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
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1996
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OR
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|___| 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 13,462,857.
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<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
May 31, February 28,
1996 1996
------------ ------------
(Unaudited) *
<S> <C> <C>
ASSETS
Current Assets:
Cash $5,462,487 $5,530,190
Service and other receivables - WCTP 1,393,958 1,696,583
Engineering and other service receivables - BNYLP 2,673,912 137,915
Other receivables-NAEC 300,000 600,000
Due from AWH 41,721 --
Deferred tax asset 684,000 684,000
Other current assets (including advances to employees and
directors of $61,200 and $32,775, respectively) 262,163 204,728
---------- ----------
Total current assets 10,818,241 8,853,416
Property, plant and equipment, net 397,329 353,755
Construction in progress - WCTP 24,987,860 24,726,114
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 $628,767 and $627,267, respectively) 972,067 979,094
Excess of investment over net assets acquired, net 367,469 377,312
----------- -----------
Total assets $62,254,944 $60,001,669
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts and notes payable $1,029,736 $1,209,978
Accrued expenses 1,479,872 1,443,149
Accrued income taxes 467,877 144,342
----------- -----------
Total current liabilities 2,977,485 2,797,469
Due to SBCC 20,232,000 20,232,000
Other long-term liabilities 679,722 684,833
Deferred revenue and other credits 3,460,000 3,460,000
------------ -----------
Total liabilities 27,349,207 27,174,302
Commitments and contingencies
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
13,509,981 and 13,329,778 shares, respectively 135,100 133,298
Additional paid-in capital 54,930,409 54,230,850
Accumulated (deficit) (10,545,639) (11,905,661)
------------ ------------
44,519,870 42,458,487
Less:
Treasury stock, at cost (47,124 shares) (706,401) (706,401)
Notes receivable - sale of common stock (7,570,937) (7,539,787)
Deferred compensation - ESOP (1,336,795) (1,384,932)
------------- ------------
Total stockholders' equity 34,905,737 32,827,367
Total liabilities and stockholders' equity ------------- -------------
$62,254,944 $60,001,669
============= ============
</TABLE>
* Derived from audited financial statements as of February
28, 1996
The accompanying notes are an integral part of these financial
statements.
-2-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three
Months Ended May 31,
-------------------------
1996 1995
Revenues: --------------------------
Services $4,024,766 $1,047,599
Development and other fees 0 1,625,016
--------- ---------
Total revenues 4,024,766 2,672,615
--------- ---------
Costs and expenses:
Cost of services 1,496,749 1,025,756
Selling, general and administrative 1,565,256 1,612,393
Interest and other (income) expense (757,261) (605,762)
--------- ---------
Total costs and expenses 2,304,744 2,032,387
--------- ---------
Income before income taxes 1,720,022 640,228
Provision for income taxes 360,000 50,000
--------- ---------
Net income $1,360,022 $590,228
========= =========
Net income per common share - primary: $0.10 $0.05
========= =========
Net income per common share - fully diluted: $0.09 $0.05
========= =========
Weighted average number of common shares and
common share equivalents: 15,356,194 12,146,225
========== ==========
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
<TABLE><CAPTION>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MAY 31,
1996 1995
---------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income from operations $1,360,022 $590,228
Adjustments to reconcile net income from operations to
net cash generated by (used in) operating activities:
Depreciation and amortization 22,656 41,905
Amortization of deferred credits -- (226,992)
ESOP contribution 111,707 96,296
Changes in operating assets and liabilities:
Increase in service receivables (2,233,372) (161,102
Increase in construction in progress (254,719) (1,303,317)
Net increase (decrease) in notes receivable, other current
assets, and other assets 200,844 (287,519)
Net decrease in accounts payable, accrued
expenses and long-term liabilities (143,982) (152,804)
Increase in accrued taxes 323,535 859
---------- ---------
NET CASH USED IN OPERATING ACTIVITIES (613,309) (1,402,446)
---------- ---------
INVESTING ACTIVITIES:
Purchase of machinery and equipment (56,387) (37,599)
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (56,387) (37,599)
---------- ---------
FINANCING ACTIVITIES:
Amounts received from ESOP -- 920,000
Payments on capital leases (4,648) (3,680)
Proceeds from exercise of stock options and warrants 606,641 518,850
---------- ---------
NET CASH GENERATED BY FINANCING ACTIVITIES 601,993 1,435,170
---------- ---------
DECREASE IN CASH (67,703) (4,875)
CASH AT BEGINNING OF PERIOD 5,530,190 1,767,495
---------- ---------
CASH AT END OF PERIOD $5,462,487 $1,762,620
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
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 May 31, 1996 and
results of operations and cash flows for the three months ended May
31, 1996 and 1995.
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 have been made to the financial statements
are of a normal recurring nature.
(2) Per Share Data
--------------
Per share data is based on the weighted average number of common
shares and common share equivalents (warrants and options) outstanding
during the quarter, calculated using the modified treasury stock
method for the quarter ended May 31, 1996, and the treasury stock
method for the quarter ended May 31, 1995.
Three Months Ended
------------------
May 31, 1996 May 31, 1995
------------ ------------
Weighted average number
of shares outstanding 13,309,591 12,653,728
Average of unreleased ESOP shares (985,479) (1,370,607)
Dilution (warrants and options) 3,032,082 863,104
----------- ----------
Weighted average number of common
share and common
share equivalents 15,356,194 12,146,225
=========== ==========
(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, in March 1995, the Company
issued to the members of the class warrants to purchase 600,000 shares
of its common stock at $8.00 ("Class A Warrants") per share and
warrants to purchase 180,000 shares of its common stock at $6.15
("Class B Warrants") per share (collectively the "Warrants"). The
Class A Warrants expired on November 1, 1995. When the
-5-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Class A Warrants expired, the holders of such warrants became entitled
to and did surrender them for $6.9 million drawn under a letter of
credit which had been posted on February 16, 1995 by Edison Mission
Energy, which is recourse only to future distributions from BNYLP,
if any. The Class B Warrants remain outstanding except that at May
31, 1996, 7,514 Class B Warrants had been exercised. Under the terms
of the settlement other principal provisions of the Warrants include
the following:
(i) The Company has the right to redeem the Class B Warrants in whole
or in part for $11.50 per warrant.
(ii) The Company has the right to reduce the Class B Warrant exercise
price in its discretion (the "adjusted exercise price").
(iii) Unless the Class B 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").
(iv) All unexpired Class B 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.
(v) The Surrender Price of the Class B Warrants is collateralized by
a 35% limited partnership interest in Brooklyn Navy Yard Cogeneration
Partners, L.P. ("BNYLP") held by B-41 Associates, L.P. This limited
partnership interest will be released when it is replaced by a letter
of credit or if the event described in (iv) above occurs. When the
new warrants referred to in (vi) below are issued, the collateral will
be reduced to a 17 1/2% limited partnership interest.
(vi) On March 18, 1996, the Company agreed with counsel for the Class
Action litigants to issue up to 180,000 new Warrants to holders of
Class B Warrants as consideration for an extension until December 31,
1996 of the obligation of B-41LP to provide a letter of credit (in an
amount up to $1,984,000) to secure the Surrender Price of the
remaining Class B Warrants. Court approval of the agreement was given
on June 4, 1996. The new warrants will be issued when the shares for
which they are exercisable have been registered and listed. When
issued, the new warrants will have a term of two years, an exercise
price of $6.50 per share and will not have any provisions for
surrender or collateral.
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<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
----------------------------------------------
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 Edison Mission Energy
("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 and Mission previously estimated the total capital
costs of the Brooklyn Navy Yard ("BNY") Facility, when completed, to
be approximately $420,000,000. Due to an expansion of the
construction scope and the resulting delays, it is likely that this
estimate will be exceeded by approximately 10% to 15%, including
capitalized interest during construction. On December 22, 1995, the
New York City Industrial Development Agency (the "IDA") issued
$253,925,700 of Industrial Development Revenue Bonds for the purpose
of financing certain costs incurred through that date in constructing
and developing the BNY Facility. These bonds are recourse to a letter
of credit ("LOC") in like amounts arranged by Mission, which LOC is in
turn supported by a Mission guarantee. BNYLP has agreed to reimburse
Mission if the guarantee is called, out of future cash flow as and if
available. The proceeds of this bond sale were used to reimburse
Mission for a portion of its construction loans and to reimburse the
Company for engineering and other costs that had been expensed in
prior periods and for services that have been performed by the
Company.
In March, 1996, the project delivered initial test quantities of
power to Con Edison, equivalent to existing contract capacity.
Construction is still in progress and it is likely that the portion of
construction not funded by the IDA Bonds will be complete prior to the
receipt of additional third party financing. As a result, Mission is
likely to fund all remaining construction costs, or to be required to
provide additional guarantees 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
retains the right, because 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 has
informed B-41LP that they have incurred gross costs in excess of
$378,000,000 through May 31, 1996 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.
- 7 -
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
----------------------------------------------
Like other large projects of this nature, the BNY cogeneration
project is subject to various risks. There can be no assurance that
the facility, when completed, will operate at sufficient levels to
cover all operation and maintenance expenses and debt service. The
Company has no liability for any such shortfalls.
Warbasse Project
----------------
In September 1994, the Company resumed full operations of the
Warbasse facility, and since that date has supplied, on a continuous
basis, all the electric and thermal needs of the host, Amalgamated
Warbasse Houses, Inc. ("AWH"), and is supplying up to the full
capacity requirements of its electric power contract with Consolidated
Edison Company of New York, Inc., when dispatched.
The Company is in the final stages of completing the Warbasse
project, and expects to spend up to $1,000,000 during the next year,
on certain remaining items.
General
-------
Cash used in operating activities during the three months ended
May 31, 1996 was approximately $613,000, as compared to approximately
$1,402,000 used during the three months ended May 31, 1995. During
the current period, net income from operations provided approximately
$1,360,000, but this was offset by an increase in service receivables
of approximately $2,233,000. During the quarter ended May 31, 1995,
the majority of cash used in operating activities was spent on
construction in progress, approximately $1,303,000.
During the three months ended May 31, 1996, cash generated by
financing activities was approximately $602,000, as compared to
approximately $1,435,000 during the three months ended May 31, 1995.
During the current period, the cash was generated by the exercise of
stock options and warrants. During the three months ended May 31,
1995, approximately $519,000 was provided by the exercise of stock
options and warrants, and $920,000 was received from the York Research
Corp. Employee Stock Ownership Plan in repayment of demand purchase
money loans.
In the three months ended May 31, 1996, the Company's Canadian
subsidiary, York Research Canada Inc., incurred approximately $339,000
of selling, general and administrative expenses and expenses incurred
in developing new wind energy projects.
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
-8-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
----------------------------------------------
will receive power brokerage fees to be mutually agreed upon based on
level of activity. The Company recognized $300,000 as a reimbursement of
costs during the three months ended May 31, 1996.
The Company has no significant capital commitments, other than the
completion of construction of the Warbasse facility.
Results of Operations
---------------------
Total revenues increased approximately $1,352,000 when comparing
the three months ended May 31, 1996 to the corresponding period in 1995.
Engineering and other services-BNYLP increased approximately $2,510,000
for the three months ended May 31, 1996. This was principally due to
the recognition in the quarter ended May 31, 1996 of an agreement with
BNYLP to reimburse B-41LP $2,500,000 for certain engineering and other
costs that had been expensed in prior periods. Service revenues-WCTP
rose approximately $466,000 as a result of increased billings due to
elevated fuel costs, additional purchases of supplies, spare parts,
etc., and increased overhead allocations. Development fees-BNYLP
revenues decreased approximately $1,200,000, as a result of a $1,000,000
development fee paid in the three months ended May 31, 1995, by Mission
to B-41LP to, among other things, compensate B-41LP for certain services
rendered, and a decrease of approximately $200,000 due to the
conclusion, in December, 1994, of certain monthly development fees.
Power brokerage fees from NAEC decreased $425,000 since none were earned
in the current period.
Cost of services to WCTP, which include fuel and other operations
and maintenance costs, during the three months ended May 31, 1996,
increased approximately $460,000, compared to the three months ended
May 31, 1995, commensurate with Services - WCTP revenues.
Selling, general and administrative expenses decreased
approximately $47,000 when comparing the three months ended May 31,
1996 to May 31, 1995. Professional fees were reduced by approximately
$87,000. Overhead allocated to cost of services increased by
approximately $138,000. These reductions were offset by an increase
in expenses related to the Canadian subsidiary of approximately
$85,000, principally related to new project development, and additional
expense of approximately $86,000 related to public company and corporate
communications expense.
Interest and other income increased approximately $151,000 when
comparing the quarter ended May 31, 1996 to the quarter ended May 31,
1995. This was due mainly to the receipt of $150,000 from AWH,
recognized as other income, in payment of certain amounts due to
Cogeneration Technologies, Inc., which were deferred in prior years.
-9-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
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
May 31, 1996.
-10-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
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: July __, 1996 /s/ Robert M. Beningson
------------------------
Robert M. Beningson
Chairman of the Board and
President
Dated: July __, 1996 /s/ Michael Trachtenberg
------------------------
Michael Trachtenberg
Executive Vice President
and Chief Financial and
Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Consolidated Balance Sheet and Consolidated Statement of Operations as of
and for the period ended May 31,1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-1-1996
<PERIOD-END> MAY-31-1996
<CASH> 5,462,487
<SECURITIES> 0
<RECEIVABLES> 4,409,591
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,818,241
<PP&E> 1,212,923
<DEPRECIATION> (815,594)
<TOTAL-ASSETS> 62,254,944
<CURRENT-LIABILITIES> 2,977,485
<BONDS> 0
0
0
<COMMON> 135,100
<OTHER-SE> 34,770,637
<TOTAL-LIABILITY-AND-EQUITY> 62,254,944
<SALES> 0
<TOTAL-REVENUES> 4,024,766
<CGS> 0
<TOTAL-COSTS> 1,496,749
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,720,022
<INCOME-TAX> 360,000
<INCOME-CONTINUING> 1,360,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,360,022
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.09
</TABLE>
