UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
For the month of February, 2003
Commission File Number 0-29586
EnerNorth industries inc.
(FORMERLY: ENERGY POWER SYSTEMS LIMITED)
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(Address of Principal executive offices)
2 Adelaide Street West, Suite 301, Toronto, Ontario, M5H 1L6, Canada
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
Form 20-F X Form 40-F
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Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7):
Yes No X
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Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes No X
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If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3- 2(b):
82- _________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EnerNorth industries inc.
(formerly: Energy Power Systems Limited)
Date: February 28, 2003 By:____"Sandra J. Hall"____ ______
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Sandra J. Hall,
President, Secretary & Director
BRITISH COLUMBIA SECURITIES COMMISSION
INTERIM REPORT
BC FORM 51-901F
(Previously Form 61)
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FREEDOM OF INFORMATION AND PROTECT OF PRIVACY ACT: The personal information
requested on this form is collected under the authority of and used for the
purposes of administering the Securities Act. Questions about the collection or
use of this information can be directed to the Supervisor, Financial Reporting
(604-899-6729), P.O. Box 10142, Pacific Centre, 701 West Georgia Street,
Vancouver, B.C. V7Y 1L2 Toll Free in British Columbia 1-800-373-6393.
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ISSUER DETAILS FOR THE SIX
NAME OF ISSUER MONTHPERIOD ENDED DATE OF
REPORT
Y M D Y M D
ENERNORTH INDUSTRIES INC. 2002 12 31 2003 02 28
(formerly Energy Power Systems Limited)
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ISSUER ADDRESS
2 Adelaide Street West, Suite 301
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CITY/ PROVINCE POSTAL CODE ISSUER FAX NO. CONTACT TELEPHONE NO.
Toronto Ontario M5H 1L6 416-861-9623 416-861-1484
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CONTACT PERSON CONTACTS POSITION CONTACT TELEPHONE NO.
Scott Hargreaves Chief Financial Officer 416-861-1484
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CERTIFICATE
The three schedules required to complete this Report are attached and the
disclosure contained therein has been approved by the Board of Directors. A
copy of this Report will be provided to any shareholder who requests it.
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DIRECTOR'S SIGNATURE PRINT FULL NAME DATE OF REPORT
Y M D
"Sandra Hall" Sandra Hall 2003 02 28
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DIRECTOR'S SIGNATURE PRINT FULL NAME DATE OF REPORT
Y M D
"James C. Cassina" James C. Cassina 2003 02 28
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ENERNORTH INDUSTRIES INC.
FORM 51-901F-INTERIM REPORT FOR December 31, 2002
February 28, 2003
PAGE 2
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SCHEDULE A: FINANCIAL INFORMATION
See unaudited consolidated financial statements of the Company for the six month
period ended December 31, 2002.
SCHEDULE B: SUPPLEMENTARY INFORMATION
1. ANALYSIS OF EXPENSES
----------------------
ENERGY POWER SYSTEMS LIMITED
Statement of Administrative Expenditures
For the six month period ending December 31
2002 2001
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Administration $ 203,373 $ 131,180
Write down of marketable securities - 91,186
Bad debts (recovery) expense - (651,038)
Repairs and maintenance 69,982 84,920
Advertising and promotion 12,227 188,594
Vehicle operating 67,226 67,271
Rent 26,195 30,679
Insurance 52,210 37,781
Exchange and filing fees 63,062 44,044
Professional fees 365,799 160,798
Municipal taxes 24,006 32,139
Travel 87,119 49,153
Salaries and benefits 846,259 769,663
Transfer agent fees 31,262 27,244
Annual meeting & shareholder information 104,027 108,066
Utilities 54,105 38,899
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Total administrative expenditures $2,006,852 $1,210,579
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2. RELATED PARTY TRANSACTIONS
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During the six month period ended December 31, 2002 the Company did not enter
into any related party transactions.
ENERNORTH INDUSTRIES INC.
FORM 51-901F-INTERIM REPORT FOR December 31, 2002
February 28, 2003
PAGE 3
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3. SUMMARY OF SECURITIES ISSUED AND OPTIONS GRANTED DURING THE PERIOD
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Please see note 4 of the unaudited consolidated financial statements for the six
month period ended December 31, 2002.
4. SUMMARY OF SECURITIES AS AT END OF THE REPORTING PERIOD
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Please see note 4 of the unaudited consolidated financial statements for the six
month period ended December 31, 2002.
5. LIST OF DIRECTORS AND OFFICERS:
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The directors and officers of the Company as at the date of this report are as
follows:
Directors: James C. Cassina
Sandra J. Hall
Milton Klyman
Ian S. Davey
Ramesh K. Naroola
Officers: James C. Cassina- Chairman
Sandra J. Hall-President
Scott T. Hargreaves, CA, CFA - Chief Financial
Officer
ENERNORTH INDUSTRIES INC.
FORM 51-901F-INTERIM REPORT FOR December 31, 2002
February 28, 2003 PAGE 4
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SCHEDULE C: MANGEMENT DISCUSSION AND ANALYSIS
1. DESCRIPTION OF BUSINESS
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Please see Management Discussion and Analysis for the six month period ended
December 31, 2002.
2. DISCUSSION OF OPERATIONS AND FINANCIAL CONDITIONS
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Please see Management Discussion and Analysis for the six month period ended
December 31, 2002.
3. SUBSEQUENT EVENTS
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Please see note 3 of the unaudited consolidated financial statements for the
period ended December 31, 2002.
4. FINANCINGS
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Please see note 4 of the unaudited consolidated financial statements for the
period ended December 31, 2002.
5. LIQUIDITY AND SOLVENCY
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Please see Management Discussion and Analysis for the six month period ended
December 31, 2002.
SCHEDULE C
EnerNorth Industries Inc.
(formerly Energy Power Systems Limited)
Management's Discussion And Analysis of Financial Condition
and Operating Results
For the Six Month Period Ending December 31, 2002
Suite 301, 2 Adelaide Street West, Toronto, Ontario, M5H 1L6 Telephone: 416
861-1484 Facsimile: 416 861-9623 www.enernorth.com
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS
The following discussion and analysis of EnerNorth Industries Inc. (the
"Company") should be read in conjunction with the Company's Unaudited
Consolidated Financial Statements for the period ending December 31, 2002 and
notes thereto and the Audited Consolidated Financial Statements for the fiscal
years ended June 30, 2002, 2001 and 2000 and notes thereto. Unless otherwise
indicated, the following discussion is based on Canadian dollars and presented
in accordance with Canadian Generally Accepted Accounting Principles ("GAAP").
For reference to differences between Canadian and US Generally Accepted
Accounting Principles see note 17 of the Audited Consolidated Financial
Statements.
Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), which reflect the Company's current expectations regarding the
future results of operations, performance and achievements of the Company. The
Company has tried, wherever possible, to identify these forward-looking
statements by, among other things, using words such as "anticipate," "believe,"
"estimate," "expect" and similar expressions. These statements reflect the
current beliefs of management of the Company, and are based on current available
information. Accordingly, these statements are subject to known and unknown
risks, uncertainties and other factors which could cause the actual results,
performance or achievements of the Company to differ materially from those
expressed in, or implied by, these statements. (See the Company's Annual
Information Form and Annual Form 20 F for Risk Factors.) The Company is not
obligated to update or revise these "forward-looking" statements to reflect new
events or circumstances.
OVERVIEW
The Company is a corporation amalgamated under the laws of the Province of
Ontario and Provincially registered in the Provinces of Alberta and Newfoundland
and is an energy source and service company that operates an Industrial &
Offshore Division, and an Oil & Gas Division. The unaudited consolidated
financial results for the six month period ending December 31, 2002 and 2001
include the accounts of the Company and its wholly owned subsidiary M&M
Engineering Limited ("M&M"), a Newfoundland and Labrador company, and M&M's
wholly-owned subsidiary M&M Offshore Limited ("MMO"), a Newfoundland and
Labrador company (reference to M&M may include MMO). M&M and MMO together
operate from their 47,500 square foot fabrication facility and 15 acre property.
M&M is an industrial, mechanical contractor. MMO (i) produces steel components
for structures and heavy industry; (ii) manufactures pressurized vessels and
tanks; and (iii) provides in-plant fabrication, welding and assembly services
for the offshore oil sector and heavy industry.
The activities of the Company's Oil & Gas Division include exploration,
development and production of oil and natural gas. The Company's oil and gas
properties are located in the Canadian Provinces of Alberta, Ontario and Prince
Edward Island.
CRITICAL ACCOUNTING POLICIES: The Company's significant accounting policies
are described in the notes to the audited consolidated financial statements. It
is increasingly important to understand that the application of generally
accepted accounting principles involve certain assumptions, judgments and
estimates that affect reported amounts of assets, liabilities, revenues and
expenses. The application of principles can cause varying results from company
to company.
The most significant policies that impact the Company and its subsidiaries
relate to revenue recognition policies, oil and gas accounting and reserve
estimates, impairment of capital assets, accounting for joint ventures, the
future income tax assets and liabilities, contingent liabilities and assets and
valuation of the Company's investment in Konaseema EPS Oakwell Power Limited
("KEOPL").
Revenue recognition: Revenue for M&M & MMO is generated principally from
contracts or purchase orders awarded through a competitive bidding process.
Revenue from construction and fabrication contracts is recognized on the
percentage of completion basis, pursuant to which contract revenues are
recognized by assessing the value of the work performed in relation to the total
estimated cost of the contract based upon the contract value.
Oil and gas revenue is recognized on actual production volumes and delivery
of the product to the market, based on the operator's reports.
Oil and gas accounting and reserve estimates: The Company follows the full
cost method of accounting for oil and gas operations whereby all costs of
exploring for and developing oil and gas reserves are initially capitalized.
Such costs include land acquisition costs, geological and geophysical expenses,
carrying charges on non-producing properties, costs of drilling and overhead
charges directly related to acquisition and exploration activities.
Costs capitalized, together with the costs of production equipment, are
depleted on the unit-of-production method based on the estimated gross proved
reserves. Petroleum products and reserves are converted to equivalent units of
oil by converting natural gas at 6,000 cubic feet of gas to 1 barrel of oil.
Costs acquiring and evaluating unproved properties are initially excluded
from depletion calculations. These unevaluated properties are assessed
periodically to ascertain whether impairment has occurred. When proved reserves
are assigned or the property is considered to be impaired, the cost of the
property or the amount of the impairment is added to costs subject to depletion
calculations.
Proceeds from a sale of petroleum and natural gas properties are applied
against capitalized costs, with no gain or loss recognized, unless such a sale
would significantly alter the rate of depletion.
In applying the full cost method, under Canadian GAAP, the Company performs
a ceiling test which restricts the capitalized costs less accumulated depletion
and amortization from exceeding an amount equal to the estimated undiscounted
value of future net revenues from proved oil and gas reserves, as determined by
independent engineers, based on sales prices achievable under existing contracts
and posted average reference prices in effect at the end of the Company's fiscal
year and current costs, and after deducting estimated future general and
administrative expenses, production related expenses, financing costs, future
site restoration costs and income taxes.
In applying the full cost method under US GAAP, the Company performs a
ceiling test based on the same calculations used for Canadian GAAP except the
Company is required to discount future net revenue at 10% and there is no
deduction from the US GAAP ceiling test for estimated future general and
administrative expenses and interest.
Impairment of Capital Assets: The Company has written down the carrying
value of its Port aux Basques property to its estimated net realizable amount of
$0.1 million in 2002.
Joint Ventures: The Company's Industrial & Offshore Division carries out
part of its business in four joint ventures. The Company's unaudited
consolidated financial statements include the Company's proportionate share of
these joint ventures assets, liabilities, revenues and expenses.
Future Income Assets and Liabilities: The Company uses the asset and
liability method of accounting for income taxes. Under this method, future
income tax assets and liabilities are determined based on differences between
the financial statement carrying amounts and their respective income tax bases
(temporary differences). Management regularly reviews its tax assets for
recoverability and establishes a valuation allowance based on historical taxable
income, projected future taxable income and the expected timing of the reversals
of existing temporary differences. The Company has $10.2 million of non-capital
losses. The Company carries an income tax asset of $0.6 million related to those
non-capital losses.
Contingent liabilities and assets: On August 28, 2002 the Company was
served a Writ of Summons from Oakwell Engineering Limited ("Oakwell") of
Singapore, a former joint venturer in a power project in Andhra Pradesh, India.
On November 8, 2002 the Company counter claimed against Oakwell for damages,
costs and interest as referred to in Note 21 of the audited consolidated
financial statements. No provision has been made in the unaudited consolidated
financial statements for this claim. The Company estimates the range of
liability related to pending litigation where the amount and range of loss can
be estimated. Where there is a range of loss, the Company records the minimum
estimated liability related to those claims. As additional information becomes
available, the Company assesses the potential liability related to our pending
litigation and will revise the estimate accordingly. Revision of our estimate of
the potential liability could materially impact our results of future
operations. If the final outcome of such litigation and contingencies differs
adversely from that currently expected, it would result in a charge to earnings
when determined.
There are deficiencies in the State Government providing lender guarantees
for the Karnataka, India power project. The Company is pursuing legal recourses
against the Government of Karnataka and the Karnataka Power Transmission
Corporation Limited. At the current time no assessment can be made of the actual
recoverable amount. Accordingly no amount has been recorded in these unaudited
consolidated financial statements.
Valuation of the Company's Investment in KEOPL: The Company owns 11,348,200
ordinary equity shares of Rs. 10 each, of KEOPL (the "KEOPL Shares"), a company
incorporated in India, which is developing a Power project in Andhra Pradesh,
India. Pursuant to the Revised VBC Agreement dated August 10, 2000 between the
Company, VBC Group ("VBC"), KEOPL's parent company, and KEOPL, VBC shall
purchase the Company's investment in KEOPL for INR 113,482,000 (approximately
Cdn. $3,500,000) on or before June 30, 2002 if the Company offers its KEOPL
Shares to VBC prior to June 30, 2002.
On May 3, 2002, the Company, pursuant to the Revised VBC Agreement, offered
and tendered the KEOPL Shares to VBC for purchase on or before June 30, 2002. On
July 1, 2002, VBC raised a dispute regarding the purchase and sale of the KEOPL
Shares. The Company is pursuing legal remedies against VBC and Oakwell.
The investment in KEOPL is recorded at expected net recoverable amount of
$3.5 million. The actual recoverable amount is dependant upon future events and
could differ materially from the expected net recoverable amount.
RESULTS OF OPERATIONS
The following discussion of the results of operations of the Company is a
comparison of the Company's two six month periods ended December 31, 2002 and
2001.
Revenue: The Company's consolidated revenues of $15.0 million for the six
month period ending December 31, 2002 increased by 4% from $14.4 million
reported during the same period the previous year. The increase was primarily
derived from revenue increases from the Company's Industrial & Offshore
Division.
Gross Profit: Consolidated gross profit for the six month period ending
December 31, 2002 was $1.9 million equal to $1.9 million in 2001. Gross profit
remained constant as increased sales where offset by decreased gross margin
percentages for the Industrial & Offshore Division versus the previous period.
Gross margins for the Company's Oil & Gas Division decreased to ($0.02) million
from $0.1 million during 2001. This decrease was in part due to increased
depletion of the Company's reserves as well as increased cost of sales.
Administrative expenses: Administrative expenses of $2.0 million for the
six month period ending December 31, 2002 was 66% higher than administrative
expenses of $1.2 million the previous year. A gain of $0.7 million on the
settlement of a legal action during 2001 and increased professional fees in 2002
were principal factors accounting for the difference in administrative
expenditures in the comparative period.
Other income: Other income was $0.1 million for the six month period ending
December 31, 2002 versus $0.0 million the previous period. Other income consists
in principal of a gain on sale of marketable securities and interest income.
Net earnings (losses) from Operations: As a result of the above
consolidated loss from operations for the six month period ending December 31,
2002 was $0.1 million versus earnings of $0.2 million the previous comparable
six month period.
Net earnings (losses) from Operations Per Share: As a result of the
foregoing, net losses from operations per share for the six month period ending
December 31, 2002 decreased to a loss of $0.01 per share per share from earnings
of $0.02 cents per share for the six month period ending December 31 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 2002 were $5.9 million, compared
to $5.6 million for the period ending June 30, 2002. During the six month period
ending December 31, 2002, the Company issued common shares for cash of $1.2
million. During the six month period the Company expended $0.1 million on the
exploration and development of new oil and gas reserves as well as the
acquisition of capital assets. In addition the Company increased its revolving
line of credit by $0.5 million and repaid $0.3 million of shareholder loans.
Cash of $0.2 million was received on the sale of marketable securities and cash
of $0.3 million was used to fund the Company's working capital.
The Company's primary sources of liquidity and capital resources
historically have been cash flows from the operations of the Industrial &
Offshore Division and issuance of share capital. During fiscal 2003, it is
expected that primary sources of liquidity and capital resources will be derived
from the operations of the Industrial & Offshore Division, revenues from the Oil
& Gas Division and further recovery of the Company's investment in KEOPL.
The Company's Industrial & Offshore Division maintains their own bank line
of credit facility. The Company's M&M and MMO subsidiaries credit facility,
through Canadian Imperial Bank of Commerce ("CIBC") was initially entered into
December 1994 and was amended on March 9, 2000. The CIBC credit facility
currently allows M&M to borrow up to the lesser of (i) $1.75 million, or (ii)
75% of receivables to finance working capital requirements on a revolving basis.
The CIBC credit facility is payable upon demand. As of December 31, 2002, the
principal balance outstanding under the credit facility was $1.7 million ($0.3
million is also proportionately consolidated through Magna Services Inc.),
compared to $1.5 million as at June 30, 2002. As security for repayment of the
credit facility, M&M granted to CIBC a first priority lien on pledged
receivables, inventory and specific equipment; a second priority lien on land,
buildings and immovable equipment; and an assignment of insurance. MMO also
guarantees the CIBC credit facility. The credit agreement requires M&M to
satisfy certain financial tests, limits the amount of indebtedness M&M may incur
and restricts the payment of dividends.
M&M is indebted to RoyNat, Inc. ("RoyNat") in the amount of $0.5 million as
of December 31, 2002 compared to $0.5 million at June 30, 2002. This
indebtedness arose in connection with a mortgage loan, which was renewed August
2000.
The original credit was offered on May 18, 1990 by RoyNat to M&M in
connection with the purchase of its fabrication facility in St. John's,
Newfoundland. The mortgage bears interest at RoyNat's cost of funds plus 3.25%,
and is payable in monthly principal payments of $7,000, plus interest. As
security, M&M granted a first priority lien on land and building, and a
secondary lien on all other assets of M&M, subject to a first priority lien in
favor of CIBC. M&M Offshore has also guaranteed this mortgage.
OUTLOOK AND PROSPECTIVE CAPITAL REQUIREMENTS: The Industrial & Offshore
Division is currently working on building a backlog of contracts. Further
development of Atlantic Canada's offshore infrastructure could feed further
growth for the Industrial & Offshore Division. In addition the Oil & Gas
Division is adding positive cash flow to fund corporate operations and future
development and growth strategies. At present the Company intends to expand its
oil and gas interests.
As part of the Company's oil and gas exploration and development program
the Company expects to expend significant capital resources to expand its
existing portfolio of proved and probable oil and gas reserves. These
expenditures can be funded through existing cash held by the Company. Any excess
expenditure may be funded by additional share capital issued by the Company,
debt or by other means.
During the period, one of M&M's joint ventures required an increase in its
credit facility to the amount of $2,450,000. The facility is was repayable on
demand on or before December 31, 2002 and bears interest at the bank's prime
lending rate plus 2.00% per annum. As security for this facility, M&M confirmed
that they would not claim repayment of $300,000 owed to them by the joint
venture until December 31, 2002. M&M was also required to provide a guarantee of
$500,000 until December 31, 2002. Subsequent to December 31, 2002 the
postponement of $300,000 and the guarantee of $500,000 expired. M&M currently
maintains a permanent postponement of $50,000 and permanent guarantee of
$75,000.
With respect to anticipated capital expenditures over the next twelve
months, M&M is expected to expend approximately $0.5 million for new and used
manufacturing and office-related equipment. Such equipment, which could be
utilized to generate additional construction revenues, could be financed through
capital leases with equipment manufacturers or credit arrangements with M&M's
existing lenders, cash from its parent company or other means.
The Company's future profitability over the longer term will depend upon
its ability to successfully implement its business plan. M&M has, in the past,
focused on manufacturing and fabricating process piping, production equipment,
steel tanks and other metal products requiring specialized welding and
fabrication abilities. Management believes that several opportunities are
developing in the Atlantic provinces of Canada which will enable M&M to maintain
and increase this business. These include proposed offshore oil and gas projects
for the White Rose Oilfield, the Sable Island Offshore Energy Project, and the
Hebron Oilfield, in addition to development of the Voisey's Bay nickel mine. It
is also our belief that M&M will be afforded opportunities with respect to the
upgrade and maintenance of existing area infrastructure including the Hibernia
and Terra Nova oil fields, mechanical fabrication and maintenance of production
equipment for refineries, pulp and paper mills (including environmental
equipment) and private sector power generation projects (primarily for mining
and natural resources).
TREND INFORMATION
SEASONALITY: The Company's Industrial & Offshore Division operates in a
cyclical and seasonal industry. Fabrication industry activity levels are
generally dependent on the level of capital spending in heavy industries such as
mining, forestry, oil and gas and petrochemicals. In addition the Company is
subject to seasonal levels of activity whereby business activities tends to be
lower during the winter months. The level of industry profits,
capacity-utilization in the industry and interest rates often affect capital
spending in these industries. Success in fabrication will be dependent on the
Industrial & Offshore Division's ability to secure and profitably perform
fabrication contracts. Fixed price fabrication contracts contain the risk of
bid error or significant cost escalation with regard to either labor or material
costs, combined with a limited ability to recover such costs from the applicable
client.
The Company's Oil & Gas Division is not a seasonal business, but increased
consumer demand or changes in supply in certain months of the year can influence
the price of produced hydrocarbons, depending on the circumstances. Production
from the Company's oil and gas properties is the primary determinant for the
volume of sales during the year.