalizations). In addition, each holder of at
least 2% of the Series C stock may request that the Company
redeem the holder's shares of Series C stock from time to
time at a price per share equal to the par value of the
Series C stock ($0.01).

REGISTRATION RIGHTS

The holders of shares of Series C stock have certain demand
registration rights that enable them to require the Company
to register their shares at any time after the earlier of (i)
the third anniversary date of their initial issuance or (ii)
180 days after the closing of the Company's first
underwritten public offering. In addition, holders of Series
A and B stock have piggyback registration rights with respect
to offerings by the Company, subject to customary underwriter
cutbacks and other restrictions.

LIQUIDATION PREFERENCE

In the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the holders of
shares of Series C Preferred stock shall be entitled to be
paid out of the assets of the Company available for
distribution to its stockholders, on a pari passu basis with
the holders of Series A and Series B Preferred Stock, before
any payment shall be made to the holders of common stock or
any other class or series of stock of the Company ranking on
liquidation junior to the Series C Preferred Stock. A
consolidation or merger of the Company with or into one or
more corporations, or a sale of all or substantially all of
the Company's assets, will be deemed to be a liquidation of
the Company. However, each holder of Series C stock may
elect otherwise as to that holder's shares of Series C stock.

COMMON STOCK

Except as otherwise required by law or provided in the
Company's Certificate of Incorporation, each share of common
stock is entitled to one vote on all matters to be voted on by
stockholders. Holders of common stock do not have cumulative
voting rights. Holders of common stock are entitled to receive
such dividends (if any) as may be declared by the Board of
Directors out of funds legally available therefore. In the event
of the voluntary or involuntary liquidation or dissolution of the
Company and after payment of all creditors and liquidation
preferences, including the liquidation preference of any
preferred stock, the holders of common stock are entitled to
share the remaining net assets of the Company. There were
16,973,393 shares of common stock issued and outstanding as of
December 31, 2003.

F-30

6. COMMON STOCK OPTIONS

In June 1999, the Company's Board of Directors (the Board)
approved the Company's 1999 Stock Incentive Plan (the 1999 Plan),
which provides for the grant of incentive and nonqualified stock
options for the purchase of up to an aggregate of 2,000,000
shares of the Company's common stock by management, employees,
consultants, advisors and directors of the Company. In 2000, the
number of shares authorized to be issued pursuant to the 1999
Plan was increased from 2,000,000 to 4,000,000. On March 21,
2001, the number of shares authorized to be issued pursuant to
the 1999 Plan was increased to 40,000,000. As of December 31,
2003, options to purchase an aggregate of 1,216,082 shares of
common stock at a weighted average option exercise price of $1.35
per share were outstanding under the 1999 Plan. There have been
no options issued under this Plan since May 2001.

The 1999 Plan provides for the grant of incentive stock
options intended to qualify under Section 422 of the Internal
Revenue Code and nonstatutory stock options. All of the
Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for
employment) are eligible to be granted options, restricted stock
awards or other stock-based awards under the 1999 Plan. Under
present law, however, incentive stock options may only be granted
to employees.

Optionees receive the right to purchase a specified number of
shares of common stock at a specified option price subject to
other terms and conditions, as specified, in connection with the
option grant. The Board establishes the exercise price at the
time each option is granted. Optionees may pay the exercise
price of their options by cash, check or in connection with a
cashless exercise through a broker, by surrender to the Company
of shares of common stock, by delivery to the Company of a
promissory note or by any combination of the permitted forms of
payment.

The Company's Board administers the 1999 Plan. The Board has
the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the plan and to
interpret its provisions. The Board may delegate authority under
the 1999 Plan to one or more executive officers or committees of
the Board. Subject to any applicable limitations contained in
the 1999 Plan, the Board or any committee to which the Board
delegates authority, as the case may be, selects the recipients
of awards and determines (i) the number of shares of common stock
covered by options and the dates upon which the options become
exercisable; (ii) the exercise price of options and (iii) the
duration of the options.

No award may be granted under the 1999 Plan after June 2009,
but the vesting and effectiveness of awards previously granted
may extend beyond that date. The Company's Board of Directors
may at any time amend, suspend or terminate the 1999 Plan.

7. COMMITMENTS AND CONTINGENCIES

HoustonStreet currently leases office space under a short-term
noncancelable operating lease that is renewable annually on April
1. Rental expense under this operating lease agreement for the
year ended December 31, 2003 was $14,300. The Company was not a
party to any operating lease as of December 31, 2002.

Future minimum commitments for operating leases as of December
31, 2003 are as follows:

YEAR ENDING OPERATING LEASES
----------- --------------
December 31, 2004 $3,900

8. INCOME TAXES

Due to losses incurred since inception, there is no income tax
benefit in the periods presented. As of December 31, 2003, the
Company had approximately $34 million of federal net operating
loss carryforwards, which begin to expire in the year 2014. A
full valuation allowance was established for the net deferred tax
asset, as realization of the tax benefit is not assured. In
addition, the Company's utilization of its net operating loss
carryforwards may be limited pursuant to the Tax Reform Act of
1986, due to cumulative changes in ownership in excess of 50%
that have or may occur.

F-31

The following table reconciles the statutory federal income
tax rate to the 0% provision:

9. RELATED PARTY TRANSACTIONS

On April 27, 1999, the Company entered into a Management and
Administrative Services Agreement ("Services Agreement") with
BayCorp. Under the Services Agreement, BayCorp provides
HoustonStreet with administrative, accounting and bookkeeping,
budgeting and human resource services. This management and
services fee was $30,000, $60,000 and $165,000 for 2003, 2002 and
2001, respectively. The Services Agreement has a one-year term
and provides for automatic one-year renewals. HoustonStreet
entered into a Computer Technology Services Agreement with
BayCorp in 2003 to provide BayCorp with computer technology
services including but not limited to all software and hardware
repairs and updates and server and networking connection issues,
as may be required by BayCorp on an as needed basis. The fee for
these services in 2003 was $30,000.

For the period ending December 31, 2003, approximately 60% of
revenues were from three customers who are also preferred stock
stockholders of the Company. For the period ending December 31,
2002, approximately 45% of revenues were from two customers who
are also preferred stock stockholders of the Company. For the
period ending December 31, 2001, approximately 21% of revenue was
from a customer who is also a preferred stock stockholder of the
Company.

10. UNAUDITED SELECTED QUARTERLY FINANCIAL INFORMATION

The following selected quarterly financial information is
unaudited and includes all adjustments consisting of normal
recurring accruals which are, in the opinion of management,
necessary for a fair statement of results of operations for such
periods (dollars are in thousands, except per share data):

F-32

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

BAYCORP HOLDINGS, LTD.

March 26, 2004
By: /s / Frank W. Getman Jr.
------------------------------
Frank W. Getman Jr.
President

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.

F-33

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------

2.1 Purchase and Sale Agreement for the Seabrook Nuclear Power
Station by and among North Atlantic Energy Corporation,
The United Illuminating Company, Great Bay Power
Corporation, New England Power Company, The Connecticut
Light and Power Company, Canal Electric Company, Little
Bay Power Corporation and New Hampshire Electric
Cooperative, Inc. as Sellers and North Atlantic Energy
Service Corporation and FPL Energy Seabrook, LLC as Buyer
dated April 13, 2002, filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q (SEC File No. 001-
12527) on May 15, 2002 and incorporated herein by
reference.

3.1 Certificate of Incorporation of BayCorp Holdings, Ltd.,
filed as Exhibit 3.1 to the Registration Statement on Form
S-4 of BayCorp Holdings, Ltd. (Registration Statement 333-
3362) filed on April 11, 1996 and incorporated herein by
reference.

3.2 By-laws of BayCorp Holdings, Ltd., filed as Exhibit 3.2 to
the Registration Statement on Form S-4 of BayCorp
Holdings, Ltd. (Registration Statement 333-3362) filed on
April 11, 1996 and incorporated herein by reference.

10.1 Amended and Restated Purchase Power Agreement between
Unitil Power Corp. and Great Bay Power Corporation, dated
as of November 1, 2002 incorporated by reference to
Exhibit 10.4 to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 2003.

10.2 1996 Stock Option Plan of BayCorp Holdings, Ltd., as
amended, filed as Annex III to the Prospectus in the
Registration Statement on Form S-8 of BayCorp Holdings,
Ltd. (Registration Statement 333-3362) filed on June 12,
1996 and incorporated herein by reference.

10.3 2001 Non-Statutory Stock Option Plan of BayCorp Holdings,
Ltd., filed as Exhibit 99 to the Registration Statement on
Form S-8 of BayCorp Holdings, Ltd. (Registration Statement
333-71976) filed on October 22, 2001 and incorporated
herein by reference.

10.4 Stock Option Agreement, dated May 25, 2000, by and between
Anthony M. Callendrello and BayCorp Holdings, Ltd., filed
as Exhibit 10.26 to the Company's Annual Report on Form 10-
K (File No. 1-12527) for the year ended December 31, 2001
and incorporated herein by reference.

10.5 Non-Statutory Stock Option Agreement and related Incentive
Stock Option Agreement, each dated May 2, 2001, by and
between Anthony M. Callendrello and BayCorp Holdings,
Ltd., filed as Exhibit 10.27 to the Company's Annual
Report on Form 10-K (File No. 1-12527) for the year ended
December 31, 2001 and incorporated herein by reference.

10.6 Retention and Incentive Agreement, dated November 30,
2001, by and between Anthony M. Callendrello and BayCorp
Holdings, Ltd. and incorporated by reference to Exhibit
10.26 to the Company's Annual Report on Form 10-K (File
No. 1-12527) for the year end December 31, 2002.

10.7 Retention and Incentive Agreement, dated December 3, 2001,
by and between Frank W. Getman Jr. and BayCorp Holdings,
Ltd. and incorporated by reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K (File No. 1-12527)
for the year end December 31, 2002.

10.8 1999 Stock Incentive Plan of HoustonStreet Exchange, Inc.,
filed as Exhibit 10.24 to the Company's Annual Report on
Form 10-K (File No. 1-12527) for the year ended December
31, 1999 and incorporated herein by reference.

10.9 Amended and Restated Incentive Stock Option Agreement,
dated as of July 30, 1999, by and between Frank W. Getman
Jr. and HoustonStreet Exchange, Inc. (first of two
identically titled and dated agreements), filed as Exhibit
10.25 to the Company's Annual Report on Form 10-K (File
No. 1-12527) for the year ended December 31, 1999 and
incorporated herein by reference.

10.10 Amended and Restated Incentive Stock Option Agreement,
dated as of July 30, 1999, by and between Frank W. Getman
Jr. and HoustonStreet Exchange, Inc. (second of two
identically titled and dated agreements), filed as Exhibit
10.26 to the Company's Annual Report on Form 10-K (File
No. 1-12527) for the year ended December 31, 1999 and
incorporated herein by reference.

F-34

10.11 Series A Convertible Preferred Stock Purchase Agreement,
dated as of February 2, 2000, as amended, by and among
HoustonStreet Exchange, Inc. and the Purchasers (as
defined therein), filed as Exhibit 10.30 to the Company's
Annual Report on Form 10-K (File No. 1-12527) for the year
ended December 31, 1999 and incorporated herein by
reference.

10.12 Form of Omnibus Signature Page dated as of March 6, 2000
relating to the preceding exhibit, filed as Exhibit 10.34
to the Company's Annual Report on Form 10-K (File No. 1-
12527) for the year ended December 31, 1999 and
incorporated herein by reference.

10.13 Fourth Amended and Restated Stockholders' Voting
Agreement, dated as of March 30, 2001, by and among
BayCorp Holdings, Ltd., HoustonStreet Exchange, Inc. and
the Purchasers (as defined therein), filed as Exhibit
10.44 to the Company's Annual Report on Form 10-K (File
No. 1-12527) for the year ended December 31, 2001 and
incorporated herein by reference.

10.14 Amended and Restated Investor Rights Agreement dated as of
March 30, 2001, by and among BayCorp Holdings, Ltd.,
HoustonStreet Exchange, Inc. and the other parties named
therein, filed as Exhibit 10.45 to the Company's Annual
Report on Form 10-K (File No. 1-12527) for the year ended
December 31, 2001 and incorporated herein by reference.

10.15 Third Amended and Restated Rights of First Refusal and Co-
Sale Agreement dated as of March 30, 2001, by and among
BayCorp Holdings, Ltd., HoustonStreet Exchange, Inc. and
the other parties named therein, filed as Exhibit 10.46 to
the Company's Annual Report on Form 10-K (File No. 1-
12527) for the year ended December 31, 2001 and
incorporated herein by reference.

10.16 Senior Secured Note and Warrant Purchase Agreement, dated
as of March 30, 2001, by and among BayCorp Holdings, Ltd.,
HoustonStreet Exchange, Inc. and the Purchasers (as
defined therein), filed as Exhibit 10.47 to the Company's
Annual Report on Form 10-K (File No. 1-12527) for the year
ended December 31, 2001 and incorporated herein by
reference.

10.17 Series C Preferred Stock Warrant Agreement, dated as of
March 30, 2001, by and among BayCorp Holdings, Ltd.,
HoustonStreet Exchange, Inc. and the Holders (as defined
therein), filed as Exhibit 10.48 to the Company's Annual
Report on Form 10-K (File No. 1-12527) for the year ended
December 31, 2001 and incorporated herein by reference.

10.18 Common Stock Warrant Agreement, dated as of March 30,
2001, by and among BayCorp Holdings, Ltd., HoustonStreet
Exchange, Inc. and the Holders (as defined therein), filed
as Exhibit 10.49 to the Company's Annual Report on Form 10-
K (File No. 1-12527) for the year ended December 31, 2001
and incorporated herein by reference.

10.19 Senior Secured Promissory Note, dated March 30, 2001, by
HoustonStreet Exchange, Inc. in favor of BayCorp Holdings,
Ltd., filed as Exhibit 10.50 to the Company's Annual
Report on Form 10-K (File No. 1-12527) for the year ended
December 31, 2001 and incorporated herein by reference.

10.20 Series C Warrant No. W-C001, dated March 30, 2001, issued
by HoustonStreet Exchange, Inc. to BayCorp Holdings, Ltd.,
filed as Exhibit 10.51 to the Company's Annual Report on
Form 10-K (File No. 1-12527) for the year ended December
31, 2001 and incorporated herein by reference.

10.21 Series C Warrant No. W-C006, dated March 30, 2001, issued
by HoustonStreet Exchange, Inc. to James S. Gordon, filed
as Exhibit 10.52 to the Company's Annual Report on Form 10-
K (File No. 1-12527) for the year ended December 31, 2001
and incorporated herein by reference.

10.22 Series C Warrant No. W-C010, dated March 30, 2001, issued
by HoustonStreet Exchange, Inc. to Omega Advisors, Inc.,
filed as Exhibit 10.53 to the Company's Annual Report on
Form 10-K (File No. 1-12527) for the year ended December
31, 2001 and incorporated herein by reference.

10.23 Common Stock Warrant No. W-001, dated March 30, 2001,
issued by HoustonStreet Exchange, Inc. to BayCorp
Holdings, Ltd., filed as Exhibit 10.54 to the Company's
Annual Report on Form 10-K (File No. 1-12527) for the year
ended December 31, 2001 and incorporated herein by
reference.

F-35

10.24 Common Stock Warrant No. W-006, dated March 30, 2001,
issued by HoustonStreet Exchange, Inc. to James S. Gordon,
filed as Exhibit 10.55 to the Company's Annual Report on
Form 10-K (File No. 1-12527) for the year ended December
31, 2001 and incorporated herein by reference.

10.25 Common Stock Warrant No. W-010, dated March 30, 2001,
issued by HoustonStreet Exchange, Inc. to Omega Advisors,
Inc., filed as Exhibit 10.56 to the Company's Annual
Report on Form 10-K (File No. 1-12527) for the year ended
December 31, 2001 and incorporated herein by reference.

10.26 Senior Secured Promissory Note, dated March 30, 2001, by
HoustonStreet Exchange, Inc. in favor of James S. Gordon,
filed as Exhibit 10.57 to the Company's Annual Report on
Form 10-K (File No. 1-12527) for the year ended December
31, 2001 and incorporated herein by reference.

10.27 Senior Secured Promissory Note, dated March 30, 2001, by
HoustonStreet Exchange, Inc. in favor of Omega Advisors,
Inc., filed as Exhibit 10.58 to the Company's Annual
Report on Form 10-K (File No. 1-12527) for the year ended
December 31, 2001 and incorporated herein by reference.

14 Code of Business Conduct

16.1 Letter dated January 16, 2003 of Deloitte & Touche LLP,
filed as Exhibit 16.1 to the Company's Current Report on
Form 8-K (File No. 1-12527) on January 16, 2003 and
incorporated herein by reference.

16.2 Letter dated January 16, 2003 of Vitale, Caturano &
Company, filed as Exhibit 16.2 to the Company's Current
Report on Form 8-K (File No. 1-12527) on January 16, 2003
and incorporated herein by reference.

21 List of Subsidiaries of BayCorp Holdings, Ltd.

23.1 Consent of Vitale, Caturano & Company P.C.

31.1 Certification of President and Chief Executive Officer
(principal executive officer) pursuant to Exchange Act
Rules 13a-14 and 15d-14.

31.2 Certification of President and Chief Executive Officer
(principal financial officer) pursuant to Exchange Act
Rules 13a-14 and 15d-14.

31.3 Certification of Vice President of Finance and Treasurer
(chief accounting officer) pursuant to Exchange Act Rules
13a-14 and 15d-14.

32.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.

32.2 Certification of Vice President of Finance and Treasurer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

F-36