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, 2001
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 in its charter)
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
16,266,697.
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, February 28,
2001 2001
------------- -------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 3,251,201 $ 2,438,864
Marketable securities 127,900 1,445,520
Trade accounts receivable 4,421,925 3,637,654
Note and other receivables - WCTP 1,913,314 3,397,000
Other receivables - related parties 1,546,296 6,060,308
Cash in escrow 448,175 1,284,558
Deferred tax asset 9,332,815 8,920,143
Other current assets 180,104 324,966
------------- -------------
Total current assets 21,221,730 27,509,013
Property, plant and equipment, net 126,503,436 130,016,474
Long-term notes - WCTP 85,779,127 81,695,602
Intangible assets, net 13,989,939 15,570,329
Deferred tax asset 7,219,000 6,019,000
Other assets (including advances to employees of $283,761
and $817,757, respectively) 3,068,656 2,640,739
------------- -------------
Total assets $ 257,781,888 $ 263,451,157
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Project payables $ 5,383,804 $ 6,049,732
Accrued expenses and other payables 11,000,993 11,151,629
Income tax payable 190,581 289,008
Project notes payable 145,662,000 147,312,000
Net liabilities of discontinued operations 46,868,287 49,997,637
------------- -------------
Total current liabilities 209,105,665 214,800,006
Other long-term liabilities 1,563,009 1,724,437
Deferred revenue and other credits 2,638,250 2,768,000
Minority interest in partnership 3,742,521 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 16,424,821 and 16,420,821 shares, respectively 164,248 164,208
Additional paid-in capital 69,479,088 69,473,128
Accumulated deficit (25,952,806) (26,233,745)
Accumulated other comprehensive income (net of tax of $38,070
and $450,857, respectively) 73,890 875,308
------------- -------------
43,764,420 44,278,899
Less:
Treasury stock, at cost (158,124 shares) (1,564,713) (1,564,713)
Notes receivable - sale of common stock (314,860) (377,322)
Deferred compensation (1,152,404) (1,602,404)
------------- -------------
Total stockholders' equity 40,732,443 40,734,460
------------- -------------
Total liabilities and stockholders' equity $ 257,781,888 $ 263,451,157
============= =============
The accompanying notes are an integral part of these financial statements.
2
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
For the Nine Months Ended November 30, For the Three Months Ended November 30,
-------------------------------------- ---------------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues $ 25,447,438 $ 27,190,103 $ 7,532,488 $ 10,119,770
Costs of revenues 14,082,318 16,006,937 3,969,366 6,784,648
------------ ------------ ------------ ------------
Gross profit 11,365,120 11,183,166 3,563,122 3,335,122
------------ ------------ ------------ ------------
Selling, general and administrative:
Power project services 1,779,929 1,662,323 651,299 445,827
General corporate expenses 6,423,588 5,264,021 2,357,242 1,411,784
------------ ------------ ------------ ------------
Total selling, general and administrative 8,203,517 6,926,344 3,008,541 1,857,611
------------ ------------ ------------ ------------
Other income (expense):
Interest income - WCTP 2,809,741 3,773,212 789,647 1,267,440
Interest income 125,692 503,693 37,822 146,587
Interest expense (13,230,097) (13,351,536) (4,398,336) (4,456,495)
Other income 5,404,226 6,004,595 1,366,744 2,095,102
Gain on sale of marketable securities 1,128,041 319,780 -- --
Minority interest in partnership (318,267) (474,926) (86,660) (159,530)
------------ ------------ ------------ ------------
(4,080,664) (3,225,182) (2,290,783) (1,106,896)
------------ ------------ ------------ ------------
Income (loss) from continuing operations
before income taxes (919,061) 1,031,640 (1,736,202) 370,615
Benefit for income taxes (1,200,000) (1,110,000) (400,000) (380,000)
------------ ------------ ------------ ------------
Net income (loss) $ 280,939 $ 2,141,640 $ (1,336,202) $ 750,615
============ ============ ============ ============
Comprehensive income (loss) $ (527,541) $ 2,348,356 $ (1,297,501) $ 876,715
============ ============ ============ ============
Earnings (loss) per share - Basic $ 0.02 $ 0.14 $ (0.08) $ 0.05
============ ============ ============ ============
Weighted average number of common shares used
in computing basic earnings (loss) per share 16,073,052 15,139,011 16,089,008 15,153,137
============ ============ ============ ============
Earnings (loss) per share - Diluted $ 0.02 $ 0.14 $ (0.08) $ 0.05
============ ============ ============ ============
Weighted average number of common shares and
common share equivalents used in computing
diluted earnings (loss) per share 17,453,638 15,139,011 16,089,008 15,153,137
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
3
YORK RESEARCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED NOVEMBER 30,
(Unaudited)
2001 2000
------------ ------------
OPERATING ACTIVITIES:
Net income $ 280,939 $ 2,141,640
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 3,517,397 3,537,625
Amortization of goodwill 29,529 29,529
Amortization of deferred charges 1,733,802 1,730,605
Amortization of deferred credits (129,750) (129,750)
Deferred taxes (1,200,000) (1,110,000)
Minority interest in partnership 318,267 474,926
Non-cash bonuses 642,051 --
ESOP contribution -- 404,671
Gain on sale of marketable securities (1,128,041) (319,780)
Changes in operating assets and liabilities:
Net (increase) decrease in receivables 11,948,357 (2,997,400)
Net increase in notes receivable,
other current assets and other assets (11,864,040) (3,298,238)
Net decrease in accounts payable,
accrued expenses and long-term liabilities (312,064) (5,415,281)
Decrease in accrued taxes (98,427) (684,803)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
OF CONTINUING OPERATIONS 3,738,020 (5,636,256)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES
OF DISCONTINUED OPERATIONS (3,129,350) (3,114,907)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (670,287) (2,657,584)
Deposits into cash in escrow (12,787,133) (13,911,110)
Receipts from cash in escrow 13,623,516 21,637,168
Proceeds from sale of marketable securities 1,231,571 359,600
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,397,667 5,428,074
------------ ------------
FINANCING ACTIVITIES:
Payment of project notes (1,650,000) (2,688,000)
Proceeds from ESOP note 450,000 --
Proceeds from exercise of stock options 6,000 --
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (1,194,000) (2,688,000)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 812,337 (6,011,089)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,438,864 7,490,106
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,251,201 $ 1,479,017
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 14,453,412 $ 17,839,859
Income taxes paid $ 155,299 $ 684,803
The accompanying notes are an integral part of these financial statements.
4
YORK RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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 November 30, 2001, and the results of operations for the
nine and three months ended November 30, 2001 and 2000 and cash flows for the
nine months ended November 30, 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.
The results of operations for the nine and three months ended November
30, 2001 may not be indicative of future results.
2. Liquidity
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 ("Bankruptcy Court"). NAEC estimates that the
total third party obligations that are subject to its Chapter 11 proceedings are
approximately $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. Although a settlement agreement with NAEC's creditors was approved
by the bankruptcy court on January 8, 2001, to date, neither NAEC nor the
Company has been able to fund the required initial $13 million into a trust for
the benefit of the creditors. The time to perform has expired and as a result,
the settlement agreement originally reached with the NAEC creditor groups has
terminated. The Company continues to engage in negotiations with these groups,
however, to date such negotiations have not been fruitful.
On December 20, 2001, an involuntary bankruptcy petition under Chapter
11 of the United States Bankruptcy Code was filed against the Company in the
Bankruptcy Court by certain NAEC creditors. These NAEC creditors assert claims
against York as a result of York's guarantee of certain obligations of NAEC. The
bankruptcy petition was filed solely against York, the parent holding company,
and does not include any of York's subsidiaries that actually own and operate
York's power projects. York had twenty days from December 26, 2001, the date
that the involuntary petition was served upon it, in which it may contest the
involuntary petition in an answer to be filed with the Bankruptcy Court. On
January 15, 2002, York filed an answer contesting, and seeking to dismiss, the
involuntary bankruptcy petition. There can be no assurance that York will be
successful in its effort to have the involuntary petition dismissed. The
Bankruptcy Code provides that pending the entry of an Order for Relief against
York, York may continue to use, acquire or dispose of property as if an
involuntary case had not been commenced. If the Bankruptcy Court does not
dismiss the involuntary petition, and enters an Order of Relief, York would,
unless otherwise ordered by the Bankruptcy Court, become a debtor-in-possession
subject to the jurisdiction of the Bankruptcy Court.
5
Pursuant to the terms of the $150,000,000 12% Senior Secured Bonds due
October 30, 2007 issued by York Power Funding (Cayman) Limited (the "Portfolio
Bonds"), a payment in the amount of approximately $10,345,000 was scheduled to
be made on October 30, 2001, such payment consisting of a principal payment of
$1,650,000, with the balance interest. Such payment was not made in full. This
was an automatic default under the terms of the Portfolio Bonds, giving the
holders of the Bonds the right to cause the acceleration of the maturity of the
Portfolio Bonds and to seek to exercise remedies against the collateral securing
the Portfolio Bonds. Such collateral includes all of York's interest in the 225
megawatt generating facility in Trinidad and Tobago (the "Trinidad facility"),
York's 34 megawatt wind project in Big Spring, Texas, York's indirect interest
in the 286 megawatt Brooklyn Navy Yard facility, and certain notes payable to
York and affiliates of York by the 38 megawatt Warbasse facility.
There has also been a default under the provisions of the documents
governing the Portfolio Bonds as a result of the fact that approximately $17.5
million generated by the Trinidad facility that were required to be placed in a
controlled account, were advanced to York from June, 2000 to October, 2001.
York continues to be in discussions with the NAEC creditors, as well as
with the holders of the Portfolio Bonds. The holders of the Portfolio Bonds did
not join in the bankruptcy petition, and have not exercised any remedies.
However, it is impossible to predict the effect these matters, or the bankruptcy
proceeding involving York, will have on any of York's current projects under
development, or its ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
York's plan in regard to this matter is to negotiate a settlement
agreement with the various creditor groups. In this regard York is pursuing
several alternative means of raising the funds necessary to meet its obligation
to creditors, assuming agreements can be reached, and to meet its other ongoing
obligations. These include, but are not limited to, attracting various forms of
equity investment in the Company or the potential sale of all or part of York's
interest in current facilities and projects under development.
On October 2, 2001, York and certain of its subsidiaries signed an
Agreement of Purchase and Sale of Social Quotas (the "Agreement") with NRG
Energy, Inc. and one of its subsidiaries (together, "NRG"). Pursuant to the
Agreement, York agreed to sell to NRG its Trinidad facility for $140,000,000.
Consummation of the Agreement was subject to various conditions, including that
if the closing failed to occur by November 21, 2001, either York or NRG had the
right to terminate the Agreement upon three days written notice to the other
party. On November 21, 2001 NRG exercised this right and terminated the
agreement. In the event York successfully consummates a similar transaction with
another party, there can be no assurance that such transaction's terms and
conditions will be similar to the agreement with NRG.
Historically, general corporate, pre-financing project development and
negative working capital needs have been met by the excess cash flow derived
from the Company's power facilities. There can be no assurance that a source or
means will be found to provide sufficient cash flow for continuing operations or
to fund any agreements with creditors.
6
(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 nine and
three months ended November 30, 2001 and 2000.
Nine Months Ended Three Months Ended
November 30, November 30,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding 16,264,074 15,184,101 16,266,697 15,262,696
Average of unreleased ESOP shares (191,022) (45,090) (177,689) (109,559)
Weighted average number of common
shares outstanding - basic 16,073,052 15,139,011 16,089,008 15,153,137
Dilution (warrants and options) 1,380,587 -- -- --
Weighted average number of common
shares and common share equivalents
outstanding - diluted 17,453,638 15,139,011 16,089,008 15,153,137
The following chart summarizes the number of options and warrants not
included in the computation of diluted earnings per share for the nine and three
months ended November 30, 2001 and 2000, as the results would have been
antidilutive. The options and warrants expire between April 2002 and January
2011.
Nine Months Ended Three Months Ended
November 30, November 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Options and Warrants 2,832,217 3,765,019 5,935,217 3,765,019
Price Range $3.13 to $7.31 $1.63 to $8.00 $0.78 to $7.31 $1.63 to $8.00
7
(4) Discontinued Operations
A. Natural Gas Marketing
As of February 28, 2000, NAEC discontinued its natural gas marketing
business. 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.
The operating results of the discontinued natural gas operations (which
had been accrued as of February 28, 2000), are summarized as follows:
Nine Months Ended Three Months Ended
November 30, November 30,
2001 2000 2001 2000
----------- ----------- --------- ---------
Revenues $ -- $ 2,734,250 $ -- $ --
Loss from operations $(3,177,809) $(4,093,188) $(594,074) $(803,990)
B. Net liabilities of discontinued operations
As of November 30, 2001, net liabilities of discontinued operations
consisted mainly of trade accounts receivable, trade accounts payable, an
accrual of alleged liquidated damages due certain gas suppliers and a balance
due for a line of credit.
(5) Income Taxes
For the nine and three months ended November 30, 2001 a tax benefit of
$1,200,000 and $400,000, respectively, was recognized related to federal wind
tax credits. For the nine and three months ended November 30, 2000 a tax benefit
of $1,330,000 and $330,000, respectively, was recognized related to these
federal wind tax credits.
(6) Notes Receivable - WCTP
On May 1, 2001, $10,667,482 of the long-term receivable related to
operations and maintenance services, incurred through February 28, 2001, was
transferred to an uncollateralized note receivable from WCTP. This note bears
interest at LIBOR plus 1% and is due on May 1, 2006 unless extended by mutual
agreement and has no prepayment penalty. There can be no assurance that WCTP
will have sufficient excess cash flow from operations to make any material
payments against this note for the next several years.
On November 25, 2001, $3,248,528 of the receivable related to
operations and maintenance services plus interest, incurred from March 1, 2001
to October 31, 2001, was transferred to an uncollateralized note receivable from
WCTP. This note bears interest at LIBOR plus 1% and is payable in 24 monthly
installments of $143,500, inclusive of interest, with the remaining balance, if
any, to be repaid on November 25, 2003. The May 1, 2001 note for $10,667,482 was
amended to reflect cross-defaults to the November 25, 2001 note and the
operation and maintenance agreement between the Company and WCTP.
8
These unsecured notes are required to be paid prior to WCTP's existing
secured notes.
(7) Employee Notes and Advances
On June 1, 2001, in order to ensure retention of key employees,
including two executives, the Company cancelled, in the form of bonuses, certain
employee notes and advances that had been outstanding for a number of years.
Approximately $750,000 is being cancelled ratably over the eighteen-month period
commencing June 1, 2001 provided certain conditions are met, including that the
two executives do not resign during this period. Approximately $642,000 and
$150,000 were expensed for the nine and three months ended November 30, 2001,
respectively.
(8) Recent Accounting Pronouncements
On July 20, 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) 141, Business
Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
effective for all business combinations completed after June 30, 2001. SFAS 142
is effective for fiscal years beginning after December 15, 2001, however,
certain provisions of this Statement apply to goodwill and other intangible
assets acquired after July 1, 2001. Major provisions of these Statements and
their effective dates for the Company are as follows:
o all business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interest method of
accounting is prohibited except for transactions initiated before July
1, 2001.
o intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability.
o goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective March 1, 2002,
all previously recognized goodwill and intangible assets with
indefinite lives will no longer be subject to amortization.
o effective March 1, 2002, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicator. All acquired goodwill must be assigned to
reporting units for purposes of impairment testing and segment
reporting.
The Company does not expect the implementation of these standards to
have a material impact on the financial statements.
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", ("SFAS 144"). This statement is effective for fiscal years beginning
after December 15, 2001. This statement supersedes SFAS 121, while retaining
many of the requirements of such statement. Under SFAS 144 assets held for sale
will be included in discontinued operations if the operations and cash flows
will be or have been eliminated from the ongoing operations of the entity and
the entity will not have any significant continuing involvement in the
operations of the component. The Company is currently evaluating the impact this
may have.
9
YORK RESEARCH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company's business is developing, constructing and operating
electric 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 business, there are five 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 facility"); and a 225 MW natural gas
fueled power project in the Republic of Trinidad and Tobago (the "Trinidad
facility"). Other power projects are in earlier stages of development although
there can be no assurance that York will be able to develop them.
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 ("Bankruptcy Court"). 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).
On December 20, 2001, an involuntary bankruptcy petition under Chapter
11 of the United States Bankruptcy Code was filed against the Company in the
Bankruptcy Court by certain NAEC creditors. These NAEC creditors assert claims
against York as a result of York's guarantee of certain obligations of NAEC. The
bankruptcy petition was filed solely against York, the parent holding company,
and does not include any of York's subsidiaries that actually own and operate
York's power projects. York had twenty days from December 26, 2001, the date
that the involuntary petition was served upon it, in which it may contest the
involuntary petition in an answer to be filed with the Bankruptcy Court. On
January 15, 2002, York filed an answer contesting, and seeking to dismiss, the
involuntary bankruptcy petition. There can be no assurance that York will be
successful in its effort to have the involuntary petition dismissed. The
Bankruptcy Code provides that pending the entry of an Order for Relief against
York, York may continue to use, acquire or dispose of property as if an
involuntary case had not been commenced. If the Bankruptcy Court does not
dismiss the involuntary petition, and enters an Order of Relief, York would,
unless otherwise ordered by the Bankruptcy Court, become a debtor-in-possession
subject to the jurisdiction of the Bankruptcy Court.
Pursuant to the terms of the $150,000,000 12% Senior Secured Bonds due
October 30, 2007 issued by York Power Funding (Cayman) Limited (the "Portfolio
Bonds"), a payment in the amount of approximately $10,345,000 was scheduled to
be made on October 30, 2001, such payment consisting of a principal payment of
$1,650,000, with the balance interest. Such payment was not made in full. This
was an automatic default under the terms of the Portfolio Bonds, giving the
holders of the Bonds the right to cause the acceleration of the maturity of the
Portfolio Bonds and to seek to exercise remedies against the collateral securing
the Portfolio Bonds. Such collateral includes all of York's interest in the
Trinidad facility, the Big Spring facility, the Brooklyn Navy Yard facility, and
the Warbasse facility.
10
There has also been a default under the provisions of the documents
governing the Portfolio Bonds as a result of the fact that approximately $17.5
million generated by the Trinidad facility that were required to be placed in a
controlled account, were advanced to York from June, 2000 to October, 2001.
York continues to be in discussions with the NAEC creditors, as well as
with the holders of the Portfolio Bonds. The holders of the Portfolio Bonds did
not join in the bankruptcy petition, and have not exercised any remedies.
It is impossible to predict the effect these matters, or the bankruptcy
proceeding involving York, will have on any of York's current facilities, or
projects under development, or its ability to continue as a going concern. In
particular, since funds generated by the Trinidad facility are no longer being
advanced to York, there can be no assurance that a source or means will be found
to provide sufficient cash flow for continuing operations or to fund any
agreements with creditors. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Liquidity and Capital Resources
Overview
Historically, the Company has financed initial development of a
project's 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 facility was financed by
a capital contribution of the limited partner in this project.
York has guaranteed approximately $46 million of the total pre-petition
debt of NAEC. Although a settlement agreement with NAEC's creditors was approved
by the bankruptcy court on January 8, 2001, to date, neither NAEC nor the
Company has been able to fund the required initial $13 million into a trust for
the benefit of the creditors. The time to perform has expired and as a result,
the settlement agreement originally reached with the NAEC creditor groups has
terminated. The Company continues to engage in negotiations with these groups,
however, to date such negotiations have not been fruitful.
York is pursuing several alternative means of raising the funds
necessary to meet its obligation to creditors, assuming agreements can be
reached, and to meet its other ongoing obligations. These include, but are not
limited to, attracting various forms of equity investment in the Company or the
potential sale of all or part of York's interest in current facilities and
projects under development.
There can be no assurance that the negotiations being conducted with
the NAEC creditor groups will ultimately resolve NAEC's liabilities or York's
obligations with respect thereto. There can be no assurance that an agreement
with the Portfolio Bondholders can be reached. There also can be no assurance
that the efforts of the Company to raise sufficient funds will be successful.
11
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 continuing obligations or to be able to fund any settlement reached
with the various creditor groups.
General
During the nine months ended November 30, 2001, cash and cash
equivalents increased approximately $812,000. Cash provided by operating
activities from continuing operations was approximately $3,738,000. Cash used in
activities of discontinued operations was approximately $3,129,000.
During the nine months ended November 30, 2001, investing activities
provided approximately $1,398,000 primarily by proceeds on the sale of
marketable securities of approximately $1,232,000.
During the nine months ended November 30, 2001, financing activities
used $1,194,000 primarily for a $1,650,000 principal payment on the project
notes, offset by $450,000 collected for payment of an ESOP note receivable.
Results of Operations
2001 Compared to 2000
Revenues include the sale of electric energy to utility customers by
the Big Spring and Trinidad facilities. Revenues also include power project
services such as engineering services, fuel procurement and other services that
the Company provides to the Warbasse facility and the BNY facility. Costs of
revenues include fuel, payroll, depreciation and other operation and maintenance
costs.
Revenues and costs of revenues decreased approximately $1,743,000 and
$1,924,000, respectively, when comparing the nine months ended November 30, 2001
to the same period last year primarily from decreased revenues and the related
cost of fuel of approximately $1,999,000 for the Warbasse facility. Revenues
decreased approximately $2,587,000 and costs of revenues decreased approximately
$2,815,000 when comparing the quarter ended November 30, 2001 to the same period
last year primarily from decreased revenues and related cost of fuel of
approximately $2,672,000 for the Warbasse facility.
The Big Spring facility revenues decreased approximately $65,000 and
increased approximately $175,000, respectively, when comparing the nine and
three months ended November 30, 2001 to the same periods in the prior year due
to variations in wind and equipment availability. Costs of revenues decreased
approximately $11,000 and $249,000, respectively, when comparing the nine and
three months ended November 30, 2001 to the same periods in the prior year. This
decrease in costs of revenues for the three month period is due primarily to
real estate taxes.
The Trinidad facility revenues increased approximately $508,000 and
decreased approximately $47,000, respectively, when comparing the nine and three
months ended November 30, 2001 to the same periods last year. The increase for
the nine month period was due to a higher plant availability this year. Costs of
revenues increased approximately $412,000 and $134,000, respectively, when
comparing the nine and three months ended November 30, 2001 to the same periods
last year. These increases in costs of revenues are primarily due to higher
planned maintenance costs.
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Selling, general and administrative expenses increased approximately
$1,277,000 and $1,151,000 respectively, when comparing the nine and three months
ended November 30, 2001 to the same periods in the prior year. The increase for
the nine months is due to the non-cash bonuses in the form of cancellation of
certain advances and notes for certain employees of approximately $642,000 and
increased professional fees of approximately $632,000. The increase for the
three months is due to the non-cash bonuses of approximately $150,000 and
increased professional fees of approximately $694,000. The balance of the
increase relates to various other costs.
Interest income-WCTP decreased approximately $963,000 and $478,000,
respectively, when comparing the nine and three months ended November 30, 2001
to the same periods last year due to decreases in the variable interest rate
earned.
Interest income decreased approximately $378,000 and $109,000,
respectively, when comparing the nine and three months ended November 30, 2001
to the same periods in the prior year due to decreases in the variable interest
rate earned and a reduction in the cash available for investment.
Interest expense decreased approximately $121,000 and $58,000,
respectively, when comparing the nine and three months ended November 30, 2001
to the same periods in the prior year due to a lower principal balance on the
project notes.
Other income decreased approximately $600,000 when comparing the nine
months ended November 30, 2001 to the same period last year due to a decrease in
royalty fees relating to the BNY facility of approximately $551,000. Other
income decreased approximately $728,000 when comparing the quarter ended
November 30, 2001 to the same period last year due to a decrease in royalty fees
relating to the BNY facility of approximately $684,000.
During the nine months ended November 30, 2001 and 2000, the Company
received proceeds from the sale of marketable securities of approximately
$1,232,000 and $360,000, respectively. The Company recognized a gain of
approximately $1,128,000 and $320,000 during the nine months ended November 30,
2001 and 2000, respectively.
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YORK RESEARCH CORPORATION AND SUBSIDIARIES
PART II
ITEM 1. Legal Proceedings
An involuntary bankruptcy petition has been filed against
York. See the Current reports on Form 8-K dated December 20,
2001 and January 15, 2002.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
Current report dated October 2, 2001, reporting Items
2 and 5.
Current report dated November 8, 2001, reporting Item
5.
Current report dated November 21, 2001, reporting
Items 2 and 5.
Current report dated December 20, 2001, reporting
Item 3.
Current report dated January 15, 2002, reporting Item
9.
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 16, 2002 /s/ Robert C. Paladino
---------------------------
Robert C. Paladino
Chief Executive Officer and
President
Dated: January 16, 2002 /s/ Michael Trachtenberg
---------------------------
Michael Trachtenberg
Executive Vice President,
Chief Accounting Officer and
Secretary
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