<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 --------------

                                    FORM 10-K

(Mark One)

 /X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended February 28, 1998
                          
                                       OR

 / /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from______________ to______________

                           Commission file number 0-72

                            York Research Corporation
                     ---------------------------------------
                     (Exact name of registrant as specified)

             Delaware                                  06-0608633
   --------------------------------               -------------------
   (State or other jurisdiction of                 (I.R.S. Employer
   of incorporation or organization)              Identification No.)

        280 Park Avenue, Suite 2700 West,  New York, New York   10017
        -------------------------------------------------------------
        (Address of principal executive offices)           (Zip Code)

Registrant's telephone number, including area code (212) 557-6200 
Securities registered pursuant to Section 12(b) of the Act:

                                            Name of each exchange
       Title of each class                   on which registered
       -------------------                  ---------------------
            None

         Securities registered pursuant to Section 12(g) of the Act:
                   Common stock, par value $.01 per share
                   --------------------------------------
                             (Title of class)

         Indicate by check mark 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  / /

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of May 20, 1998 was as follows:

                Common Stock, $.01 par value - $89,139,914

(Based on a closing price of $7.375 for the common stock on such date).

         The number of shares outstanding of the Registrant's classes of common
stock, as of May 20, 1998:

                Common Stock, $.01 par value 14,879,782 shares

                Documents incorporated by reference:     None

<PAGE>

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         This Report, including certain statements in the "Business" and 
"Management's Discussion And Analysis of Financial Condition and Results of 
Operations" sections, contain certain forward-looking statements within the 
meaning of the Private Securities Litigation Reform Act of 1995. When used in 
this Report, the words "believe," "anticipate," "intend," "plan," "seek," 
"will be," "expects," "estimates," "projects" and similar expressions 
identify such forward-looking statements. Such statements regarding future 
events and/or the future financial performance of the Company are subject to 
certain risks and uncertainties which could cause actual events or the actual 
future results of the Company to differ materially from any forward-looking 
statements. Certain of these risks include changes in the markets in which 
the Company operates, price volatility, interest rate volatility, currency 
risks (in the case of offshore projects and procurement), changes in 
applicable regulations, or change in supply or demand for energy and energy 
projects. In light of the significant risks and uncertainties inherent in the 
forward-looking statements included herein, the inclusion of such statements 
should not be regarded as a representation by the Company or any other person 
that the objective and plans of the Company will be achieved.

<PAGE>

                                     PART I

ITEM 1                              BUSINESS

A.       General

         York Research Corporation ("York" or the "Company") is a developer, 
owner and marketer of energy related projects and products. York, through its 
subsidiaries, partnerships, joint ventures and affiliates, conducts business 
in two complementary areas of the energy industry: (i) developing, 
constructing and operating energy production facilities, primarily those that 
utilize natural gas as fuel to produce thermal and electric power 
("cogeneration"), and renewable energy projects that convert wind energy into 
transmittable electric power (collectively, "Power Project Development") and 
(ii) marketing (purchase and sale) of energy, both electric power and natural 
gas, in wholesale markets, and in limited retail markets ("Energy Marketing").

         Within its power project development business, the Company has two 
currently operating cogeneration facilities in New York City-the 28 Megawatt 
("MW") Warbasse facility (the "Warbasse facility") and the 286 MW Brooklyn 
Navy Yard facility (the "BNY facility"). The Company has begun 
preconstruction development of a 35 MW wind energy facility in Big Spring, 
Texas (the "Big Spring project"), scheduled for completion by February 1999. 
The Company is also planning construction of a 215 MW natural gas fueled 
power project in the Republic of Trinidad and Tobago (the "Trinidad project") 
scheduled for completion by the fall of 1999. Other power projects, both 
domestic and international, are in earlier stages of development.

         The Company's Energy Marketing business has been developed to take 
advantage of the evolving deregulation in the electric power and natural gas 
industries. York participates in the wholesale energy market through its 85% 
owned subsidiary, North American Energy Conservation, Inc. ("NAEC"). NAEC 
began to market wholesale electricity in 1994. As one of the first such 
federally licensed entities, NAEC has concentrated its activities in the 
northeastern United States, a high cost area for electricity. Beginning in 
1996, York established a natural gas marketing group in NAEC. NAEC's natural 
gas marketing operation is comprised of wholesale and retail marketing and 
trading.

         York's power project development strategy is to increase its project 
development activities selectively around the world, giving priority to 
negotiated rather than publicly bid opportunities. The Company believes that 
the market for wind energy projects will grow as wind power becomes 
increasingly competitive as a source of energy, as a function of its price 
and environmental benefits. York plans to retain increased ownership 
interests in its developed projects rather than seeking up-front development 
fees, as it has in the past, and to expand its marketing activities to blend 
power generated by its future projects with supplies purchased from 
third-party producers. York's energy marketing strategy seeks to generate 
reasonable profit margins while maintaining controlled expansion of its 
marketing activities by 

                                       2

<PAGE>

gradually expanding geographically, creating or entering into renewable 
energy marketing ventures (including the trading of renewable energy credits 
as, and if, such markets develop) and, as retail markets become viable, 
developing integrated facilities and services.

         Management believes that these areas of current concentration will 
allow the Company to capitalize on its strengths and experience while 
positioning it for the future. During the past several years, the Company has 
invested a significant portion of its capital resources in developing and 
nurturing new markets and projects. These efforts and expenditures, which 
need to continue at some level in the near term, have not yet reached their 
full potential, but management believes their potential rewards warrant the 
efforts.

         All note references are to Notes to Consolidated Financial 
Statements.

                                       3

<PAGE>

B.       Power Project Development

         1.       The Warbasse Project

         Between 1987 and 1989, York, under contract with the project owner, 
Warbasse-Cogeneration Technologies Partnership L.P. ("WCTP") (see Item 1.D), 
constructed and operated a 7 MW engine powered cogeneration project that 
supplied all of the utility services including electricity, heat, hot water 
and air conditioning to Amalgamated Warbasse Houses, Inc. ("AWH"), a 10,000 
resident middle income housing complex in Brooklyn, New York. During 1989, 
York, as agent for the project owner, WCTP, negotiated a 21 MW Power Sale 
Agreement between Consolidated Edison Company of New York, Inc. ("Con 
Edison") and WCTP based upon expansion of the project. The Power Sale 
Agreement required WCTP to replace and expand its facility, converting it 
from an engine facility to a larger gas turbine facility, interconnect with 
the utility system and achieve commercial operation by the end of 1991, and 
to achieve full rated capacity no later than December 31, 1994, all of which 
was accomplished ahead of schedule. This Agreement was approved by the New 
York State Public Service Commission ("PSC") in October 1989 and includes 
capacity, energy and operation and maintenance payments continuing through 
the year 2011, with payments indexed to prevailing fuel price levels and 
inflation. The Warbasse facility is on land leased from AWH, its thermal host.

         The Company and WCTP executed an Agreement to Provide for 
Construction of Additional Capacity in 1990, pursuant to which the Company 
constructed the expansion of the facility to service the Con Edison contract. 
The Company and WCTP also executed an Operations and Maintenance ("O&M") 
Agreement in 1989 pursuant to which the Company agreed to operate the 
facility for its life (see Note 5).

          The Warbasse facility supplies all of the thermal and electric 
needs of AWH and the full capacity requirements of its electric power 
contract with Con Edison, as dispatched. See Item 13 and Note 5 for 
information regarding receivables due to the Company from WCTP and the 
operations of the Warbasse facility.

                                       4

<PAGE>

         2.       Brooklyn Navy Yard Project

         Brooklyn Navy Yard Cogeneration Partners, L.P. ("BNYLP"), is owned 
equally by a subsidiary of Edison Mission Energy ("Mission"), which is an 
indirect wholly owned subsidiary of Edison International, and B-41 Associates 
L.P. ("B-41LP") (see Item 1.D). BNYLP was formed to develop, construct, 
finance, own and operate the 286 megawatt natural gas fired combined cycle 
BNY Facility.

         The facility has been operational since 1996 and supplies Con Ed 
with both electricity and steam under a 40 year contract. Steam is delivered 
to Con Ed's New York City district steam system, the world's largest, through 
a tunnel under the East River. BNYLP currently provides more than 15% of Con 
Ed's total steam in New York City. Electric energy delivered represents about 
3% of peak power demand in the service territory. The facility also supplies 
energy to the host industrial park and to an adjacent waste water facility.

         The project began in 1989 when York executed a lease on the 
abandoned navy yard coal fired power plant. In 1990, York and associated 
entities submitted bids to Con Ed, and were awarded separate contracts for 
three small plants to supply energy to Con Ed. These three successful parties 
later combined their interests to form B-41LP (which is 74.7% owned by York) 
and began negotiations to supply the power and steam from a single larger 
plant by initiating permitting activities and purchasing equipment. In order 
to finance further development and construction, B-41LP sold 50% of the 
project to Mission. York and Mission proceeded to complete development and 
construction of the larger project and negotiated a new 40 year integrated 
energy supply contract with Con Ed. The project entered service at the end of 
1996. Long-term non-recourse project financing was closed on December 17, 
1997 with the sale of $100.0 million aggregate principal amount of Senior 
Secured Bonds Due 2020 and $307.0 million aggregate principal amount of New 
York City Industrial Development Agency Industrial Development Revenue Bonds 
due from 2022 to 2036.

         Pursuant to the provisions of the amended and restated partnership 
agreement, Mission retains the right to take all the votes on the Management 
Committee that controls the day to day operations of BNYLP. If Mission 
decides to exercise its right to cast all votes on the BNYLP Management 
Committee, B-41LP still remains a 50% general and limited partner in the Navy 
Yard project and retains all its other rights, including an equal vote with 
Mission on certain material decisions affecting the BNY facility, such as 
sale of assets and renegotiation of power contracts.

    Like other large projects of this nature, the BNY cogeneration facility 
is subject to various risks. There can be no assurance that the facility, 
although completed, will operate at sufficient levels to cover all operation 
and maintenance expenses and debt service. The Company has no liability for 
any such shortfalls, although if the shortfalls occur, they could impact the 
general partner and royalty fees to be paid to B-41LP under the amended and 
restated partnership agreement (see Note 4), which are subordinate to debt 
service.

                                       5

<PAGE>

         3.       Big Spring Project

         On October 21, 1997, York acquired 100% of the partnership interests 
in New World Power Texas Renewable Energy Limited Partnership, which is a 
party to a power purchase agreement with Texas Utilities Electric Company 
("TU Electric"). York has commenced procurement and other preconstruction 
tasks, and currently expects full commercial operation by February 1999. When 
completed, the facility is expected to have a capacity of 35 MW and include 
46 turbines, including four 1,650 Kilowatt ("kW") wind turbines.

         The TU Electric power purchase agreement has an initial term of 15 
years. During the initial term, TU Electric will pay a fixed but escalating 
price per kilowatt hour ("kWh") for energy delivered up to a specified 
maximum. A balancing account adjusts for variable wind years by allowing any 
shortfall in production by the project to be carried forward and credited 
against excess production over the life of the power purchase agreement. At 
the end of the initial term, TU Electric may extend the power purchase 
agreement for each of two 5 year periods. If the power purchase agreement is 
not extended, York may either sell its output to TU Electric at TU Electric's 
then avoided costs or market its energy elsewhere. The owner of the project 
(currently 100% York) is entitled to accelerated U.S. Federal income tax 
depreciation and to a 1.7 cents per kWh (escalating) wind production tax 
credit over the first 10 years of operation. This credit may be applied to 
any income subject to U.S. Federal income taxation. York expects thereby to 
offset taxable income from Energy Marketing and from other projects. York has 
subcontracted turbine supply, delivery, erection and commissioning 
(approximately 75% of the project's estimated construction costs) to Vestas 
Wind Systems A/S, the largest manufacturer of wind turbines in the world. 
There can be no assurance that the Big Spring project will be completed on 
the terms and in the manner described above.

         4.       Trinidad and Tobago Project

         The Company is currently in the process of preconstruction 
development and negotiating agreements for a 215 MW natural gas fueled 
combustion turbine project in the Republic of Trinidad and Tobago. Through a 
local subsidiary, York plans to construct the project for commercial 
operation by fall 1999. The Trinidad project will sell the bulk of its output 
under a 30 year contract signed on February 12, 1998 with Trinidad and Tobago 
Electricity Commission ("T&TEC"), Trinidad's government-owned power 
distribution utility. Fixed capacity payments, primarily tied to U.S. 
inflation rates, will constitute the majority of project revenues. T&TEC will 
have the obligation to supply and pay for fuel for the project, thereby 
eliminating York's fuel risk on the project. T&TEC's obligations under the 
power purchase agreement are expected to be supported by a guarantee of the 
Trinidad government. The Trinidad project is also expected to supply energy 
to several proposed new industrial developments.

                                       6

<PAGE>

         York has funded development costs to date, may fund initial site 
construction, and anticipates funding the balance of project costs through 
non-recourse project financing. The power purchase agreement requires York to 
retain no less than 51% project ownership for at least ten years. However, 
York currently plans to retain a greater percentage of project ownership. 
There can be no assurance that the Trinidad project will be completed on the 
terms and in the manner described above or that York will be able to obtain 
the necessary financing.

         5.       Other Power and Wind Projects Under Development

         York has been funding development work on a variety of large and 
small potential projects in the United States, Canada, Mexico, the Caribbean, 
Africa, several Mediterranean countries and in Central Asia. There can be no 
assurances that any of these projects will be completed or successful.

C.       Energy Marketing

         During Fiscal 1997, the Company purchased 85% of the outstanding 
shares of NAEC (see Note 15). NAEC is engaged in the marketing of electricity 
and natural gas in wholesale and retail markets. NAEC's personnel have been 
recruited for the most part from utilities, and their background is in the 
operational and logistical aspects of energy marketing and arranging for the 
efficient transportation of electricity or natural gas.

         Wholesale Power

         The transmission of electricity in interstate commerce is subject to 
regulation by the Federal Energy Regulatory Commission ("FERC"). Currently, 
transmission-owning utilities are required to provide comparable and 
non-discriminatory transmission service on their systems to power marketers 
and others selling electricity. Marketers may buy power from utilities and 
other marketers, structure a transmission path, and sell electricity at 
negotiated rates at various destinations to other marketers and to consuming 
utilities including municipally owned power companies and cooperatives.

         In 1997, NAEC's marketing and trading activities increased as other 
hubs emerged in the Eastern United States. In order to manage this growing 
area, additional support personnel were added to the trading and marketing 
staff of NAEC.

                                       7

<PAGE>

         Natural Gas

         Deregulation in the United States began more than ten years ago when 
the natural gas pipelines were required to begin the process of unbundling. 
While the wholesale supply of natural gas has become a commodity marketplace, 
transmission, storage, and seasonality provide opportunities for profit in 
selected areas. Trading in the wholesale markets principally occurs at market 
centers, which are locations where several pipelines meet. Retail 
deregulation of natural gas is more advanced than retail deregulation of 
electricity, but it is not complete.

         Beginning in 1996, and in conjunction with NAEC's acquisition, York 
established a natural gas marketing group in NAEC. NAEC's natural gas 
marketing operation is comprised of wholesale and retail marketing and 
trading. The wholesale group trades with utilities, producers, and marketing 
companies, who buy and sell natural gas daily in order to meet fluctuating 
market obligations. NAEC does business over approximately 12 to 15 market 
centers mainly in the Northeast United States but also at locations in the 
Mid-Atlantic and Gulf of Mexico regions. NAEC has buy/sell commitments with 
many suppliers and customers.

         The wholesale group also purchases natural gas for NAEC's retail 
group, which markets it to industrial and commercial accounts in Western and 
Central New York. Currently NAEC has approximately 60 contracts (typically 
with up to a one year term) with retail customers.

         Future Opportunities

         As deregulation progresses, the Company anticipates supporting its 
Energy Marketing activities from existing projects such as the Warbasse 
facility, and new projects which may be developed or acquired by York and 
through possible alliances with third party energy producers. In addition, 
the Company may seek to capitalize on the future synergy between wholesale 
and retail power marketing.

D.       Subsidiaries, Partnerships and Joint Ventures

         The Company conducts a substantial portion of its business through 
subsidiaries, partnerships and joint ventures, in some of which affiliates of 
the Company have an interest.

         York owns 100% of the outstanding shares of B-41 Management Corp. 
("B41MC"), Cogeneration Technologies, Inc. ("Cogen"), and York Internet Power 
Services, Inc., all of which are Delaware Corporations; 85% of the 
outstanding shares of NAEC, a Delaware Corporation; and 100% of the 
outstanding shares of York Research Canada, Inc. ("York Canada"), an entity 
incorporated under the laws of Canada. York Canada owns 100% of the 
outstanding shares of York Windpower Corp., an entity incorporated under the 
laws of Canada.

                                       8

<PAGE>

         York and its subsidiaries own 74.7% of B-41LP, the 50% partner in 
BNYLP, as a result of the following:

         B-41MC holds a 5% general partnership interest in B-41LP.

         Cogen holds a 22% limited partnership in B-41LP resulting from
         assignment of a 40 MW Power Contract to B-41LP.

         York holds a 90% limited partnership interest in York Cogen Partners
         L.P. ("YCP"), which in turn holds a 53% limited partnership interest in
         B-41LP resulting from assignment of a 90 MW power contract to B-41LP.

         RV Associates L.P. ("RVA"), an entity controlled by the chairman of the
         Company, holds a 5% general partnership interest and a 15% limited
         partnership interest in B-41LP, resulting from assignment of a 40 MW
         contract to B-41LP, assumption of certain partnership liabilities and
         acceptance of a reduced share of development fees and reimbursements.

         A portion of B-41LP's partnership interest in BNYLP has been pledged as
         collateral to unaffiliated third parties to secure certain obligations
         of B-41LP.

         York has established several offshore subsidiaries in connection 
with the Trinidad project.  Each is a wholly owned subsidiary of the company 
listed above it.  York Holdings (Caymans) L.L.C. is a wholly owned subsidiary 
of York Research Corporation

         York Holdings (Caymans) L.L.C. is an Exempted Company incorporated in
         the Cayman Islands with limited liability.

         York Ex International S.R.L. is organized under the Societies with
         Restricted Liabilities Act of Barbados, B.W.I.

         York Holdings (Barbados) S.R.L. is organized under the Societies with
         Restricted Liabilities Act of Barbados, B.W.I.

         InnCOGEN, Limited is a corporation incorporated under the laws of the
         Republic of Trinidad and Tobago.

         In connection with the Big Spring project, the Company has 
established two wholly owned subsidiaries, Big Spring Holdings, Inc., and Big 
Spring Texas Energy Management, Inc., which in turn own 100% of New World 
Power Texas Renewable Energy L.P.

         WCTP is a limited partnership whose 25% general partner is RRR'S 
Ventures Ltd. ("RRR'S"). The Chairman of the Company is president and a major 
shareholder in RRR'S. Entities unaffiliated with the Company or RRR'S own an 
aggregate of 75% limited partnership interest in WCTP. RRR'S also holds a 10% 
general partnership interest in YCP (see Item 13).

                                       9

<PAGE>

         North American Energy Conservation, Inc. is 15% owned by the Chairman
of the Company.

E.       Backlog

         The Company does not currently calculate backlog because the revenue 
streams are dependent upon a number of variable factors such as inflation, 
fuel prices, electric utility rates and utilizations, and natural gas prices 
and supply.

F.       Patents and Trademarks

         The Company and its subsidiaries have no patents or trademarks that can
be considered material to the Company's or its subsidiaries' businesses.

G.       Research and Development

         Since research and development costs are not significant, the Company
does not account separately for these costs.

H.       Raw Materials and Suppliers

         The Company and its subsidiaries are not dependent on any single source
of supplies or services for their activities.

I.       Marketing

         York markets its projects and products through a dedicated sales staff,
supplemented by technical support personnel and management personnel from the
Company, and by representatives internationally.

J.       Employees

         As of May 12, 1998, the Company and its subsidiaries employed 48 people
on a full-time basis. Most of the Company's executives are technically trained
and actively engaged in the project development and sales areas.

K.       Competition

         There are many companies with access to greater financial resources
that are active in various aspects of the Company's energy business. These
companies will continue to compete in the energy marketplace. The Company cannot
assess the effect of competition in the future.

                                       10

<PAGE>

L.       Customers

         During Fiscal 1998, all of the services revenues were derived from 
WCTP and BNYLP. Energy sales were derived from numerous retail customers and 
utilities. Each customer accounted for less than 10% of total revenues. Due 
to the relatively short-term nature of contracts with customers, the loss of 
one of these customers would have no material adverse effect on the Company.

M.       Environmental Matters

         The Company believes that the various technologies it employs, which 
provide for increased efficiency, compared to conventional power generation 
facilities, are not environmentally sensitive. The construction of power 
generation facilities requires typical environmental impact statements and 
permitting procedures which may result in delays. The Company believes that 
it is in compliance with federal, state and local laws involving the 
protection of the environment. The Company does not believe that continued 
compliance will require any material capital expenditures. The Company's 
facilities are designed to comply with all applicable environmental laws.

N.       Regulation

         A subsidiary of the Company operates the Warbasse cogeneration 
facility in New York, a qualifying cogeneration facility ("QF") pursuant to 
the Public Utility Regulatory Policies Act of 1978 ("PURPA"). The BNY 
facility in New York has also obtained QF status.

         Cogeneration projects that meet the QF criteria stated in the 
federal rules generally are exempt from most of the federal, state and local 
regulations that apply to generating facilities which are not QFs. However, 
the New York State Public Service Commission ("NYPSC") has determined that it 
has the authority to regulate sales of electricity by QFs to retail 
customers, though the regulatory regime is less burdensome than that applied 
to traditional utilities. Under New York statutes, QFs, like the Warbasse 
cogeneration facility, having a maximum generating capacity of less than 80 
MW, may distribute electricity to users located at or near a project site and 
remain exempt from NYPSC regulation.

         One of the criteria for QF status is that a total of no more than 50 
percent of the equity interests may be owned by one or more companies that 
are electric utility holding companies under the Public Utility Holding 
Company Act of 1935 ("PUHCA"). Under PUHCA, an entity which owns 10 percent 
or more of the voting securities of, or otherwise controls, an electric 
utility company, is an electric utility holding company. An electric utility 
company is defined in PUHCA to mean a company that owns or operates physical 
facilities for the generation, transmission or distribution of electricity 
for sale. QFs are expressly exempt from this definition, and the Company 
therefore is not a public utility holding company by virtue of its interests 
in QFs.

                                       11

<PAGE>

         The BNY facility intends to operate as an exempt wholesale generator 
("EWG"). An EWG must be engaged exclusively in the business of owning or 
operating an eligible facility and selling electricity at wholesale. An 
eligible facility is a generating facility that is used solely to produce 
electricity for sale at wholesale. An EWG is exempt under PUHCA and the 
Company would not become a holding company under PUHCA by virtue of it or one 
of its subsidiaries or affiliates holding 10% or more of the voting 
securities or partnership interests in the BNY facility.

         When operated solely as an EWG, the BNY facility would be subject to 
the New York Public Service Law and the jurisdiction of the NYPSC with 
respect to matters other than the sale of electricity at wholesale. Assuming 
that the NYPSC applies the policies that it has applied to other EWGs in 
previous cases, the BNY facility will be required to comply with minimal 
regulatory requirements regarding financial and organizational matters. The 
NYPSC has no jurisdiction over the rates, terms and conditions of the sale of 
electricity generated by the BNY facility and sold to Con Edison and Brooklyn 
Navy Yard Development Corp. for resale. Further, to the extent operated 
solely as an EWG, the BNY facility operates and maintains a steam plant and 
would be subject to regulation by the NYPSC as a steam corporation. The NYPSC 
has issued a certificate of public convenience and necessity to the BNY 
facility as a steam corporation, and has required that the BNY facility 
comply with only minimal regulatory requirements regarding financial and 
organizational matters.

         Power Brokering

         A power broker is not considered to be a public utility under the 
Federal Power Act ("FPA") and is not subject to regulation by the Federal 
Energy Regulatory Commission, which administers the FPA. A power broker 
arranges transactions for a buyer and seller and receives a fee for its 
services. To date, no company that is a power broker has been found by the 
Securities and Exchange Commission ("SEC") to be an electric utility company 
under PUHCA. Accordingly, the Company believes that its activities as a 
broker of electricity also would not result in its becoming an electric 
utility company or an electric utility holding company under PUHCA, and would 
not affect the QF status of the Projects.

         Power Marketing

         NAEC is considered to be a public utility under the FPA and its 
transactions are regulated under the FPA. A power marketer takes title to 
electricity and resells it at wholesale in interstate commerce. To date, no 
company that is a power marketer has been found by the SEC to be an electric 
utility company under PUHCA, but there can be no assurance as to the future. 
The Company believes that NAEC's activities as a power marketer would not 
result in the Company becoming an electric utility company or an electric 
utility holding company under PUHCA and would not affect the QF status of the 
Projects.

                                       12

<PAGE>

Natural Gas Sales and Marketing

         NAEC does not own or operate any physical facilities for the 
transmission of natural gas. NAEC is not considered a natural gas company, as 
that term is defined in the Natural Gas Act of 1938, nor by virtue of its 
wholesale and retail brokering or marketing of natural gas is it subject to 
the jurisdiction of the Federal Energy Regulating Commission. NAEC sells 
natural gas in the State of New York at retail. Based on the existing 
practice of the NYPSC, the NYPSC's administrative determinations, and 
judicial decisions concerning the applicability of the Public Service Law of 
the State of New York to gas marketers, NAEC's retail sales of gas are not 
subject to the jurisdiction of the NYPSC.

                                       13

<PAGE>

ITEM 2                              PROPERTIES

         The Company leases its facilities. The Company considers its facilities
to be suitable and adequate for the purposes for which they are used.

<TABLE>
<CAPTION>

                                                      Square
         Entity/Location                              Footage           Use
         ---------------                              -------           ---
<S>                                                   <C>             <C>
         York Research Corporation                      (1)             Office
           280 Park Avenue
           New York, New York

         Subsidiaries

         Cogeneration Technologies, Inc.                (1)             Office
           280 Park Avenue
           New York, New York

         York Research Canada, Inc.                     (2)             Office
         York Windpower Corp.
           1000 De La Gauchetiere
             Street West
           Montreal, Quebec, Canada

         North American Energy Conservation, Inc.       (3)             Office
           100 Clinton Square, Suite 400
           126 North Salina Street
           Syracuse, New York

         InnCogen Ltd.                                  (4)             Office
           #10 Marine Villas
           Columbus Blvd.
           West Moorings By the Sea
           Trinidad, West Indies

</TABLE>


         (1)  Total square footage shared by York and Cogen at this location
              is currently 12,300. Effective July 1, 1998, the square
              footage will be 16,700.

         (2)  Total square footage shared by York Canada and York Windpower
              Corp. at this location is currently 1,650.

         (3)  Total square footage leased by NAEC at this location is
              approximately 12,850, less approximately 4,500 square feet
              sublet to three tenants.

         (4)  Total square footage leased at this location is approximately
              2,000 square feet.

                                       14

<PAGE>

ITEM 3                          LEGAL PROCEEDINGS

         There is no material litigation directly affecting the Company. See
Note 4 as to certain litigation involving BNYLP.

ITEM 4           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None

                                       15

<PAGE>

                                     PART II

                     MARKET FOR THE REGISTRANTS COMMON STOCK
ITEM 5                 AND RELATED SECURITY HOLDER MATTERS

         The Company's common stock is traded in the over-the-counter market
under the symbol "YORK". The following table shows the range of high and low
closing sales prices for the common stock on the NASDAQ National Market System.

<TABLE>
<CAPTION>

                                        High                        Low
                                       -------                    -------
<S>                                    <C>                        <C>
Fiscal Year 1998
    First Quarter                      9-1/4                      7
    Second Quarter                     7-15/16                    6
    Third Quarter                      10                         7
    Fourth Quarter                     8-13/16                    7-1/8

Fiscal Year 1997
    First Quarter                      9-7/8                      5-7/8
    Second Quarter                     10-5/16                    8-5/8
    Third Quarter                      11-5/8                     9-3/8
    Fourth Quarter                     10-1/2                     8-7/8

</TABLE>


         On May 20, 1998, the Company had 478 holders of record of its common
stock. The Company has not declared any common stock or cash dividends during
the last five years and has no present intention to declare cash dividends.

                                       16

<PAGE>

ITEM 6                       SELECTED FINANCIAL DATA
                (in thousands of dollars, except per share data)

<TABLE>
<CAPTION>

                                                          For the Year Ended
                             ------------------------------------------------------------------------
                              2/28/98          2/28/97          2/28/96          2/28/95      2/28/94
                             ---------        ---------        ---------        ---------     -------
<S>                          <C>              <C>              <C>              <C>           <C>    
Total revenues                $502,980          $46,327          $14,392           $7,524      $6,494
                             ---------        ---------        ---------        ---------     -------
                             ---------        ---------        ---------        ---------     -------
Income (loss) before
 extraordinary gain             $2,670           $7,823           $4,400             $222       ($416)
                             ---------        ---------        ---------        ---------     -------
                             ---------        ---------        ---------        ---------     -------
Net income (loss)               $8,223           $7,823           $4,400             $222       ($416)
                             ---------        ---------        ---------        ---------     -------
                             ---------        ---------        ---------        ---------     -------
Net income (loss) per
 common share - Basic            $0.59            $0.61            $0.38            $0.02      ($0.03)
                             ---------        ---------        ---------        ---------     -------
                             ---------        ---------        ---------        ---------     -------
Net income (loss) per
 common share - Diluted          $0.53            $0.52            $0.35            $0.02      ($0.03)
                             ---------        ---------        ---------        ---------     -------
                             ---------        ---------        ---------        ---------     -------


Total assets                  $145,488          $84,829          $60,002          $50,685     $29,467
                             ---------        ---------        ---------        ---------     -------
                             ---------        ---------        ---------        ---------     -------
Limited recourse long-
 term liabilities (1)               $0          $19,982          $20,232          $20,482          $0
                             ---------        ---------        ---------        ---------     -------
                             ---------        ---------        ---------        ---------     -------
Other long-term
 liabilities                      $942             $885             $685             $638      $1,155
                             ---------        ---------        ---------        ---------     -------
                             ---------        ---------        ---------        ---------     -------
Deferred revenue and
 other credits                  $3,287           $3,460           $3,460           $3,478      $4,097
                             ---------        ---------        ---------        ---------     -------
                             ---------        ---------        ---------        ---------     -------
Stockholders' equity           $60,749          $46,990          $32,827          $21,886     $18,742
                             ---------        ---------        ---------        ---------     -------
                             ---------        ---------        ---------        ---------     -------

Cash dividends declared 
 per common share                   $0               $0               $0               $0          $0
                             ---------        ---------        ---------        ---------     -------
                             ---------        ---------        ---------        ---------     -------

</TABLE>

(1) Recourse to certain of B-41LP's cash flow and not recourse to the 
    Company. This limited recourse obligation was settled subsequent to 
    February 28, 1997 (see Note 5).

                                       17

<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7           OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

         Brooklyn Navy Yard Project

         Brooklyn Navy Yard Cogeneration Partners, L.P. ("BNYLP"), a joint 
venture, was formed on October 19, 1992. BNYLP is owned equally by a 
subsidiary of Edison Mission Energy ("Mission"), which is an indirect wholly 
owned subsidiary of Edison International, and a limited partnership, B-41 
Associates, L.P.("B-41 LP"), in which the Company is the majority partner 
(see Note 4).

         On November 1, 1996, the BNY facility commenced operations, 
generating electricity and steam in accordance with its contracts. In 
December, 1997, a $407,000,000 non-recourse financing for the BNY facility 
was completed. This financing included tax free Industrial Development 
Revenue Bonds with maturities to October 1, 2036, as well as taxable bonds 
due in 2020. The Company provided no guarantees with regard to this 
financing, and has no obligation to provide funding of any sort, other than 
an obligation to reimburse Mission for a portion of certain costs, if any, 
related to a legal action (see Note 4). As a result of this financing, and as 
compensation for services rendered, the Company received a fee of $6 million 
from Mission, which was included in Service Revenues in the fourth quarter of 
Fiscal 1998. The Company also expects to receive continuing general partner 
and other fees over the 40 year life of the project.

         In March 1997, B-41LP settled all its obligations to Sanwa Business 
Credit Corp. ("SBCC") for a cash payment of $2,750,000. SBCC, in exchange for 
this cash payment gave up all its interest in the future cash flow from the 
BNY facility and has no continuing interest in any of the Company's projects 
or assets (see Note 4).

        Like other large projects of this nature, the BNY facility is subject 
to various risks. There can be no assurance that the facility, although 
completed and financed, will operate at sufficient levels to cover all 
operation and maintenance expenses and debt service. The Company has no 
liability for any such shortfalls, but if such shortfalls do occur, it could 
impact the continuing fees mentioned above.

         Warbasse Project

         The Company, through a subsidiary, operates the Warbasse facility, 
and since September 1994 has supplied on a continuous basis, all the electric 
and thermal energy needs of the host, Amalgamated Warbasse Houses, Inc. 
("AWH"), and is supplying up to the full capacity requirements of its 
electric power contract with Consolidated Edison Company of New York, Inc. 
("Con Ed"), when dispatched.

         The Company transferred the completed facility to 
Warbasse-Cogeneration Technologies Partnership L.P. ("WCTP") on August 1, 
1996. As a result of being a senior secured creditor of WCTP, the Company has 
recorded approximately $4,510,000 of interest income on its long-term notes 
receivable from WCTP for the year ended February 28, 1998.

                                       18

<PAGE>

         Project Finance

         The Company is seeking to arrange long-term project financing, in 
the form of one or more long-term bond issues, which will provide full 
construction and development funding for the Big Spring wind project and the 
Trinidad power project, as well as additional funds for general corporate 
purposes and future development activities. It is contemplated that these 
bond issues will be non-recourse to York but may be secured by cash flow from 
BNY and WCTP. There can be no assurance that the bond issuances will be 
successfully completed or will be of sufficient size to provide for all 
anticipated needs.

         NAEC

         The Company's energy marketing subsidiary, North American Energy 
Conservation, Inc. ("NAEC"), has experienced dramatic growth since the 
Company acquired it in November 1996. Revenues have increased from 
approximately $27 million for the four months ended February 28, 1997 to 
approximately $489 million for the year ended February 28, 1998. The Company 
expects this business to continue to grow and improve its margins, although 
revenues will not continue to grow at the pace experienced in Fiscal 1998, 
the first full year of combined natural gas and electric marketing. In order 
to support that growth, in December 1997, NAEC completed a $20,000,000 
revolving line of credit with Congress Financial Corp., collateralized by 
NAEC's receivables and other assets, and guaranteed by York. The Company 
believes this line of credit and possible future expansions thereof will be 
sufficient to support the capital and credit needs of NAEC.

         The Company uses put and call options, and futures contracts 
("Instruments") in various combinations, to hedge physical positions in 
electricity and natural gas as well as occasionally for trading purposes. All 
of these Instruments are settled in the underlying commodity. The ultimate 
impact of these Instruments will be determined by the prevailing applicable 
market price.

         NAEC has sold call options related to the wholesale electric 
business and collected premiums totaling approximately $3 million at February 
28, 1998. Of this amount, approximately $2.9 million will be recognized as 
revenue in Fiscal 1999, offset by approximately $.7 million of prepaid 
brokerage fees and call option expense.

         General

         During the year ended February 28, 1998, cash balances decreased by 
approximately $1.3 million. Approximately $5.3 million was generated by 
operating activities. Net income from operations generated approximately $2.7 
million excluding a non-cash extraordinary gain of approximately $5.6 
million. This net increase from operations along with increases in accounts 
payable, accrued expenses, other long-term liabilities and accrued taxes of 
approximately $62.0 million were offset by increases in receivables of 
approximately $59.4 million, and amortization of deferred credits of 
approximately $1.7 million. During the year ended February 28, 1997, cash 
balances increased by approximately $6.0 million. Net income from operations 
generated approximately $7.8 million and increases in accounts payable, 
accrued expenses and other long-term liabilities generated approximately $5.2 
million. These sources of cash were offset by 

                                       19

<PAGE>

an increase in receivables of approximately $11.0 million predominantly due 
to the acquisition of NAEC, which principally accounts for cash generated by 
operating activities of approximately $2.1 million. During Fiscal 1996, the 
Company had net income of approximately $4.4 million offset by approximately 
$3.0 million spent on construction of the Warbasse project, and an increase 
in receivables of approximately $1.7 million, resulting in cash used in 
operating activities of approximately $509,000.

         During Fiscal 1998, approximately $4.4 million was used in investing 
activities, mostly for construction in progress.

         During Fiscal 1998, approximately $2.2 million was used in financing 
activities. $2.7 million was used to settle the Company's obligation to SBCC, 
offset by proceeds from the exercise of options and warrants of approximately 
$.6 million. Approximately $3.9 million was generated by financing activities 
during Fiscal 1997, mainly due to proceeds from the exercise of stock options 
and warrants of approximately $3.7 million and the repayment by the York 
Research Corporation Employee Stock Ownership Trust ("ESOP") of $450,000. 
Cash generated by financing activities in Fiscal 1996 was approximately 
$4,416,000, due to the repayment by the ESOP of $3,079,000 of the demand 
purchase money loans due to the Company, and $1,455,000 due to proceeds from 
the exercise of stock warrants and options.

         The ESOP purchased from the Company a total of 3,793,500 shares of 
the Company's Common Stock between 1988 and February 28, 1996 in exchange for 
demand purchase money loans, totaling approximately $14,462,000 (see Note 
11). During Fiscal 1996, the ESOP trustee sold 606,000 shares of the 
Company's common stock at a profit to the ESOP, and repaid $3,079,000 of the 
demand purchase money loan. During Fiscal 1997, the ESOP trustee sold 50,000 
shares of the Company's common stock, and repaid $450,000 of the demand 
purchase money loan. There were no repayments during Fiscal 1998.

         See Note 3 for disclosure of the impact of significant new 
accounting pronouncements.

         Year 2000 Compliance

         The Company has completed a review of its computer systems and 
operations to determine the extent to which its systems will be vulnerable to 
potential errors and failures as a result of the "Year 2000" problem. The 
Year 2000 problem is the result of prior computer programs being written 
using two digits, rather than four digits, to define the applicable year. Any 
of the Company's programs that have time-sensitive software may recognize a 
date using "00" as the year 1900 rather than the year 2000. This could result 
in major system failure or miscalculations.

         The Company has concluded that its significant computer programs and 
operations will not be affected by the Year 2000 problem and that the 
programs that will be affected can and will be properly modified or replaced 
by the end of 1999 at a cost which will not be significant to the Company.

                                       20

<PAGE>

         In addition, the Company is unable at this time to assess the extent 
to which it will be impacted by the Year 2000 issue with respect to 
businesses and other entities who provide data to or receive data from the 
Company, or whose financial condition or operational capability is important 
to the Company, as suppliers or customers.

Results of Operations

1998 Compared to 1997

         In a year to year comparison between Fiscal 1998 and Fiscal 1997, 
total revenues increased approximately $456,700,000. This increase is due to 
an increase in energy sales by NAEC of approximately $462,600,000. Fiscal 
1998 reflects a growth in electric power revenues and the first full year of 
combined electric power and natural gas revenues, while Fiscal 1997 reflects 
only four months of predominantly electric revenues as a result of the 
acquisition of NAEC on November 1, 1996.

         Service revenues decreased approximately $6,000,000 as a result of a 
number of factors. During Fiscal 1998, B-41LP received a fee of $6,000,000 
from Mission related to the closing of the Brooklyn Navy Yard long-term 
project financing (see Note 4). Service revenues to WCTP increased 
approximately $1,800,000 due to higher fuel and other operating costs. These 
increases in service revenues were offset by decreases due to certain 
revenues recognized in Fiscal 1997 but not in Fiscal 1998. A decrease of 
$11,000,000 resulted from the recognition of revenues during Fiscal 1997 
pursuant to a services agreement between WCTP and RVA and the Company (see 
Note 14), and a decrease of $2,500,000 resulted from the recognition of 
revenues during Fiscal 1997 due to reimbursements by BNYLP for certain 
engineering costs, a portion of which had been expensed in prior periods.

         Cost of energy increased approximately $462,900,000, predominantly 
due to an increase in energy sales. Gross margins on the energy business will 
be impacted by changes in unit prices, supply and seasonal factors.

         Cost of services, which include fuel and other operations and 
maintenance costs, increased approximately $1,800,000, commensurate with 
service revenues from WCTP.

         Selling, general and administrative expenses increased approximately 
$1,700,000. The inclusion of a full year of expenses for NAEC accounted for 
an increase of approximately $2,200,000. Expenses also increased by 
approximately $300,000 as a result of recognition of the redemption of Class 
B Warrants (see Note 10). These increases were offset by a decrease of 
approximately $650,000 in expenditures for consulting and professional fees.

         Interest income-WCTP increased approximately $1,000,000 due to the 
commencement of interest due on the long-term note receivable from WCTP 
related to the sale of the Warbasse facility on August 1, 1996. Fiscal 1998 
reflects a full year of interest income, while Fiscal 1997 reflects seven 
months.

         Interest and other income increased approximately $2,000,000. The 
commencement in December 1996 of general partner fees received by B-41LP 

                                       21

<PAGE>

from BNYLP accounts for approximately $1,000,000 of this increase, since 
Fiscal 1998 reflects a full year of general partner fees, while Fiscal 1997 
reflects only three months. The balance of the increase was due to the 
recognition of approximately $1,100,000 as royalty fees, which commenced in 
January 1998, and will continue for four years.

         An extraordinary gain of approximately $5,600,000 was recorded in 
Fiscal 1998 relating to the settlement of the obligation to SBCC.

1997 Compared to 1996

         Total revenues in Fiscal 1997 increased by approximately $31,936,000 
over Fiscal 1996, due predominantly to the acquisition of NAEC on November 1, 
1996 (see Note 15), which accounted for the increase in energy sales of 
approximately $26,571,000. Service revenues increased by approximately 
$9,307,000, due mainly to an increase of $11,000,000 as a result of a 
services agreement between WCTP and RVA, and the Company (see Note 14), and 
an increase of approximately $748,000 in service revenues to WCTP due to 
higher fuel costs, and an increase in purchases of supplies, spare parts, 
etc. These increases were offset by a decrease in engineering services of 
approximately $2,442,000, due mainly to $2,500,000 of reimbursements in 
Fiscal 1997 by BNYLP for certain engineering costs a portion of which was 
expensed in prior periods versus $5,000,000 of similar reimbursements in 
Fiscal 1996. Development and other fees decreased approximately $3,942,000 
due to none being earned in Fiscal 1997.

         Cost of services, which include fuel and other operations and 
maintenance costs, increased approximately $763,000 during Fiscal 1997, 
commensurate with service revenues from WCTP.

         Cost of energy increased approximately $25,000,000 as a result of 
the commencement of energy sales due to the acquisition of NAEC. The gross 
margin from energy sales is subject to various market fluctuations and may 
vary from year to year.

         Selling, general and administrative expenses increased approximately 
$1,840,000. The operations of NAEC accounted for approximately $1,135,000 of 
the total increase in selling, general and administrative expenses, with the 
remaining increase resulting from an additional $470,000 spent on payroll and 
employee benefits in Fiscal 1997, due to salary increases and bonuses, and 
increased consulting fees of approximately $360,000 for the development of 
potential new markets.

         Interest income-WCTP increased approximately $1,130,000. This was 
mainly due to interest recorded by Cogen due on the note receivable from WCTP 
which commenced in August, 1996 (see Note 5).

         Interest and other income increased approximately $644,000. 
Additional receipts of approximately $168,000 from AWH, recognized as other 
income, in payment of certain amounts due to Cogen which were deferred in 
prior years, accounted for a portion of this increase. The commencement in 
December 1996 of general partner fees received by B-41LP from BNYLP accounted 
for an increase in other income of approximately $299,000.

                                       22

<PAGE>

ITEM 8             FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Index to Consolidated Financial Statements on Page 33.

                  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ITEM 9               ON ACCOUNTING AND FINANCIAL DISCLOSURES

         None


                                       23

<PAGE>

                                    PART III

ITEM 10                DIRECTORS AND EXECUTIVE OFFICERS

The executive officers and directors of the Company are:

         Robert M. Beningson                 Chairman of the Board, President
                                               and Chief Executive Officer

         Michael Trachtenberg                Executive Vice President, Chief
                                               Financial and Accounting Officer
                                               and Secretary

         Robert C. Paladino                  Executive Vice President

         Vito L. Elefante                    Vice President

         Stanley Weinstein                   Director

         Howard Sommer                       Director

         Mr. Robert M. Beningson, 69, was elected a director of the Company 
in October 1981. In February 1982, Mr. Beningson was elected Chairman of the 
Board, President and Chief Executive Officer of the Company. Mr. Beningson is 
Chief Executive Officer and Chairman of the Board of each of the Company's 
subsidiaries. Previously, Mr. Beningson was Chairman of the Board of 
Directors of the Company between 1968 and 1979.

         Mr. Michael Trachtenberg, 49, a Certified Public Accountant, joined 
the Company in January 1987 and was elected Vice President, Chief Financial 
Officer and Secretary in March 1987. From November 1985, until joining the 
Company, Mr. Trachtenberg was a financial consultant in private practice. 
Prior thereto, Mr. Trachtenberg was Vice President-Finance and Chief 
Financial Officer of S&S Corrugated Paper Machinery Co., Inc. From 1980 to 
1984 Mr. Trachtenberg held various positions with Carter Day Industries, 
Inc., an agricultural equipment manufacturer and energy and environmental 
systems company, culminating in his appointments as Vice President, Treasurer 
and Chief Financial Officer.

         Mr. Robert C. Paladino, 47, joined the Company in January 1987 and 
was elected Executive Vice President in April 1990. From October 1980 until 
joining the Company, Mr. Paladino was Senior Vice President and General 
Counsel of NPS Technologies Group, Inc., an engineering and construction 
company serving the electric utility industry. From 1974 to 1980, Mr. 
Paladino held various positions with the Edison Electric Institute, the 
national organization for the investor-owned electric utility industry, 
culminating in his appointment as Director of Fossil Fuels and Assistant to 
the President.

         Mr. Vito L. Elefante, 48, joined the Company in April 1998 and was 
then elected Vice President. Prior to joining York, Mr. Elefante was Vice 
President of Edison Mission Energy New York, Inc. and Executive Director of 
Brooklyn Navy Yard Cogeneration Partners, L.P. Prior to that, Mr. Elefante 
worked at Long Island Lighting Company for twenty years, where he was 
responsible for independent power generation, purchasing and fuels. Mr.

                                       24

<PAGE>

Elefante is excluded from Items 11 and 12, as he joined the Company 
subsequent to February 28, 1998.

         Mr. Stanley Weinstein, 72, was elected to the Board of Directors in 
May, 1995. Until 1991, Mr. Weinstein was a partner at Deloitte and Touche, 
certified public accountants, and since such date, has been an independent 
consultant.

         Mr. Howard Sommer, 57, was elected to fill a vacancy on the Board of 
Directors in September, 1997. In September 1995, Mr. Sommer was elected the 
President and Chief Executive Officer of New York Community Investment 
Company L.L.C., an equity fund created and funded by eleven major banks in 
New York City. Beginning in 1973, as President of U.S. Capital Corporation 
and Fundex Capital Corporation, he managed finance and investment company 
activities that provided over $100 million in funding to small businesses. 
Prior to that time, Mr. Sommer served in a management capacity for IBM and 
Xerox Corporation.

         Mr. H. Clifton Whiteman, who had served as a Director of the Company 
since July, 1991, resigned from the Board of Directors in June, 1997, and has 
been excluded from all information on directors included in the Form 10-K for 
the year ended February 28, 1998.

         None of the directors or executive officers of the Company are 
related to each other.

ITEM 11                      EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

         The following table sets forth the compensation received by the
Company's Chief Executive Officer and the remaining most highly paid executive
officers for the three fiscal years ended February 28, 1998.

<TABLE>
<CAPTION>

                                               Annual Compensation                Long-Term Compensation
                                             ---------------------------------
                                                                                         Awards         Payouts
                                                                                  -------------------   -------
                                                                                    Restr                              All Other
                                                                       Other        Stock     Options/      LTIP       Compen-
                                              Salary     Bonus     Compensation    Awards       SAR's     Payouts      sation
 Name & Principal Position            Year     ($)        ($)         ($)(2)        ($)        (#)(1)       ($)        ($)(3)
--------------------------            ----    -------   -------    ------------    ------     --------    -------     --------
<S>                                   <C>     <C>       <C>        <C>             <C>       <C>          <C>         <C>
ROBERT M. BENINGSON                   1998    400,681         0            0           0          0          0         18,568
  Chairman, President &               1997    400,681         0            0           0          0          0         18,875
  Chief Executive Officer             1996    400,681         0            0           0          0          0         12,109

MICHAEL TRACHTENBERG                  1998    210,000         0            0           0          0          0         20,044
  Executive Vice President &          1997    199,231   100,000            0           0          0          0         23,418
  Chief Financial and Accounting      1996    190,000         0            0           0          0          0         14,699
  Officer

ROBERT C. PALADINO                    1998    210,000         0            0           0          0          0         20,044
  Executive Vice President            1997    193,846   100,000            0           0          0          0         23,418
                                      1996    179,538         0       15,000           0          0          0         14,699

</TABLE>

(1)    The Company does not grant SAR's.

(2)    Forgiveness of indebtedness.

(3)    Represents the value of the Company's contribution to the ESOP
       allocable to executives' accounts for such year.

                                       25

<PAGE>

                        OPTION GRANTS IN LAST FISCAL YEAR

         The following table sets forth information on option grants in Fiscal
1998 to the named executive officers.

<TABLE>
<CAPTION>

                                                       Individual Grants
                                        -------------------------------------------
                                         % of Total
                                           Options                                         Alternative
                             Options     Granted to       Exercise                         Grant Date
                             Granted    Employees in       Price         Expiration       Present Value
         Name                  (#)       Fiscal Year      ($/Share)        Date               ($)
        ------               -------    -------------     ---------      ----------       --------------
<S>                          <C>        <C>               <C>            <C>               <C>
ROBERT M. BENINGSON             0            N/A             N/A            N/A               N/A

MICHAEL TRACHTENBERG            0            N/A             N/A            N/A               N/A

ROBERT C. PALADINO              0            N/A             N/A            N/A               N/A

</TABLE>

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR END OPTION VALUE

         The following table sets forth information on option exercises in
Fiscal 1998 by the named executive officers and the value of such officers
unexercised options at February 28, 1998.

<TABLE>
<CAPTION>

                               Shares                                                              Value of Unexercised
                             Acquired                          Unexercised Options                 In-the-Money Options
                                on           Value             at Fiscal Year End (#)            at Fiscal Year End ($) (1)
                             Exercise      Realized       -------------------------------      -----------------------------
          Name                 (#)         ($) (1)        Exercisable       Unexercisable      Exercisable     Unexercisable
         ------              --------      --------       -----------       -------------      -----------     -------------
<S>                          <C>           <C>            <C>               <C>                <C>             <C>
ROBERT M. BENINGSON                0             0         1,725,000                  0        4,093,000                 0

MICHAEL TRACHTENBERG          25,000       121,872           214,000             26,000          560,750            86,250

ROBERT C. PALADINO             4,000        15,000           177,000             15,000          478,125            48,125
                                                                                                    
</TABLE>

(1)      Value calculated is the difference between closing price on the date of
         exercise or year end, respectively, and the exercise price.

                               PENSION PLAN TABLE

<TABLE>
<CAPTION>
                              Years of Service (2)


Remuneration(1)        10           15           20          25        30         35+
---------------      ------       ------       ------      ------    ------     ------
<S>                  <C>          <C>          <C>         <C>       <C>        <C>
    50,000            3,200        4,125        5,200       6,250     7,500      8,750
   100,000            8,200       11,625       15,200      18,250    21,675     24,175
   150,000           13,200       19,125       25,200      30,750    36,675     40,425
   200,000           18,200       26,625       35,200      43,250    51,675     56,675
   250,000           23,200       34,125       45,200      55,750    66,675     72,925

</TABLE>

(1)    Based on highest five year average and includes annual salary and cash
       bonus, if any.
(2)    The years of credited service for individuals listed in the Summary
       Compensation Table are 42 for Robert M. Beningson, 11 for Robert C.
       Paladino, and 15 for Michael Trachtenberg.

                                       26

<PAGE>

         IRS regulations limit the amount of compensation credited for Pension
Plan purposes to $150,000 per year, subject to cost of living increases.

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Based on its review of Forms 3, 4 and 5 submitted to it by is 
Directors and Executive Officers, the Company is not aware of any 
non-compliance with the reporting provisions of Section 16 by its Directors 
or Executive Officers.

COMPENSATION OF DIRECTORS

         Directors receive fees for attending Board or Committee meetings. In
both Fiscal 1998 and Fiscal 1997, Mr. Weinstein received $24,000. Mr. Sommer
received $10,000 in Fiscal 1998.

         The Company has not entered into any employment contracts with any of
the herein named Officers or Directors.

                              SECURITY OWNERSHIP OF
ITEM 12               CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

a.       Security Ownership of Certain Beneficial Owners

         The following table sets forth the information indicated as of 
February 28, 1998, as to all persons known by the Board of Directors to be 
the beneficial owners of more than five percent of the Corporation's Common 
Stock.

<TABLE>
<CAPTION>

Name and Address                       Amount and Nature of      Percent of
of Beneficial Owner                    Beneficial Ownership      Class (1)
-------------------                    --------------------      ----------
<S>                                    <C>                       <C>
Robert M. Beningson                      3,491,000 (1) (2)          20.9%
280 Park Avenue
New York, NY  10017

Stanley Weinstein                        1,020,014 (1) (4)           6.8%
280 Park Avenue
New York, NY 10017

York Research Corp.                        980,014 (1)               6.6%
Employee Stock Ownership Plan
280 Park Avenue
New York, NY  10017

</TABLE>

See note references below.

                                       27

<PAGE>

b.       Security Ownership of Management

         The following table sets forth the information indicated as of 
February 28, 1998 with respect to common stock of the Company beneficially 
owned by directors and officers of the Company and by directors and officers 
as a group:

<TABLE>
<CAPTION>

Name of                                Amount and Nature of      Percent of
Beneficial Owner                       Beneficial Ownership      Class (1)
----------------                       --------------------      ---------
<S>                                    <C>                       <C>
Robert M. Beningson                      3,491,000 (1)(2)           20.9%

Michael Trachtenberg                       277,000 (1)(2)            1.8%

Robert C. Paladino                         202,000 (1)(5)            1.3%

Stanley Weinstein                        1,020,014 (1)(4)            6.8%

Howard Sommer                               20,000 (1)(6)             (6)

Directors and Officers                   5,010,014 (1)              29.2%
as a group (5) persons

</TABLE>

(1)      The Percent of Class is based upon 14,961,438 issued and outstanding
         shares of common stock at February 28, 1998 plus the shares that
         underlie unexercised warrants or options held by the individuals.

(2)      Includes 824,000 shares owned directly, plus warrants to purchase
         1,150,000 shares of common stock, options to purchase 575,000 shares of
         common stock and 942,000 shares owned by RRR'S Ventures, Ltd., a
         corporation controlled by Mr. Beningson.

(3)      Includes 37,000 shares owned directly by Mr. Trachtenberg and options
         to purchase 240,000 shares of common stock.

(4)      Includes warrants to purchase 40,000 shares of common stock, and
         980,014 shares held by the ESOP of which Mr. Weinstein is the trustee.

(5)      Includes 10,000 shares owned directly by Mr. Paladino and options to
         purchase 192,000 shares of common stock.

(6)      Includes warrants to purchase 20,000 shares of common stock; less than
         1% ownership.

ITEM 13             CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Mr. Beningson is President and a major shareholder of RRR'S 
Ventures, Ltd., a corporation in which the Chief Financial Officer of the 
Company is also a minor shareholder, which is 25% general partner in WCTP, 
limited partner in RV Associates L.P. ("RVA") (which in turn is a minority 
partner in B-41LP), and 10% general partner in York Cogen Partners L.P. 
("YCP"), a limited partner in B-41LP (see Note 4). Mr. Beningson is also a 
15% shareholder in NAEC.

         At February 28, 1998, WCTP was indebted to the Company for 
approximately $5,620,000 related to operations and maintenance services and 
other related receivables, for approximately $2,651,000 for loans to WCTP and 
for professional 

                                       28

<PAGE>

services paid for on behalf of WCTP, for approximately $29,369,000 related to 
the transfer of the Warbasse Facility, and indebted to YCP for $28,522,000 
(see Note 5).

         At February 28, 1998, Mr. Beningson was indebted to the Company for 
$5,971,500 related to the exercise of warrants and purchase of common shares 
in prior years. Mr. Trachtenberg is indebted to the Company for $214,860 
related to the exercise of options. Mr. Paladino is indebted to the Company 
for $399,000 related to the exercise of options and certain advances. All 
these amounts are non-interest bearing and are payable on demand.

         In March 1997, B-41LP settled all its obligations to SBCC for a cash 
payment of $2,750,000. SBCC, in exchange for this cash payment gave up all 
its interest in the future cash flow from the Brooklyn Navy Yard Project and 
has no continuing interest in any of the Company's projects or assets. In 
settling this obligation, B-41LP caused RVA and its partners to lose tax 
benefits that they would have been able to utilize. Therefore, the Company 
compensated RVA for its lost tax benefits in the total amount of $4 million. 
The form of this non-cash transaction with RVA and its partners was the 
exercise of 500,000 pre-existing warrants at $6 per share for a total of 
$3,000,000, and the transfer of $1,000,000 of the Company's note receivable 
from the Chairman to a nonconsolidated affiliate. This extinguishment of the 
SBCC liability resulted in an extraordinary gain of approximately $5.6 
million net of taxes, which was reflected in the first quarter of Fiscal 1998.

         As of November 1, 1996, the Company acquired 85% of the shares of 
NAEC for $1 from NAEC. Prior to the acquisition, all of the stock was owned 
by the Company's chairman. The acquisition has been accounted for as a 
purchase. In Fiscal 1997, prior to the acquisition, the Company recognized 
approximately $924,000 as reimbursement of cost.

         In the year ended February 28, 1997, the Company recorded 
$11,000,000 of fees for services rendered through February 28, 1997 to WCTP 
and RV Associates L.P. ("RVA"), two partnerships of which a company 
controlled by the Company's chairman is the general partner. This amount was 
included in service revenues. These fees were recorded pursuant to a services 
agreement between WCTP, RVA, CTI and York. The services include ongoing 
negotiations of consolidation agreements with Con Edison and Edison Mission 
Energy, aiding in resolving various contract issues concerning WCTP's and 
RVA's power purchase agreements with Con Edison, and various issues related 
to the progress of the Brooklyn Navy Yard Project.

         The Company recognizes that potential conflicts of interest may 
arise by reason of the fact that Mr. Beningson controls RRR'S Ventures, Ltd. 
and RVA, and is President and Chief Executive Officer of the Company. Mr. 
Beningson has advised the Company that in all transactions between or 
affecting any affiliated entity and the Company he will act in the best 
interests of the shareholders of the Company, as determined by the Board of 
Directors of the Company, excluding himself.

                                       29

<PAGE>

                                     PART IV

                     EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 14                      AND REPORTS ON FORM 8-K

(1)(1) and (a)(2): See Index to Consolidated Financial Statements at Page 33.

(a)(3) Exhibits:

         3(a)     Certificate of Incorporation of the Company, as amended. (1)

         3(a)     (I) Certificate of Amendment to the Company's Certificate of
                  Incorporation as filed with the Secretary of State of the
                  State of Delaware on May 16, 1988.

         3(b)     Bylaws of the Company. (1)

         4(a)     Form of Certificate evidencing Common Stock, $.01 par value
                  per share, of the Company. (2)

         10(o)    Agreement for Construction of Additional Capacity, dated May
                  7, 1990, between Warbasse-Cogeneration Technologies
                  Partnership, L.P. and York Research Corporation. (3)

         10(q)    Lease and Energy Sale Agreement, dated December 18, 1989
                  between the Brooklyn Navy Yard Development Corporation and
                  Cogeneration Technologies, Inc., a wholly owned subsidiary of
                  the Company. (4)

         10(r)    Amended and Restated Limited Partnership Agreement by and
                  between Mission Energy New York, Inc. and B-41 Associates,
                  L.P., dated November 1, 1997, with Exhibits thereto. (9)

         10(s)    Stipulation of Settlement among counsel to plaintiffs in
                  litigation entitled In Re York Research Corporation Securities
                  Litigation, United States District Court, Southern District of
                  New York, Master File No. 91 Civ. 5040 (LJF), and counsel for
                  all defendants therein, dated January 15, 1993, with Exhibits
                  thereto. (5)

         10(t)    Final Judgment of Dismissal with Prejudice, In Re York
                  Research Corporation Securities Litigation, United States
                  District Court, Southern District of New York, Master File No.
                  91 Civ. 5040 (LJF). (5)

         10(u)    Amended and Restated Agreement of Limited Partnership of B-41
                  Associates L.P., dated December 26, 1992. (5)

         10(bb)   Promissory Note, dated November 17, 1994, made by
                  Warbasse-Cogeneration Technologies Partnership L.P. payable to
                  the order of Cogeneration Technologies, Inc. (8)

                                       30

<PAGE>

         10(cc)   Security Agreement, dated as of November 17, 1994, made by
                  Warbasse- Cogeneration Technologies Partnership L.P. to
                  Cogeneration Technologies, Inc. (8)

         10(dd)   Assignment and Security Agreement, dated as of November 17,
                  1994, made by Warbasse-Cogeneration Technologies Partnership
                  L.P. to Cogeneration Technologies, Inc. (8)

         10(ee)   Intercreditor Agreement, dated as of November 17, 1994, by and
                  among Tomen Power Corporation, B-41 Associates, L.P.,
                  Cogeneration Technologies, Inc. and Warbasse-Cogeneration
                  Technologies Partnership L.P. (8)

         10(ff)   Restructuring Fee Agreement, dated as of November 17, 1994, by
                  and among Warbasse-Cogeneration Technologies Partnership L.P.,
                  B-41 Associates, L.P. and Cogeneration Technologies, Inc. (8)

         10(gg)   Subordinated Promissory Note, dated as of November 17, 1994,
                  made by Warbasse-Cogeneration Technologies Partnership L.P.
                  payable to the order of B-41 Associates, L.P. in the principal
                  amount of $3,000,000. (8)

         10(hh)   Subordinated Promissory Note, dated as of November 17, 1994,
                  made by Warbasse-Cogeneration Technologies Partnership L.P.
                  payable to the order of Cogeneration Technologies, Inc. in the
                  principal amount of $3,000,000. (8)

         10(ii)   Agreement of Limited Partnership of York Cogen Partners, L.P.

         10(jj)   Renegotiation and Payment Agreement dated February 28, 1997 by
                  and between Sanwa Business Credit Corporation and B-41
                  Associates, L.P.

         10(kk)   York Partners Reimbursement Agreement (PMNC) dated as of
                  November 1, 1997, among B-41 Associates, L.P., Brooklyn Navy
                  Yard Cogeneration Partners, L.P. and Edison Mission 
                  Energy. (9)

         10(ll)   Amended and Restated Agreement of Limited Partnership of New
                  World Power Texas Renewable Energy Limited Partnership dated
                  as of September 29, 1997. (9)

         10(mm)   Renewable Resource Energy Purchase Agreement between Texas
                  Utilities Electric Company and New World Power Texas Renewable
                  Energy Limited Partnership dated September 13, 1994, and
                  Amendment No. 1 thereto dated November 25, 1996, Amendment No.
                  2 thereto dated February 19, 1997 and Amendment No. 3 thereto
                  dated August 29, 1997. (9)

         10(nn)   Wind Turbine Equipment Sales and Installation Contract dated
                  as of March 31, 1998 between York Research Corporation and
                  Vestas-American Wind Technology, Inc. (9)

         21       Subsidiaries of the Company (9)

         23       Consent of Independent Certified Public Accountants.

                                       31

<PAGE>

(b)      Consolidated Financial Statements

         See Index to Consolidated Financial Statements at Page 33.

         All other exhibits and financial statement schedules have been omitted
         because they have been previously filed or incorporated by reference,
         in the Company's Form 10-K for the fiscal year ended September 30,
         1990, are inapplicable, or the required information is included
         elsewhere in the Consolidated Financial Statements or the notes
         thereto.

(c)      Reports on Form 8-K

         The following reports on Form 8-K were filed during the year ended
         February 28, 1998:

                  None

(1)      Previously filed as an Exhibit, under the corresponding exhibit number,
         to the Company's Form 10-K for the fiscal year ended September 30,
         1982, Commission file number 0-72, and incorporated herein by
         reference.

(2)      Previously filed as an Exhibit, under the corresponding exhibit number
         with Registration Statement No. 33-13899 on April 30, 1987 and
         incorporated herein by reference.

(3)      Previously filed as an Exhibit with the Company's Form 10-Q for the
         quarter ended June 30, 1990 and incorporated herein by reference.

(4)      Previously filed as an Exhibit with the Company's Form 10-K for the
         year ended September 30, 1990 and incorporated herein by reference.

(5)      Previously filed as an Exhibit with the Company's Form 10-K for the
         year ended February 28, 1993 and incorporated herein by reference.

(6)      Previously filed as an Exhibit with the Company's Form 10-K for the
         year ended February 28, 1994 and incorporated herein by reference.

(7)      Previously filed as an Exhibit with the Company's Form 10-Q for the
         quarter ended August 31, 1994 and incorporated herein by reference.

(8)      Previously filed as an Exhibit with the Company's Form 10-Q for the
         quarter ended November 30, 1994 and incorporated herein by reference.

(9)      To be filed by amendment.

                                       32

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                                  Page(s)

<S>                                                                                  <C>
York Research Corporation and Consolidated Subsidiaries:

     Report of Independent Certified Public Accountants                               34

     Consolidated Financial Statements:
       Consolidated Balance Sheets - February 28, 1998 and 1997                       35

     Consolidated Statements of Income for the Years Ended February 28, 
       1998, February 28, 1997 and February 28, 1996                                  36

     Consolidated Statement of Stockholders' Equity for the Years Ended
       February 28, 1998, February 28, 1997 and February 28, 1996                     37

     Consolidated Statements of Cash Flows for the Years Ended February 28,
       1998, February 28, 1997 and February 28, 1996                                  38

     Notes to Consolidated Financial Statements                                       39
                                                                                    through
                                                                                      65

</TABLE>

                                       33

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
York Research Corporation:

      We have audited the accompanying consolidated balance sheets of York 
Research Corporation and Subsidiaries as of February 28, 1998 and 1997, and 
the related consolidated statements of income, stockholders' equity and cash 
flows for each of the three years in the period ended February 28, 1998. 
These consolidated financial statements are the responsibility of the 
Company's management. Our responsibility is to express an opinion on these 
consolidated financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of York Research Corporation and Subsidiaries at February 28, 1998 and 1997, 
and the consolidated results of their operations and their consolidated cash 
flows for each of the three years in the period ended February 28, 1998, in 
conformity with generally accepted accounting principles.

Grant Thornton LLP

New York, New York
May 22, 1998

                                       34

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                           February 28,     February 28,
                                                               1998             1997
                                                           ------------     ------------
<S>                                                        <C>              <C>
ASSETS
Current Assets:
  Cash and cash equivalents                                $ 10,254,366      $11,513,026
  Energy accounts  receivable                                64,655,498        7,900,114
  Other receivables - related parties                         6,026,479        8,298,806
  Inventory - natural gas                                            --        1,312,086
  Deferred tax asset                                          1,238,000          661,000
  Other current assets (including advances to 
    employees of $85,700 and $146,300, respectively)          1,924,972          311,356
                                                           ------------     ------------
      Total current assets                                   84,099,315       29,996,388

Property, plant and equipment, net                              577,058          602,428
Long-term receivable - WCTP                                   4,905,689               --
Construction in progress                                      4,187,134               --
Long-term note receivable - WCTP                             49,490,535       49,490,535
Advances to minority partner                                         --        2,000,000
Other assets (including advances to employees and a 
  former director of $730,167 and $608,267, respectively)     1,929,723        2,402,082
Excess of investment over net assets acquired, net              298,568          337,940
                                                           ------------     ------------
    Total assets                                           $145,488,022      $84,829,373
                                                           ------------     ------------
                                                           ------------     ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Energy accounts payable                                  $ 62,633,944      $ 8,652,263
  Accrued expenses and other payables                         7,237,081        3,772,284
  Accrued income taxes                                           88,178          765,498
  Current portion of deferred revenue                         2,991,307               --
                                                           ------------     ------------
    Total current liabilities                                72,950,510       13,190,045

Due to SBCC                                                          --       19,982,000
Other long-term liabilities                                     942,146          884,949
Deferred revenue and other credits                            3,287,000        3,460,000
Deferred tax liability                                        5,632,100               --
                                                           ------------     ------------
    Total  liabilities                                       82,811,756       37,516,994

Minority interest in partnership                              1,927,342          321,942

Commitments and contingencies                                        --               --

Stockholders' equity
  Common stock, Class A, $.01 par value; authorized 
    10,000,000 shares; none issued                                   --               --
  Common stock, $.01 par value; authorized 50,000,000 
    shares; issued and outstanding 14,961,438 and 
    14,256,304 shares in 1998 and 1997, respectively            149,614          142,563
  Additional paid-in capital                                 65,212,681       60,350,127
  Accumulated earnings (deficit)                              4,139,729       (4,083,050)
                                                           ------------     ------------
                                                             69,502,024       56,409,640
  Less: 
  Treasury stock, at cost (123,124 and 47,124 
    shares, respectively)                                    (1,409,401)        (706,401)
  Notes receivable - sale of common stock                    (6,832,938)      (7,960,313)
  Deferred compensation - ESOP                                 (510,761)        (752,489)
                                                           ------------     ------------
    Total stockholders' equity                               60,748,924       46,990,437
                                                           ------------     ------------
    Total liabilities and stockholders' equity             $145,488,022      $84,829,373
                                                           ------------     ------------
                                                           ------------     ------------

</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                       35

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                        FOR THE YEARS ENDED FEBRUARY 28,

<TABLE>
<CAPTION>

                                                                         1998             1997             1996
                                                                     ------------      -----------      ----------
<S>                                                                  <C>               <C>              <C>
Revenues:
  Energy sales                                                       $489,192,939      $26,570,707      $        --
  Services                                                             13,786,604       19,756,615       14,391,749
                                                                     ------------      -----------      -----------
    Total revenues                                                    502,979,543       46,327,322       14,391,749
                                                                     ------------      -----------      -----------

Costs and expenses:
  Cost of energy                                                      488,045,224       25,112,691               --
  Cost of services                                                      7,606,762        6,216,115        5,452,869
  Selling, general and administrative                                   9,520,248        7,859,239        6,019,547
  Interest income - WCTP                                               (4,510,531)      (3,490,122)      (2,359,531)
  Interest and other (income) expense                                  (2,727,772)        (715,154)         (70,764)
  Minority interest in partnership                                        567,646          321,942          500,000
                                                                     ------------      -----------      -----------
    Total costs and expenses                                          498,501,577       35,304,711        9,542,121
                                                                     ------------      -----------      -----------

Income before income taxes and extraordinary gain                       4,477,966       11,022,611        4,849,628

Provision for income taxes                                              1,808,000        3,200,000          450,000
                                                                     ------------      -----------      -----------

Income before extraordinary gain                                        2,669,966        7,822,611        4,399,628

Extraordinary gain, net of tax and allocation to minority interest      5,552,813               --               --
                                                                     ------------      -----------      -----------
Net income                                                           $  8,222,779      $ 7,822,611      $ 4,399,628
                                                                     ------------      -----------      -----------
                                                                     ------------      -----------      -----------

Earnings per share - Basic:
  Per common share before extraordinary gain                                $0.19            $0.61            $0.38
  Extraordinary gain                                                         0.40               --               --
                                                                     ------------      -----------      -----------
  Per common share                                                          $0.59            $0.61            $0.38
                                                                     ------------      -----------      -----------
                                                                     ------------      -----------      -----------
Weighted average number of common shares used in
  computing basic earnings per share                                   14,022,387       12,782,551       11,666,395
                                                                     ------------      -----------      -----------
                                                                     ------------      -----------      -----------

Earnings per share - Diluted:
  Per common share before extraordinary gain                                $0.17            $0.52            $0.35
  Extraordinary gain                                                         0.36              --                --
                                                                     ------------      -----------      -----------
  Per common share                                                          $0.53            $0.52            $0.35
                                                                     ------------      -----------      -----------
                                                                     ------------      -----------      -----------

Weighted average number of common shares and common share 
  equivalents used in computing diluted earnings per share             15,561,125       15,090,393       12,648,091
                                                                     ------------      -----------      -----------
                                                                     ------------      -----------      -----------

</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                       36

<PAGE>

             YORK RESEARCH CORPORATION AND SUBSIDIARIES
        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
        FOR THE YEARS ENDED FEBRUARY 28, 1998, 1997 AND 1996


<TABLE>
<CAPTION>

                                        Common Stock         Additional   Accumulated
                                      Shares                  Paid-in       Earnings        Treasury        Notes       Deferred
                                      Issued      Amount      Capital       (Deficit)        Stock       Receivable    Compensation
                                    ----------   --------   -----------   -------------    ----------   ------------   ------------
<S>                                 <C>          <C>        <C>           <C>              <C>          <C>            <C>
Balance, February 28, 1995          12,610,594   $126,106   $49,619,995   $(16,305,289)    $(706,401)   $(7,393,408)   $(3,455,491)

Exercise of options                    222,957      2,230       776,045             --            --       (296,379)            --
Exercise of warrants                   207,727      2,077       970,843             --            --             --             --
Cash receipts                               --         --            --             --            --        150,000      3,079,000
Deferred compensation accrual               --         --       263,958             --            --             --        148,778
Issuance of shares to ESOP             288,500      2,885     1,089,334             --            --             --     (1,092,219)
Tax effect of options and warrants          --         --     1,013,000             --            --             --             --
ESOP third party loans                      --         --            --             --            --             --        (65,000)
Issuance of warrants                        --         --       497,675             --            --             --             --
Net income                                  --         --            --      4,399,628            --             --             --
                                    ----------   --------   -----------   -------------    ----------   ------------   ------------
Balance, February 28, 1996          13,329,778    133,298    54,230,850    (11,905,661)     (706,401)    (7,539,787)    (1,384,932)

Exercise of options                    333,800      3,338     1,015,350             --            --       (420,526)            --
Exercise of warrants                   589,726      5,897     2,743,124             --            --             --             --
Donation of stock                        3,000         30        30,345             --            --             --             --
Cash receipts                               --         --            --             --            --             --        450,000
Deferred compensation accrual               --         --       342,458             --            --             --        182,443
Tax effect of options and warrants          --         --     1,988,000             --            --             --             --
Net income                                  --         --            --      7,822,611            --             --             --
                                    ----------   --------   -----------   -------------    ----------   ------------   ------------
Balance, February 28, 1997          14,256,304    142,563    60,350,127     (4,083,050)     (706,401)    (7,960,313)      (752,489)

Exercise of options                    117,195      1,172       340,759             --            --             --             --
Exercise of warrants                   587,939      5,879     3,491,413             --            --       (262,000)            --
Deferred compensation accrual               --         --       351,382             --            --             --        241,728
Tax effect of options and warrants          --         --       654,000             --            --             --             --
ESOP third party loans                      --         --        25,000             --            --             --             --
Settlements of notes receivable             --         --            --             --      (703,000)     1,389,375             --
Net income                                  --         --            --      8,222,779            --             --             -- 
                                    ----------   --------   -----------   -------------    ----------   ------------   ------------
Balance, February 28, 1998          14,961,438   $149,614   $65,212,681   $  4,139,729   ($1,409,401)   ($6,832,938)     $(510,761)
                                    ----------   --------   -----------   -------------    ----------   ------------   ------------
                                    ----------   --------   -----------   -------------    ----------   ------------   ------------

</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                       37

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED FEBRUARY 28,

<TABLE>
<CAPTION>

                                                                    1998             1997            1996
                                                                ------------     ------------     -----------
<S>                                                             <C>              <C>              <C>
OPERATING ACTIVITIES:
Net income from operations                                      $  8,222,779     $  7,822,611     $ 4,399,628
Adjustments to reconcile net income from operations to
 net cash generated by (used in) operating activities:
  Extraordinary gain                                              (5,552,813)              --              --
  Depreciation and amortization                                      287,727          160,754         167,185
  Deferred income taxes                                             (577,000)          23,000        (684,000)
  Non-cash charges                                                    36,375          397,391          25,000
  Common shares issued for services and donation                          --           30,375              --
  Amortization of deferred credits                                (1,717,897)              --        (392,633)
  ESOP contribution                                                  593,109          524,901         412,736
  Tax benefit of stock options and warrants                          654,000        1,988,000       1,013,000
  Increase in minority interest payable                            1,605,400               --              --
  Changes in operating assets and liabilities:
    Increase  in receivables                                     (59,388,746)     (10,988,635)     (1,687,043)
    Increase in construction in progress                                  --               --      (2,984,374)
    Net (increase) decrease in notes receivable, inventory, 
     other current assets, and other assets                         (191,251)      (3,235,578)       (246,483)
    Net increase (decrease) in accounts payable, accrued 
     expenses, deferred revenue and long-term liabilities         62,039,879        5,156,465        (413,744)
    Increase (decrease) in accrued taxes                            (677,320)         246,166        (118,151)
                                                                ------------     ------------     -----------
  NET CASH GENERATED BY (USED IN) OPERATING ACTIVITIES             5,334,242        2,125,450        (508,879)
                                                                ------------     ------------     -----------

INVESTING ACTIVITIES:
  Construction in progress                                        (4,187,134)              --              --
  Purchase of machinery and equipment                               (222,985)        (158,995)       (144,697)
  Purchase of NAEC, net of cash acquired                                  --          128,495              --
                                                                ------------     ------------     -----------
  NET CASH USED IN INVESTING ACTIVITIES                           (4,410,119)         (30,500)       (144,697)
                                                                ------------     ------------     -----------

FINANCING ACTIVITIES:
  Amounts received from ESOP                                              --          450,000       3,079,000
  Proceeds from notes receivable                                          --               --         150,000
  Payments on capital leases                                         (10,006)         (31,687)        (17,545)
  Payment of due to SBCC                                          (2,750,000)        (250,000)       (250,000)
  Proceeds from exercise of stock options and warrants               577,223        3,719,573       1,454,816
                                                                ------------     ------------     -----------
  NET CASH GENERATED BY (USED IN) FINANCING ACTIVITIES            (2,182,783)       3,887,886       4,416,271
                                                                ------------     ------------     -----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  (1,258,660)       5,982,836       3,762,695

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                    11,513,026        5,530,190       1,767,495
                                                                ------------     ------------     -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                        $ 10,254,366     $ 11,513,026     $ 5,530,190
                                                                ------------     ------------     -----------
                                                                ------------     ------------     -----------

</TABLE>

Non-cash investing and financing activities:

  During Fiscal 1998, a non-cash transaction of $3,000,000  occurred as a 
   result of the exercise of 500,000 warrants at $6 per share, and a non-cash 
   transfer of $1,000,000 of notes receivable to a nonconsolidated affiliate 
   was recorded. In addition, the Company received a stock payment in-lieu of 
   cash as payment of an advance to an employee of $350,000 and a note 
   receivable of $389,376.

  During Fiscal 1998, an advance distribution of $2,000,000 to RVA n a prior 
   year was offset against minority interest payable.

  During Fiscal 1997, $28,808,535 was reclassified from construction in 
   process, other long-term receivables-WCTP and payment in-lieu of 
   performance bond-WCTP to notes receivable-WCTP.

  During Fiscal 1997, the Company acquired 85% of the common stock of NAEC 
   for $1.  The fair value of assets acquired was $4,587,849, and liabilities 
   assumed were $4,960,240.

  During Fiscal 1997, a capital lease obligation of $211,060 was incurred 
   when the Company entered into leases for new equipment.

  During Fiscal 1996, the Company issued 288,500 shares of common stock to 
   the ESOP, in exchange for a note receivable for $1,092,219.

  During Fiscal 1998, 1997 and 1996, the Company received $262,000, $420,526 
   and $296,379 of notes receivable - sale of common stock, respectively, for 
   options exercised.

  The accompanying notes are an integral part of these financial statements.

                                       38

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

1.       Nature of Business

         York Research Corporation ("York" or the "Company") is a developer, 
owner and marketer of energy related projects and products and through its 
subsidiaries, partnerships, joint ventures and affiliates. The Company 
currently participates in two broad areas of the energy business -- power 
project development and services, including cogeneration and wind energy, and 
the marketing of energy and natural gas in the wholesale power markets and 
the wholesale and retail natural gas markets.

         The principal markets for the Company's products and services 
currently are the United States. Revenues are principally derived from 
entities that supply, broker or market energy to utilities, residential 
complexes, and industrial concerns.

2.       Use of Estimates

         The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the reported amounts of assets and liabilities and 
the disclosure of contingent assets and liabilities at the date of the 
financial statements and the reported amounts of revenues and expenses during 
the reporting period. Actual results could differ from those estimates.

3.       Summary of Significant Accounting Policies

         Principles of Consolidation

         The consolidated financial statements of York and subsidiaries and 
all majority owned partnerships include the accounts of Cogeneration 
Technologies, Inc. ("Cogen"), B-41 Associates L.P. ("B-41LP"),  B-41 
Management Corporation ("B-41MC"), York Cogen Partners L.P. ("YCP"), York 
Internet Power Services, Inc., North American Energy Conservation, Inc. 
("NAEC"), York Research Canada, Inc. ("York Canada") and York Windpower 
Corp., which is 100% owned by York Canada.  All material intercompany profits 
and transactions have been eliminated in consolidation.  In addition, in 
Fiscal 1998, new subsidiaries were formed in connection with new projects for 
which no significant activity occurred through February 28, 1998.

                                       39

<PAGE>


                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         Cash and Cash Equivalents

         The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

         Revenue Recognition

         The Company recognizes service revenues and energy sales in the 
period in which the work is performed or the commodity is delivered. 
Development fees received, which are included in service revenues, were 
either amortized over the related development period, or recognized as 
received, based on their nature.

         Construction in Progress

      Construction in progress includes engineering, professional fees, 
equipment procurement costs, and other costs related to the projects under 
development through February 28, 1998.

         Property, Plant and Equipment

         Property, plant and equipment are stated at cost and are being 
depreciated or amortized on the straight-line method over their estimated 
useful lives as follows:

              Machinery and equipment     5-10 years
              Furniture and fixtures      5-10 years
              Motor vehicles              3 years
              Leasehold improvements      5-8 years

         Income Taxes

         The Company utilizes the provisions of Statement of Financial 
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under 
SFAS No. 109, deferred tax assets or liabilities are computed based on the 
difference between the financial statement and income tax bases of assets and 
liabilities including any net operating loss and alternative minimum tax 
credit carryforwards, using the enacted marginal tax rate. Deferred income 
tax expense or benefits are based on the changes in the asset or liability 
from period to period. Deferred tax assets are recognized to the extent 
realization of such benefits are more likely than not.

                                       40

<PAGE>


                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         Excess of Investment Over Net Assets Acquired, Net

         The Company's acquisition of Cogen in 1985 resulted in an $828,000 
excess of investment over net assets acquired, which is being amortized on a 
straight-line basis over 20 years. Accumulated amortization at February 28, 
1998 and 1997 is approximately $529,000 and $490,000, respectively. At each 
balance sheet date, the Company evaluates the realizability of goodwill based 
upon expectations of nondiscounted cash flows and operating income for each 
subsidiary having a material goodwill balance. Based upon its most recent 
analysis, the Company believes that no material impairment of goodwill exists 
at February 28, 1998.

         Long-Term Receivable and Note Receivable-WCTP

         The realizability of the long-term receivable and note 
receivable-WCTP is evaluated by the Company by review of the present value of 
the currently expected future cash flow from the Warbasse facility.

         Per Share Data

         In February 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), 
Earnings Per Share, which is effective for financial statements for both 
interim and annual periods ending after December 15, 1997. Early adoption of 
the new standard was not permitted so SFAS No. 128 was adopted in the fourth 
quarter of Fiscal 1998. The new standard eliminates primary and fully diluted 
earnings per share and requires presentation of basic and diluted earnings 
per share together with disclosure of how the per share amounts were computed 
for all periods presented. 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 before extraordinary gain. The following is a 
reconciliation of the number of basic to diluted shares used in the 
computation of earnings per share for the years ended February 28, 1998, 1997 
and 1996:

                                       41

<PAGE>


                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

<TABLE>
<CAPTION>

                                                   Fiscal             Fiscal           Fiscal
                                                    1998               1997             1996
                                                 ----------         ----------       -----------
<S>                                              <C>                <C>              <C>
Weighted average number of common shares
 outstanding                                     14,776,882         13,705,557        12,885,674

Average of unreleased ESOP shares                  (754,495)          (923,006)       (1,219,279)
                                                 ----------         ----------       -----------
Weighted average number of common shares
 outstanding - basic                             14,022,387         12,782,551        11,666,395

Dilution (warrants and options)                   1,538,738          2,307,842           981,696
                                                 ----------         ----------       -----------
Weighted average number of common share
 and common share equivalents outstanding -
 diluted                                         15,561,125         15,090,393        12,648,091
                                                 ----------         ----------       -----------
                                                 ----------         ----------       -----------

</TABLE>

         The amounts shown as average of unreleased ESOP shares and dilution 
(warrants and options) reflect the averages for the periods presented.

         Options and warrants to purchase 175,000, 50,000 and 25,000 shares 
of common stock were outstanding in Fiscal 1998, 1997 and 1996, respectively, 
ranging from $9.63 to $11.00, $10.00 to $11.00, and $11.00 per share, 
respectively, but were not included in the computation of diluted earnings 
per share because the options' exercise prices were greater than the average 
market price of common shares. The options and warrants, which expire between 
April 26, 2000 and September 6, 2006, were still outstanding at February 28, 
1998.

         Fair Value of Financial Instruments

         The carrying amounts of cash and cash equivalents, accounts and 
other receivables, accrued expenses and accounts payable approximate fair 
value, principally because of the short maturity of these items. For the fair 
value of Due to SBCC, see Note 5. For long-term receivable and note 
receivable-WCTP (see Note 5 for terms) and advances to minority partner (see 
Note 14 for terms), there are no quoted market prices, and a reasonable 
estimate of fair value could not be made without incurring excessive costs.

                                       42

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         Inventory

         Inventory consists of natural gas held in storage. The Company 
accounts for its natural gas inventory using lower of cost or market, cost 
being determined using the average cost method.

         Reclassifications

         Certain amounts in the 1997 and 1996 consolidated financial 
statements were reclassified to conform to the 1998 presentation.

         Significant New Accounting Pronouncements

         The Financial Accounting Standards Board released Statement of 
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" 
("SFAS No. 130"), governing the reporting and display of comprehensive income 
and its components, and Statement of Financial Accounting Standards No. 131, 
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS 
No. 131"), requiring that all public businesses report financial and 
descriptive information about their reportable operating segments. The 
Company will implement SFAS 130 and SFAS 131 as required in Fiscal 1999. The 
impact of adopting SFAS No. 130 is not expected to be material to the 
consolidated financial statements or notes to consolidated financial 
statements. Management is currently evaluating the effect of SFAS No. 131 on 
consolidated financial statement disclosures.

         The American Institute of Certified Public Accountant's Accounting 
Standards Executive Committee recently issued Statement of Position 98-5 
("SOP 98-5"), "Reporting on the Costs of Start-Up activities". SOP 98-5 
requires that costs of start-up activities, including organization costs, be 
expensed as incurred. Start-up activities are broadly defined and include 
one-time activities related to opening a new facility, introducing a new 
product or service, conducting business in a new territory, conducting 
business with a new class of customer or beneficiary, initiating a new 
process in an existing facility, commencing some new operation, and 
organizing a new entity. SOP 98-5 is generally effective for financial 
statements for fiscal years beginning after December 15, 1998, with initial 
application reported as the cumulative effect of a change in accounting 
principle. The Company is currently evaluating the impact that SOP 98-5 will 
have on the Company's financial statements.

                                       43

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

4.       Brooklyn Navy Yard

         Brooklyn Navy Yard Cogeneration Partners, L.P. ("BNYLP") is owned 
equally by a subsidiary of Edison Mission Energy ("Mission"), which is an 
indirect wholly-owned subsidiary of Edison International, and B-41LP. BNYLP 
was formed to develop, construct, finance, own and operate the 286 megawatt 
("MW") natural-gas-fired, combined-cycle Brooklyn Navy Yard ("BNY") facility.

         The facility has been operational since 1996 and supplies 
Consolidated Edison of New York, Inc. ("Con Ed") with both electricity and 
steam under a 40 year contract. Steam is delivered to Con Ed's New York City 
district steam system. The facility also supplies energy to the host 
industrial park and to an adjacent waste water facility.

         The project began in 1989 when York executed a lease on the 
abandoned Navy Yard coal fired power plant. In 1990, York and associated 
entities submitted bids to Con Ed, and were awarded separate contracts for 
three small plants to supply energy to Con Ed. These three successful parties 
later combined their interests (totaling 170 MW) to form B-41LP (which is 
74.7% owned by York) and began negotiations to supply the power and steam 
from a single larger plant by initiating permitting activities and purchasing 
equipment. In order to finance further development and construction, B-41LP 
sold 50% of the project to Mission. York and Mission proceeded to complete 
development and construction of the larger project and negotiated a new 40 
year integrated energy supply contract with Con Ed. The project entered 
service at the end of 1996.

         B-41LP was formed to more effectively develop and manage the 
original partners' investments in the BNY facility. The profit sharing and 
ownership percentages in the B-41LP partnership agreement, as amended, are as 
follows:

         1.  RV Associates L.P. ("RVA"), whose limited partner, RRR'S
             Ventures Ltd., and general partner are controlled by the
             Chairman of the Company, is a 5% general partner. B-41MC, a
             wholly-owned subsidiary of York, is also a 5% general partner.

         2.  RVA is also a 15% limited partner. RVA contributed a power
             purchase agreement totaling 40 MW.

                                       44

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         3.  Cogen, a wholly-owned subsidiary of York, is a 22% limited
             partner. Cogen contributed a power purchase agreement totaling
             40 MW.

         4.  YCP is a 53% limited partner. RRR'S Ventures Ltd. is the 10%
             general partner of YCP, and York is the 90%
             limited partner in YCP.  YCP contributed a power
             purchase agreement totaling 90 MW.

         For tax purposes, depreciation, operating losses and capital 
transactions are subject to other sharing percentages.

         The BNYLP partnership agreement as amended contains provisions, 
among other things, with respect to the allocation of cash flow and tax 
depreciation under various circumstances, profits and losses both before and 
after Mission's advances have been repaid, management of the Partnership, and 
dispute resolution. B-41LP and Mission have amended the Partnership agreement 
to reflect certain changes pertaining to funding obligations, management, and 
operations.

         Upon formation of BNYLP, all of the project-related assets, contract 
rights, leases or other intangible assets that had been accumulated by the 
Company and B-41LP during the pre-joint venture development period, as well 
as all related liabilities, were transferred to BNYLP. Although BNYLP 
accounts for B-41LP's contribution at an agreed upon value of $7,000,000, 
B-41LP recorded its investment in BNYLP at the historical carrying value of 
the assets contributed of zero. B-41LP accounts for its investment in BNYLP 
under the equity method.

          For the years ended February 28, 1997 and 1996, BNYLP's only 
activity was the construction, testing and operation of the BNY facility. As 
capacity payments from Con Edison did not start until March 1997, BNYLP did 
not recognize any revenues, expenses, or operating profits or losses prior to 
that date. The summarized financial information of BNYLP as of and for the 
years ending February 28, 1998 and 1997 is as follows:

                                       45

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

<TABLE>
<CAPTION>

                                    (Unaudited)                (Unaudited)
                                       1998                        1997
                                   -------------              -------------
<S>                                <C>                        <C>
Current assets                     $ 20,283,000               $ 23,797,000
Noncurrent assets                  $494,515,000               $454,747,000
Current liabilities                $ 20,679,000               $204,234,000
Noncurrent liabilities             $501,942,000               $253,926,000
Net assets                         $ (7,823,000)              $ 20,384,000
Total revenues                     $128,259,000               $          0
Net loss                           $(28,142,000)              $          0

</TABLE>

         On November 1, 1996, the BNY facility commenced operations, 
generating electricity and steam in accordance with its contracts. Long-term 
project financing was completed on December 17, 1997 with the sale of $100.0 
million aggregate principal amount of Senior Secured Bonds Due 2020 and 
$307.0 million aggregate principal amount of New York City Industrial 
Development Agency Industrial Development Revenue Bonds due from 2022 to 
2036. The Company provided no guarantees with regard to this financing, and 
has no obligation to provide funding of any sort. As a result of this 
financing, and as compensation for services rendered, the Company received a 
fee of $6 million from Mission, which was included in Service Revenues in the 
fourth quarter of Fiscal 1998. The Company also expects to receive continuing 
general partner and other fees over the 40 year life of the project.

         In March 1997, the Company settled all of its obligations related to 
this project with a financing entity for $2,750,000, plus other consideration 
(see Note 5).

         In consideration for certain development services for the BNY 
facility performed by the Company, RVA has assumed the obligation for certain 
loans from Mission totaling $9,750,000 which are repayable only from amounts 
received from third party BNYLP financings or BNY facility operations. In 
addition, RVA has also accepted a reduced share of development fees and 
reimbursements.

         As of February 28, 1998, the Company and B-41LP have received a 
total of $21,541,000 for development fees, a nonrefundable commission from a 
vendor in connection with the procurement of certain BNYLP equipment, and for 
reimbursement of development costs net of related liabilities assumed by 
BNYLP. In Fiscal 1996, the Company recognized development fee revenue of 
$3,267,000. At February 28, 1998, revenues of $3,287,000 were deferred, which 
is one half of the nonrefundable commission deferred until the equipment was 
placed in service, less $173,000 recognized in Fiscal 1998. The deferred 
balance will be 

                                       46

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

recognized over the remaining estimated useful life of the related equipment 
of twenty years.

         In accordance with the joint venture agreement, the Company provides 
engineering services for BNYLP. During Fiscal 1998, 1997 and 1996, the 
Company recognized revenue from engineering services of approximately 
$465,000, $838,000 and $780,000, respectively, which are reflected in service 
revenues and cost of services. During Fiscal 1997 and 1996, the Company also 
recognized reimbursements of $2,500,000 and $5,000,000, respectively, for 
certain engineering and other costs a portion of which had been expensed in 
prior periods. At February 28, 1998 and 1997, the Company had receivables 
from BNYLP of approximately $50,000 and $280,000, respectively, related to 
engineering services. These amounts are included in other receivables and 
were fully collected subsequent to the respective year ends.

         Commencing December 1, 1996 through December 31, 1997, BNYLP paid 
general partner fees to B-41LP equal to 2.5% of gross monthly revenues of the 
Brooklyn Navy Yard project. B-41LP in turn paid a general partner fee of 
1.25% of gross monthly revenues to each of B-41MC and RVA. Pursuant to the 
amended partnership agreement, the general partner fee was reduced to .5% of 
gross revenues for the four years commencing January 1, 1998. In the years 
ended February 28, 1998 and 1997, B-41MC recognized general partner fees of 
approximately $1,355,000 and $299,000, respectively, with receivables of 
approximately $420,000 and $167,000 at February 28, 1998 and 1997, 
respectively. Royalty fees of approximately $1,078,000 were recognized during 
Fiscal 1998. These royalties, which are equal to 4.5% of gross revenues, 
commenced in January 1998, and will continue for four years. RVA has agreed 
not to share in these royalties.

         Pursuant to the provisions of the partnership agreement, Mission 
retains the right to take all the votes on the Management Committee that 
controls the day to day operations of BNYLP. If Mission decides to exercise 
its right to cast all votes on the BNYLP Management Committee, B-41LP still 
remains a 50% general and limited partner in the Navy Yard project and 
retains all its other rights.

         In February 1997, the general contractor of the Brooklyn Navy Yard 
facility brought an action in California against BNYLP seeking damages of 
$137 million for amounts owed under the turnkey contract and denying 
liability under various claims. BNYLP responded to the complaint, denying all 
the allegations contained therein and commenced an action in New York against 
the general contractor denying any liability under the turnkey contract and 
seeking damages in excess of 

                                       47

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

$13 million pursuant to various counterclaims. In addition, BNYLP has been 
named as one of the defendants in another action relating to the construction 
activity of the Brooklyn Navy Yard facility. Although it is a general partner 
of BNYLP, B-41LP was not served in these complaints and is not a party to any 
of the actions. Mission has agreed to indemnify both BNYLP and B-41LP against 
any costs resulting from the Contractor's action. B-41LP has agreed to 
reimburse Mission for 25% of the excess over $10 million of such costs, if 
any, with an aggregate limit of $10 million, payable solely out of B-41LP's 
partnership fees and distributions and further limited to $1 million per year 
for 1998, 1999 and 2000, and $2 million per year thereafter.

         Like other large projects of this nature, the BNY cogeneration 
facility is subject to various risks. There can be no assurance that the 
facility, although completed, will operate at sufficient levels to cover all 
operation and maintenance expenses and debt service. The Company has no 
liability for any such shortfalls, although if the shortfalls occur, they 
could impact the general partner and royalty fees mentioned above.

5.       Warbasse Project

         In May 1990, an agreement was entered into between 
Warbasse-Cogeneration Technologies Partnership L.P. ("WCTP") (see Note 14) 
and the Company whereby the Company agreed to construct the expansion of the 
Warbasse facility converting it from the engine facility previously 
constructed for WCTP by the Company, to a larger gas turbine facility (the 
"Warbasse Project") to enable it to service Con Edison pursuant to the 
existing contract between WCTP and Con Edison.

         The Company also contracted with WCTP to provide operations and 
maintenance services for the Warbasse Project at its direct cost. The 
services agreement includes providing fuel, operating, manning and 
maintaining the facility. The Company operates the Warbasse Facility, 
supplying on a continuous basis all the thermal and electric energy needs of 
the host, Amalgamated Warbasse Houses, Inc., and supplying up to the full 
capacity requirements of its electric power contract with Con Edison, when 
dispatched. During Fiscal 1998, 1997 and 1996, the Company recognized 
approximately $7,200,000, $5,400,000 and $4,700,000, respectively, for 
operations and maintenance services revenues, which has been reflected in 
service revenues. Cost of services for the same periods was approximately 
$7,200,000, $5,400,0000 and $4,700,000, respectively.

                                       48

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         On July 27, 1994, B-41LP purchased from Sanwa Business Credit Corp. 
("SBCC") the note obligation of WCTP to SBCC together with all related 
collateral and ancillary rights owned by SBCC. In payment, SBCC would have 
received a share of the cash flow, if any, from the BNY project. The note 
obligation of WCTP to B-41LP (the "B-41LP Note") has been recorded as a 
Long-term note receivable - WCTP and has a face value of $28,522,000, which 
includes accrued interest. This obligation is payable from a portion of the 
net operating cash flow of the Warbasse project. On December 1, 1996, this 
note obligation of WCTP (herein after referred to as the YCP Note) was 
assigned to YCP by B-41LP. The YCP Partnership Agreement was amended to 
provide that the amounts received by YCP in respect of the note obligation 
shall be distributed 74.7% to York and 25.3% to RRR'S, its minority partner, 
which are the same distribution percentages as were held by York and 
affiliates of RRR'S in B-41LP.

         The YCP Note has been reflected in the consolidated balance sheet at 
an amount equal to the initial obligation to SBCC. The $7,840,000 difference 
between the face amount of the note and the amount reflected will be adjusted 
to income over time as principal payments of the long-term note receivable 
are made by WCTP.

         The obligation of B-41LP to SBCC had been recorded as Due to SBCC of 
$20,682,000, which was the net present value of the maximum annual amount 
payable to SBCC, over 30 years discounted at 7%. In March 1997, B-41LP 
settled all its obligations to SBCC for a cash payment of $2,750,000. SBCC, 
in exchange for this cash payment, gave up all its interest in the future 
cash flow from the Brooklyn Navy Yard Project and has no continuing interest 
in any of the Company's projects or assets. In settling this obligation, 
B-41LP caused RVA and its partners to lose tax benefits that they would have 
been able to utilize. Therefore, the Company compensated RVA for its lost tax 
benefits in the total amount of $4 million. The form of this non-cash 
transaction with RVA and its partners was the exercise of 500,000 
pre-existing warrants at $6 per share for a total of $3,000,000, and the 
transfer of $1,000,000 of the Company's note receivable from the Chairman to 
a nonconsolidated affiliate. This extinguishment of the SBCC liability 
resulted in an extraordinary gain of approximately $5.6 million net of taxes 
of $4.3 million and minority interest of approximately $3.4 million, which 
was reflected in the first quarter of Fiscal 1998.

         On November 17, 1994, the YCP Note due from WCTP was restructured 
along with other long-term debt of WCTP. Such other long-term debt of WCTP 
includes a note payable to Tomen Power Corporation ("Tomen") and 

                                       49

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

includes a note payable to Cogen. The three notes will share in the net 
operating cash flow of WCTP, as defined, pro rata in proportion to the 
principal balances of the notes, and would share pari passu in the collateral 
of WCTP in the event of a default. Management expects that all three notes 
will be paid from the operations of WCTP, and each note carries an interest 
rate of LIBOR plus 2%. In addition, YCP and Cogen will receive a 
restructuring fee of $3,000,000 each, to be paid the year after the three 
notes are fully paid.

         The Company completed construction of the project, and on August 1, 
1996, the Warbasse Facility was transferred by Cogen to WCTP, in exchange for 
a Note Receivable of $28,808,535. The Note Receivable represents the total 
construction cost of the facility plus (1) the unpaid balance of 
approximately $1,530,000 in Other long-term receivables-WCTP at February 28, 
1996, which related to operation and maintenance services performed for WCTP 
in prior periods, (2) a $500,000 payment made to WCTP in lieu of a 
performance bond and (3) an accrual for the remaining construction tasks 
which generally relate to improving efficiency and operational control. 
Therefore, the caption Long-term note receivable-WCTP on the balance sheet 
consists of:

<TABLE>

<S>                       <C>
YCP Note                  $20,682,000
Cogen Note                 28,808,535
                          -----------
                          $49,490,535
                          -----------
                          -----------

</TABLE>

         Interest income on these notes amounted to approximately $4,510,000, 
$3,490,000 and $2,360,000 for Fiscal 1998, 1997 and 1996, respectively.

6.       Receivables - Related Parties

         Other receivables - related parties at February 28, 1998 and 1997 
consist of the following:

<TABLE>
<CAPTION>

                                                 1998            1997
                                              -----------     ----------
<S>                                           <C>             <C>
Service and other receivables - WCTP          $4,479,165      $8,019,190
Engineering service and general
 partner and royalty fee receivables -
 BNYLP                                         1,547,314         279,616
                                              -----------     ----------
                                              $6,026,479      $8,298,806
                                              -----------     ----------
                                              -----------     ----------

</TABLE>

         Included in long-term receivable-WCTP are receivables related to 
operations and maintenance services and certain advances. These amounts are 
non-interest bearing.

                                       50

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

7.       Property, Plant and Equipment

         Property, plant and equipment at February 28, 1998 and 1997 consist 
of the following:

<TABLE>
<CAPTION>

                                      1998            1997
                                  ------------     -----------
<S>                               <C>              <C>
Machinery and equipment           $ 1,094,629      $  925,099
Furniture and fixtures                254,209         249,980
Motor vehicles                        315,448         315,448
Leasehold improvements                 85,290          36,064
                                  ------------     -----------
                                    1,749,576       1,526,591
Less: accumulated depreciation     (1,172,518)       (924,163)
                                  ------------     -----------
                                  $   577,058      $  602,428
                                  ------------     -----------
                                  ------------     -----------

</TABLE>

8.       Construction in Progress

         a)       Big Spring Wind Project

                  On October 21, 1997, York acquired 100% of the partnership 
interests in New World Power Texas Renewable Energy Limited Partnership, 
whose significant asset was a power purchase agreement with Texas Utilities 
Electric Company. York has commenced procurement and other preconstruction 
tasks, and currently expects full commercial operation by February 1999. When 
completed, the facility is expected to have a capacity of 35 MW and include 
46 turbines, including four 1,650 Kilowatt ("kW") wind turbines. Through 
February 28, 1998, the total costs incurred related to the development and 
construction of this project were approximately $3,002,000, which is included 
in construction in progress.

         b)       Trinidad Power Project

         On February 12, 1998, InnCogen Ltd., a wholly owned indirect 
subsidiary of York, signed a power purchase agreement with Trinidad and 
Tobago Electricity Commission ("T&TEC") to supply electricity under a 30 year 
contract. The Company has plans to construct a 215 MW natural gas fueled 
combustion turbine project. Through February 1998, the total costs 
capitalized that relate to the development and construction of this project 
were approximately $1,185,000, which is included in construction in progress.

                                       51

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

9.       Accrued Expenses and Other Payables

         Accrued expenses and other payables at February 28, 1998 and 1997 
include:

<TABLE>
<CAPTION>

                                        1998               1997
                                     ----------         ----------

<S>                                  <C>                <C>
Accounts payable other
 than energy                         $3,013,000         $2,113,000
Professional fees                     1,190,000            537,000
Taxes other than income                 780,000            445,000
Accrued pension cost                    376,000            398,000
Other                                 1,878,000            279,000
                                     ----------         ----------
Total accrued expenses and
  other payables                     $7,237,000         $3,772,000
                                     ----------         ----------
                                     ----------         ----------

</TABLE>

10.      Stockholders' Equity

         Common Stock - The Company has authorized 50,000,000 shares of 
common stock. In addition, the Company has authorized 10,000,000 shares of 
Class A common stock, none of which have been issued. Each Class A common 
share has one/hundredth of a vote as compared with the regular common stock 
and is entitled to a $.20 dividend priority before any dividends are payable 
on the full voting common stock.

         Incentive Stock Option ("ISO") Plan - In 1982, the Company 
authorized 1,400,000 qualified stock options, which have all been granted. 
The 1982 Plan expired on April 26, 1992. In September 1993, the Company 
adopted the 1993 ISO Plan, authorizing a total of 3,000,000 qualified and 
nonqualified stock options, of which 2,045,500 qualified stock options were 
granted to employees, and 41,000 nonqualified stock options were granted to 
two consultants to the Company.

         Options granted under both plans may not be granted at a price less 
than the fair market value of the Common Stock on the date of grant (or 110% 
of fair market value in the case of persons holding 10% or more of the voting 
stock of the Company). Options granted under the Stock Option Plans will 
expire not more than ten years from the date of grant.

         In Fiscal 1998 and 1997, the Company granted 451,500 and 150,000 
options, respectively, to employees of the Company. No options were granted 
in Fiscal 1996. The exercise price of the options is equal to the fair market 
value of the common stock at the date of the grant. These options vest over 
five and three year periods, respectively.

         The Company has adopted only the disclosure provisions of Financial 
Accounting Standard No. 123, Accounting for Stock Based Compensation (FAS 

                                       52

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

123). It applies APB Opinion No. 25, Accounting for Stock Issued to 
Employees, and related interpretations in accounting for its plans and does 
not recognize compensation expense for its stock based compensation plans. If 
the Company had elected to recognize compensation expense based upon the fair 
value at the grant date for awards under these plans consistent with the 
methodology prescribed by FAS 123, the Company's net income and income per 
share would be decreased to the pro forma amounts indicated below for the 
year ended February 28, 1998 and 1997:

<TABLE>
<CAPTION>

                                       As reported           Proforma
                                       -----------          ----------
<S>                                    <C>                  <C>
Year ended February 28, 1998
Net Income:
  Net income before
   extraordinary item                  $2,669,966           $2,077,669
  Net income                           $8,222,779           $7,630,482

Income per share:
  Basic:
    Income before
     extraordinary item                     $0.19                $0.15
    Net income                              $0.59                $0.54
  Diluted:
    Income before
     extraordinary item                     $0.17                $0.13
    Net income                              $0.53                $0.49

Year ended February 28, 1997
Net Income                             $7,822,611           $7,698,490

Income per share
  Basic                                     $0.61                $0.60
  Diluted                                   $0.52                $0.51

</TABLE>

                                       53

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related to
grants made before March 1, 1995. The fair value of these options was estimated
at the date of grant using Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended February 28, 1998 and 1997:

<TABLE>
<CAPTION>

                       For the year ended February 28,
                          1998                1997
                       ----------          ----------
<S>                    <C>                 <C>
Volatility              71%                  79%
Risk free rate          6.77%                6.98%
Expected life           10 years             10 years
Forfeiture rate         8%                   33%

</TABLE>

         The weighted average fair value of options granted during Fiscal 
1998 and 1997, for which the exercise price equals the market price on the 
grant date, was $5.61 and $7.64, respectively, and the weighted average 
exercise price was $6.88 and $8.96, respectively.

         Stock option activity during Fiscal 1998, 1997 and 1996 is summarized
below:

<TABLE>
<CAPTION>

                                                     Weighted-Average
                                   Options            Exercise Price
                                  ---------          ----------------
<S>                               <C>                <C>
Balance, February 28, 1995        2,216,900               $4.37
Exercised                          (222,957)               4.24
Canceled                            (23,543)               4.23
                                  ----------
Balance, February 28, 1996        1,970,400                4.36
Granted                             150,000                8.96
Exercised                          (333,800)               3.79
Canceled                            (40,773)               4.17
                                  ----------
Balance, February 28, 1997        1,745,827                4.90
Granted                             451,500                6.88
Exercised                          (154,219)               4.36
Canceled                            (40,000)               7.44
                                  ----------
Balance, February 28, 1998        2,003,108               $5.34
                                  ----------
                                  ----------

</TABLE>

         At February 28, 1998, 1997 and 1996, 1,460,980, 1,361,313 and 
1,496,252, options, respectively, were exercisable.

                                       54

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         The following table summarizes information concerning currently
outstanding and exercisable stock options:

<TABLE>
<CAPTION>

                                   Weighted-Average      Weighted-                    Weighted-
Range of                               Remaining          Average                      Average
Exercise             Number        Contractual Life      Exercise       Number        Exercise
 Prices            Outstanding          (Years)           Price       Exercisable      Price
--------           -----------     ----------------     ---------     -----------     --------
<S>                <C>             <C>                  <C>           <C>             <C>
$3.00-$4.50           685,223            6.44             $3.19          638,023        $3.20
$4.51-$6.75           627,085            4.91             $5.36          599,885        $5.36
$6.76-$10.00          690,800            8.12             $7.45          223,072        $8.05
                   -----------                                        -----------
                    2,003,108                                          1,460,980
                   -----------                                        -----------
                   -----------                                        -----------

</TABLE>

         Warrants - All warrants are exercisable upon grant, although the 
underlying shares may not necessarily be registered, and the warrants expire 
up to ten years. The exercise prices of the warrants are the NASDAQ closing 
prices of the Company's common stock at the dates of grant.

         In February and March 1988, the Company's Chairman exercised 
warrants to purchase 850,000 shares of common stock in exchange for cash and 
a noninterest bearing note totaling $3,531,250. In September 1989, the 
Company's Chairman exercised warrants to purchase 625,000 shares of common 
stock in exchange for cash and a noninterest bearing note payable on demand 
totaling $3,706,250. In Fiscal 1992, the Company's Chairman repaid $600,000. 
In Fiscal 1998, $1,000,000 of the Company's note receivable from the Chairman 
was transferred to a nonconsolidated affiliate (see Note 5). These notes, 
which total $5,971,500 and $6,971,500, respectively, at February 28, 1998 and 
1997 are included in Notes receivable - sale of common stock. In June, 1996, 
the Company's Chairman gifted 100,000 warrants to various third parties.

         The following table presents Mr. Beningson's total number of 
warrants outstanding as of February 28, 1998 (see Note 5):

<TABLE>
<CAPTION>

 Date of      # Warrants    Price Per
  Grant          Held        Share
--------      ----------    ---------
<S>           <C>           <C>
  1/91          350,000        $6.00 (reset from $8.00 on 7/16/93)
  7/93          800,000        $6.00
              ---------
              1,150,000
              ---------
              ---------

</TABLE>

         In July 1995, Stanley Weinstein, a director of the Company, was 
granted warrants to purchase 20,000 shares of the Company's common stock at 
$5.44 per share through 2005. In September, 1997, warrants to purchase 20,000 
shares of the Company's common stock at $7.31 per share were granted each to 
Stanley Weinstein and Howard Sommer directors of the Company.

         In Fiscal 1997, a former director of the Company exercised warrants 
to purchase a total of 300,000 shares of the Company's common stock in 
exchange for $1,387,500. In Fiscal 1996, this former director exercised 
warrants to purchase a total of 200,000 shares in exchange for $925,000. At 
February 28, 1998, this former Director holds warrants to purchase 700,000 
shares of common stock which expire in 2002 and specify a purchase price of 
$4.63.

                                       55

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         During Fiscal 1998, a vice president of Cogen exercised warrants to 
purchase 50,000 shares of common stock in exchange for cash and a note for 
$262,000.

         In July 1993, warrants were granted to purchase 75,000 shares of the 
Company's common stock at a purchase price of $6.00 per share to three 
entities that have performed various consulting services for the Company. In 
September 1995, December 1995 and March 1996, warrants were granted at prices 
ranging from $5.13 to $5.88 to purchase 30,000, 32,500 and 20,000 shares, 
respectively, of the Company's common stock, to consultants that have 
performed various services for the Company. During Fiscal 1997, 10,000 
warrants were exercised for $51,250, and 25,000 warrants were exercised for 
$137,500.

         The Company has outstanding two classes of common stock purchase 
warrants, which were issued in connection with the settlement of litigation 
in 1993, as amended. As of February 28, 1998, there were outstanding Class B 
Warrants evidencing the right to purchase 131,180 shares, which have the 
following attributes: (i) an Exercise Price of $6.15; (ii) the Company has 
the right to reduce the Exercise Price at any time; (iii) pursuant to an 
agreement dated October 31, 1997, the Company redeemed 10% of outstanding B 
Warrants in April, 1998 at $11.50 per warrant, and has agreed to redeem an 
additional 10% on April 1, 1999 and the balance on April 1, 2000 at $11.50 
per Warrant share and (iv) the redemption obligation is secured by a 17.5% 
limited partnership interest in BNYLP, held by B-41LP. During the year ended 
February 28, 1998, the Company recorded an expense of approximately $301,000 
relating to this redemption. As of February 28, 1998, there were also 
outstanding Class C Warrants evidencing the right to purchase 91,834 shares 
at an exercise price of $6.50 per share, which Warrants expire between 
September 27, 1998 and October 4, 1998, and have no redemption provisions.

         In the aggregate, at February 28, 1998, warrants to purchase 
2,707,391 shares of the Company's common stock at prices ranging from $4.50 
to $11.00 were outstanding, expiring through 2005.

11.      Employee Benefit Plans

         Employee Savings Plan

         During 1988, the Company adopted the York Research Corporation 
401(k) Plan ("401(k) Plan"). The 401(k) Plan allows employees of the Company 
to defer a portion of their earnings on a pre-tax basis through contributions 
to the 401(k) Plan. The Company may at its discretion make a contribution to 
the 401(k) Plan. To date the Company has elected not to contribute to the 
401(k) Plan.

         Defined Benefit Plan

         The Company has a defined benefit pension plan covering 
substantially all employees not covered by a collective bargaining agreement. 
The benefits are based on years of service and the highest consecutive five 
years of the employees' compensation. The Company's funding policy is to 
contribute annually the amount necessary to satisfy the Internal Revenue 
Service's funding standards. Contributions are intended to provide, not only 
for benefits attributed to service to date, but also for those expected to be 
earned in the future.

                                       56

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         Pension cost for the years ended February 28, 1998, 1997 and 1996
include the following components:

<TABLE>
<CAPTION>

                                        1998           1997           1996
                                      --------       --------       -------
<S>                                   <C>            <C>            <C>
Service cost -
 benefits earned during
 the current period                   $ 33,967       $ 30,756       $ 28,568
Interest cost on projected
 benefit obligation                    109,857        104,757        87,520
Actual return on plan assets           (38,453)       (39,633)      (36,716)
Net amortization and deferral           (9,966)        (4,263)        4,178
                                      --------       --------       -------
   Net pension cost                   $ 95,405       $ 91,617       $83,550
                                      --------       --------       -------
                                      --------       --------       -------

</TABLE>

         For all periods presented, the weighted average discount rate was 
8.5% and rate of increase in future compensation levels was 3% used in 
determining the actuarial present value of the projected benefit obligation. 
The expected long-term rate of return on plan assets is 8.5%.

         The following table sets forth the plan's funded status and amounts 
recognized in the Company's balance sheet as of February 28, 1998 and 1997:

<TABLE>
<CAPTION>

                                         1998                    1997
                                       -----------             ----------
<S>                                    <C>                     <C>
Actuarial present value of 
  benefit obligations:
    Vested benefit obligation          $1,084,852              $1,195,570
                                       -----------             ----------
                                       -----------             ----------
    Accumulated benefit obligation     $1,065,017              $1,216,018
                                       -----------             ----------
                                       -----------             ----------
Projected benefit obligation           $1,115,731              $1,292,437
Plan assets at fair value                 693,325                 860,810
                                       -----------             ----------
Unfunded obligation                       422,406                 431,627
Unamortized net transition obligation     (97,440)               (111,949)
Unrecognized net (gain) loss              102,832                  78,357
                                       -----------             ----------
Accrued pension cost                     $427,798                $398,035
                                       -----------             ----------
                                       -----------             ----------

</TABLE>

         Employee Stock Ownership Plan

         During 1988, the Company adopted an Employee Stock Ownership Plan 
("ESOP") that covers substantially all employees. Effective March 1, 1994, 
the Company adopted the provisions of Statement of Position 93-6, "Employers' 
Accounting for Employee Stock Ownership Plans" ("SOP 93-6"). The following 
table presents the number of shares of common stock, which were unregistered 
at the time and subsequently registered, the ESOP purchased from the Company, 
at prices which represented 70% of the NASDAQ closing prices at the date of 
purchase:

                                       57

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

<TABLE>
<CAPTION>

Purchased in                 # Shares            Purchase
 Fiscal Year                Purchased             Price
-------------               ---------           -----------
<S>                         <C>                 <C>        
 1996                          288,500           $ 1,092,219
 1993 and prior              3,500,000            13,370,000
                             ---------           -----------
                             3,788,500           $14,462,219
                             ---------           -----------
                             ---------           -----------

</TABLE>

         Management believes the valuation represented the fair market value 
of the unregistered shares on those dates.

         The Company contributed approximately $593,000, $525,000 and 
$413,000 to the ESOP during Fiscal 1998, 1997 and 1996, respectively. The 
Company makes annual contributions to the ESOP as determined by the Board of 
Directors and subject to certain limitations dictated by tax regulations.

         To purchase the shares from the Company, the ESOP borrowed funds 
from the Company. Repayment of these loans has been and is expected from 
employer contributions, borrowing by the ESOP from third parties, and by sale 
of unreleased ESOP shares to third parties. The Company has recorded all 
amounts loaned to the ESOP as deferred compensation, a contra-equity account, 
and has included the third party loans to the ESOP in other long-term 
liabilities. Certain of the unreleased ESOP shares are used as collateral for 
a third party loan to the ESOP.

         During the quarter ended August 31, 1993, the ESOP borrowed 
$1,150,000 from third parties. These funds, along with an additional 
$12,987,000 generated through February 28, 1998 by the sale of the Company's 
stock owned by the ESOP, were used to repay the demand purchase money loans 
due to the Company. The $1,150,000 initially borrowed by the ESOP was 
included in other long-term liabilities and as deferred compensation, a 
contra-equity account, and had a balance of approximately $511,000 and 
$626,000 at February 28, 1998 and 1997 as a result of repayments by the ESOP. 
The ESOP incurred interest expense of approximately $43,000, $72,500 and 
$65,000, respectively, related to these loans during Fiscal 1998, 1997 and 
1996.

         ESOP shares are released and allocated to participant accounts based 
upon Company contributions and certain payments made to reduce ESOP debt to 
the Company. The Company reports compensation expense as shares are committed 
to be released equal to the current market price of the shares, and the 
shares then become outstanding for earnings-per-share ("EPS") computations.

                                       58

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         A summary of the ESOP shares as of February 28, 1998 and 1997 is as
follows:

<TABLE>
<CAPTION>

                                              1998          1997
                                             ----------    ---------
<S>                                         <C>           <C>
Allocated shares                               608,002       551,649
Shares released for allocation                  74,665        56,353
Unreleased shares                              714,530       867,995
                                             ----------    ---------
                                             1,397,197     1,475,997
                                             ----------    ---------
                                             ----------    ---------
Fair value of unreleased shares
   at February 28, 1998 and 1997            $5,061,711    $8,028,954
                                             ----------    ---------
                                             ----------    ---------

</TABLE>

12.      Income Taxes

         The provision (benefit) for income taxes for each of the three years
ended February 28, 1998 are as follows:

<TABLE>
<CAPTION>

                                              1998                 1997                 1996
                                           ----------           ----------           ---------
<S>                                        <C>                  <C>                  <C>
Current:
 Federal                                   $  833,000           $  602,000           $  75,000
 State and local                              898,000              587,000              46,000
                                           -----------          ----------           ---------
                                            1,731,000            1,189,000             121,000
                                           -----------          ----------           ---------
Deferred:
 Federal                                     (475,000)             (89,000)           (399,000)
 State and local                             (102,000)             112,000            (285,000)
                                           -----------          -----------          ----------
                                             (577,000)              23,000            (684,000)
                                           -----------          -----------          ----------
Tax benefits allocated directly to 
additional paid-in capital:
 Federal                                      590,000            1,577,000             275,000
 State and local                               64,000              411,000             738,000
                                            -----------          -----------          ---------
                                              654,000            1,988,000           1,013,000
                                            -----------          -----------          ---------
Provision                                   $1,808,000           $3,200,000            $450,000
                                            -----------          -----------          ---------
                                            -----------          -----------          ---------

</TABLE>

         Through the fiscal year ended September 30, 1994, the Company filed 
its tax returns based on a September year-end. On July 18, 1995, the Internal 
Revenue Service granted the Company permission to file its tax returns on a 
February year-end, effective February 28, 1995. At February 28, 1998, the 
Company had the following net operating loss carryforwards for federal income 
tax purposes:

<TABLE>
<CAPTION>

Year of Expiration          Amount
------------------         ---------
<S>                        <C>
September 30, 2007         $  936,000
September 30, 2009            155,000
                           ----------
                           $1,091,000
                           ----------
                           ----------

</TABLE>

         During the year ended February 28, 1997, the Company utilized all of 
its alternative minimum tax net operating loss carryforwards. The difference 
between these loss carryforward amounts is attributable to adjustments 
required in the alternative minimum tax computation.

                                       59

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         Internal Revenue Code Section 382 places a limitation on the
utilization of carryforwards when an ownership change, as defined in the tax
law, occurs. Generally, an ownership change occurs when there is a greater than
50 percent change in ownership. If such a change should occur, the actual
utilization of carryforwards, for tax purposes, would be limited annually to a
percentage, approximately 5%, of the fair market value of the Company at the
time of such change.

         The reconciliation between the effective tax rate and the statutory 
federal income tax rate for each of the three years ended February 28, 1998 
is as follows:

<TABLE>
<CAPTION>

                                           1998           1997           1996
                                       -----------    ------------    -----------
<S>                                    <C>            <C>            <C>
Amount computed using the
 statutory rate                        $1,523,000     $ 3,748,000     $ 1,646,000

Increase (reduction) in taxes
 resulting from:
 Increase (utilization) of
 federal loss carryforwards                    --      (1,248,000)     (1,391,000)

 Reduction in valuation allowance
  for loss carryforwards                       --        (434,000)       (684,000)

 Imputed interest income on
  loans                                    (4,000)        153,000         171,000

 Nondeductible expenses                   391,000         207,000         194,000

 Foreign losses                            80,000           6,000         325,000

 Litigation settlement                         --         (45,000)        169,000

 Intangibles                              (49,000)             --              --

 Valuation allowances on other
  temporary differences                  (658,000)       (522,000)       (383,000)

 State and local taxes, net
  of federal tax benefit
  and state loss carryforwards            567,000         733,000         329,000

 Alternative minimum tax                   20,000         602,000          75,000

 Other                                    (62,000)             --          (1,000)
                                       -----------    ------------    -----------
                                       $1,808,000      $3,200,000     $   450,000
                                       -----------    ------------    -----------
                                       -----------    ------------    -----------

</TABLE>

                                       60

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         The components of the net current deferred tax asset and long-term
deferred tax liability as of February 28, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>

                                      1998              1997
                                   -----------      -----------
<S>                                <C>              <C>
Current deferred tax asset
  Loss carryforwards               $ 1,565,000      $ 1,624,000
  Credit carryovers                    694,000          675,000
  Accrued expenses                     247,000           26,000
                                   -----------      -----------
                                     2,506,000        2,325,000

  Less:  Valuation allowance          (903,000)      (1,337,000)
                                   -----------      -----------
  Total current deferred
   tax asset                         1,603,000          988,000
                                   -----------      -----------

Current deferred tax liability
  Partnership items                    419,000          338,000
  Other                                (54,000)         (11,000)
                                   -----------      -----------
  Total current deferred
   tax liability                       365,000          327,000
                                   -----------      -----------
  Net current deferred
   tax asset                         1,238,000          661,000

Long-term deferred tax liability
  Long-term note receivable -
   WCTP                             (5,632,100)              --
                                   -----------      -----------
Net deferred tax asset
 (liability)                       $(4,394,100)     $   661,000
                                   -----------      -----------
                                   -----------      -----------

</TABLE>

         During the year ended February 28, 1998, the reduction in the 
valuation allowance of $434,000 was the result of current utilization of net 
operating losses of $95,000, current additions for other deferred tax assets 
of $27,000, and the recognition of $366,000 of additional deferred tax asset, 
based on the Company's expectation of future taxable income.

         The deferred tax asset relating to net operating loss carryforwards 
for February 28, 1998 and 1997 include tax benefits of $287,000 for stock 
options and warrants that were allocated directly to additional paid-in 
capital in 1997.

         The Company paid income taxes for:
               Year ended February 28, 1998                      $1,192,000
               Year ended February 28, 1997                      $  608,000
               Year ended February 28, 1996                      $  298,000

                                       61

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

13.      Lease Obligations

         Future minimum annual rental payments for real property, required 
under leases and having terms of more than one year at February 28, 1998, are 
as follows:

<TABLE>
<CAPTION>

                                  Operating
                                    Leases
                                  ----------
<S>                               <C>
1999                              $  660,000
2000                                 614,000
2001                                 619,000
2002                                 619,000
2003                                 619,000
Thereafter                           356,000
                                  ----------
Total minimum lease payments      $3,487,000
                                  ----------
                                  ----------

</TABLE>

         In July 1990, in connection with a lease for office space, the 
Company received from the prior tenant a rent subsidy equal to the difference 
between the market rate for the premises and the rental provided for in the 
lease. This subsidy, which totaled $625,000, was paid to the Company in April 
1991 and was being amortized over the life of the lease as a monthly 
reduction to rent expense. At February 28, 1995, the unamortized balance was 
$126,000. In May 1995, the lease was restructured and the remaining 
unamortized balance of $72,000 was recognized. The restructuring of the lease 
extended the life to 2003 at a reduced expense, and added another 2,500 
square feet of office space.

         Total rent expense for operating leases was approximately $513,000 
in Fiscal 1998, $505,000 in Fiscal 1997, and $623,000 in Fiscal 1996.

         The Company leases equipment under leases that have been classified 
as capital leases for financial statement purposes. As of February 28, 1998, 
included in property, plant and equipment are the following assets held under 
capital leases:

<TABLE>
<S>                                                             <C>
              Machinery and equipment                           $378,525
              Accumulated depreciation                           111,385
                                                                --------
                                                                $267,140
                                                                --------
                                                                --------

</TABLE>

                                       62

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

         Future minimum lease payments for assets under capital leases at
February 28, 1998 are as follows:

<TABLE>

<S>                                   <C>
1999                                  $ 56,788
2000                                    56,788
2001                                    56,788
2002                                    37,820
2003                                        --
                                      --------
                                       208,184
Less: Amount representing
          Interest                      34,489
                                      --------
Present value and net
 minimum lease payments               $173,695
                                      --------
                                      --------

</TABLE>

14.      Related Party Transactions

         In Fiscal 1998 and 1997, the Company paid Mr. Weinstein $24,000 for 
directors fees, and in Fiscal 1998 and Fiscal 1996, granted warrants to 
purchase 20,000 shares of the Company's common stock at $7.31 and $5.44 per 
share, respectively. During Fiscal 1998, the Company paid Mr. Sommer $10,000 
for directors fees, and granted warrants to purchase 20,000 shares of the 
Company's common stock at $7.31 per share

         Mr. Beningson is President and a major stockholder of RRR'S, which 
is a 25% general partner of WCTP, limited partner of RVA, and a 10% general 
partner of YCP. In Fiscal 1998 and 1997, RVA was allocated approximately 
$568,000 and $322,000, respectively, of the interest income on the YCP Note 
(see Note 5). In Fiscal 1996, RVA received $500,000 which was the minority 
portion of the income of B-41LP. In Fiscal 1993, RVA received an advance 
distribution of $2,000,000 from B- 41LP, which was charged against capital, 
concurrent with the allocation of income during Fiscal 1998.

         As discussed in Note 5, WCTP contracted with the Company to procure, 
construct, design and place in operation a cogeneration facility. The 
Company's Chairman and Chief Financial Officer are shareholders of the 
general partner of WCTP. The general partner of WCTP receives a general 
partners fee of 1% of WCTP revenues and an administrative services payment of 
4% of WCTP revenues. The limited partners are not related parties to the 
Company. The general partner may have the potential for substantial future 
distributions from WCTP.

         In the year ended February 28, 1997, the Company recorded 
$11,000,000 of fees for services rendered through February 28, 1997 to WCTP 
and RVA. This amount was included in service revenues. These fees were 
recorded pursuant to a services agreement between WCTP, RVA, CTI and York. 
The services included ongoing negotiations of consolidation agreements with 
Con Edison and Edison

                                       63

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

Mission Energy, aiding in resolving various contract issues concerning WCTP's
and RVA's power purchase agreements with Con Edison, and various issues related
to the progress of the Brooklyn Navy Yard Project.

         Mr. Beningson is president and was previously the sole shareholder 
of NAEC. The Company had an agreement with NAEC which provided for the 
Company to be reimbursed for all costs associated with its activities related 
to NAEC and the Company received a fee mutually agreed upon based on level of 
activity. In Fiscal 1997, prior to acquisition of 85% of the shares of NAEC 
(see Note 15), the Company recognized approximately $924,000 as reimbursement 
of costs, and no power brokerage fees. In Fiscal 1996, the Company recognized 
$1,200,000 as reimbursement of costs, and power brokerage fees of $675,000.

15.      Acquisition of NAEC

         As of November 1, 1996, the Company acquired 85% of the shares of 
NAEC for $1 from NAEC. Prior to the acquisition, all of the stock was owned 
by the Company's chairman. The acquisition has been accounted for as a 
purchase and the operations of NAEC have been reflected as of the acquisition 
date.

         The following table reflects unaudited pro forma combined results of 
operations for the Company and NAEC on the basis that the acquisition had 
taken place at the beginning of the fiscal year:

<TABLE>
<CAPTION>

                                       For the Year Ended
                                          February 28,
                                  -----------------------------
                                     1997              1996
                                  -----------       -----------
<S>                               <C>               <C>
Revenues                          $70,048,380       $32,006,011
                                  -----------       -----------
Net Income                         $7,388,152       $ 2,717,124
                                  -----------       -----------
Net Income per Common Share             $0.49             $0.18
                                  -----------       -----------
Shares Used in Computation         15,487,779        15,512,011
                                  -----------       -----------

</TABLE>

         In managements' opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred had
the acquisition been consummated at the beginning of the periods presented or of
future operations of the combined companies under the ownership and management
of the Company.

                                       64

<PAGE>

                   YORK RESEARCH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ----------------------------------

16.      Significant Customers and Contracts and Commitments

         Energy sales were derived from numerous retail customers and utilities.
Each customer accounted for less than 10% of total revenues during Fiscal 1998.
Two utilities accounted for approximately 20% and 15%, respectively, of the
total revenues in Fiscal 1997.

         As part of its marketing operations, the Company routinely enters into
commitments for the purchase of electric and gas energy. The Company obtains
similar commitments from its customers.

         The Company uses put and call options, and futures contracts 
("Instruments") in various combinations, to hedge physical positions in 
electricity and natural gas as well as occasionally for trading purposes. All 
of these Instruments are settled in the underlying commodity. The ultimate 
impact of these Instruments will be determined by the prevailing applicable 
market price.

         NAEC has sold call options related to the wholesale electric 
business and collected premiums totaling approximately $3 million at February 
28, 1998. Of this amount, approximately $2.9 million will be recognized as 
revenue in Fiscal 1999, offset by approximately $.7 million of prepaid 
brokerage fees and call option expense.

         NAEC has a revolving line of credit of $20,000,000, which is 
guaranteed by its assets, and further guaranteed by the Company. The line of 
credit bears interest at one quarter percent per annum over the prime rate. 
At February 28, 1998, there was no loan amount outstanding.

         On March 31, 1998, York executed a contract with Vestas Wind Systems 
A/S totaling approximately $31 million for the purchase of wind turbines for 
the Big Spring project.

                                       65

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

YORK RESEARCH CORPORATION
--------------------------
    (Registrant)

/s/ Robert M. Beningson                           /s/ Michael Trachtenberg
----------------------------------                ------------------------------
Robert M. Beningson                               Michael Trachtenberg
President, Chief Executive Officer                Executive Vice President;
Chairman of the Board                             Chief Financial and Accounting
May 27, 1998                                      Officer; Secretary
                                                  May 27, 1998

         Pursuant to the requirements of the Securities and Exchange Act of 
1934, this report has been signed below by the following persons on behalf of 
the Registrant in the capacities and on the dates indicated.

/s/ Robert M. Beningson
-----------------------------
Robert M. Beningson
Director
May 27, 1998

/s/ Stanley Weinstein
-----------------------------
Stanley Weinstein
Director
May 27, 1998

/s/ Howard Sommer
-----------------------------
Howard Sommer
Director
May 27, 1998

                                       66