<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 November 30, 1997
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
York Research Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified)
Delaware 06-0608633
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 557-6200
- --------------------------------------------------------------------------------
(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
14,821,123.
<PAGE>
YORK RESEARCH
CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, FEBRUARY 28,
1997 1997
------------ -------------
(UNAUDITED) *
ASSETS
Current Assets:
Cash and cash equivalents.................... $7,526,827 $11,513,026
Energy accounts receivable................... 79,534,574 7,900,114
Other receivables-related parties............ 7,760,425 8,298,806
Inventory--natural gas....................... 1,965,024 1,312,086
Deferred tax asset........................... 752,000 661,000
Other current assets (including
advances to employees of $68,900
and $146,300, respectively)................ 3,171,014 311,356
------------ -------------
Total current assets..................... 100,709,864 29,996,388
Property, plant and equipment, net............. 609,232 602,428
Construction in progress-- Wind Project........ 1,653,856 --
Long-term note receivable-- WCTP............... 49,490,535 49,490,535
Advances to minority partner................... -- 2,000,000
Other assets (including advances
to employees and a former director of
$620,417 and $608,267, respectively)......... 1,630,572 2,402,082
Excess of investment over net
assets acquired, net........................ 308,411 337,940
------------ -------------
Total assets............................ $154,402,470 $ 84,829,373
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Energy accounts payable..................... $80,767,865 $ 8,652,263
Accrued expenses and other payables......... 5,269,312 3,772,284
Accrued income taxes........................ -- 765,498
Current portion of deferred revenue......... 2,276,576 --
------------ -------------
Total current liabilities............... 88,313,753 13,190,045
Due to SBCC................................... -- 19,982,000
Other long-term liabilities................... 860,786 884,949
Deferred tax liability........................ 4,447,937 --
Deferred revenue and other credits............ 3,582,706 3,460,000
---------- -------------
Total liabilities....................... 97,205,182 37,516,994
Minority interest in partnership.............. 1,775,073 321,942
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 14,944,247 and 14,256,304
shares, respectively...................... 149,443 142,563
Additional paid-in capital.................. 64,410,324 60,350,127
Accumulated deficit......................... (327,854) (4,083,050)
---------- --------------
64,231,913 56,409,640
Less:
Treasury stock, at cost (123,124
and 47,124 shares).......................... (1,409,401) (706,401)
Notes receivable-sale of common
stock ...................................... (6,832,937) (7,960,313)
Deferred compensation-ESOP.................... (567,360) (752,489)
---------- --------------
Total stockholders' equity............ 55,422,215 46,990,437
---------- --------------
Total liabilities and stockholders'
equity.............................. $154,402,470 $ 84,829,373
---------- --------------
---------- --------------
* Derived from audited financial statements as of February 28, 1997
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
FOR THE NINE FOR THE THREE
MONTHS ENDED NOVEMBER 30, MONTHS ENDED NOVEMBER 30,
----------------------------- ----------------------------
1997 1996 1997 1996
-------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Energy sales..................................... $ 284,864,159 $ 5,223,483 $ 144,255,382 $ 5,223,483
Services......................................... 5,707,343 $ 14,554,965 1,721,929 $ 5,333,884
-------------- ------------- -------------- ------------
Total revenues................................. 290,571,502 19,778,448 145,977,311 10,557,367
-------------- ------------- -------------- ------------
Costs and expenses:
Cost of energy................................... 285,049,209 5,019,961 145,070,535 5,019,961
Cost of services................................. 5,598,922 4,449,000 1,633,720 1,442,910
Selling, general and administrative.............. 7,262,778 5,079,499 2,098,259 1,832,704
Interest income-WCTP............................. (3,395,440) (2,407,909) (1,124,663) (1,097,591)
Interest and other (income) expense.............. (1,315,172) (329,413) (468,419) (44,396)
Minority interest in partnership................. 427,376 185,726 141,559 185,726
-------------- ------------- -------------- ------------
Total costs and expenses....................... 293,627,673 11,996,864 147,350,991 7,339,314
-------------- ------------- -------------- ------------
Income (loss) before income taxes.................. (3,056,171) 7,781,584 (1,373,680) 3,218,053
Provision (benefit) for income taxes............... (1,375,000) 2,062,000 (1,485,000) 1,042,000
-------------- ------------- -------------- ------------
Income (loss) before extraordinary gain............ (1,681,171) 5,719,584 111,320 2,176,053
Extraordinary gain, net of tax and allocation to
minority interest................................ 5,436,367 -- -- --
-------------- ------------- -------------- ------------
Net income......................................... $ 3,755,196 $ 5,719,584 $ 111,320 $ 2,176,053
-------------- ------------- -------------- ------------
-------------- ------------- -------------- ------------
Earnings (loss) per share--Primary:
Per common share before extraordinary gain....... ($ 0.11) $ 0.38 $ 0.01 $ 0.14
Extraordinary gain............................... 0.35 -- -- --
-------------- ------------- -------------- ------------
Per common share................................. $ 0.24 $ 0.38 $ 0.01 $ 0.14
-------------- ------------- -------------- ------------
-------------- ------------- -------------- ------------
Earnings (loss) per share--Fully Diluted:
Per common share before extraordinary gain....... ($ 0.11) $ 0.37 $ 0.01 $ 0.14
Extraordinary gain............................... 0.35 -- -- --
-------------- ------------- -------------- ------------
Per common share................................. $ 0.24 $ 0.37 $ 0.01 $ 0.14
-------------- ------------- -------------- ------------
-------------- ------------- -------------- ------------
Weighted average number of common shares and common
share equivalents:............................... 15,507,666 15,470,050 15,758,218 15,559,756
-------------- ------------- -------------- ------------
-------------- ------------- -------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED NOVEMBER 30,
1997 1996
--------- ---------
(UNAUDITED)
OPERATING ACTIVITIES:
Net income........................................... $3,755,196 $ 5,719,584
Adjustments to reconcile net income to net cash
generated by (used in) operating activities:
Extraordinary gain............................... (5,436,367) --
Depreciation and amortization ................... 213,643 108,542
Amortization of deferred credits................. (872,782) --
ESOP contribution................................ 451,522 393,876
Deferred tax asset............................... (91,000) --
Changes in operating assets and liabilities:
Increase in accounts and other receivables..... (71,237,329) (6,617,146)
Increase in construction in progress--WCTP..... -- (2,052,443)
Net increase in notes receivable,
inventory, other current assets, and
other assets................................. (2,913,461) (1,786,574)
Net increase in accounts payable, accrued
expenses and long-term liabilities........... 77,000,973 6,256,896
Increase (decrease) in accrued taxes......... (765,498) 1,880,682
---------- -----------
NET CASH GENERATED BY OPERATING ACTIVITIES....... 104,897 3,903,417
---------- -----------
INVESTING ACTIVITIES:
Increase in construction in progress-Wind Project.. (1,653,856) --
Purchase of machinery and equipment................ (190,918) (143,556)
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,844,774) (143,556)
---------- -----------
FINANCING ACTIVITIES:
Amounts received from ESOP......................... -- 450,000
Settlement of obligation........................... (2,750,000) --
Payments on capital leases......................... (10,006) (11,086)
Proceeds from exercise of stock options and
warrants........................................ 513,684 2,662,290
---------- -----------
NET CASH GENERATED BY (USED IN) FINANCING
ACTIVITIES....................................... (2,246,322) 3,101,204
---------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... (3,986,199) 6,861,065
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 11,513,026 5,530,190
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $7,526,827 $12,391,255
---------- -----------
---------- -----------
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 November 30, 1997 and results of operations and cash
flows for the nine and three months ended November 30, 1997 and 1996.
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, unless
antidilutive.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
November 30, November 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding........................ 14,758,684 13,617,366 14,803,625 13,883,078
Average of unreleased ESOP shares.... (774,836) (939,094) (742,832) (889,904)
Dilution (warrants and options)...... 1,523,818 2,791,778 1,697,425 2,566,582
---------- ----------- ------------ ----------
Weighted average number of common
share and common share equivalents.. 15,507,666 15,470,050 15,758,218 15,559,756
---------- ----------- ------------ ----------
---------- ----------- ------------ ----------
</TABLE>
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
which is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Early adoption of the new standard
is not permitted. The new standard eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings
per share together with disclosure of how the per share amounts were
computed. Basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted-average
common shares outstanding for the period. Diluted earnings per share
reflects the weighted average common shares outstanding plus the potential
-5-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
dilutive effect of securities or contracts which are convertible to common
shares, such as options, warrants, and convertible preferred stock unless
antidilutive based upon income before extraordinary gain. The pro forma
effect of adopting the new standard would be:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
November 30, November 30,
------------------ -------------------
1997 1996 1997 1996
------- -------- ------ --------
<S> <C> <C> <C> <C>
Earnings(loss)per share - Basic:
Per common share before
extraordinary gain............. ($0.12) $0.46 $0.01 $0.17
Extraordinary gain................ 0.39 - - -
------ ----- ----- -----
Per common share.................. $0.27 $0.46 $0.01 $0.17
------ ----- ----- -----
------ ----- ----- -----
Earnings(loss)per share - Diluted:
Per common share before
extraordinary gain............. ($0.12) $0.37 $0.01 $0.14
Extraordinary gain................ 0.39 - - -
------ ----- ----- -----
Per common share.................. $0.27 $0.37 $0.01 $0.14
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
(3) Construction In Progress - Wind Project
In October 1997 the Company completed the acquisition of all the rights
to a 15 year 35 MW power purchase agreement with Texas Utilities. The
Company immediately commenced procurement, engineering and other activities
related to this wind project. Through November 30, 1997, the total costs
incurred related to the development and construction of this project were
approximately $1,654,000, which is included in construction in progress.
(4) Settlement of Obligation
In March 1997, B-41 Associates L.P. ("B-41LP") settled all its
obligations to Sanwa Business Credit Corp. ("SBCC") for a cash payment of
$2,750,000. SBCC, in exchange for this cash payment gave up all its interest
in the future cash flow from the Brooklyn Navy Yard Project and has no
continuing interest in any of the Company's projects or assets. In settling
this obligation, B-41LP caused RV Associates L.P. ("RVA") and its partners to
lose tax benefits that they would have been able to utilize. Therefore, the
Company compensated RVA for its lost tax benefits in the total amount of $4
million. The form of this non-cash transaction with RVA and its partners was
the exercise of 500,000 pre-existing warrants at $6 per share for a total of
$3,000,000, and the transfer of $1,000,000 of the Company's note receivable
from the Chairman to a nonconsolidated affiliate. This extinguishment of the
SBCC liability resulted in an extraordinary gain of approximately $5.4
million net of taxes of approximately $4.4 million and an allocation to the
minority interest of approximately $3.3 million. The $2 million distribution
that RVA received from B-41LP in Fiscal 1993 was charged against the capital
of B-41LP concurrent with the allocation of the gain to the minority interest.
-6-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Settlement of Class Action Litigation
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
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 certain future distributions from BNYLP, if any. The Class B
Warrants remain outstanding except that at November 30, 1997, 41,104 Class B
Warrants had been exercised. Under the terms of the settlement as amended,
other principal provisions of the Class B 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 at any time. The Company has agreed to redeem
10% of outstanding Class B Warrants in or about January, 1998, an additional
10% of then outstanding Class B Warrants on April 1, 1999 and the balance on
April 1, 2000.
(ii) The Company has the right to reduce the Class B Warrant exercise price
in its discretion (the "adjusted exercise price").
(iii) 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.
(iv) The Surrender (Redemption) Price of the Class B Warrants is
collateralized by a 17.5% limited partnership interest in Brooklyn Navy Yard
Cogeneration Partners, L.P. ("BNYLP") held by B-41 Associates, L.P.
(v) By agreement of March 18, 1996, with counsel for the Class Action
litigants, the Company issued 179,500 new Class C Warrants to holders of
Class B Warrants as consideration for certain extensions of time. The shares
issuable upon exercise of the Class B and C Warrants have been registered.
The Class C Warrants expire between September 27, 1998 and October 4, 1998,
are exercisable at $6.50 per share and do not have any provisions for
surrender or collateral. As of November 30, 1997, 87,567 Class C Warrants
had been exercised.
-7-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Significant New Accounting Pronouncements
The Financial Accounting Standards Board also released Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130), governing the reporting and display of comprehensive income
and its components, and Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS
No. 131), requiring that all public businesses report financial and
descriptive information about their reportable operating segments. The
Company will implement SFAS 130 and SFAS 131 as required in Fiscal 1999. The
impact of adopting SFAS No. 130 is not expected to be material to the
consolidated financial statements or notes to consolidated financial
statements. Management is currently evaluating the effect of SFAS No. 131 on
consolidated financial statement disclosures.
-8-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
Liquidity and Capital Resources
Brooklyn Navy Yard ("BNY") Facility
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.
On November 1, 1996, the BNY facility commenced operations, generating
electricity and steam in accordance with its contracts. In December, 1997, a
$407,000,000 non-recourse financing for the BNY facility was completed. This
financing included tax free Industrial Development Revenue Bonds with
maturities to October 1, 2036, as well as taxable bonds due in 2020. The
Company provided no guarantees with regard to this financing, and has no
obligation to provide funding of any sort. As a result of this financing,
and as compensation for services rendered, the Company received a fee of $6
million, which will be included in Service Revenues in the fourth quarter.
The Company also expects to receive continuing general partner and other fees
over the 40 year life of the project.
In March 1997, the Company settled all of its obligations related to
this project with a financing entity for $2,750,000, plus other consideration
(see Note 4).
Like other large projects of this nature, the BNY cogeneration project
is subject to various risks. There can be no assurance that the facility,
although completed and financed, will operate at sufficient levels to cover
all operation and maintenance expenses and debt service. The Company has no
liability for any such shortfalls, but if such shortfalls do occur, it could
impact the continuing fees mentioned above.
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 has substantially completed the Warbasse project, and
transferred the facility to Warbasse-Cogeneration Technologies Partnership
L.P. ("WCTP") on August 1, 1996. As a result of being a senior secured
creditor of WCTP, the Company has recorded approximately $3,395,000 of
interest income on its long-term notes receivable from WCTP for the nine
months ended November 30, 1997. The Company expects to spend up to
-9-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
$1,400,000 during the next year, on certain remaining items which were
accrued at the time of transfer, or enhancements to improve efficiency of
operations, which has been or will be included as part of the long-term notes
receivable from WCTP.
NAEC
The Company's energy marketing subsidiary, North American Energy
Conservation, Inc. ("NAEC"), has experienced dramatic growth since the
Company acquired it in November 1996. Revenues have increased from
approximately $5,223,000 in the month of November 1996 to approximately
$144,000,000 in the quarter ended November 1997. The Company expects this
business to continue to grow and improve its margins, and in order to support
that growth, NAEC has just completed a $20,000,000 revolving line of credit
with Congress Financial Corp., collateralized by NAEC's receivables and other
assets, and guaranteed by York. The Company believes this line of credit and
possible future expansions thereof will be sufficient to support the capital
and credit needs of NAEC.
NAEC has sold call options related to the wholesale electric business
totaling approximately $2.5 million at November 30, 1997. Of this amount,
approximately $2.3 million will be recognized as revenue in Fiscal 1999,
offset by approximately $1.0 million of prepaid brokerage fees and call
option expense.
General
Cash generated by operating activities during the nine months ended
November 30, 1997 was approximately $105,000, as compared to approximately
$3,903,000 generated during the nine months ended November 30, 1996. During
the current period, net income of approximately $3,755,000 included a
non-cash extraordinary gain of approximately $5,436,000, which was offset by
a net increase of certain operating liabilities over operating assets of
approximately $2,085,000. During the nine months ended November 30, 1996,
net income provided approximately $5,720,000, which was offset by an increase
in current assets of approximately $1,787,000.
During the nine months ended November 30, 1997, cash used in financing
activities was approximately $2,246,000, as compared to approximately
$3,101,000 generated during the nine months ended November 30, 1996. During
the current period, $2,750,000 was used to settle an obligation with Sanwa
Business Credit Corp., and approximately $514,000 was generated by the
exercise of stock options and warrants. During the nine months ended
November 30, 1996, approximately $2,662,000 was generated by the exercise of
stock options and warrants and $450,000 was received from the York Research
Corporation Employee Stock Ownership Plan in repayment of demand purchase
money loans.
-10-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
The Company has begun construction and development of its wind project
in Texas. The total capital budget of the wind project is expected to be
approximately $40 million, of which $1,200,000 has been committed to date in
addition to the amounts included in construction in progress at November 30,
1997. Other than the capital commitments related to this wind project and the
capital commitments related to increased operating efficiency at the Warbasse
facility, the Company has no significant capital commitments.
This report may contain certain forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject
to certain risks and uncertainties posed by many factors and events that
could cause the Company's actual business, prospects and results of
operations to differ materially from those that may be anticipated by such
forward-looking statements. Factors that may affect such forward-looking
statements include, without limitation: the Company's ability to successfully
develop and finance new projects and new products; the impact of competition
on the Company's revenues; changes in law or regulatory requirements that
adversely or positively affect the Company; delays in the Company's
development of new projects; and changes in unit prices, and supply and
demand for electricity and natural gas.
Results of Operations
Total revenues increased approximately $270,793,000 and $135,420,000
when comparing the nine and three months ended November 30, 1997 to the
corresponding periods in 1996, mainly due to the inclusion of North American
Energy Conservation, Inc. ("NAEC"), acquired on November 1, 1996, which
accounted for approximately $279,641,000 and $139,032,000, respectively, of
the increases. NAEC is a marketer of wholesale electric power and wholesale
and retail natural gas. These increases were offset by decreases in service
revenues of $7,500,000 and $3,850,000, respectively, as a result of the
recognition of revenues during Fiscal 1997 pursuant to a services agreement
between WCTP and RVA and the Company; and a decrease in engineering services
during the nine month period of approximately $2,769,000 due mainly to
$2,500,000 of reimbursements in Fiscal 1997 by BNYLP for certain engineering
costs, a portion of which was expensed in prior periods. These decreases in
revenues were offset by increases for the nine and three months of Fiscal
1998 of approximately $1,422,000 and $262,000, respectively, in service
revenues to WCTP due to higher fuel and other operating costs.
Cost of energy increased approximately $280,029,000 and $140,051,000,
respectively, for the nine and three months ended November 30, 1997,
commensurate with energy sales. Gross margins on the energy business will be
impacted by changes in unit prices, supply and seasonal factors.
Cost of services, which include fuel and other operations and
maintenance costs, during the nine and three months ended November 30, 1997
increased approximately $1,150,000 and $191,000, respectively, compared to
the nine and three months ended November 30, 1996 commensurate with service
revenues from WCTP.
-11-
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
Selling, general and administrative expenses increased approximately
$2,183,000 and $266,000 when comparing the nine and three months ended
November 30, 1997 to November 30, 1996, due mainly to the inclusion of NAEC,
acquired on November 1, 1996, which accounted for approximately $2,080,000
and $557,000, respectively, of the increases. The operating expenses of NAEC
since acquisition include payroll and employee benefits, rent and office
expenses, and consulting fees. The remainder of the increase during the nine
month period was due to increases in certain general and administrative
expenses related to an expansion of the Company's businesses. For the three
month period, there was a decrease in professional fees of approximately
$222,000.
Interest income - WCTP increased approximately $988,000 and $27,000,
respectively, when comparing the nine and three months ended November 30,
1997 to the nine and three months ended November 30, 1996. The increase for
the nine month period was attributable to the commencement of interest due on
the long-term note receivable from WCTP related to the sale of the Warbasse
facility on August 1, 1996.
Interest and other income increased approximately $986,000 and $424,000,
respectively, for the nine and three month periods. The commencement in
December 1996 of general partner fees received by B-41LP from BNYLP accounted
for increases in other income of approximately $1,145,000 and $375,000,
during the nine and three months, respectively.
Based on the Company's expectation of a profit in Fiscal 1998, the
Company recorded a current benefit for income taxes for the nine and three
months ended November 30, 1997 of $1,375,000 and $1,485,000, respectively,
which were based on the annual effective tax rate applied to the loss for the
nine month period. The prior period provisions of $2,062,000 and $1,042,000
were based on the annual effective tax rate applied to the income for the
nine months and quarter ended November 30, 1996, respectively.
During the quarter ended May 31, 1997, the Company recorded an
extraordinary gain in connection with the settlement of an obligation (see
Note 4).
-12-
<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 November 30, 1997.
-13
<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: January 13, 1998 /s/Robert M. Beningson
-----------------------
Robert M. Beningson
Chairman of the Board and
President
Dated: January 13, 1998 /s/ Michael Trachtenberg
------------------------
Michael Trachtenberg
Executive Vice President
and Chief Financial and
Accounting Officer
<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 NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 7,526,827
<SECURITIES> 0
<RECEIVABLES> 79,534,574
<ALLOWANCES> 0
<INVENTORY> 1,965,024
<CURRENT-ASSETS> 100,709,864
<PP&E> 609,232
<DEPRECIATION> 0
<TOTAL-ASSETS> 154,402,470
<CURRENT-LIABILITIES> 88,313,753
<BONDS> 0
0
0
<COMMON> 149,443
<OTHER-SE> 55,272,772
<TOTAL-LIABILITY-AND-EQUITY> 154,402,470
<SALES> 284,864,159
<TOTAL-REVENUES> 290,571,502
<CGS> 285,049,209
<TOTAL-COSTS> 5,598,922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,056,171)
<INCOME-TAX> (1,375,000)
<INCOME-CONTINUING> (1,681,171)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,436,367
<CHANGES> 0
<NET-INCOME> 3,755,196
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
