<PAGE>   1

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

(Mark one)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended                          September 30, 1998
                                                             ------------------

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

     For the transition period from ______________ to _____________


      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.)


20 INTERNATIONAL DRIVE, SUITE 301
    PORTSMOUTH, NEW HAMPSHIRE                                    03801-6809
(Address of principal executive offices)                          (Zip Code)


       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 431-6600


COCHECO FALLS MILLWORKS, 100 MAIN STREET, SUITE  201               03820-3835
                 DOVER , NEW HAMPSHIRE
  (Former Address of principal executive offices)              (Former Zip Code)


     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 whether the registrant has filed all documents
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.

Yes  [X]     No [ ]


               Class                            Outstanding at November 5, 1998
---------------------------------------         --------------------------------
Common Stock, $0.01 Par Value per Share                    8,191,948





<PAGE>   2

                             BAYCORP HOLDINGS, LTD.


                                      INDEX


PART I - FINANCIAL INFORMATION:

     Item 1 - Financial Statements:

     Consolidated Statements of Income and Comprehensive Income
     - Three and Nine Months Ended September 30, 1998 and 1997 ..........      3

     Consolidated Balance Sheets at September 30, 1998
         and December 31, 1997...........................................    4-5

     Consolidated Statements of Cash Flows - Nine
         Months Ended September 30, 1998 and 1997........................      6

     Notes to Financial Statements.......................................   7-12

     Item 2 - Management's Discussion and Analysis of Financial 
         Condition and Results of Operations.............................  12-17

PART II - OTHER INFORMATION:

     Item 1 - Legal Proceedings..........................................     17

     Item 5 - Other Information..........................................     18

     Item 6 - Exhibits and Reports on Form 8-K...........................     18


     Signature...........................................................     19

     Exhibit Index.......................................................     20







                                       2
<PAGE>   3


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


                             BAYCORP HOLDINGS, LTD.
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                   (UNAUDITED)

            (DOLLARS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                                        Three Months                   Nine Months
                                                   Ended September 30,              Ended September 30,
                                                   1998           1997              1998           1997
                                                ----------     ----------        ----------     ----------
<S>                                             <C>            <C>               <C>            <C>       

Operating Revenues                              $    8,899     $    8,508        $   23,780     $   20,500

Operating Expenses:
  Production                                         5,474          5,290            15,624         14,747
  Transmission                                         211            221               638            659
  Administrative & General                           1,243          2,030             6,756          5,399
  Depreciation & Amortization                          879            862             2,634          2,588
  Taxes other than Income                            1,057          1,065             3,154          3,354
                                                ----------     ----------        ----------     ----------
      Total Operating Expenses                       8,864          9,468            28,806         26,747
                                                ----------     ----------        ----------     ----------

Operating Income (Loss)                                 35           (960)           (5,026)        (6,247)

Other (Income) Deductions:
  Interest and Dividend Income                        (237)          (303)             (728)          (941)
  Decommissioning Cost Accretion                       720            666             2,153          1,997
  Decommissioning Trust Fund Income                   (132)          (116)             (381)          (327)
  Unit 2 Sales and Other Deductions                     39              0               125              3
                                                ----------     ----------        ----------     ----------
      Total Other Deductions                           390            247             1,169            732
                                                ----------     ----------        ----------     ----------

Loss Before Income Taxes                              (355)        (1,207)           (6,195)        (6,979)

Income Taxes                                             0              0                 0              0
                                                ----------     ----------        ----------     ----------

Net Loss                                        $     (355)    $   (1,207)       $   (6,195)    $   (6,979)

Other Comprehensive Income, Net of Tax
  Unrealized Gains (Losses) on Securities               37            158               367            167
                                                ----------     ----------        ----------     ----------
Comprehensive Income (Loss)                     $     (318)    $   (1,049)       $   (5,828)    $   (6,812)
                                                ==========     ==========        ==========     ========== 

Weighted Average Shares Outstanding              8,251,933      8,277,748         8,259,580      8,297,571
Basic and Diluted Loss Per Share                $    (0.04)    $    (0.13)       $    (0.71)    $    (0.82)


</TABLE>


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



                                        3



<PAGE>   4


                             BAYCORP HOLDINGS, LTD.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                  September 30,     December 31,
                                                     1998              1997
                                                  ------------      ----------- 
<S>                                                <C>              <C>       

ASSETS:
Current Assets:
  Cash & Cash equivalents                          $   4,507        $   3,270 
  Short-term Investments, at market                    8,836           15,822 
  Accounts Receivable                                  3,199              465 
  Materials & Supplies, net                            3,905            3,816 
  Prepayments & Other Assets                           1,340            1,570 
                                                   ---------        --------- 
      Total Current Assets                            21,787           24,943 
                                                   ---------        --------- 
                                                                              
Property, Plant, & Equipment:                                                 
  Utility Plant                                      111,301          108,584 
  Less: Accumulated Depreciation                     (11,836)          (9,758)
                                                   ---------        --------- 
  Net Utility Plant                                   99,465           98,826 
                                                                              
  Nuclear Fuel                                        18,928           15,076 
  Less: Accumulated Amortization                      (9,795)          (6,717)
                                                   ---------        --------- 
  Net Nuclear Fuel                                     9,133            8,359 
                                                                              
      Net Property, Plant & Equipment                108,598          107,185 
                                                                              
Other Assets:                                                                 
  Decommissioning Trust Fund                           9,589            8,025 
  Deferred Debits & Other                                  6                5 
                                                   ---------        --------- 
      Total Other Assets                               9,595            8,030 
                                                   ---------        --------- 
                                                                              
TOTAL ASSETS                                       $ 139,980        $ 140,158 
                                                   =========        ========= 
                                                                      
</TABLE>



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





                                        4


<PAGE>   5

                             BAYCORP HOLDINGS, LTD.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                          September 30,   December 31,
                                                              1998            1997
                                                          ------------    -----------
<S>                                                         <C>             <C>     

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current Liabilities:
  Accounts Payable and Accrued Expenses                     $    134        $    270
  Taxes Accrued                                                  457               0
  Miscellaneous Current Liabilities                            3,358           1,594
                                                            --------        --------
          Total Current Liabilities                            3,949           1,864

Operating Reserves:
  Decommissioning Liability                                   59,535          55,846
  Miscellaneous Other                                            564             564
                                                            --------        --------
          Total Operating Reserves                            60,099          56,410

Other Liabilities & Deferred Credits                           4,056           3,745


Commitments & Contingencies


Stockholders' Equity:
  Common stock, $.01 par value,
      Authorized - 20,000,000 shares,
      Issued and Outstanding - 8,417,800                          84              84
   Less: Treasury Stock - 220,052 and 145,000 shares,
      respectively, at cost                                   (1,603)         (1,168)
   Additional paid-in capital                                 92,100          92,100
   Accumulated Other Comprehensive Income                        482             115
   Accumulated Deficit                                       (19,187)        (12,992)
                                                            --------        --------
          Total Stockholders' Equity                          71,876          78,139
                                                            --------        --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $139,980        $140,158
                                                            ========        ========

</TABLE>




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





                                        5

<PAGE>   6
                             BAYCORP HOLDINGS, LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                      Nine Months        Nine Months
                                                                         Ended              Ended
                                                                  September 30, 1998   September 30, 1997
                                                                  ------------------   -------------------
<S>                                                                     <C>                <C> 

Net cash flow from operating activities:
    Net Loss                                                            $(6,195)           $ (6,979)
    Adjustments to reconcile net loss to net                                                           
    cash provided by (used in) operating activities:                                                   
         Depreciation & Amortization                                      2,634               2,588    
         Amortization of nuclear fuel                                     3,078               3,083    
         Decommissioning trust accretion                                  2,153               1,997    
         Decommissioning trust interest                                    (381)               (327)   
         (Increase) decrease in accounts receivable                      (2,734)                452    
         Increase in materials & supplies                                  (224)               (215)   
         (Increase) decrease in prepaids and other assets                   230              (3,038)   
         Increase (decrease) in accounts payable                           (136)                 (9)   
         Increase in taxes accrued                                          457               2,129    
         Other Increase (decrease)                                        2,261              (2,708)   
                                                                        -------            --------    
Net cash provided by (used in) operating activities                       1,143              (3,027)   
                                                                        -------            --------    
                                                                                                       
Net cash flows provided by (used in) investing activities:                                             
  Utlility plant additions                                               (1,645)             (2,191)   
  Nuclear fuel additions                                                 (3,852)             (1,289)   
  Payments to decommissioning fund                                         (960)               (829)   
  Short term investments, net                                             6,986              (4,824)   
                                                                        -------            --------    
Net cash provided by (used in) investing activities                         529              (9,133)   
                                                                        -------            --------    
                                                                                                       
Net cash used in financing activities:                                                                 
  Reacquired Capital Stock                                                 (435)               (500)   
                                                                        -------            --------    
Net cash used in financing activities                                      (435)               (500)   
                                                                        -------            --------    
                                                                                                       
Net increase (decrease) in cash and cash equivalents                      1,237             (12,660)   
Cash and cash equivalents, beginning of period                            3,270              16,412    
                                                                        -------            --------    
Cash and cash equivalents, end of period                                $ 4,507            $  3,752    
                                                                        =======            ========    
                                                                                                           
                                                                                              
</TABLE>


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


                                        6


<PAGE>   7


                             BAYCORP HOLDINGS, LTD.


                          NOTES TO FINANCIAL STATEMENTS



NOTE A - THE COMPANY

         BayCorp Holdings, Ltd. ("BayCorp" or the "Company") serves as a holding
company for Great Bay Power Corporation ("Great Bay"). Great Bay is an electric
generating company whose principal asset is a 12.1% joint ownership interest in
the Seabrook Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook
Project"). Great Bay is an exempt wholesale generator ("EWG") under the Public
Utility Holding Company Act of 1935 ("PUHCA"). Unlike regulated public
utilities, Great Bay has no franchise area or captive customers. Great Bay sells
its power in the competitive wholesale power markets.

         Great Bay became a wholly-owned subsidiary of BayCorp in a corporate
reorganization that involved a merger of a newly-formed wholly-owned subsidiary
of BayCorp with and into Great Bay on January 24, 1997. The consolidated assets
and liabilities of Great Bay and its subsidiaries immediately before the
reorganization were the same as the consolidated assets and liabilities of
BayCorp and its subsidiaries immediately after the reorganization. BayCorp's
principal asset is its 100% equity interest in Great Bay. The new corporate
structure enables BayCorp, either directly or through subsidiaries other than
Great Bay, to engage in businesses that Great Bay would be prohibited from
pursuing due to its status as an EWG under the PUHCA. BayCorp may in the future
enter into new businesses or acquire existing businesses, both in energy related
fields and possibly in unrelated fields.

         BayCorp was incorporated in Delaware in 1996. Great Bay was
incorporated in New Hampshire in 1986 and was formerly known as EUA Power
Corporation (the "Predecessor"). Great Bay sells its share of the electricity
output of the Seabrook Project in the wholesale electricity market, primarily in
the Northeast United States. Neither BayCorp nor Great Bay has operational
responsibilities for the Seabrook Project. Great Bay's share of the Seabrook
Project capacity is approximately 140 megawatts ("MW"). Great Bay currently
sells all but 10 MW of its share of the Seabrook Project capacity in the
short-term market.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The unaudited financial statements included herein have been prepared
on behalf of the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC") and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted or
condensed pursuant to such rules and regulations. The Company believes, however,
its disclosures herein, when read in conjunction with the Company's audited
financial statements for the year ended December 31, 1997, are adequate to make
the information presented not misleading. The results for the interim periods
are not necessarily indicative of the results to be expected for the full fiscal
year.

         The Company adopted SFAS No. 130, Reporting Comprehensive Income,
effective January 1, 1998. Accumulated Other Comprehensive Income and the
current three and nine month period charges are as follows:




                                       7
<PAGE>   8
                             BAYCORP HOLDINGS, LTD.


<TABLE>
<CAPTION>

                               Three Month          Nine Month
                             Unrealized Gains    Unrealized Gains     Accumulated Other
                               on Securities      on Securities      Comprehensive Income
    <S>                          <C>                 <C>                   <C>     

    Beginning Balance            $445,000            $115,000              $115,000
    Period Charge                  37,000             367,000               367,000
                                 --------            --------              --------
    Ending Balance               $482,000            $482,000              $482,000
                                 ========            ========              ========

</TABLE>


NOTE C - COMMITMENTS AND CONTINGENCIES

NUCLEAR POWER, ENERGY AND UTILITY REGULATION

         The Seabrook Project and Great Bay, as part owner of a licensed nuclear
facility, are subject to the broad jurisdiction of the Nuclear Regulatory
Commission ("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 has been, and will be, affected
to the extent of its proportionate share by the cost of any NRC requirements
applicable to Seabrook Unit I.

         Great Bay is also subject to the jurisdiction of the Federal Energy
Regulatory Commission ("FERC") under Parts II and III of the Federal Power Act
and, as a result, is required to file with FERC all contracts for the sale of
electricity. FERC has the authority to suspend the rates at which Great Bay
proposes to sell power, to allow such rates to go into effect subject to refund
and to modify a proposed or existing rate if FERC determines that such rate is
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, accounts, service and
property records.

         Because it is an EWG, Great Bay is not subject to the jurisdiction of
the SEC under PUHCA. In order to maintain its EWG status, Great Bay must
continue 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, its 12.1% joint ownership
interest in the Seabrook Project comprises an "eligible facility."

UTILITY DEREGULATION; PUBLIC CONTROVERSY CONCERNING NUCLEAR POWER PLANTS

         Several states in which Great Bay sells electricity are considering or
have implemented initiatives relating to the deregulation of the utility
industry. Simultaneously with the deregulation initiatives occurring in each of
the New England states, the New England Power Pool ("NEPOOL") is restructuring
to create and maintain open, non-discriminatory, competitive, unbundled markets
for energy, capacity, and ancillary services. NEPOOL's restructuring is designed
to function efficiently in a changing electric power industry and to permit
regional transmission at rates that do not vary with distance. In conjunction
with NEPOOL's restructuring, a new entity, ISO New England, Inc., has been
formed to ensure system reliability and to oversee the newly formed deregulated
generation markets. All of the deregulation initiatives open electricity markets
to competition in the affected states. While Great Bay believes it is a low-cost
producer of electricity and will benefit from the deregulation of the electric
industry, it is not possible to predict the impact of these various initiatives
on Great Bay.







                                       8
<PAGE>   9
                             BAYCORP HOLDINGS, LTD.


         Nuclear units in the United States have been subject to widespread
criticism and opposition, which has led to construction delays, cost overruns,
licensing delays and other difficulties. Various groups have sought to prohibit
the completion and operation of nuclear units and the disposal of nuclear waste
by litigation, legislation and participation in administrative proceedings. The
Seabrook Project was the subject of significant public controversy during its
construction and licensing and remains controversial. An increase in public
concerns regarding the Seabrook Project or nuclear power in general could
adversely affect the operating license of Seabrook Unit 1. While the Company
cannot predict the ultimate effect of such controversy, it is possible that it
could result in a premature shutdown of the unit.

         In the event of a permanent shutdown of any unit, NRC regulations
require that the unit be completely decontaminated of any residual
radioactivity. While the owners of the Seabrook Project are accumulating a trust
fund to pay decommissioning costs, if these costs exceed the amount of the trust
fund, the owners, including Great Bay, will be liable for the excess.

DECOMMISSIONING LIABILITY

         Based on the Financial Accounting Standards Board's ("FASB") tentative
conclusions, Great Bay has recognized as a liability its proportionate share of
the estimated Seabrook Project decommissioning. The initial recognition of this
liability was capitalized as part of the Fair Value of the Utility Plant at
November 23, 1994. The current estimated cost to decommission the Seabrook
Project, based on a study performed for the lead owner of the Seabrook Project,
is approximately $473 million in 1997 dollars and $2.2 billion in 2026 dollars,
assuming a remaining 28 year life for the facility and a future escalation rate
of 5%. Based on this estimate, the present value of Great Bay's share of this
liability as of September 30, 1998 is approximately $59.5 million.

          During the first quarter of 1996, Great Bay began to accrete its share
of the Seabrook Project's decommissioning liability. This accretion is a
non-cash charge and recognizes Great Bay's liability related to the closure and
decommissioning of its nuclear plant in current year dollars over the licensing
period of the plant. As a result of this accretion, Great Bay's share of the
estimated decommissioning cost increased from $50.2 million as of December 31,
1995 to $59.5 million as of September 30, 1998.

         The Seabrook Project's decommissioning estimate and funding schedule is
subject to review each year by the New Hampshire Nuclear Decommissioning Finance
Committee ("NDFC"). This estimate is based on a number of assumptions. Changes
in assumptions based on factors such as labor and material costs, technology,
inflation and timing of decommissioning could cause these estimates to change,
possibly materially, in the near term.

         The Staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry regarding the recognition,
measurement and classification of decommissioning costs for nuclear generating
stations and joint owners in the financial statements of these entities. In
response to these questions, the FASB has agreed to review the accounting for
nuclear decommissioning costs. In 1996, the FASB issued an Exposure Draft
entitled "Accounting for Certain Liabilities Related to Closure and Removal of
Long-Lived Assets." The FASB continues to work on this project. Either a revised
exposure draft or a final statement may be issued in 1998. Great Bay's
accounting for decommissioning was based on the FASB's original tentative
conclusions. If the current exposure draft is adopted or accounting practices
for nuclear power plant decommissioning are changed, Great Bay's decommissioning
liability and annual provision for decommissioning could change relative to
amounts






                                       9
<PAGE>   10
                             BAYCORP HOLDINGS, LTD.



reflected in the financial statements. The Company is unable to predict the
impact, if any, changes in the current accounting will have on the Company's
financial statements.

         On November 15, 1992, Great Bay, the Bondholder's Committee and the
Predecessor's former parent, Eastern Utilities Associates ("EUA"), entered into
a settlement agreement that resolved certain proceedings against EUA brought by
the Bondholder's Committee. Under the settlement agreement EUA reaffirmed its
guarantee of up to $10 million of Great Bay's future decommissioning costs of
Seabrook Unit 1.

         Although the owners of Seabrook are accumulating funds in an external
trust to defray decommissioning costs, these costs could substantially exceed
the value of the trust fund, and the owners, including Great Bay, would remain
liable for the excess. The amount required to be deposited in the trust fund is
subject to periodic review and adjustment by the NDFC, which could result in
material increases in such amounts.

         In January 1997 and July 1997, the NRC staff ruled that Great Bay did
not satisfy the NRC definition of "electric utility." In January 1998, Great Bay
filed a petition with the NRC seeking NRC approval of Great Bay's proposal to
fund decommissioning obligations. Great Bay's petition also sought, in the
alternative, an NRC permanent exemption from the obligation of Great Bay to
comply with the NRC regulations applicable to non "electric utility" owners of
interests in nuclear power plants.

         In June 1998, the New Hampshire State legislature enacted legislation
that provides that in the event of a default by Great Bay on its payments to the
decommissioning fund, the other Seabrook joint owners would be obligated to pay
their proportional share of such default. As a result of the enactment of this
legislation, the NRC notified Great Bay in July 1998 of the staff's
determination that Great Bay complies with the decommissioning funding assurance
requirements under NRC regulations. In response to the New Hampshire
legislation, Great Bay has agreed to make accelerated payments to the Seabrook
decommissioning fund such that Great Bay will have contributed sufficient funds
by the year 2015 to allow sufficient monies to accumulate, with no further
payments by Great Bay to the fund, to the full estimated amount of Great Bay's
decommissioning obligation by the time the current Seabrook operating license
expires in 2026. Based on the currently approved funding schedule Great Bay's
decommissioning payments for 1998 would have been approximately $1.2 million.
Based on the currently approved funding schedule and Great Bay's accelerated
funding schedule, Great Bay's decommissioning payments will actually be
approximately $1.3 million in 1998 and escalate at 4% each year thereafter
through 2015.

LIQUIDITY AND CAPITAL EXPENDITURES

         BayCorp anticipates that Great Bay's share of the Seabrook Project's
capital expenditures for the 1998 fiscal year will total approximately $7.3
million, primarily for nuclear fuel and various capital projects. This estimate
is based on the latest projections provided by the managing agent of the
Seabrook Project.

         The Seabrook Project from time to time experiences both scheduled and
unscheduled outages. An unscheduled outage began on December 5, 1997 and lasted
until January 15, 1998. A second unscheduled outage began on June 11, 1998 and
lasted until July 12, 1998. The Company incurs losses during outage periods due
to the loss of all operating revenues and





                                       10
<PAGE>   11

                             BAYCORP HOLDINGS, LTD.



additional costs associated with the outages as well as continuing operating and
maintenance expenses and depreciation.

         For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the town of Seabrook and two other New
Hampshire towns in which the Seabrook Project is located. The abatement requests
for each of those tax years were denied. Great Bay filed appeals for each of
those years with the New Hampshire Board of Tax and Land Appeals (the "BTLA").
The appeals are currently pending before the BTLA. The Company has paid all of
its property tax obligations to date under protest. A successful outcome of the
Company's appeals with respect to property tax assessments would favorably
affect the Company's liquidity and obligation for property tax payments in the
future.

         As a result of the NRC's review of Great Bay's status as an "electric
utility" and in connection with New Hampshire legislation enacted in June 1998,
Great Bay has agreed to make accelerated payments to the Seabrook
decommissioning fund such that Great Bay will have contributed sufficient funds
by the year 2015 to allow sufficient monies to accumulate, with no further
payments by Great Bay to the fund after 2015. These accelerated payments are
designed to fund the full estimated amount of Great Bay's decommissioning
obligation by the time the current Seabrook operating license expires in 2026.
See "Decommissioning Liability."

         In June 1998, Great Bay and PECO Energy Company ("PECO") terminated the
power marketing agreement between the companies and Great Bay paid PECO
approximately $2.5 million. During the quarter ended June 30, 1998, Great Bay
made an approximate $2.5 million charge to income for this expense. This amount
is reflected in Administrative and General Expenses in the accompanying
Consolidated Statement of Income.

NOTE D - EQUITY

         In October 1997, the Board of Directors of BayCorp adopted a resolution
authorizing BayCorp to repurchase up to an additional aggregate of 100,000
shares of BayCorp common stock on the open market or in negotiated transactions.
The shareholder groups controlled by Omega Advisors, Inc. and Elliot Associates,
L.P., the owners of approximately 57% of the Company's shares outstanding in
aggregate, have advised the Company that they do not intend to sell shares in
the open market or in negotiated transactions which would be subject to
repurchase by the Company under this repurchase program. As of September 30,
1998, the Company had repurchased 75,000 shares at a cost of approximately
$434,800, or approximately $5.80 per share, as part of this repurchase program.

         Neither the Company nor Great Bay has ever paid cash dividends on its
common stock. BayCorp currently expects that it will retain all of its future
earnings and does not anticipate paying a dividend in the foreseeable future.





                                       11
<PAGE>   12

                             BAYCORP HOLDINGS, LTD.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Overview

         As a result of the corporate restructuring that occurred in January
1997, BayCorp's principal asset is its 100% equity interest in Great Bay. Great
Bay is an electric generating company whose principal asset is a 12.1% joint
ownership interest in the Seabrook Nuclear Power Project in Seabrook, New
Hampshire. Unless the context requires otherwise, references to BayCorp for
events and time periods before January 1997 reflect treatment of BayCorp as
successor to Great Bay.

         An unscheduled outage at the Seabrook Project began on June 11, 1998
and lasted until July 12, 1998. For the three months ended September 30, 1998,
the Company has reported a net loss of approximately $355,200.

RESULTS OF OPERATIONS: THIRD QUARTER OF FISCAL 1998 COMPARED TO THE THIRD
QUARTER OF FISCAL 1997

Operating Revenues

         Operating Revenues increased by approximately $391,100, or 4.6%, to
$8,899,400 in the third quarter of 1998 as compared to $8,508,300 in the third
quarter of 1997. This increase in revenues was primarily the result of an
increase in wholesale electricity prices. During the third quarter of 1998 the
average sales price per kWh (determined by dividing total sales revenue by the
total number of kWhs sold in the applicable period) increased 10.8% to 3.08
cents per kWh as compared with 2.78 cents per kWh in the third quarter of 1997.
For the third quarter of 1998, the capacity factor at the Seabrook plant was
87.7% versus a capacity factor of 98.5% for the third quarter of 1997. The
capacity factor for the third quarter of 1998 was adversely affected by the
unscheduled outage referred to above. Sales of electricity decreased by
approximately 5.7% to 288,172,100 kilowatt-hours ("kWhs") in the third quarter
of 1998 as compared to 305,447,700 kWhs in the third quarter of 1997.

Expenses

         Production and transmission expenses for the third quarter of 1998
increased approximately $175,200, or 3.2%, as compared to the third quarter of
1997. This increase was primarily due to expenses incurred as a result of the
unscheduled outage in the third quarter of 1998 referred to above.

         Administrative and general expenses decreased $787,500, or 38.8%, to
$1,242,300 in the third quarter of 1998 as compared to $2,029,800 in the third
quarter of 1997. This decrease was primarily attributable to a reduction in
marketing fees of approximately $730,400, from $734,400 during the third quarter
of 1997 to $4,000 in the third quarter of 1998. The Company began marketing its
own power in March 1998. See "Notes to Financial Statements - Note C -
Commitments and Contingencies - Liquidity and Capital Expenditures."

         There was an overall increase of approximately $9,000 in depreciation
and amortization and taxes other than income expenses, from $1,927,000 in the
third quarter of 1997 to $1,936,000 in the third quarter of 1998.

         BayCorp's cost of power (determined by dividing total operating
expenses by BayCorp's 12.1% share of the power produced by the Seabrook Project
during the applicable period) decreased 0.1% to 3.08 cents per kWh in the third
quarter of 1998 as compared to 3.10 cents per kWh in the third quarter of 1997.






                                       12
<PAGE>   13
                             BAYCORP HOLDINGS, LTD.


Other (Income) Deductions

         Decommissioning Cost Accretion increased $54,300, to $720,000 during
the third quarter of 1998 as compared to $666,700 during the third quarter of
1997. This accretion is a non-cash charge and recognizes Great Bay's liability
related to the closure and decommissioning of the Seabrook Project in current
year dollars over the period during which the Seabrook Project is licensed to
operate.

         During the third quarter of 1998, the Company realized $370,500 in
interest income on the Company's cash and decommissioning trust fund accounts as
compared to $417,600 during the third quarter of 1997. The decrease of $47,100,
or 11.3%, primarily reflects reduced interest earnings on the lower cash
balances during the third quarter of 1998 as compared to the third quarter of
1997. Miscellaneous expenses were $40,500 in the third quarter of 1998 as
compared to miscellaneous income of $500 in the third quarter of 1997. The
increase in expenses was primarily attributable to 1998 State of Delaware
corporate franchise taxes for BayCorp.

Net Loss

         As a result of the above factors, during the third quarter ended
September 30, 1998, the Company recorded a net loss of $355,200, or
approximately $.04 per basic and diluted share, as compared to a net loss of
$1,207,200, or approximately $.13 per basic and diluted share, during the third
quarter ended September 30, 1997.

RESULTS OF OPERATIONS: FIRST NINE MONTHS OF FISCAL 1998 COMPARED TO THE FIRST
NINE MONTHS OF FISCAL 1997

Operating Revenues

         Operating Revenues increased by approximately $3,279,900, or 16%, to
$23,780,200 in the first nine months of 1998 as compared to $20,500,300 in the
first nine months of 1997. This increase in revenues was primarily due to an
increase in availability and production at the Seabrook Project during the first
nine months of 1998 as compared to the first nine months of 1997. For the first
nine months of 1998, the capacity factor at the Seabrook plant was 82.4% versus
a capacity factor of 80.7% for the first nine months of 1997. The capacity
factor for the first nine months of 1998 was adversely affected by the
unscheduled outages that lasted a total of 47 days during January, June and
July. The capacity factor for the first nine months of 1997 was adversely
affected by the refueling outage that lasted 50 days in May and June of 1997.
Sales of electricity increased by approximately 4.3% to 774,617,800 kWhs in the
first nine months of 1998 as compared to 742,633,200 kWhs in the first nine
months of 1997. During the first nine months of 1998 the average sales price per
kWh increased 11.2% to 3.07 cents per kWh as compared with 2.76 cents per kWh in
the first nine months of 1997.


Expenses

         Production and Transmission expenses for the first nine months of 1998
increased approximately $856,700, or 5.6%, as compared to the first nine months
of 1997. This increase was primarily due to the expenses incurred as a result of
the unscheduled outages in 1998 referred to above.

         Administrative and general expenses increased $1,356,200, or 25.1%, to
$6,755,200 in the first nine months of 1998 as compared to $5,399,000 in the
first nine months of 1997. This increase was



                                       13


<PAGE>   14
                             BAYCORP HOLDINGS, LTD.




primarily attributable to the charge related to Great Bay's buy-out of its power
marketing agreement with PECO for approximately $2,500,000 in June 1998. See
"Notes to Financial Statements - Note C - Commitments and Contingencies -
Liquidity and Capital Expenditures." This additional administrative and general
expense was offset in part by a reduction in power marketing fees of
approximately $771,700 during the first nine months of 1998 as compared to the
first nine months of 1997.

         There was an overall decrease of approximately $153,800, or 2.6%, in
depreciation and amortization and taxes other than income expenses, from
$5,942,600 in the first nine months of 1997 to $5,788,800 in the first nine
months of 1998.

         BayCorp's cost of power increased 3.3% to 3.72 cents per kWh in the
first nine months of 1998 as compared to 3.60 cents per kWh in the first nine
months of 1997. This increase was primarily the result of increased
Administrative and General Expenses in the first nine months of 1998 as compared
to the first nine months of 1997.

Other (Income) Deductions

         Decommissioning Cost Accretion increased $155,900, to $2,153,000 during
the first nine months of 1998 as compared to $1,997,100 during the first nine
months of 1997. This accretion is a non-cash charge and recognizes Great Bay's
liability related to the closure and decommissioning of the Seabrook Project in
current year dollars over the period during which the Seabrook Project is
licensed to operate.

         During the first nine months of 1998, the Company realized $1,109,800
in interest income on the Company's cash and decommissioning trust fund accounts
as compared to $1,267,500 during the first nine months of 1997. The decrease of
$157,700, or 12.4%, primarily reflects reduced interest earnings on the lower
cash balances during the first nine months of 1998 as compared to the first nine
months of 1997. Miscellaneous expenses increased $123,400 to $126,100 in the
first nine months of 1998 as compared to $2,600 in the first nine months of 1997
and was primarily attributable to 1998 State of Delaware corporate franchise
taxes for BayCorp.

Net Loss

         As a result of the above factors, during the first nine months ended
September 30, 1998, the Company recorded a net loss of $6,195,000, or
approximately $.71 per basic and diluted share, as compared to a net loss of
$6,978,800, or approximately $.82 per basic and diluted share, during the first
nine months ended September 30, 1997.


Net Operating Losses

         For federal income tax purposes, as of December 31, 1997, the Company
had net operating loss carry forwards ("NOLs") of approximately $194 million,
which are scheduled to expire between 2005 and 2012. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $136 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$136 million of the Company's NOLs is approximately $5.5 million per year. Any
unused portion of the $5.5 million annual limitation applicable to the



                                       14


<PAGE>   15
                             BAYCORP HOLDINGS, LTD.




Company's restricted NOL's is available for use in future years until such NOL's
are scheduled to expire. The Company's other $60 million of NOLs are not
currently subject to such limitations.

Liquidity

         BayCorp's cash and short-term investments decreased approximately
$5,749,600 during the first nine months of 1998. Principal factors affecting
liquidity during the nine months ended September 30, 1998 included the net loss
of $6,195,300 discussed above and cash expenditures of approximately $1,644,500
for capital plant additions, $3,851,900 for nuclear fuel purchases and $960,600
for decommissioning trust fund payments. The increase in accounts receivable of
approximately $2,733,700 is primarily due to the low 1997 year end receivables
balance resulting from the unscheduled outage in December 1997 that reduced
December sales.

         Offsetting these cash charges were non-cash charges to income which
included $2,634,200 for depreciation, $3,078,000 for nuclear fuel amortization
and $2,153,000 for decommissioning trust fund accretion and an increase in Taxes
Accrued of $457,200. During the first nine months of 1998, miscellaneous other
liabilities increased approximately $2,261,400, and was primarily attributable
to the monthly outage accrual for a refueling outage currently scheduled to
begin in March 1999.

Year 2000 Issues

         The "Year 2000" issue relates to computer systems and software that
cannot determine whether "00" means the year 1900 or 2000. Systems or software
that cannot properly process year 2000 dates could give rise to failures or
create erroneous results that in turn could have a material adverse effect on
the Company's business, operations, financial results and liquidity.

         The Company relies on the operation of the Seabrook Project for nearly
all of its revenue. Accordingly, the Company's major exposure for year 2000
problems is the effect of a plant shutdown partially or completely caused by a
year 2000 problem. In addition, year 2000 issues could adversely affect
electricity metering, transmission, billing or other business processes.

         The Company does not operate the Seabrook Project. Rather, the joint
owners of the plant, including Great Bay, have contracted with North Atlantic
Energy Service Corporation ("NAESCO"), a subsidiary of Northeast Utilities, to
operate the plant. Northeast Utilities, in conjunction with certain of its
affiliates, holds the largest joint ownership interest in the Seabrook Project.

         According to September 1998 estimates provided by NAESCO, Great Bay's
share of costs to address year 2000 issues at the Seabrook Project will be
approximately $572,000. As of September 30, 1998, Great Bay's share of costs to
address year 2000 issues at the Seabrook Project was approximately $102,000.
Great Bay has funded these expenses from its operating revenues.

         In assessing year 2000 issues associated with the Seabrook Project,
NAESCO, as of September 30, 1998:

-        developed and implemented a detailed millennium project plan;

-        completed its inventory, analysis and planning for millennium items,
         identifying nearly 1,300 separate items and determining that 59% can be
         accepted without modification and 41% require further testing,
         modification or replacement; and




                                       15


<PAGE>   16
                             BAYCORP HOLDINGS, LTD.




-        worked with the NRC in connection with the NRC's year 2000 audit of the
         Seabrook plant, which occurred from September 29, 1998 through October
         1, 1998.

         NAESCO has defined a schedule to implement all year 2000 corrective
actions. A number of critical remediation tasks still must be accomplished, most
of which are scheduled for completion by June 1999 and some of which are
scheduled for completion by September 1999. Some of the more important remaining
tasks include NAESCO's plans to:

-        upgrade IBM mainframe software, and IDMS and INQUIRE database
         management systems, to year 2000-compliant releases;

-        develop contingency plans; and

-        complete critical supplier and embedded systems remediation projects.

         NAESCO commenced year 2000 efforts relating to the Seabrook Project in
October 1996. NAESCO's Seabrook millennium project plan acknowledges that if,
for example, a technical requirement or regulatory commitment is missed or if,
for example, a critical supplier does not provide a service, NAESCO, as operator
of the Seabrook Project, will need to take collective action, which could
include an unscheduled shutdown of the plant.

         In April 1998 the NRC requested that all licensed nuclear power plant
operators provide to the NRC, by July 1, 1999, written certification that their
facilities are year 2000-ready and in compliance with the terms and conditions
of their licenses, NRC regulations and the principles outlined in an August 1997
NRC nuclear utility year 2000 readiness document. If the plant is not ready,
plans and schedules to become ready must be submitted to the NRC. The Company
believes that NAESCO's year 2000 efforts at the Seabrook Project are designed to
meet or exceed NRC requirements.

         The dates on which NAESCO believes its year 2000 compliance efforts
will be completed are based on NAESCO management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved or that there will not be a delay in, or increased costs associated
with, the implementation of the year 2000 compliance efforts. Specific factors
that might cause differences between the estimates and actual results include,
but are not limited to, the availability and cost of personnel trained in these
areas, the ability to locate and correct all relevant computer code, timely
responses to and corrections by third parties and suppliers, the ability to
implement interfaces between the new systems and the systems not being replaced,
and similar uncertainties. Due to the general uncertainty inherent in the year
2000 problem, resulting in part from the uncertainty of the year 2000 readiness
of third-parties and the interconnection of global businesses, the Company
cannot ensure that efforts to timely and cost-effectively resolve year 2000
issues will be successful. If year 2000 compliance efforts are unsuccessful or
incomplete, or if costs exceed NAESCO's estimates, the Company's business,
operations, financial results and liquidity could be materially and adversely
affected.

         The majority of the necessary modifications to the Company's
centralized financial, customer and operational information systems (as opposed
to those at the Seabrook Project) are expected to be completed by the end of
1998. The Company believes it will incur minimal year 2000 remediation costs
associated with its centralized systems.




                                       16



<PAGE>   17

                             BAYCORP HOLDINGS, LTD.



         This Quarterly Report on Form 10-Q contains forward-looking statements
that involve a number of risks and uncertainties. Any statements contained
herein (including without limitation statements to the effect that the Company,
Great Bay or their management "believes", "expects", "anticipates", "plans" and
similar expressions) that are not statements of historical fact should be
considered forward-looking statements. Among the important factors that could
cause actual results to differ materially from those indicated by such
forward-looking statements are the factors set forth in the Company's Annual
Report on Form 10-K under the caption Management's Discussion and Analysis of
Financial Condition and Results of Operation - Certain Factors That May Affect
Future Results, which are incorporated by reference herein.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the town of Seabrook and two other New
Hampshire towns in which the Seabrook Project is located. The abatement requests
for each of those tax years were denied. Great Bay filed appeals for each
of those years with the New Hampshire Board of Tax and Land Appeals (the
"BTLA"). The appeals are currently pending before the BTLA. The Company has paid
all of its property tax obligations to date under protest. A successful outcome
of the Company's appeals with respect to property tax assessments would
favorably affect the Company's liquidity and obligation for property tax
payments in the future.

ITEM 5. OTHER INFORMATION

          Great Bay signed a definitive purchase agreement, dated as of June 24,
1998, with Montaup Electric Company ("Montaup"), a subsidiary of Eastern
Utilities Associates ("EUA"), to purchase Montaup's approximately 3% ownership
interest in the Seabrook Project. Montaup's 3% interest in Seabrook represents
approximately 34 megawatts of capacity. Under the terms of the agreement, Great
Bay will pay Montaup approximately $3.2 million and Montaup has agreed to
prefund the decommissioning liability associated with its interest in Seabrook.
Great Bay has also agreed to supply a share of EUA's standard offer obligation
to serve EUA's existing customers in Massachusetts and Rhode Island who do not
choose an alternative supplier. The transaction is subject to state and federal
regulatory approvals. The parties are working to obtain such approvals and
expect to close the transaction during the first quarter of 1999.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      See Exhibit Index

         (b)      There were no reports on Form 8-K submitted for the three
                  months ended September 30, 1998.





                                       17



<PAGE>   18
                             BAYCORP HOLDINGS, LTD.




         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.




                                     BAYCORP HOLDINGS, LTD.


November 13, 1998                    By: /s/ Frank W. Getman Jr.
                                         -------------------------------------
                                         Frank W. Getman Jr.
                                         President and Chief Executive Officer











                                       18


<PAGE>   19
                             BAYCORP HOLDINGS, LTD.




                                  EXHIBIT INDEX



Exhibit No.       Description
-----------       -----------


27.1              Financial Data Schedule

99.1              Certain Factors That May Affect Future Results, set out on
                  pages 18-22 of the Company's Annual Report on Form 10-K for
                  the period ended December 31, 1997, except for the risk factor
                  therein captioned "Year 2000," which is replaced in its
                  entirety by the disclosure in this Form 10-Q for the period
                  ended September 30, 1998 under the caption "Management's
                  Discussion and Analysis of Financial Conditions and Results of
                  Operations--Year 2000 Issues." The Company's Annual Report on
                  Form 10-K for the period ended December 31, 1997 shall not be
                  deemed to be filed except to the extent that portions thereof
                  are expressly incorporated by reference herein.







                                       19