<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, 2000
-------------------------------------------------
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
15,262,696
----------
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, February 28,
2000 2000
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,077,699 $ 7,490,106
Marketable securities 1,282,000 1,199,600
Trade accounts receivable 3,513,292 4,301,512
Other receivables - related parties 5,829,505 4,625,043
Cash in escrow 9,523,826 10,422,747
Deferred tax asset 8,172,700 8,214,200
Other current assets 333,725 1,118,751
------------- -------------
Total current assets 31,732,747 37,371,959
Property, plant and equipment, net 132,248,704 134,811,684
Long-term receivables - WCTP 16,839,713 14,333,941
Long-term notes receivable - WCTP 57,330,535 57,330,535
Intangible assets, net 16,713,479 17,884,133
Deferred tax asset 6,732,000 6,002,000
Other assets (including advances to employees of $788,446
and $769,136, respectively) 2,362,930 2,151,979
------------- -------------
Total assets $ 263,960,108 $ 269,886,231
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Project payables $ 7,899,858 $ 10,758,415
Accrued expenses and other payables 11,487,401 12,037,342
Income tax payable 468,118 933,883
Project notes payable - current portion 2,988,000 2,688,000
Net liabilities of discontinued operations 51,353,777 53,756,278
------------- -------------
Total current liabilities 74,197,154 80,173,918
Project notes payable 145,662,000 147,312,000
Other long-term liabilities 53,610 654,635
Deferred revenue and other credits 2,854,500 2,941,000
------------- -------------
Total liabilities 222,767,264 231,081,553
Minority interest in partnership 3,117,256 2,801,860
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 15,420,820 shares 152,702 152,702
Additional paid-in capital 67,786,767 68,702,128
Accumulated deficit (28,602,844) (29,993,869)
Accumulated other comprehensive income (net of tax of $395,300
and $353,800, respectively) 767,345 686,625
------------- -------------
40,103,970 39,547,586
Less:
Treasury stock, at cost (158,124 shares) (1,564,713) (1,564,713)
Notes receivable - sale of common stock (463,669) (463,669)
Deferred compensation - ESOP -- (1,516,386)
------------- -------------
Total stockholders' equity 38,075,588 36,002,818
------------- -------------
Total liabilities and stockholders' equity $ 263,960,108 $ 269,886,231
============= =============
</TABLE>
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 Six Months Ended August 31, For the Three Months Ended August 31,
----------------------------------- -------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 17,070,333 $ 6,602,687 $ 8,963,286 $ 3,137,656
Costs of revenues 9,222,289 3,178,582 5,278,741 1,694,724
------------ ------------ ------------ ------------
Gross profit 7,848,044 3,424,105 3,684,545 1,442,932
------------ ------------ ------------ ------------
Selling, general and administrative:
Power project services 1,216,496 1,267,971 552,952 604,272
General corporate expenses 3,852,237 4,015,239 1,751,013 1,913,526
------------ ------------ ------------ ------------
Total selling, general and administrative 5,068,733 5,283,210 2,303,965 2,517,798
------------ ------------ ------------ ------------
Other income (expense):
Interest income - WCTP 2,505,772 2,091,109 1,286,318 1,064,172
Interest income 357,106 843,510 166,298 307,020
Interest expense (8,895,041) (2,549,651) (4,459,500) (1,160,427)
Other income 4,229,273 2,870,151 2,316,064 1,555,671
Minority interest in partnership (315,396) (263,473) (161,906) (133,641)
------------ ------------ ------------ ------------
(2,118,286) 2,991,646 (852,726) 1,632,795
------------ ------------ ------------ ------------
Income from continuing operations
before income taxes 661,025 1,132,541 527,854 557,929
Provision (benefit) for income taxes: (730,000) (19,873) (283,000) 366,880
------------ ------------ ------------ ------------
Income from continuing operations 1,391,025 1,152,414 810,854 191,049
Discontinued operations:
Gain (loss) from discontinued operations -- (326,069) -- 338,090
Estimated loss on disposal (loss from
electric marketing operations) -- (4,907,748) -- (5,471,048)
------------ ------------ ------------ ------------
Total loss from discontinued operations -- (5,233,817) -- (5,132,958)
------------ ------------ ------------ ------------
Net income (loss) $ 1,391,025 $ (4,081,403) $ 810,854 $ (4,941,909)
============ ============ ============ ============
Comprehensive income (loss) $ 1,471,745 $ (4,081,403) $ 688,174 $ (4,941,909)
============ ============ ============ ============
Earnings (loss) per share - Basic:
Continuing operations $ 0.09 $ 0.08 $ 0.05 $ 0.01
Discontinued operations $ -- $ (0.36) $ -- $ (0.35)
------------ ------------ ------------ ------------
Total $ 0.09 $ (0.28) $ 0.05 $ (0.34)
============ ============ ============ ============
Weighted average number of common shares used
in computing basic earnings (loss) per share 15,149,960 14,446,419 15,213,575 14,482,787
============ ============ ============ ============
Earnings (loss) per share - Diluted:
Continuing operations $ 0.09 $ 0.08 $ 0.05 $ 0.01
Discontinued operations $ -- $ (0.34) $ -- $ (0.33)
------------ ------------ ------------ ------------
Total $ 0.09 $ (0.26) $ 0.05 $ (0.32)
============ ============ ============ ============
Weighted average number of common shares and
common share equivalents used in computing
diluted earnings (loss) per share 15,149,960 15,486,972 15,213,575 15,506,973
============ ============ ============ ============
</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 SIX MONTHS ENDED AUGUST 31,
<TABLE>
<CAPTION>
(Unaudited)
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income from continuing operations $ 1,391,025 $ 1,152,414
Adjustments to reconcile net income from continuing operations
to net cash provided by (used in) operating activities:
Depreciation and amortization 2,379,519 436,912
Deferred taxes (730,000) (200,000)
Amortization of deferred credits (86,500) (86,500)
Amortization of deferred charges 1,170,654 1,630,881
ESOP contribution 283,264 356,055
Minority interest in partnership 315,396 263,473
Gain on sale of marketable securities (319,780) --
Changes in operating assets and liabilities:
Net increase in receivables (416,242) (1,268,923)
Net increase in notes receivable,
other current assets, and other assets (1,951,374) (157,598)
Net decrease in accounts payable, accrued
expenses, and long-term liabilities (833,211) (752,154)
Decrease in accrued taxes (465,765) (90,755)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES
OF CONTINUING OPERATIONS 736,986 1,283,805
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
OF DISCONTINUED OPERATIONS (2,402,504) 1,730,488
------------ ------------
INVESTING ACTIVITIES:
Construction in progress -- (38,980,487)
Deposits into cash in escrow (6,465,964) (4,900,742)
Receipts from cash in escrow 7,364,885 27,551,713
Proceeds from sale of marketable securities 359,600 --
Purchase of property, plant and equipment (2,655,410) (1,400,201)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,396,889) (17,729,717)
------------ ------------
FINANCING ACTIVITIES:
Payment of project notes (1,350,000) --
Amounts received from ESOP -- 630,000
Proceeds from exercise of stock options and warrants -- 40,712
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,350,000) 670,712
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (4,412,407) (14,044,712)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,490,106 18,280,025
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,077,699 $ 4,235,313
============ ============
</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 August 31, 2000, results of operations for the six and
three months ended August 31, 2000 and 1999, and cash flows for the six months
ended August 31, 2000 and 1999.
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.
Certain amounts in the Fiscal 2000 consolidated financial statements
were reclassified to conform to the Fiscal 2001 presentation. Any adjustments
that have been made to the financial statements are of a normal recurring
nature.
(2) Per Share Data
--------------
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 dilutive effect of
securities or contracts which are in the money and convertible to common shares,
such as options and warrants, unless antidilutive based upon income (loss) from
continuing operations. The following is a reconciliation of the number of shares
used in the basic and diluted computation of earnings per share for the six and
three months ended August 31, 2000 and 1999:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
August 31, August 31,
-------------------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 15,162,816 14,910,879 15,213,575 14,914,654
-------------------------------------------------------------------------------------
Average of unreleased ESOP
shares (12,856) (464,460) -- (431,867)
-------------------------------------------------------------------------------------
Weighted average number of
common
shares outstanding - basic 15,149,960 14,446,419 15,213,575 14,482,787
-------------------------------------------------------------------------------------
Dilution (warrants and
options) -- 1,040,553 -- 1,024,186
-------------------------------------------------------------------------------------
Weighted average number of
common
shares and common share
equivalents
outstanding - diluted 15,149,960 15,486,972 15,213,575 15,506,973
-------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
The amounts shown as average of unreleased ESOP shares and dilution
(warrants and options) reflect the averages for the periods presented.
The following chart summarizes the number of options and warrants not
included in the computation of diluted earnings per share for the six and three
months ended August 31, 2000 and 1999, as the results would have been
antidilutive. The options and warrants expire between January, 2001 and April,
2010.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
August 31, August 31,
--------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options and Warrants 3,852,219 1,627,000 3,852,219 1,627,000
--------------------------------------------------------------------------------------------------------
Price Range $1.50 to $8.00 $5.88 to $11.00 $1.50 to $8.00 $5.88 to $11.00
--------------------------------------------------------------------------------------------------------
</TABLE>
(3) Significant New Accounting Pronouncements
-----------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities", ("SFAS 133")
which requires entities to recognize all derivatives in their financial
statements as either assets or liabilities measured at fair value. SFAS 133 also
specifies new methods of accounting for hedging transactions, prescribes the
items and transactions that may be hedged, and specifies detailed criteria to be
met to qualify for hedge accounting. SFAS 133 is effective for fiscal years
beginning after June 15, 2000. The Company is currently evaluating the impact
that SFAS 133 may have on the Company's consolidated financial statements and
disclosures.
(4) Discontinued Operations
-----------------------
A. Natural Gas Marketing
---------------------
As of February 28, 2000, North American Energy Conservation, Inc.
("NAEC") discontinued its natural gas marketing business. On March 2, 2000, NAEC
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code with the United States Bankruptcy Court for the Southern
District of New York. NAEC ceased the wholesale natural gas business as of
February 28, 2000, but continued its retail natural gas business until it sold
the retail business to Amerada Hess Corporation on April 20, 2000 for $250,000
payable between July 1, 2000 and December 31, 2000. Amerada Hess assumed all
obligations in connection with the Syracuse office and equipment leases and
hired all of the NAEC Syracuse personnel. The filing of Chapter 11 was
necessitated by an extreme credit crunch which rendered NAEC unable to purchase
natural gas to meet its commitments and unable to pay its creditors for natural
gas previously delivered.
As of February 28, 2000, the Company accounted for the NAEC wholesale
and retail natural gas marketing business as a discontinued operation, as well
as the electric marketing business, which was discontinued previously.
6
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
The natural gas marketing operations of NAEC are reflected as a
discontinued operation for all periods presented. Since the fiscal year ended
February 28, 2000, revenues and associated costs of revenues for one day,
February 29, 2000, are included below. The operating results of the discontinued
operation for the six and three months ended August 31, 2000 (which had been
accrued as of February 28, 2000), and 1999 are summarized as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
August 31, August 31,
----------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 2,734,250 $520,345,259 $ -- $252,347,135
----------------------------------------------------------------------------------------------------------
Loss from operations $(3,290,198) $ (1,777,829) $(1,285,548) $ (752,206)
----------------------------------------------------------------------------------------------------------
</TABLE>
B. Electric Marketing
------------------
During the quarter ended August 31, 1998, unprecedented turmoil in the
electric marketing business was caused in part by widely reported failures of
certain suppliers to deliver contracted power to a multitude of utilities and
marketers, including NAEC. NAEC and many others were required to immediately
meet existing fixed price commitments. The resulting turmoil caused prices to
immediately increase from normal prices in the range of $30 per megawatt hour to
as much as $7,000 per megawatt hour.
Repercussions from the suppliers' failures caused continuing
instability throughout the summer, as market participants found themselves with
unbalanced portfolios and a shortage of available sources. NAEC met many of its
commitments at substantially increased cost.
As a result, in August 1998, York determined that NAEC should
discontinue the electric marketing business due to the volatility, lack of
liquidity and unacceptable risk parameters. Operations ceased in December 1999,
when all commitments were met.
The electric marketing operations of NAEC are reflected as a
discontinued operation for all periods presented. The operating results of the
discontinued operation are summarized as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
August 31, August 31,
---------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ -- $41,075,327 $ -- $25,034,746
---------------------------------------------------------------------------------------------------------
Loss from operations $ -- $(6,272,778) $ -- $(7,171,048)
---------------------------------------------------------------------------------------------------------
</TABLE>
C. Net liabilities of discontinued operations
------------------------------------------
As of August 31, 2000, net liabilities of discontinued operations
consisted mainly of trade accounts receivable, trade accounts payable and
liquidated damages alleged to be owed to certain gas suppliers.
7
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
At August 31, 2000, included in net liabilities from discontinued
operations is a net amount receivable of approximately $3.6 million. NAEC is
suing the debtor to recover the amounts receivable, and NAEC is being
countersued by the debtor for matters relating to the obligation to deliver
power. Management believes the amounts are fully recoverable, and no additional
amounts are expected to be paid under the countersuit.
In addition NAEC also maintained a line of credit that is
collateralized by all of the assets of NAEC and is guaranteed by the Company.
The line of credit bears interest at 1/2% per annum over the prime rate. NAEC
has paid the line down to approximately $1,008,000 from collections of accounts
receivable through August 31, 2000.
(5) Income Taxes
------------
For the six and three months ended August 31, 2000, the Company
recognized a tax benefit of $1,000,000 and $500,000, respectively, related to
federal wind tax credits generated by the Big Spring facility. For the six and
three months ended August 31, 1999, the federal wind tax credits were $939,000
and $495,000, respectively.
(6) Contingencies
-------------
As previously reported three legal actions were pending against the
Company. The action by CNG Field Services Company has been discontinued without
prejudice. The actions by PG&E Energy Trading - Gas Corporation and El Paso
Merchant Energy - Gas LLP remain, but the Company has not yet been required to
file any answer or response, the times for which have been extended by mutual
agreement. The actions have been stayed pending the NAEC Chapter 11 proceeding.
The ultimate outcome of these litigations cannot be determined at this time. In
addition, NAEC's lender for the line of credit has obtained a judgment of
liability against the Company in an amount to be determined at future trial.
Such trial has not yet been scheduled and will likely not occur in the near
future. Included in NAEC's estimate of its total pre-petition obligations, NAEC
has accrued its estimate of the maximum liability to these creditors as well as
to the lender for the line of credit.
8
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Introduction
------------
The Company's business is Greenpower, which includes developing,
constructing and operating Greenenergy production facilities, including those
that utilize natural gas as fuel to produce thermal and electric power
("cogeneration") or renewable energy projects primarily converting wind energy
into transmittable electric power.
Within our Greenpower business, we have five currently operating
facilities: in New York City, the 38MW Warbasse cogeneration facility (the
"Warbasse facility") and the 286MW Brooklyn Navy Yard cogeneration facility (the
"BNY facility"); in Big Spring, Texas, a 34MW wind energy facility (the "Big
Spring facility"), and a 6.6MW wind energy facility (the "West Texas project");
and a 225 MW natural gas fueled power project in the Republic of Trinidad and
Tobago (the "Trinidad project").
On March 2, 2000 North American Energy Conservation, Inc. ("NAEC"), an
85% owned subsidiary of the Company, filed a voluntary petition under Chapter 11
of the United States Bankruptcy Code with the United States Bankruptcy Court for
the Southern District of New York. As of February 28, 2000, the Company
accounted for NAEC's wholesale and retail natural gas marketing business as a
discontinued operation, as well as the electric marketing business, which was
discontinued previously. On April 20, 2000 NAEC sold its retail natural gas
marketing business to Amerada Hess Corporation.
Liquidity and Capital Resources
-------------------------------
Overview
--------
The Company finances initial development of a projects' cash needs from
its own funds. When a project is determined to be feasible, the Company will
generally seek to finance construction through some form of non-recourse project
financing. Once a project is operational, any additional capital requirements
are expected to be met by the operations of the facility. In addition, the
Company may finance future projects through the sale of partial interests (or in
some cases significant interests) or other financing techniques. For example,
construction of the West Texas project was financed by a capital contribution of
the limited partner in this project.
General corporate and pre-financing project development and negative
working capital needs have historically been met by the cash flow derived from
the power projects. However, unless the Company is successful in the
restructuring described below, there can be no assurance that it will have
sufficient working capital to meet its obligations.
As of March 2, 2000 NAEC estimated that the total third party
obligations that would be the subject of the Chapter 11 proceedings approximated
$66 million. Of this amount approximately $25.6 million represents liquidated
damages alleged to be owed to certain natural gas suppliers. York has guaranteed
approximately $37 million of such $66 million total pre-petition debt of NAEC,
although the total guaranteed amount could change as additional information is
obtained. York and NAEC are conducting ongoing discussions with both the
guaranteed and non-guaranteed creditor groups in an effort to seek to arrive at
a consensual method of liquidating the liabilities. The Company is seeking to
settle these obligations through
9
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
a combination of cash, equity securities which would be sold over time under
controlled conditions to liquidate the obligations, and a carried interest in
the Company's net available cash flow, as defined, which will be used to the
extent the sale of securities is insufficient to liquidate all obligations.
Reference is made to the Company`s Current Report on Form 8-K dated
March 2, 2000 for a complete description of the background and circumstances
surrounding the NAEC filing. As a result of the bankruptcy filing, all actions
against NAEC are stayed.
York has retained Credit Suisse First Boston ("CSFB") to help explore
strategic financing alternatives for certain York domestic and international
power projects. If these efforts are successful, York expects to utilize a
portion of the net proceeds (after redeeming the existing senior secured
portfolio bonds), to fund all or part of its NAEC related liabilities, and the
balance to fund continuing project development and for general corporate
purposes.
There can be no assurance that the discussions referred to above being
conducted with the creditor groups will culminate in an agreement to resolve
NAEC's liabilities or York's obligations with respect thereto. There also can be
no assurance that CSFB's efforts on behalf of the Company will be successful.
General
-------
During the six months ended August 31, 2000, cash and cash equivalents
decreased approximately $4.4 million. Cash provided by operating activities of
continuing operations was approximately $.7 million. Cash used in operating
activities of discontinued operations was approximately $2.4 million.
During the six months ended August 31, 2000, investing activities used
approximately $1.4 million. Net cash flow from the escrow accounts was
approximately $.9 million. The Company purchased approximately $2.7 million of
property, plant and equipment utilizing cash received from the escrow accounts.
During the six months ended August 31, 2000, financing activities used
$1.35 million for a principal payment on the project notes.
10
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Results of Operations
---------------------
2000 Compared to 1999
---------------------
Revenues include the sale of electric energy to utility customers by
the Big Spring and Trinidad projects. Revenues also include power project
services such as engineering services, fuel procurement and other services. Cost
of revenues include fuel, payroll, depreciation and other operations and
maintenance costs. Revenues increased approximately $10,468,000 and $5,826,000,
respectively, and cost of revenues increased approximately $6,044,000 and
$3,584,000, respectively, when comparing the six and three months ended August
31, 2000 to the six and three months ended August 31, 1999, primarily as a
result of the commencement of operations of the Trinidad project in September
1999.
The Big Spring project revenues increased approximately $595,000 and
$172,000, respectively, and cost of revenues increased approximately $950,000
and $409,000, respectively, when comparing the six and three months ended August
31, 2000 to the six and three months ended August 31, 1999. The increase in
revenues relates to full commercial operation being achieved in December 1999.
Of the increase in cost of revenues, approximately $730,000 and $364,000,
respectively, relates to depreciation. Depreciation commenced January 1, 2000.
The Trinidad project earned revenues of approximately $9,318,000 and
$4,509,000, respectively, and incurred cost of revenues of approximately
$2,628,000 and $1,300,000, respectively, for the six and three months ended
August 31, 2000. Included in cost of revenues is approximately $1,533,000 and
$766,000, respectively, which relates to depreciation. Depreciation commenced
October 1, 1999. The Trinidad project has no fuel risk because the government
provides all the fuel utilized by the project.
Selling, general and administrative expenses decreased approximately
$214,000 when comparing both the six and three months ended August 31, 2000 to
the same periods in the prior year. This decrease was primarily due to reduced
payroll and employee benefit costs and a reduction in professional fees.
Interest income decreased approximately $486,000 and $141,000,
respectively, when comparing the six and three months ended August 31, 2000 to
the six and three months ended August 31, 1999 due to decreased levels of cash
available for investment resulting principally from payments on construction of
the Trinidad and Big Spring projects. Interest income - WCTP increased
approximately $415,000 and $222,000, respectively, due to increases in the
variable rate charged.
Interest expense increased approximately $6,345,000 and $3,229,000,
respectively, when comparing the six and three months ended August 31,2000 to
the six and three months ended August 31, 1999. The increase was primarily
caused by the impact of capitalizing construction period interest of
approximately $6,654,000 and $3,441,000 respectively, in the six and three
months ended August 31, 1999.
Other income increased approximately $1,359,000 and $760,000,
respectively, when comparing the six and three months ended August 31, 2000 to
the same periods in the prior year. The increase for the six months was
primarily due to an increase in royalty fees from BNYLP of approximately
$929,000 and a gain on sale of marketable securities of approximately $320,000.
The increase for the three months was primarily due to higher royalty fees of
approximately $400,000 and the gain on sale of marketable securities of
approximately $320,000.
11
<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
PART II
-------
ITEM 1. Legal Proceedings
As previously reported (see the Company's Annual Report on Form 10K for
its fiscal year ended February 28, 2000, Item 3), three legal actions were
pending against the Company. The action by CNG Field Services Company has been
discontinued without prejudice. The actions by PG&E Energy Trading - Gas
Corporation and El Paso Merchant Energy - Gas LLP remain, but the Company has
not yet been required to file any answer or response, the times for which have
been extended by mutual agreement. In addition, NAEC's lender for the line of
credit has obtained a judgment of liability against the Company in an amount to
be determined at future trial. Such trial has not yet been scheduled and will
likely not occur in the near future (see Note 6).
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, 2000.
12
<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: October 12, 2000 /s/ Robert M. Beningson
-----------------------------------
Robert M. Beningson
Chairman of the Board and
President
Dated: October 12, 2000 /s/ Michael Trachtenberg
-----------------------------------
Michael Trachtenberg
Executive Vice President
and Chief Financial and
Accounting Officer
13
