<PAGE>
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 August 31, 1995
-----------------------------------
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from________________ to________________
Commission file number 0-72
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York Research Corporation
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(EXACT NAME OF REGISTRANT AS SPECIFIED)
Delaware 06-0608633
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
280 Park Avenue, Suite 2700 West, New York, New York 10017
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 557-6200
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities and 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report
12,830,017.
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<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, February 28,
1995 1995
----------- ------------
(Unaudited) *
<S> <C> <C>
ASSETS
Current Assets:
Cash $1,662,748 $1,767,495
Service and other receivables - WCTP 376,382 15,202
Engineering and other service receivables - BNYLP 119,564 132,253
Other receivables-NAEC 450,000 --
Due from AWH 318,333 568,333
Other current assets (including advances to employees and
directors of $178,750 and $203,118, respectively) 349,031 504,318
----------- -----------
Total current assets 3,276,058 2,987,601
Property, plant and equipment, net 345,892 336,871
Construction in progress - WCTP 23,858,958 21,741,740
Long-term note receivable - WCTP 20,682,000 20,682,000
Other long-term receivables - WCTP 1,529,978 1,529,978
Advances to minority partner 2,000,000 2,000,000
Payment in lieu of performance bond - WCTP 500,000 500,000
Other assets (including advances to an employee and a director
of $341,267 and $338,267, respectively) 709,767 489,688
Excess of investment over net assets acquired, net 396,998 416,684
----------- -----------
Total assets $53,299,651 $50,684,562
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts and notes payable $1,049,788 $1,286,877
Accrued expenses 1,966,370 2,274,135
Accrued income taxes 241,979 262,493
Current portion of deferred revenue and other credits -- 374,592
----------- -----------
Total current liabilities 3,258,137 4,198,097
Due to SBCC 20,232,000 20,482,000
Other long-term liabilities 628,554 637,969
Deferred revenue and other credits 3,460,000 3,478,041
----------- -----------
Total liabilities 27,578,691 28,796,107
Commitments and contingencies
Minority interest in partnership 2,943 2,943
Stockholders' equity
Common stock, Class A, $.01 par value; authorized 10,000,000
shares; none issued --
Common stock, $.01 par value; authorized 50,000,000 shares; issued
12,877,141 and 12,610,594 shares, respectively 128,771 126,106
Additional paid-in capital 50,937,612 49,619,995
Accumulated (deficit) (14,918,968) (16,305,289)
----------- -----------
36,147,415 33,440,812
Less:
Treasury stock, at cost (47,124 shares) (706,401) (706,401)
Notes receivable - sale of common stock (7,527,808) (7,393,408)
Deferred compensation - ESOP (2,195,189) (3,455,491)
----------- -----------
Total stockholders' equity 25,718,017 21,885,512
----------- -----------
Total liabilities and stockholders' equity $53,299,651 $50,684,562
----------- -----------
----------- -----------
</TABLE>
* Derived from audited financial statements as of February 28, 1995
The accompanying notes are an integral part of these financial statements.
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<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For the Six For the Three
Months Ended August 31, Months Ended August 31,
------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Services - WCTP $1,694,393 $122,190 $893,183 $63,263
Engineering and other services - BNYLP 420,540 337,844 174,151 115,722
Development fees - BNYLP 3,266,688 1,900,032 2,066,672 950,016
Power brokerage fees - NAEC 675,000 -- 250,000 --
---------- ---------- ---------- ----------
Total revenues 6,056,621 2,360,066 3,384,006 1,129,001
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of services to WCTP 1,664,778 101,135 885,410 55,728
Cost of engineering and other services - BNYLP 420,540 337,844 174,151 115,722
Selling, general and administrative 3,195,846 2,736,574 1,583,453 1,536,449
Interest and other (income) expense (1,210,864) (268,556) (605,102) (259,793)
Minority interest in consolidated partnership 500,000 -- 500,000 --
---------- ---------- ---------- ----------
Total costs and expenses 4,570,300 2,906,997 2,537,912 1,448,106
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 1,486,321 (546,931) 846,094 (319,105)
Provision for income taxes 100,000 64,000 50,000 12,000
---------- ---------- ---------- ----------
NET INCOME (LOSS) $1,386,321 ($610,931) $796,094 ($331,105)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per common share: $0.12 ($0.06) $0.07 ($0.03)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of common shares and
common share equivalents: 14,671,738 10,595,425 14,741,158 10,603,840
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31,
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) from operations $1,386,321 ($610,931)
Adjustments to reconcile net income (loss) from operations to
net cash generated by (used in) operating activities:
Depreciation and amortization 184,085 65,840
Amortization of deferred credits (392,633) (527,974)
ESOP contribution 206,458 180,989
Gain on disposition of machinery and equipment -- 3,413
Changes in operating assets and liabilities:
(Increase) decrease in service receivables (448,343) 38,148
Increase in construction in progress (2,117,218) (45,028)
Net (increase) decrease in notes receivable, other current
assets, and other assets (264,792) 101,319
Net decrease in due to bank and equipment vendor -- (571,644)
Net decrease in accounts payable, accrued
expenses and long-term liabilities (795,699) (928,216)
Increase (decrease) in accrued taxes (20,514) 43,035
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (2,262,335) (2,251,049)
---------- ----------
INVESTING ACTIVITIES:
Purchase of machinery and equipment (73,568) (80,084)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (73,568) (80,084)
---------- ----------
FINANCING ACTIVITIES:
Amounts received from ESOP 1,374,000 1,401,000
Payments on capital leases (8,569) (12,246)
Proceeds from exercise of stock options and warrants 865,725 --
---------- ----------
NET CASH GENERATED BY FINANCING ACTIVITIES 2,231,156 1,388,754
---------- ----------
DECREASE IN CASH (104,747) (942,379)
CASH AT BEGINNING OF PERIOD 1,767,495 2,390,069
---------- ----------
CASH AT END OF PERIOD $1,662,748 $1,447,690
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statement
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
In the opinion of management, the accompanying consolidated, unaudited
financial statements contain all adjustments necessary to present fairly York
Research Corporation and Subsidiaries' ("York" or the "Company") consolidated
financial position as at August 31, 1995 and results of operations for the six
and three months ended August 31, 1995 and 1994, and cash flows for the six
months ended August 31, 1995 and 1994.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting principles,
but which is not required for interim reporting purposes, has been condensed or
omitted. The accompanying financial statements need to be read in conjunction
with the financial statements and notes thereto included in the Registrant's
Form 10-K.
Any adjustments that may have been made to the financial statements are of
a normal recurring nature.
(2) PER SHARE DATA
Per share data for the six and three months ended August 31, 1995 and 1994
is based upon the weighted average number of common shares outstanding.
Unreleased Employee Stock Ownership Plan shares are not considered outstanding
for earnings per share calculations. The per share data for the six and three
months ended August 31, 1995 also include common equivalent shares, which are
warrants and stock options; per share data for these periods are calculated
using the modified treasury stock method. There is no significant difference
between primary and fully diluted earnings per share.
(3) CERTAIN WARRANTS
The Company, while denying any liability, and in the opinion of management,
in order to avoid a protracted and costly litigation, settled in May 1993 a
class action lawsuit which shareholders brought against the Company and certain
directors and officers of York. Pursuant to the terms of the settlement, the
Company issued to the members of the class warrants to purchase 600,000 shares
of its common stock at $8.00 per share and warrants to purchase 180,000 shares
of its common stock at $6.15 per share (collectively the "Warrants"). Under the
terms of the settlement other principal provisions of the Warrants include the
following:
(i) The Company has the right to redeem the Warrants in whole or in part at any
time after issuance for $11.50 per Warrant.
(ii) The Company has the right to reduce the Warrant exercise price at any
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<PAGE>
time after issuance, in its discretion (the "adjusted exercise price").
(iii) The Warrants expire on November 1, 1995 (the "Expiration Date").
(iv) Unless the Warrants have previously been redeemed or accelerated the
Warrants may be exchanged by the holders thereof on the Expiration Date for
$11.50 in cash per Warrant (the "Surrender Price").
(v) The Surrender Price is collateralized by a 35% limited partnership interest
in Brooklyn Navy Yard Cogeneration Partners, L.P. ("BNYLP") held by B-41LP.
This limited partnership interest will be released when it is replaced by
letters of credit or if the event described in (vi) below occurs. On February
16, 1995, a $6.9 million letter of credit was posted by Mission Energy Company
collateralizing a portion of the surrender price. If drawn, it has recourse
only to B-41LP's distribution from BNYLP, if any.
(vi) All warrants may no longer be exchanged for the Surrender Price if the
closing price of the Company's stock on NASDAQ shall have equaled or exceeded
the exercise price or adjusted exercise price of the Warrants plus $11.50 on at
least seventy-five of ninety consecutive trading days at any time prior to the
Expiration Date.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
BROOKLYN NAVY YARD PROJECT
Brooklyn Navy Yard Cogeneration Partners, L.P. ("BNYLP"), a joint venture,
was formed on October 19, 1992. BNYLP is owned and controlled equally by a
subsidiary of Mission Energy Company ("Mission"), which is a wholly owned
subsidiary of SCE Corp., and a limited partnership, B-41 Associates, L.P.("B-
41LP"), in which the Company is a majority partner.
The Company estimates the total capital costs of the Brooklyn Navy Yard
("BNY") Facility, when completed, to be approximately $410,000,000, and it
expects, with the support of Mission, to arrange for financing the project
through third parties, without funding from the Company. Substantial
construction is in progress and it is possible that construction could be
complete prior to the receipt of third party financing. As a result, Mission
may be required to fund all construction costs, or provide a guarantee to secure
project financing. The Company has no obligation to fund the project or provide
guarantees and all obligations incurred by BNYLP to date are non-recourse to the
Company.
Pursuant to the provisions of the partnership agreement, Mission has the
right, when it has spent in excess of $13,258,043 in development costs, to take
all the votes on the Management Committee that controls the day to day
operations of BNYLP. Mission informed B-41LP that they have incurred costs in
excess of $250,000,000 to date for this project. If Mission decides to exercise
its right to cast all votes on the BNYLP Management Committee, B-41LP still
remains a 50% general and limited partner in the Navy Yard project and retains
all its other rights, and Mission retains all its funding and other obligations
to the Project and B-41LP.
In consideration for certain development services for the BNY facility
performed by the Company, RV Associates L.P. has assumed the obligation for
certain credit facilities and other payments ($3,000,000 in the six months ended
August 31, 1995) totaling $9,750,000, which are repayable only from amounts
received from third party BNYLP financings or BNY facility operations.
Like other large projects of this nature, the BNY cogeneration facility is
subject to various risks and has significant areas of development still to be
resolved. There can be no assurance that the facility will be successfully
constructed or, if it is successfully constructed that it will operate at
sufficient levels to cover all operation and maintenance expenses and debt
service.
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<PAGE>
WARBASSE PROJECT
In September 1994, the Company resumed full operations of the Warbasse
facility, and since that date has supplied all the electric and thermal needs of
the host, Amalgamated Warbasse Houses, Inc., and is supplying up to the full
capacity requirements of its electric power contract with Consolidated Edison
Company of New York, Inc.
The Company is in the final stages of completing construction of the
Warbasse project. The Company expects that the Warbasse Project requires
approximately $900,000 to complete construction which would include installed
capacity beyond the requirements of the current power purchase agreements which
would be available for an additional potential pending utility contract, or for
increased efficiency. The Company believes that financing for the completion of
the project will continue to be available from internally generated sources or
from related or third parties, although there can be no assurance that
sufficient funds will be available on a timely basis.
Warbasse-Cogeneration Technologies Partnership L.P. ("WCTP") is in the
process of obtaining senior project financing. This would allow WCTP to repay a
substantial portion of its debt to the Company. Although there can be no
assurance, WCTP believes that the financing will be in place by the end of the
year.
GENERAL
During the six and three months ended August 31, 1995, the York Research
Corporation Employee Stock Ownership Trust ("ESOP") trustee sold 320,000 and
140,000 shares, respectively, of the Company's common stock, at a profit to the
ESOP and repaid to the Company $1,374,000 and $454,000, respectively, of the
demand purchase loans. The Company expects the ESOP to repay an additional
$1,500,000 of demand purchase money loans in the next year.
Cash used in operating activities during the six months ended August 31,
1995 was approximately $2,262,000, as compared to approximately $2,251,000 used
during the six months ended August 31, 1994. During the six months ended August
31, 1995, the majority of cash used in operating activities, approximately
$2,117,000, was spent on construction in progress related to the Warbasse
project. During the six months ended August 31, 1994, the remaining balances
due to bank and an equipment vendor were satisfied, accounting for most of the
cash used.
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<PAGE>
During the six months ended August 31, 1995, cash generated by financing
activities was approximately $2,231,000, as compared to approximately $1,389,000
during the six months ended August 31, 1994. In both periods, the cash
generated was mainly attributable to cash received from the ESOP as repayment of
demand purchase money loans. During the six months ended August 31, 1995,
$1,374,000 was received from the ESOP, and approximately $1,401,000 was received
during the six months ended August 31, 1994. In addition, during the six months
ended August 31, 1995, approximately $866,000 was received as a result of the
exercise of stock options and warrants.
The Company must continue to finance its selling, general and
administrative expenses and other obligations. Although there can be no
assurance, the Company believes that through the Brooklyn Navy Yard joint
venture, the ESOP funding, proceeds from the exercise of warrants and options,
the operation of the Warbasse project, the proposed Warbasse project financing
and power brokerage fees and costs reimbursed by North American Energy
Conservation, Inc. ("NAEC"), the Company will be able to meet these obligations
as these sources will be available to the Company over the next year and on a
long-term basis.
In the six and three months ended August 31, 1995, the Company's Canadian
subsidiary, York Research Canada Inc., incurred approximately $507,000 and
$254,000, respectively, of selling, general and administrative expenses.
The Company has signed an agreement with NAEC which provides for the
Company to be reimbursed for all costs associated with its activities related to
NAEC, a company owned by the Company's Chairman, and the Company will receive
power brokerage fees to be mutually agreed upon based on level of activity. The
Company recognized $600,000 and $300,000, respectively, as a reimbursement of
costs and $675,000 and $250,000, respectively, in brokerage fees related to the
six and three months ended August 31, 1995.
The Company has no significant capital commitments, other than the
completion of construction of the Warbasse facility.
RESULTS OF OPERATIONS
Total revenues increased approximately $3,697,000 and $2,255,000,
respectively, when comparing the six and three months ended August 31, 1995 to
the corresponding periods in 1994. Resumption of operations of the Warbasse
project in September, 1994, caused Services-WCTP revenues to increase
approximately $1,572,000 and $830,000, respectively, in 1995. Development
fees-BNYLP revenues increased $1,367,000 and $1,117,000, respectively, as a
result of an additional $3,000,000 and $2,000,000 development fee paid in the
six and three months ended August 31, 1995, respectively, by Mission to B-41LP
to, among other things, compensate B-
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<PAGE>
41LP for certain services rendered, offset by a decrease of $1,500,000 and
$750,000, respectively, due to the conclusion of certain monthly development
fees in December, 1994. Additionally, power brokerage fees from NAEC of
$675,000 and $250,000 were recognized in the current periods, compared to none
in the prior periods.
Cost of services to WCTP, which include fuel and other operations and
maintenance costs, during the six and three months ended August 31, 1995,
increased approximately $1,564,000 and $830,000, respectively, compared to the
six and three months ended August 31, 1994, commensurate with Services - WCTP
revenues.
Selling, general and administrative expenses increased approximately
$459,000 and $47,000, respectively, when comparing the six and three months
ended August 31, 1995 to the corresponding periods in 1994. Expenses for the
current periods increased approximately $150,000 and $113,000, respectively, as
a result of costs associated with being a public company. Expenses for the
current periods increased approximately $195,000 and $64,000, respectively, due
to additional expenditures for development of new projects. Due to a
restructuring of the Corporate Headquarters lease, which will result ultimately
in reduced rent expense, a prior deferred credit of approximately $72,000 was
recognized, causing a decrease in rent expense for the six and three months
ended August 31, 1995. Payroll and related expenses increased approximately
$144,000 during the six months ended August 31, 1995, as a result of salary
increases, additional personnel, and increased health insurance costs over the
same period in the prior year.
Interest and other income increased approximately $942,000 and $345,000,
respectively, for the six and three months ended August 31, 1995, as compared to
the corresponding periods in 1994. During the current periods, increases of
$1,210,000 and $605,000, respectively, were due to interest received from WCTP
related to the long-term note receivable acquired by B-41LP in September, 1994.
The realization of a deferred gain of approximately $244,000 which occurred
during the quarter ended August 31, 1994 resulted in a decrease when comparing
corresponding periods of the current year to the prior year.
Income allocated to minority interest increased $500,000 for the six and
three months ended August 31, 1995 compared to the corresponding periods in the
prior year. This was the minority portion of the development fees recognized in
the current quarter.
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<PAGE>
PART II
ITEM 1. Legal Proceedings
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) There were no reports on Form 8-K filed during the three months ended
August 31, 1995.
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<PAGE>
SIGNATURES
Pursuant to the requirements of The Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 13, 1995 /s/Robert M. Beningson
-------------------------
Robert M. Beningson
Chairman of the Board and
President
Dated: October 13, 1995 /s/ Michael Trachtenberg
-------------------------
Michael Trachtenberg
Executive Vice President
and Chief Financial and
Accounting Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Consolidated Balance Sheets and Consolidated Statements of Operations as of and
for the periods ended August 31, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> AUG-31-1995
<CASH> 1,662,748
<SECURITIES> 0
<RECEIVABLES> 945,946
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,276,058
<PP&E> 345,892
<DEPRECIATION> (739,515)
<TOTAL-ASSETS> 53,299,651
<CURRENT-LIABILITIES> 3,258,137
<BONDS> 0
<COMMON> 128,771
0
0
<OTHER-SE> 25,589,246
<TOTAL-LIABILITY-AND-EQUITY> 53,299,651
<SALES> 0
<TOTAL-REVENUES> 6,056,621
<CGS> 0
<TOTAL-COSTS> 2,085,318
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,486,321
<INCOME-TAX> 100,000
<INCOME-CONTINUING> 1,386,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,386,321
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0
</TABLE>
