<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 May 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
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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
---------------------------
(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
15,112,057.
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<PAGE>
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, February 28,
2000 2000
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,741,999 $ 7,490,106
Marketable securities 1,508,000 1,199,600
Trade accounts receivable 3,954,946 4,301,512
Other receivables - related parties 4,276,233 4,625,043
Cash in escrow 8,028,336 10,422,747
Deferred tax asset 8,109,200 8,214,200
Other current assets 452,869 1,118,751
------------- -------------
Total current assets 28,071,583 37,371,959
Property, plant and equipment, net 133,530,536 134,811,684
Long-term receivables - WCTP 15,553,396 14,333,941
Construction in progress 330,788 280,956
Long-term notes receivable - WCTP 57,330,535 57,330,535
Intangible assets, net 17,302,034 17,884,133
Deferred tax asset 6,449,000 6,002,000
Other assets (including advances to employees of $765,482
and $769,136, respectively) 1,861,270 1,871,023
------------- -------------
Total assets $ 260,429,142 $ 269,886,231
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Project payables $ 8,582,216 $ 10,758,415
Accrued expenses and other payables 6,384,397 12,037,342
Income tax payable 843,128 933,883
Project notes payable - current portion 2,988,000 2,688,000
Net liabilities of discontinued operations 52,505,494 53,756,278
------------- -------------
Total current liabilities 71,303,235 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 2,897,750 2,941,000
------------- -------------
Total liabilities 219,916,595 231,081,553
Minority interest in partnership 2,955,350 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 15,270,181 shares 152,702 152,702
Additional paid-in capital 68,702,128 68,702,128
Accumulated deficit (29,413,698) (29,993,869)
Accumulated other comprehensive income (net of tax of $458,800
and $353,800, respectively) 890,025 686,625
------------- -------------
40,331,157 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 (745,578) (1,516,386)
------------- -------------
Total stockholders' equity 37,557,197 36,002,818
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Total liabilities and stockholders' equity $ 260,429,142 $ 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
FOR THE THREE MONTHS ENDED MAY 31,
<TABLE>
<CAPTION>
(Unaudited)
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 8,107,047 $ 3,465,031
Costs of revenues 3,943,548 1,483,858
------------ ------------
Gross profit 4,163,499 1,981,173
------------ ------------
Selling, general and administrative:
Power project services 663,544 663,699
General corporate expenses 2,101,224 2,101,713
------------ ------------
Total selling, general and administrative 2,764,768 2,765,412
------------ ------------
Other income (expense):
Interest income - WCTP 1,219,454 1,026,937
Interest income 190,808 536,490
Interest expense (4,435,541) (1,389,224)
Other income 1,913,209 1,314,480
Minority interest in partnership (153,490) (129,832)
------------ ------------
(1,265,560) 1,358,851
------------ ------------
Income from continuing operations
before income taxes 133,171 574,612
Benefit for income taxes: (447,000) (386,753)
------------ ------------
Income from continuing operations 580,171 961,365
Discontinued operations:
Loss from discontinued operations -- (664,159)
Estimated gain on disposal (income from
electric marketing operations) -- 563,300
------------ ------------
Total loss from discontinued operations -- (100,859)
------------ ------------
Net income $ 580,171 $ 860,506
============ ============
Comprehensive income $ 783,571 $ 860,506
============ ============
Earnings (loss) per share - Basic:
Continuing operations $ 0.04 $ 0.07
Discontinued operations $ -- $ (0.01)
------------ ------------
Total $ 0.04 $ 0.06
============ ============
Weighted average number of common shares used
in computing basic earnings (loss) per share 15,086,345 14,410,050
============ ============
Earnings per share - Diluted:
Continuing operations $ 0.04 $ 0.06
Discontinued operations $ -- $ --
------------ ------------
Total $ 0.04 $ 0.06
============ ============
Weighted average number of common shares and
common share equivalents used in computing diluted
earnings per share 15,086,345 15,466,971
============ ============
</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 THREE MONTHS ENDED MAY 31,
<TABLE>
<CAPTION>
(Unaudited)
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income from continuing operations $ 580,171 $ 961,365
Adjustments to reconcile net income from continuing operations
to net cash used in operating activities:
Depreciation and amortization 1,193,072 299,157
Deferred taxes (447,000) (485,894)
Amortization of deferred credits (43,250) (43,250)
Amortization of deferred charges 521,124 288,138
ESOP contribution 169,783 190,449
Minority interest in partnership 153,490 129,833
Changes in operating assets and liabilities:
Net (increase) decrease in receivables 695,376 (2,132,288)
Net (increase) decrease in notes receivable,
other current assets, and other assets (492,685) 1,723,889
Net decrease in accounts payable, accrued
expenses, and long-term liabilities (5,652,945) (2,981,259)
Decrease in accrued taxes (90,755) (144,665)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES
OF CONTINUING OPERATIONS (3,413,619) (2,194,525)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
OF DISCONTINUED OPERATIONS (1,250,787) 1,002,943
------------ ------------
INVESTING ACTIVITIES:
Construction in progress (49,832) (25,410,268)
Deposits into cash in escrow (3,399,767) (2,635,170)
Receipts from cash in escrow 5,794,178 22,582,298
Purchase of property, plant and equipment (2,078,280) (21,691)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 266,299 (5,484,831)
------------ ------------
FINANCING ACTIVITIES:
Payment of project notes (1,350,000) --
Proceeds from exercise of stock options and warrants -- 34,452
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,350,000) 34,452
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (5,748,107) (6,641,961)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,490,106 18,280,025
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,741,999 $ 11,638,064
============ ============
</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, 2000, results of operations for the three
months ended May 31, 2000 and 1999, and cash flows for the three months ended
May 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 three
months ended May 31, 2000 and 1999:
Three Months Ended
May 31,
----------------------------
2000 1999
---------- ----------
Weighted average number of common shares
outstanding 15,112,057 14,907,102
Average of unreleased ESOP shares (25,712) (497,052)
Weighted average number of common
shares outstanding - basic 15,086,345 14,410,050
Dilution (warrants and options) -- 1,056,921
Weighted average number of common
shares and common share equivalents
outstanding - diluted 15,086,345 15,466,971
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 three months
ended May 31, 2000 and 1999, as the results would have been antidilutive. The
options and warrants expire between January, 2001 and April, 2010.
<TABLE>
<CAPTION>
Three Months Ended
May 31,
---------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
Options and Warrants 3,852,219 1,860,000
Price Range $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 three months ended May 31, 2000 (which had been accrued as of
February 28, 2000), and 1999 are summarized as follows:
For the Three Months Ended May 31,
----------------------------------------
2000 1999
---- ----
Revenues $ 2,734,250 $ 268,282,064
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Loss from operations $(2,004,650) $ (1,025,623)
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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:
For the Three Months May 31,
----------------------------
2000 1999
----- ----
Revenues $ -0- $ 16,040,600
----- ------------
Income from operations $ -0- $ 898,300
----- ------------
C. Net liabilities of discontinued operations
As of May 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 May 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 $954,000 from collections of accounts
receivable through June 30, 2000.
(5) Income Taxes
For the three months ended May 31, 2000 and 1999, the Company
recognized a tax benefit of approximately $447,000 and $387,000, respectively,
primarily related to federal wind tax credits generated by the Big Spring
facility.
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, a 38MW Warbasse cogeneration facility (the
"Warbasse facility") and a 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 quarter ended May 31, 2000, cash and cash equivalents
decreased approximately $5.7 million. Cash used in operating activities of
continuing operations was approximately $3.4 million. The cash used was
primarily for an interest payment to the bondholders.
During the quarter ended May 31, 2000, investing activities provided
approximately $266,000 as a result of net cash flow from the escrow accounts.
The Company purchased approximately $2.1 million of property, plant and
equipment utilizing cash received from the escrow accounts.
During the quarter ended May 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 $4,642,000, and cost of
power project services increased approximately $2,460,000, when comparing the
three months ended May 31, 2000 to the three months ended May 31, 1999,
primarily as a result of the commencement of operations of the Trinidad project
in September 1999.
The Big Spring project earned revenues of approximately $1,326,000 and
$904,000, respectively; and incurred costs of approximately $659,000 and
$118,000, respectively, for the three months ended May 31, 2000 and 1999 of
which approximately $366,000 relates to depreciation for the quarter ended May
31, 2000. The increase in revenues and costs of revenues relates to full
commercial operation being achieved in December 1999. The Trinidad project
earned revenues of approximately $4,809,000 and incurred costs of approximately
$1,328,000 of which approximately $767,000 relates to depreciation for the three
months ended May 31, 2000. The Trinidad project has no fuel risk because the
government provides all the fuel utilized by the project.
Selling, general and administrative expenses were comparable for the
quarters ended May 31, 2000 and 1999.
Interest income decreased approximately $346,000 when comparing the
three months ended May 31, 2000 to the three months ended May 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 expense increased approximately $3,046,000 when comparing the
three months ended May 31,2000 to the three months ended May 31, 1999. The
increase was caused by the impact of capitalizing construction period interest
of approximately $3,213,000 in the quarter ended May 31, 1999.
Other income increased approximately $599,000 when comparing the three
months ended May 31, 2000 to the same period in the prior year. This change was
primarily due to an increase in royalty fees from BNYLP of approximately
$529,000.
11
<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) Current Report on Form 8-K dated March 2, 2000,
reporting Item 5.
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: July 24, 2000 /s/ Robert M. Beningson
-------------------------
Robert M. Beningson
Chairman of the Board and
President
Dated: July 24, 2000 /s/ Michael Trachtenberg
------------------------
Michael Trachtenberg
Executive Vice President
and Chief Financial and
Accounting Officer
13
