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, 2001
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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 in its charter)
Delaware 06-0608633
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(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
280 Park Avenue, Suite 2700 West, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 557-6200
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check whether registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this
report 16,262,697.
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YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, February 28,
2001 2001
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(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,603,983 $ 2,438,864
Marketable securities 251,110 1,445,520
Trade accounts receivable 3,781,485 3,637,654
Other receivables - related parties 5,548,319 9,457,308
Cash in escrow 1,021,033 1,284,558
Deferred tax asset 9,294,429 8,920,143
Other current assets 359,214 324,966
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Total current assets 21,859,573 27,509,013
Property, plant and equipment, net 128,853,584 130,016,474
Long-term notes and other receivables - WCTP 82,685,335 81,695,602
Intangible assets, net 15,164,449 15,570,329
Deferred tax asset 6,019,000 6,019,000
Other assets (including advances to employees of $827,150
and $817,757, respectively) 2,911,446 2,640,739
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Total assets $ 257,493,387 $ 263,451,157
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Project payables $ 6,033,577 $ 6,049,732
Accrued expenses and other payables 6,881,863 11,151,629
Income tax payable 248,425 289,008
Project notes payable 145,662,000 147,312,000
Net liabilities of discontinued operations 48,805,532 49,997,637
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Total current liabilities 207,631,397 214,800,006
Other long-term liabilities 1,671,564 1,724,437
Deferred revenue and other credits 2,724,750 2,768,000
Minority interest in partnership 3,548,830 3,424,254
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 16,420,821 shares 164,208 164,208
Additional paid-in capital 69,473,128 69,473,128
Accumulated deficit (24,809,147) (26,233,745)
Accumulated other comprehensive income (net of tax of $76,456
and $450,857, respectively) 148,096 875,308
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44,976,285 44,278,899
Less:
Treasury stock, at cost (158,124 shares) (1,564,713) (1,564,713)
Notes receivable - sale of common stock (342,322) (377,322)
Deferred compensation (1,152,404) (1,602,404)
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Total stockholders' equity 41,916,846 40,734,460
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Total liabilities and stockholders' equity $ 257,493,387 $ 263,451,157
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The accompanying notes are an integral part of these financial statements.
2
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31,
(Unaudited)
2001 2000
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Revenues $ 9,225,872 $ 8,107,047
Costs of revenues 5,367,162 3,943,548
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Gross profit 3,858,710 4,163,499
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Selling, general and administrative:
Power project services 550,821 663,544
General corporate expenses 1,744,268 2,101,224
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Total selling, general and administrative 2,295,089 2,764,768
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Other income (expense):
Interest income - WCTP 989,734 1,219,454
Interest income 65,413 190,808
Interest expense (4,432,478) (4,435,541)
Other income 3,362,884 1,913,209
Minority interest in partnership (124,576) (153,490)
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(139,023) (1,265,560)
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Income from continuing operations before income taxes 1,424,598 133,171
Benefit for income taxes -- (447,000)
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Net income $ 1,424,598 $ 580,171
============ ============
Comprehensive income $ 684,613 $ 783,571
============ ============
Earnings per share - Basic $ 0.09 $ 0.04
============ ============
Weighted average number of common shares used
in computing basic earnings per share 16,060,008 15,086,345
============ ============
Earnings per share - Diluted $ 0.08 $ 0.04
============ ============
Weighted average number of common shares and
common share equivalents used in computing diluted
earnings per share 18,035,048 15,086,345
============ ============
The accompanying notes are an integral part of these financial statements.
3
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MAY 31,
(Unaudited)
2001 2000
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OPERATING ACTIVITIES:
Net income $ 1,424,598 $ 580,171
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 1,180,058 1,183,229
Amortization of goodwill 9,843 9,843
Amortization of deferred charges 578,978 521,124
Amortization of deferred credits (43,250) (43,250)
Deferred taxes -- (447,000)
Minority interest in partnership 124,576 153,490
ESOP contribution -- 169,783
Gain on sale of marketable securities (1,092,281) --
Changes in operating assets and liabilities:
Net decrease in receivables 3,539,976 695,376
Net increase in notes receivable,
other current assets and other assets (1,217,447) (492,685)
Net decrease in accounts payable, accrued expenses
and long-term liabilities (4,322,639) (5,652,945)
Decrease in accrued taxes (40,583) (90,755)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
OF CONTINUING OPERATIONS 141,829 (3,413,619)
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NET CASH USED IN OPERATING ACTIVITIES
OF DISCONTINUED OPERATIONS (1,192,105) (1,250,787)
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INVESTING ACTIVITIES:
Purchase of property, plant and equipment (33,323) (2,128,112)
Deposits into cash in escrow (7,155,536) (3,399,767)
Receipts from cash in escrow 7,419,061 5,794,178
Proceeds from sale of marketable securities 1,185,193 --
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NET CASH PROVIDED BY INVESTING ACTIVITIES 1,415,395 266,299
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FINANCING ACTIVITIES:
Payment of project notes (1,650,000) (1,350,000)
Amounts received from ESOP 450,000 --
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NET CASH USED IN FINANCING ACTIVITIES (1,200,000) (1,350,000)
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DECREASE IN CASH AND CASH EQUIVALENTS (834,881) (5,748,107)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,438,864 7,490,106
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,603,983 $ 1,741,999
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 8,945,618 $ 9,000,959
Income taxes paid $ 40,583 $ 90,755
The accompanying notes are an integral part of these financial statements.
4
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 at May 31, 2001, and the results of operations and cash flows
for the three months ended May 31, 2001 and 2000.
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 2001 consolidated financial statements
were reclassified to conform to the Fiscal 2002 presentation. Any adjustments
that have been made to the financial statements are of a normal recurring
nature.
2. Liquidity
North American Energy Conservation, Inc. ("NAEC"), an 85% owned
subsidiary of York, estimates that the total third party obligations that would
be subject of its Chapter 11 proceedings approximates $66 million, all of which
have been accrued as of February 28, 2000. York has guaranteed approximately $46
million of the total pre-petition debt of NAEC. York and NAEC have conducted
extensive discussions with both the guaranteed and non-guaranteed creditor
groups and had arrived at a settlement agreement, which was approved by the
bankruptcy court on January 8, 2001. Pursuant to the settlement agreement, among
other requirements, the Company was required to fund $13 million into a trust
for the benefit of the creditors by May 1, 2001. To date, both NAEC and the
Company have been unable to fund the initial cash payment into the trust. The
time for the Company to perform has been extended while it continues
negotiations with the creditors and preparation of the required agreements. The
trust is expected to be funded with a minimum of $13 million, six million shares
of common stock which would be sold over time under controlled conditions to
liquidate the obligations, a warrant for one million shares at an exercise price
to be determined and a carried interest in the Company's net available cash
flow, as defined, which will be used to the extent the sale of the common stock
is insufficient to liquidate all obligations. To the extent the trust has not
previously been liquidated, the total amount to be liquidated via the trust is
expected to increase by $2 million on the third anniversary and additional
amounts up to a cap of $4 million on each anniversary thereafter. Included in
the total settlement amount is an expected debt obligation of $1 million,
collateralized by certain assets, due December 31, 2009 or earlier under certain
circumstances as defined.
5
YORK RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management's plan in regard to this matter is to reach agreement with
the NAEC creditors as discussed above. In addition York, with the help of Credit
Suisse First Boston ("CSFB") and other consultants is pursuing several
alternative means, including the potential sale of all or part of York's
interest in various projects, of raising the funds necessary to fund the trust
and meet its other ongoing obligations.
There can be no assurance that an agreement will be reached with the
creditor group or that the Company will be able to raise sufficient funds.
General corporate, pre-financing project development and negative
working capital needs have historically been met by the cash flow derived from
the Company's power projects. The Company believes that such cash flow sources
and potential development fees received on future projects, will provide
sufficient cash flow for continuing operations for at least twelve months.
The Company has met all required principal and interest payments on the
project notes payable to date. The project notes payable are non-recourse to
York. However, as a result of the Bond trustee's inability to set up certain
foreign escrow accounts pursuant to provisions included in the bond indenture,
the project notes payable have been classified as a current liability as of May
31, 2001.
(3) 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 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, 2001 and 2000.
Three Months Ended
May 31,
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2001 2000
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Weighted average number of common shares
outstanding 16,262,697 15,112,057
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Average of unreleased ESOP shares (202,689) (25,712)
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Weighted average number of common
shares outstanding - basic 16,060,008 15,086,345
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Dilution (warrants and options) 1,975,040 --
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Weighted average number of common
shares and common share equivalents
outstanding - diluted 18,035,048 15,086,345
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6
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, 2001 and 2000, as the results would have been antidilutive. The
options and warrants expire between April, 2002 and January 2011.
Three Months Ended
May 31,
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2001 2000
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Options and Warrants 2,832,217 3,852,219
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Price Range $3.13 to $7.31 $1.50 to $8.00
(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 which has been paid in full,
net of certain offsets. 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.
7
YORK RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The operating results of the discontinued natural gas operations (which
had been accrued as of February 28, 2000), are summarized as follows:
For the Three Months Ended May 31,
----------------------------------
2001 2000
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Revenues $ -0- $ 2,734,250
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Loss from operations $(1,394,547) $(2,004,650)
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B. Net liabilities of discontinued operations
As of May 31, 2001, net liabilities of discontinued operations
consisted mainly of trade accounts receivable, trade accounts payable and an
accrual of alleged liquidated damages due certain gas suppliers. 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. The amount outstanding as of May 31, 2001 was
approximately $1,213,000 which is included in the net liabilities from
discontinued operations.
(5) Income Taxes
For the three months ended May 31, 2001 the tax provision was offset by
a tax benefit of $460,000 related to federal wind tax credits generated by the
Big Spring facility. For the three months ended May 31, 2000 a tax benefit of
$447,000 was recognized related to these federal wind tax credits.
(6) Other Income
Included in other income for the three months ended May 31, 2001 is a
gain on sale of marketable securities of approximately $1,092,000.
8
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"). Other power projects are in earlier stages of
development.
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 (see Note 4).
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, pre-financing project development and negative
working capital needs have historically been met by the cash flow derived from
the power projects. The Company believes that from these cash flow sources and
from potential development fees received on future projects, there will be
sufficient cash flow for continuing operations for at least twelve months.
However, unless the Company is successful in raising new funds as described
below, there can be no assurance that it will have sufficient working capital to
meet its obligations.
York has guaranteed approximately $46 million of the total pre-petition
debt of NAEC. York and NAEC have conducted extensive discussions with both the
guaranteed and non-guaranteed creditor groups and had arrived at a settlement
agreement, which was approved by the bankruptcy court on January 8, 2001.
Pursuant to the settlement agreement, among other requirements, the Company was
required to fund $13 million into a trust for the benefit of the
9
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
creditors by May 1, 2001. To date, both NAEC and the Company have been unable to
fund the initial cash payment into the trust. The time for the Company to
perform has been extended while it continues negotiations with the creditors and
preparation of the required agreements. The trust is expected to be funded with
a minimum of $13 million, six million shares of common stock which would be sold
over time under controlled conditions to liquidate the obligations, a warrant
for one million shares at an exercise price to be determined and a carried
interest in the Company's net available cash flow, as defined, which will be
used to the extent the sale of the common stock is insufficient to liquidate all
obligations. To the extent the trust has not previously been liquidated, the
total amount to be liquidated via the trust is expected to increase by $2
million on the third anniversary and additional amounts up to a cap of $4
million on each anniversary thereafter. Included in the total settlement amount
is an expected debt obligation of $1 million, collateralized by certain assets,
due December 31, 2009 or earlier under certain circumstances as defined.
York, with the help of Credit Suisse First Boston ("CSFB") and other
consultants, is pursuing several alternative means, including the potential sale
of all or part of York's interest in various projects, of raising the funds
necessary to fund the trust and meet its other ongoing obligations.
There can be no assurance that the trust referred to above being
negotiated with the creditor groups will ultimately resolve NAEC's liabilities
or York's obligations with respect thereto. There also can be no assurance that
the efforts of the Company to raise sufficient funds will be successful.
The Company has met all required principal and interest payments on the
project notes payable to date. The project notes payable are non-recourse to
York. However, as a result of the Bond trustee's inability to set up certain
foreign escrow accounts pursuant to provisions included in the bond indenture,
the project notes payable have been classified as a current liability as of May
31, 2001.
General
During the quarter ended May 31, 2001, cash and cash equivalents
decreased approximately $.8 million. Cash provided by operating activities from
continuing operations was approximately $.1 million.
During the quarter ended May 31, 2001, investing activities provided
approximately $1.4 million primarily from proceeds on the sale of marketable
securities.
During the quarter ended May 31, 2001, financing activities used $1.2
million for a $1.65 million principal payment on the project notes, offset by
$.45 million received from the ESOP.
10
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
2001 Compared to 2000
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 $1,119,000 and cost of power
project services increased approximately $1,423,000, when comparing the three
months ended May 31, 2001 to the three months ended May 31, 2000, primarily as a
result of increased revenues and related costs of fuel of approximately
$1,222,000 for the Warbasse facility.
The Big Spring project revenues decreased approximately $134,000 and
cost of revenues increased approximately $63,000 when comparing the quarter
ended May 31, 2001 to the quarter ended May 31, 2000. Revenues decreased due to
lower average winds.
The Trinidad project revenues increased approximately $48,000 and cost
of revenues increased approximately $206,000 when comparing the quarter ended
May 31, 2001 to the quarter ended May 31, 2000. The increase in cost of revenues
is primarily due to higher planned maintenance and payroll costs. 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
$470,000 when comparing May 31, 2001 and 2000. This decrease is comprised of the
following: (a) expenses incurred in developing power projects decreased
approximately $113,000 and (b) general corporate expenses decreased
approximately $357,000 as part of an overall effort to reduce costs. There was a
decrease of approximately $147,000 in payroll costs due to a reduction in
personnel, and a decrease of $89,000 in accretion expenses on the Class B
warrant redemption. The balance of the decrease relates to various other costs.
Interest income-WCTP decreased approximately $230,000 when comparing
the quarters ended May 31, 2001 and 2000 due to decreases in the variable
interest rate charged.
Interest income decreased approximately $125,000 when comparing the
three months ended May 31, 2001 to the three months ended May 31, 2000 due to
decreased levels of cash available for investment resulting principally from
payments on construction of the Trinidad and Big Spring projects.
Interest expense was comparable for the quarters ended May 31, 2001 and
2000.
Other income increased approximately $1,450,000 when comparing the
three months ended May 31, 2001 to the same period in the prior year. This
change was primarily due to a gain on the sale of marketable securities of
approximately $1,092,000 and an increase in royalty fees from BNYLP of
approximately $343,000.
11
YORK RESEARCH CORPORATION AND SUBSIDIARIES
PART II
ITEM 1. Legal Proceedings
None
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits
None
(b) There were no reports on Form 8-K filed during the three
months ended May 31, 2001.
12
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 16, 2001 /s/ Robert M. Beningson
-------------------------
Robert M. Beningson
Chairman of the Board and
President
Dated: July 16, 2001 /s/ Michael Trachtenberg
------------------------
Michael Trachtenberg
Executive Vice President
and Chief Financial and
Accounting Officer
13