Energy Power Systems Limited
(Formerly Engineering Power Systems Limited)
Consolidated Financial Statements
For the years ended June 30, 2001, 2000 and 1999
(Expressed in Canadian Dollars)
Energy Power Systems
Limited
(Formerly Engineering Power
Systems Limited)
Consolidated Financial
Statements
For the years ended June 30,
2001, 2000 and 1999
(Expressed in Canadian
Dollars)
Contents
Auditors' Report 2
Consolidated Financial Statements
Balance Sheets 3
Statements of Loss and Deficit 4
Statements of Cash Flows 5
Summary of Significant Accounting Policies 6
Notes to Consolidated Financial Statements 10
Auditors' Report
To the Shareholders of
Energy Power Systems Limited
(Formerly Engineering Power Systems Limited)
We have audited the consolidated balance sheets of Energy Power Systems
Limited as at June 30, 2001 and 2000 and the consolidated statements of
loss and deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian and U.S. generally
accepted auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 2001
and 2000 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting
principles.
The consolidated financial statements for the year ended June 30, 1999 were
audited by other auditors who expressed an opinion without reservation on
these statements in their report dated November 19, 1999.
Chartered Accountants
Toronto, Ontario
October 4, 2001
Energy Power Systems Limited
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
June 30 2001 2000
Assets
Current
Cash $1,242,621 $1,771,047
Marketable securities (market value $255,290) 221,213 -
Accounts receivable (Note 1) 4,331,086 3,333,573
Inventories and work in progress 1,039,853 1,525,344
Due from co-venturer 208,652 116,684
Prepaid expenses 67,329 81,087
Investment (Note 2) 3,500,000 -
Future income tax asset (Note 11) 235,000 -
10,845,754 6,827,735
Other assets (Note 3) - 9,490,021
Oil and gas properties (Note 4) 2,017,493 -
Capital assets (Note 5) 3,268,096 4,875,362
Future income tax asset (Note 11) 862,000 -
Goodwill 2,056,832 2,318,090
$19,050,175 $23,511,208
Liabilities and Shareholders' Equity
Current
Bank indebtedness (Note 7) $829,001 $ 507,222
Accounts payable and accrued liabilities 4,200,868 4,929,532
Due to shareholders (Note 8) 1,162,403 2,630,225
Current portion of long term debt (Note 9) 182,151 283,529
Future income tax liability (Note 11) 266,000 402,100
6,640,423 8,752,608
Due to shareholders (Note 8) 350,000 1,842,038
Long-term debt (Note 9) 646,311 738,205
Future income tax liability (Note 11) 56,000 71,000
7,692,734 11,403,851
Shareholders' equity
Share capital (Note 10)
32,207,289 29,322,289
Deficit
(20,849,848)
(17,214,932)
$11,357,441 12,107,357
$19,050,175 $ 23,511,208
On behalf of the Board:
Director
James C. Cassina
Director
Sandra J. Hall
Energy Power Systems Limited
Consolidated Statements of Loss and Deficit
(Expressed in Canadian Dollars)
For the years ended June 30 2001 2000 1999
Revenue $19,153,058 $18,924,369 $21,079,649
Cost of sales and oil and gas operating costs
(including amortization of capital assets and depletion
$258,629; 2000 - $211,703;
` 1999 - $202,009) 16,640,412 15,127,539 17,923,409
Gross profit 2,512,646 3,796,830 3,156,240
Expenses
Administrative expenses 2, 626,513 4,344,657 4,597,444
Amortization of goodwill 261,258 261,258 92,901
Amortization 157,111 154,416 158,621
Interest 165,965 100,588 94,221
Interest on long term debt 90,523 113,959 137,205
3,301,370 4,974,878 5,080,392
Loss from continuing operations before
the following (788,724) (1,178,048) (1,924,152)
Other income 66,218 72,486 141,356
Write down of inactive capital assets (1,500,000) - -
Non-controlling interest in M&M Engineering
Limited - - (286,703)
Net loss from continuing operations before
income taxes (2,222,506) (1,105,562) (2,069,499)
Income taxes (Note 11)
Current - 36,045 113,000
Future (1,248,100) 330,300 101,800
Utilization of loss carryforwards - (35,000) -
(1,248,100) 331,345 214,800
Net loss from continuing operations (974,406) (1,436,907) (2,284,299)
Loss from discontinued
operations (Note 19) (2,660,510) (1,250,992) (5,696,655)
Net loss for the year (3,634,916) (2,687,899) (7,980,954)
Deficit, beginning of year (17,214,932) (14,527,033)(6,546,079)
Deficit, end of year ($ 20,849,848) $(17,214,932)$(14,527,033)
Net loss from continuing operations
per share (Note 15) $(0.23) $(0.46) $(0.99)
Net loss for the year
per share (Note 15) ($0.85) $(0.86) $(3.46)
Energy Power Systems Limited
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
For the years ended June 30 2001 2000 1999
Cash flows provided by (used in)
Operating activities
Net loss from continuing operations
for the year $ (974,406)$(1,436,907) $(2,284,299)
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization of goodwill 261,258 261,258 92,901
Amortization 415,740 366,119 360,630
Income taxes (1,248,100) 330,300 101,800
Loss on sale of capital assets 7,796 1,825 -
Unrealized foreign exchange loss - 50,000 -
Non-controlling interest - M&M
Engineering Limited - - 286,703
Write down of inactive capital assets 1,500,000 - -
Professional fees settled by issuance
of shares - 225,000 767,750
Net change in non-cash working capital
balances (Note 12) (1,223,064) 160,235 2,498,195
Cash provided (used) by operating activities
from continuing operations (1,260,776) (42,170) 1,849,281
Cash used by discontinued operations (52,278) (2,487,076) (2,470,170)
(1,313,054) (2,529,246) (646,490)
Investing activities
Purchase of short term investments (221,213) - -
Due from co-venturers (91,968) - -
Purchase of oil and gas assets (1,727,857) - -
Purchase of capital assets (213,991) (181,447) (263,610)
Proceeds from sale of capital assets 27,000 55,500 -
Acquisition of 100% interest in KEOPL - - (222,840)
Other assets 3,355,025 598,318(1,570,410)
Restricted cash - 2,095,984 (543,799)
Investing activities of discontinued operations 22,900 4,028,962 -
1,149,896 6,597,317(2,600,659)
Financing activities
Bank indebtedness 321,779 (135,854) (494,966)
Factoring loans, net - - (332,988)
Long term debt, net (277,187) (469,954) (215,015)
Cash assumed on acquisition of KEOPL - - 909
Due to related parties - 490,098 669,962
Advances from (repayments to) shareholders (1,930,057) 282,137 3,195,428
Issuance of common shares 1,350,000 - 647,120
Issuance of preference shares 250,000 - -
Financing activities of discontinued operations (79,803) (2,700,596) -
(365,268) (2,534,169)3,470,450
Net increase (decrease) in cash (528,426) 1,533,902 223,301
Cash, beginning of year 1,771,047 237,145 13,844
Cash, end of year $ 1,242,621 $1,771,047 $237,145
See supplementary cash flow information (Note 12 (a))
The accompanying summary of significant accounting policies
and notes are an integral part of these financial statements.
Energy Power Systems Limited
Summary of Significant Accounting Policies
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
Nature of Business
and Principles of
Consolidation Energy Power Systems Limited ("EPS" or the
"Company") is a corporation amalgamated under the
laws of the Province of Ontario. The Company's
business focus is to explore and develop oil and gas
reserves. These consolidated financial statements
include the accounts of the Company and its
wholly-owned subsidiaries M&M Engineering Limited
("M&M") and its wholly owned subsidiary M&M
Offshore Limited ("MMO") whose business focus is
engineering mechanical contracting and steel
fabrication in Newfoundland.
Pursuant to Articles of Amendment dated February 2,
2001 the Company changed its name from
Engineering Power Systems Limited to Energy Power
Systems Limited.
During fiscal 2001 the Company decided to
discontinue efforts to act as a developer of
independent power projects. The Company is actively
seeking a developer who will purchase its interest in
the Karnataka Project. In addition, the Company
intends to monetize its investment in the Andhra
Pradesh Project on or before June 30, 2002. This
segment has been treated as discontinued
operations for accounting purposes (see Note 19). As
such the operations of the Company's Power Division
have been excluded from the consolidated statement
of loss and deficit from continuing operations in
current and prior periods.
During fiscal 2000 EPS disposed of its interests in
Merlin Engineering A.S. ("Merlin") and divested ASI
Holdings, Inc. ("ASIH"). These operations have been
treated as discontinued operations for accounting
purposes (see Note 19). As such, the operations of
Merlin and ASIH have been excluded from the
consolidated statement of loss and deficit from
continuing operations in current and prior periods.
These consolidated financial statements have been
prepared by management in accordance with
accounting principles generally accepted in Canada.
Oil and Gas
Properties The Company follows the full-cost method of
accounting for oil and gas activities whereby all costs
associated with the acquisition of, exploration for, and
the development of oil and gas reserves are
capitalized. These costs are capitalized in one cost
centre, Canada. Such costs include lease acquisitions,
geological and geophysical expenditures, lease rentals
on non-producing properties, drilling, equipment, and
technical consulting directly related to exploration and
development activities. All other general and
administrative costs including interest are expensed.
Proceeds from sales of oil and gas properties are
recorded as reductions of capitalized costs. The
Company applies an annual ceiling test to capitalized
costs to ensure that such costs do not exceed the
estimated value of future net revenues from production
of proven reserves at current prices less future costs of
general and administrative expenses, financing and
income taxes.
Energy Power Systems Limited
Summary of Significant Accounting Policies
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
Oil and Gas
Properties (cont.) Any reduction of value, as a result of the ceiling test,
is charged to operations. Depletion of producing
petroleum and natural gas properties and
amortization of well equipment is provided on the
units-of-production method based on proven
petroleum and natural gas reserves.
Wells under development not included in the ceiling
test are assessed for impairment on a quarterly
basis. Impairment of non-producing properties is
assessed based on management's expectations of
success.
The Company holds various working interests in
producing and non-producing oil and gas properties.
The Company's activities are conducted jointly with
others. These financial statements reflect the
Company's share of the assets, revenue and
operating costs related to these oil and gas
properties.
Royalties The Company's oil and gas production is subject to
crown royalties. Crown royalties are included in
operating costs, net of related crown royalty tax
credits.
Accounting
Estimates The preparation of these consolidated 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 disclosures of contingent
assets and liabilities at the date of the consolidated
financial statements and reported amounts of
revenues and expenses during the reporting period.
By their nature, these estimates are subject to
measurement uncertainty and the effect on the
consolidated financial statements of changes in such
estimates in future periods could be material.
Revenue
Recognition Engineering and Offshore Division
Revenue from engineering construction and
fabrication contracts is recognized on the percentage
of completion method. The percentage of completion
method recognizes revenue by assessing the value
of the work performed in relation to the total
estimated cost of the contract based on the contract
value. Contract costs include all direct material and
labour costs and those indirect costs related to
contract performance such as supplier, tools and
repairs. Administrative and general overheads are
charged to expense as incurred. Contract losses are
provided for in full in the year in which they become
apparent.
Oil and Gas Division
Oil and gas revenue is recognized on actual
production, and upon delivery of the product to the
customer based on the operators' reports.
Marketable
Securities Marketable securities are valued at the lower of cost
or market on a portfolio basis.
Energy Power Systems Limited
Summary of Significant Accounting Policies
(Expressed in Canadian Dollars)
(Continued)
June 30, 2001, 2000 and 1999
Investment The investment in KEOPL is recorded at expected
net recoverable amount.
Inventories Inventories of finished goods are valued at the lower
of cost and net realizable value. Raw materials are
valued at the lower of cost and replacement cost.
Joint Ventures The Company uses the proportionate consolidation
method to account for its non oil and gas joint
ventures.
Capital Assets Capital assets consist primarily of fabrication
buildings, office equipment, and manufacturing
equipment. These assets are recorded at cost less
write down for impairment.
Capital assets are amortized on the declining balance
basis over their estimated useful lives at the following
rates:
Building
3% declining balance
Manufacturing equipment
20
% declining balance
Tools and equipment
20
% declining balance
Office equipment
20
% declining balance
Vehicles
30
% declining balance
Paving
7% declining balance
Equipment under capital leases
20
% declining balance
Goodwill Goodwill represents the excess purchase price paid
for business combinations over the value assigned to
identifiable net assets acquired. It is amortized on a
straight-line basis over a ten-year period, from the
acquisition date. The carrying value of goodwill is
assessed by calculating projected cash flows. Any
permanent impairment in value is recorded in
earnings when it is identified.
Goodwill is recorded net of accumulated amortization
of $615,417 (2000 - $354,159).
Other Assets Other assets consist of costs related to the
acquisition of power purchase agreements ("PPAs")
in India. The carrying value of the costs related to the
acquisition of the power purchase agreements is
assessed by calculating projected cash flow. Any
permanent impairment in value is recorded in
earnings when it is identified.
Marketing and
Promotion Cost Marketing and promotion costs for new business
opportunities are charged to administrative expenses
as incurred.
Energy Power Systems Limited
Summary of Significant Accounting Policies
(Expressed in Canadian Dollars)
(Continued)
June 30, 2001, 2000 and 1999
Foreign Currency
Translation Foreign currency accounts are translated to
Canadian dollars as follows:
At the transaction date, each asset, liability, revenue
or expense is translated into Canadian dollars by the
use of the exchange rate in effect at that date. At the
year end date, monetary assets and liabilities are
translated into Canadian dollars by using the
exchange rate in effect at that date and the resulting
foreign exchange gains and losses are included in
income in the current period.
Income Taxes The Company accounts for income taxes under the
asset and liability method. Under this method, future
income tax assets and liabilities are recognized for
the future tax consequences attributable to
differences between financial reporting and tax bases
of assets and liabilities and available loss
carryforwards. A valuation allowance is established to
reduce tax assets if it is more likely than not that all or
some portions of such tax assets will not be realized.
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
1. Accounts Receivable
Receivables consist of the following: 2001 2000
Trade $ 4,161,427 $ 2,569,830
Holdbacks 169,659 763,743
$4,331,086 $ 3,333,573
2. Investment
Investment consists of the following: 2001 2000
Investment in Konaseema EPS Oakwell Power Limited
$3,500,000 $ -
The Company owns 11,348,200 ordinary equity shares, of Rs. 10 each, of
Konaseema EPS Oakwell Power Limited ("KEOPL"), which represents a
12% interest in KEOPL, a company incorporated in the State of Andhra
Pradesh, India, which is developing the Andhra Pradesh Project (the
"Project"). Upon Financial Closure (when all regulatory approvals have
been received) for the Project, the Company will hold approximately a 3%
interest in the Project. Pursuant to the Revised VBC Agreement dated
August 10, 2000 amongst 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.
3. Other Assets
The other assets are comprised of the following India power projects.
2001 2000
Andhra Pradesh Project $ - $ 7,487,558
Karnataka Project - 2,002,463
$ - $ 9,490,021
(a) Andhra Pradesh Project
Pursuant to the Revised VBC Agreement dated August 10, 2000, the
Company's cost related to the development of the Project was
capitalized by the issuance of equity and preference shares having on
aggregate value of approximately $6,600,000. During the year 2001
KEOPL redeemed all of the preference shares and VBC purchased
approximately one third of the equity shares held by the Company for a
total cash consideration of approximately $3,100,000. The remaining
shares held by the Company have been classified as Investment (Note
2).
(b) Karnataka Project
During fiscal 2001 the Karnataka Project (the "Project") converted from
a 195 MW naphtha fuelled barge based power project to a 220 MW
coal fuelled land based power project. As at June 30, 2001, the
Company has written down the carrying amount of the Project to nil
because much of the cost incurred by the Company on the Project was
related to the cost of the 195 MW naphtha fuelled barge based power
project and not the 200MW coal fuelled land based power project. The
Company is seeking a developer who will purchase its interest in the
Project.
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
4. Oil and Gas Properties
During the year, the Company acquired various working interests in
producing and non-producing oil and gas properties in Alberta, Ontario
and Prince Edward Island. As consideration the Company paid
$1,727,857 cash and issued 90,000 common shares for $335,000. These
properties are carried at cost set out below:
June 30, 2001
Accumulated Net Book
Cost Amortization Value
Producing wells
Alberta $ 1,634,180 $ 44,987 $1,589,193
Ontario 51,834 377 51,457
Wells under development
Alberta 68,036 - 68,036
Ontario 3,187 - 3,187
PEI 305,620 - 305,620
$ 2,062,857 $ 45,364 $2,017,493
The Company is required to fund its share of costs and expenses. Failure
to fund expenditures will result in a dilution of its interests.
5. Capital Assets
Capital assets consist of the following:
June 30, 2001 June 30, 2000
Accumulated Accumulated
Cost Amortization Cost Amortization
Land $ 544,009 $ - $ 544,009 $ -
Building 2,643,700 935,005 4,102,206 802,165
Manufacturing equipment 755,032 645,057 739,280 613,407
Tools and equipment 1,087,315 805,440 1,066,278 744,623
Office equipment 281,106 200,264 263,193 179,075
Vehicles 204,706 137,452 142,318 123,953
Paving 36,152 14,433 34,655 12,854
Equipment under capital
leases 811,907 358,182 716,213 256,713
$6,363,929 $3,095,833 $7,608,152 $2,732,790
Net book value $ 3,268,096 $4,875,362
The land and building includes a property, located in Port aux Basques,
Newfoundland, with a carrying amount of $407,705 (which amount is net
of a provision of $1,500,000 for the potential impairment) (2000 -
$2,048,371) which is vacant while being maintained as a production
facility. The Company's ownership in the building on this property may be
subject to a third party debenture of $500,000 on the leasehold interest
that expires on December 22, 2008. The Company's position with respect
thereto is that it does not believe the debenture holder's security interest is
valid. The Company expects that significant new projects will be
undertaken in the area in the near future and that these facilities will be
leased to third parties for these projects. The Company estimates that the
carrying amount will be fully recoverable. The actual recoverable amount
is dependent upon future events and could differ materially from the
amount estimated by management.
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
6. Joint Ventures
The Company carries on part of its business in two joint ventures,
Newfoundland Service Alliance Inc. ("NSA"), a 20% owned joint venture
and Magna Services Inc. ("Magna"), a 50% owned joint venture. During
the 2001 fiscal year the Company recorded $271,000 (2000 - $117,000) of
revenue from NSA and $83,000 (2000 - $10,000) of revenue from Magna.
The following is a summary of the combined financial information relating
to the Company's proportionate interest in these joint ventures unadjusted
for transactions between the joint venture and the Company:
Proportionate Share of Joint
Ventures' Financial Information
2001 2000
Balance sheet
Current assets $562,138 $384,905
Non current assets 4,375 6,607
Current liabilities (555,763) (389,232)
Operations
Revenue $2,860,599 $1,789,435
Operating expenses and amortization 2,860,429 1,788,957
Net income 170 478
Cash flows
Operating activities $ (179,002) $ (21,471)
Financing activities 75,966 (67,459)
Investing activities (51) 2,395
7. Bank Indebtedness and Demand Loan
Bank indebtedness of M&M in the amount of $829,001 (2000 - $507,222)
represents a revolving credit facility payable on demand and bears interest
at prime plus 2% (2001 - 8.66%; 2000 - 8.54%).
The bank indebtedness of M&M is collateralized by a general assignment
of accounts receivable and inventory, a demand debenture providing a
second fixed charge over property and immovable equipment, a first fixed
charge over certain equipment and a floating charge over all assets.
The credit agreement which M&M has with the bank contains certain
restrictive covenants with respect to maintenance of certain financial
ratios, declaration and payment of dividends, advancement of funds to and
from related parties and acquisition of unfunded capital assets in excess of
$400,000 (2000 - $400,000). As at June 30, 2001, M&M was in violation
of the current ratio covenant.
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
8. Due to Shareholders
The amount due to shareholders is comprised of non-interest bearing
promissory notes (the "Debt") of $989,172 (2000 - $4,339,098) and a
non-interest bearing amount due to shareholders of $523,231(2000 -
$811,440).
The non-interest bearing promissory notes are due the earlier of one or all
of the following:
(a) upon the Company's oil and gas cash flow exceeding Cdn $75,000
per month;
(b) mutual agreement to convert a substantial portion of the Debt into
Equity of the Company;
(c) July 31, 2002 for the amount of Debt of $989,172 (2000 -
$1,842,038).
Repayments of the promissory notes are due in 2003. The repayment of
the due to shareholders is $173,231 due in 2002 and $350,000 due in
2003.
9. Long-term Debt
2001 2000
Roynat Inc. mortgage maturing in 2008 with, interest at Roynat
cost of funds plus 3.25% ( 2001 - 9.24%; 2000 - 8.76%)
repayable in monthly principal payments of $25,000 to
August 15, 2000, followed by $7,000 thereafter, plus interest.
The mortgage is collateralized by a first charge on land and
building of M&M, and a floating charge on all other assets
subject to a prior floating charge in favour of the Canadian
Bank of Commerce (see Note 7) $ 605,400 $ 718,400
Capital leases on equipment, with interest at 7.5% to 16.7%,
(2000 - 7.5% to 16.7%) compounded semi-annually,
repayable in blended monthly payments of $10,000
(2000 - $18,500) 223,062 303,334
828,462 1,021,734
Less current portion 182,151 283,529
$646,311 $ 738,205
Principal repayments on long-term debt in each of the next five years are
estimated as follows:
2002 $182,151
2003 164,448
2004 112,158
2005 99,189
2006 85,116
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
10. Share Capital
(a) Authorized
Unlimited Class B shares, without par value
Unlimited Common shares, without par value
Unlimited Class A Preference Shares, Series I
Unlimited Class A Preference Shares, Series 2
(b) Issued
Number of
Shares Consideration
Common shares
Balance, as at June 30, 1999 12,116,678 27,929,289
Issued to consultants for professional fees (i) 150,000 225,000
Issued pursuant to private placement in
settlement of promissory notes (ii) 384,000 768,000
Issued to former subsidiary Merlin 20,000 400,000
Balance, as at June 30, 2000 12,670,678 $29,322,289
Returned to treasury (25,000) -
Issued pursuant to a private placement (iii) 8,000,000 800,000
Share consolidation (iv) (15,482,259) -
Warrants exercised 1,000,000 520,000
Options exercised (v) 20,000 30,000
Issued for acquisition of oil and gas property (vi)90,000 335,000
Balance, as at June 30, 2001 6,273,419 $31,007,289
Class A Preference Shares, Series 2
Balance, as at June 30, 2000 and 1999 - $ -
Issued for cash and settlement of debt(vii) 960,000 1,200,000
Balance, as at June 30, 2001 960,000 $1,200,000
Total issued share capital as at June 30, 2001
$ 32,207,289
(i) On September 14, 1999, the Company issued 150,000 units
from treasury to an arms length party. Each unit was ascribed
a value of $1.50 and was comprised of one common share and
one common share purchase warrant. Each common share
purchase warrant entitles the holder to purchase one common
share of EPS for $2.25 until September 27, 2002. As
consideration, $225,000 of indebtedness in the Company
related to consulting fees was applied.
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
10. Share Capital (continued)
(ii) On October 1, 1999, the Company issued 384,000 units
from treasury to a non-controlling shareholder. Each unit
was ascribed a value $2.00 and was comprised of one
common share and one common share purchase warrant.
Each common share purchase warrant entitles the holder to
purchase one common share of the Company for $2.40 until
October 4, 2002. As consideration, $768,000 of promissory
notes payable to the shareholder were applied.
(iii) On December 28, 2000 the Company issued 8,000,000 pre-
consolidated units from treasury to arms length parties.
Each unit was ascribed a value of $0.10 and was comprised
of one common share, .5 Series A common share purchase
warrant and a .5 Series B common share purchase warrant.
Each whole post consolidated Series A common share
purchase warrant and each whole post consolidated Series
B common share purchase warrant entitles the holder
thereof to purchase one common share at a price of $0.52
per share and $0.80 per share respectively on or before
December 28, 2002 and January 16, 2003 respectively.
(iv) On September 12, 2000, at a Special Meeting of
Shareholders the Company, the shareholders approved the
consolidation of the Company's issued common shares on
the basis that every four (4) pre-consolidation common
share will be converted into one (1) post-consolidation
common share. On February 2, 2001 the Company filed
Articles of Amendment consolidating the issued common
shares.
(v) On February 6, 2001 the Company issued 20,000 options to
a consultant for professional services. On June 6, 2001 the
consultant exercised the 20,000 options for consideration of
$30,000.
(vi) On June 30, 2001 the Company issued 90,000 common
shares from treasury to an arms length party for
consideration of $335,000 for the acquisition of producing
and non-producing oil and gas properties.
(vii) On February 2, 2001 the Company issued 960,000 Class A
Preference Shares, Series 2 from treasury to arms length
parties. Each Series 2 share carries a 5% cumulative
preferred annual dividend. Each Series 2 share is
convertible during the first 30 months from the date of
issuance into one unit of the Company at the rate of $1.25
per unit. Each unit is comprised of one common share and
one common share purchase warrant. Each common share
purchase warrant is exercisable at $1.50 for one common
share for a period of two years after conversion. After 30
months each Series 2 share is convertible into one unit at
the weighted average price of the market value of the
Company's common shares during the period 10 days prior
to conversion (the "Conversion Price"). Each unit is
comprised of one common share and one common share
purchase warrant exercisable at 10% above the Conversion
Price for one common share for a period of two years after
conversion. As consideration, $950,000 of promissory notes
payable to the shareholders were applied to shareholder
loans and $250,000 of cash was received.
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
10. Share Capital (continued)
(c) Warrants
The following common share purchase warrants are outstanding as
at June 30, 2001:
Number of
Warrants Expiry Date Price
96,000 October 4, 2002 9.60
222,917 March 9, 2002 8.00
1,000,000 January 16, 2003 0.80
The continuity of the common share purchase warrants is as
follows:
Number of
Warrants
Balance, as at June 30, 1999 4,221,367
Issued to consultants for professional fees 150,000
Issued to non-controlling shareholders 384,000
Expired (231,482)
Balance, as at June 30, 2000 4,523,885
Share consolidation (Note 10 (b)(iv) (3,392,914)
Cancelled (812,054)
Issued to non-controlling shareholders 2,000,000
Exercised (1,000,000)
Balance, as at June 30, 2001 1,318,917
(d) Stock Option Plan
The Company has a Stock Option Plan (the "Plan") to provide
incentive for the directors, officers, employees, consultants and
service providers of the Company and its subsidiaries. The
maximum number of shares which may be set aside for issuance
under the Plan is 281,250 common shares. Under the Plan, the
Company has granted the following stock options as at June 30,
2001:
Number of Exercise Expiry
Holder Options Price Date
Directors and employees 120,000 1.50 February 6, 2005
Director 5,000 4.00 April 4, 2005
Directors and employees 60,000 4.00 June 14, 2005
Consultants 70,000 4.00 June 14, 2005
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
10. Share Capital (continued)
(d) Stock Option Plan (continued)
The continuity of stock options granted is as follows:
Weighted
Number of Average
Options Exercise Price
Balance, June 30, 1999 1,055,893 $ 15.00
Cancelled (613,750) 21.87
Issued 522,500 4.38
Expired (377,143) 2.78
Terminated (165,000) 5.30
Balance, June 30, 2000 422,500 4.02
Share consolidation (Note 10(b)(iv(316,875) 16.07
Cancelled (105,625) 16.07
Issued 275,000 2.73
Exercised (20,000) 1.50
Balance, June 30, 2001 255,000 $ 2.82
All options are vested and exerciseable except for 135,000 which
are subject to a four month holding period.
11. Income Taxes
Effective July 1, 2001, the Company changed its method of accounting
for income taxes from the deferral method to the liability method. The
liability method requires that accumulated tax balances be adjusted to
reflect changes in the tax rates. This standard was applied
retroactively; however, as permitted under the new rules, comparative
financial information has not been restated, as the difference was
insignificant.
Significant components of the Company's future tax assets and
liabilities as at June 30, 2001 are as follows:
Future income tax assets:
Non-capital loss $ 3,698,000
Capital loss carryforwards 2,465,000
Oil and gas properties 20,000
6,183,000
Non-capital losses applied (21,000)
Valuation allowance (5,065,000)
$ 1,097,000
Current portion $ 235,000
Long term portion $ 862,000
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
11. Income Taxes (continued)
Future income tax liabilities:
Capital assets $ (56,000)
Work in progress (196,000)
Holdbacks (91,000)
(343,000)
Non capital losses applied 21,000
$ (322,000)
Current portion $ (266,000)
Long term portion $ (56,000)
The Company's provision for income taxes is comprised as follows:
` 2001 2000 1999
Net loss from continuing operations $(2,222,506) $(1,105,562)$(2,069,499)
Combined federal and provisional
income tax rate 43% 45% 45%
Recovery of income tax calculated
at statutory rates $ (955,678) $ (497,502) $ (931,275)
Increase (decrease) in taxes resulting from:
Non-deductible expenses 672,578 461,000 22,000
Non-controlling interest adjustment - - 103,000
Amortization of goodwill 112,000 118,000 41,800
Depletion of oil and gas properties 20,000 - -
Other - (352,498) (184,305)
Valuation allowance change (1,097,000) 602,345 1,163,580
Provision for income taxes $ (1,248,100) $ 331,345 $ 214,800
The Company and its subsidiaries have non-capital losses of
approximately $8,600,000 which are available to reduce future taxable
income. These non-capital losses expire as follows:
2003 $ 110,000
2004 887,000
2005 2,887,000
2006 1,938,000
2007 1,437,000
2008 1,341,000
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
12. Changes in Working Capital and Non-Cash Transactions
Non-cash working capital transaction relating to funds from operations
are as follows:
2001 2000 1999
Receivables $(997,513) $(580,536) $4,179,704
Inventories and work in progress 485,491 (168,205) 826,543
Prepaid expenses 13,758 (6,195) 9,837
Accounts payable and accrued liabilities(724,800) 915,171 (2,517,889)
$ (1,223,064) $ 160,235 $2,498,195
(a) Supplemental Cash flow Information
2001 2000 1999
Cash paid for Interest $ 256,488 $ 241,247 $ 463,820
Cash paid for taxes - 19,501 19,904
(b) Non-Cash Transactions
The Company entered into the following non-cash transactions:
2001 2000 1999
Shares issued to consultants for
professional fees $ - $225,000 $767,750
Shares issued to the non-controlling
shareholder of Merlin - - 200,000
Shares issued to Oakwell Engineering
Limited ("Oakwell") pursuant to an
agreement between the parties - - 4,532,500
Shares issued pursuant to private placement
in settlement of promissory notes950,000 768,000 5,421,640
Shares issued to former subsidiary Merlin - 400,000 -
Shares issued for the acquisition of 49% of
M&M - - 4,149,200
Shares issued for acquisition of Oil and Gas
Properties 335,000 - -
Capital assets purchased through capital
leases 95,694 172,755 84,095
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
13. Commitments
Operating Leases
The Company has entered into agreements to lease vehicles and
office equipment for various periods until the year 2004.
The minimum rental commitments under operating leases are estimated
as follows:
2002 $ 55,906
2003 38,775
2004 11,296
2005 6,565
$ 112,542
14. Financial Instruments
The carrying values of the primary financial instruments of the Company,
with the exception of long-term debt, approximate fair values due to the
short term maturities and normal trade credit terms of those instruments.
Included in cash is $1,036,000 held at one financial institution.
The fair value of long-term debt and amounts due to shareholders
approximates carrying value in 2001 and 2000 as the terms have been
renegotiated recently.
The Company provides services and sells its products to many
customers. Three customers represent 59% (2000 - two customers
represent 59%) of the trade accounts receivable at year end. One
customer represents 40% (2000 - one customer represents 39%; 1999 -
two customers represent 58%) of the revenue for the year. Three
suppliers represent 33% (2000 - three suppliers represent 23%) of the
trade accounts payable at year end.
15. Per Share Information
During the year ending June 30, 2001 the Company adopted the
treasury method for computing earnings per share and fully diluted
earnings per share. The treasury method has been applied retroactively.
Net loss per share has been determined using the weighted average
number of common shares outstanding as at June 30, 2001 - 4,256,502
(2000 - 3,135,857; 1999 - 2,306,545).
In each of the fiscal years the exercise of warrants and stock options
would be anti-dilutive. The weighted average number of common shares
and net loss per share figures for prior year have been retroactively
restated for the reverse stock split.
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
16. Reconciliation to Accounting Principles Generally Accepted in the
United States
The Company's accounting policies do not differ materially from
accounting principles generally accepted in the United States ("US
GAAP") except for the following:
(a) Stock Options
Under US GAAP (FAS 123), stock options granted to consultants
are recognized as an expense based on their fair value at the date
of grant. Under Canadian GAAP the options are disclosed and no
compensation expense is recorded. The calculation for the
compensation is based on the Black-Scholes option pricing model
with the assumption that no dividends are to be paid on common
shares, a weighted average volatility factor for the Company's share
price of 0.64 for 70,000 options and 0.43 for 20,000 options and a
weighted average risk free interest rate of 5% over a four year
period.
The Company follows APB 25 for options granted to employees.
For employees, compensation expense is recognized under the
intrinsic value method. Under this method, compensation cost is the
excess, if any, of the quoted market price at grant date over the
exercise price. Such expense is reflected over the service period; if
for prior services, expensed at date of grant; if for future services,
expensed over vesting period. The exercise price of the stock
options outstanding to employees is equal or exceeds the market
value of the shares at the date granted, therefore, no compensation
expense is recognized at grant date for US GAAP purposes.
(b) Interest Free Loans
Under US GAAP, the benefit of interest free loans is reflected as a
discount to the debt and a credit to paid in capital. This discount is
computed using the current borrowing rate available to the
Company and amortized over the life of the debt.
(c) Joint Venture
Under US GAAP the Company would use the equity method of
accounting for joint ventures rather than the proportionate
consolidation method of accounting. For further information see note
6.
(d) Comprehensive Income
Under US GAAP, comprehensive income must be reported which is
defined as all changes in equity other than those resulting from
investments by owners and distributions to owners.
(e) Marketable Securities
Under accounting principles generally accepted in Canada, gains
(losses) in shares of public companies are not recognized until
investments are sold unless there is deemed to be an impairment in
value which is other than temporary. Under US GAAP, such
investments are recorded at market value and the unrealized gains
and losses are recognized as a separate item in the shareholder's
equity section of the balance sheet unless impairments are
considered other than temporary.
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
16. Reconciliation to Accounting Principles Generally Accepted in the
United States (continued)
(f) Preference Shares
Under US GAAP, the Company has recorded a deemed dividend of
approximately $420,000 for the beneficial conversion under the
terms of the preferred shares.
(g) Recently Adopted Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 requires companies to recognized all
derivatives contracts as either assets or liabilities in the balance
sheet and to measure them at fair value. If certain conditions are
met, a derivate may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in
the fair value of the hedged asset or liability that are attributable to
the hedged risk or (ii) the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of
change, SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. Historically, the Company and
its joint ventures have not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the
adoption of the new standards on July 1, 2000 did not affect the
financial statements.
In 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 dealing with revenue recognition which
is effective in the fourth quarter of the Company's 2001 fiscal year.
The adoption of this Staff Accounting Bulletin did not have a material
effect on the Company's financial statements.
In March 2000, the Financial Accounting Standards Board Issued
FASB Interpretation No. 44, "Accounting for Certain Transactions
involving Stock Compensation", an interpretation of APB Opinion
No. 25. The Company adopted the interpretation on July 1, 2000.
Among other things, the Interpretation requires that stock options
that have been modified to reduce the exercise price be accounted
for as variable. As of July 1, 2000, under the provisions of
Interpretation No. 44, any options that are considered repriced are
accounted for as variable options from that date forward. Therefore,
the option value will be re-measured on a quarterly basis using the
greater of the exercise price or the July 1, 2000 fair market value as
the basis for determining increases in the intrinsic value of the
options. During 2001, the Company repriced 57,500 options with an
intrinsic value of $92,000 which has been included in the
compensation expense adjustment.
(h) Recently Issued United States Accounting Standards
In June 2001, the FASB issued FASB Statement No. 141,"
Business Combinations" (SFAS 141), and No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142). SFAS 141 requires the use of
the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires
that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria.
SFAS 141 applies to all business combinations initiated after June
30, 2001 and for purchase business combinations completed on or
after July 1, 2001. It also requires, upon adoption of SFAS 142,
that the Company reclassifies the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS 141.
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
16. Reconciliation to Accounting Principles Generally Accepted in the
United States (continued)
(h) Recently Issued United States Accounting Standards (continued)
SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill impairment at least
annually. In addition, SFAS 142 requires that the Company identify
reporting units for the purposes of assessing potential future
impairments of goodwill, reassess the useful lives of other existing
recognized intangible assets, and cease amortization of intangible
assets with an indefinite useful life. An intangible asset with an
indefinite useful life should be tested for impairment in accordance
with the guidance in SFAS 142. SFAS 142 is required to be applied
in fiscal years beginning after December 31, 2001 to all goodwill
and other intangible assets recognized at that date, regardless of
when those assets were initially recognized. SFAS 142 requires
that the Company complete a transitional goodwill impairment test
six months from the date of adoption. The Company is also
required to reassess the useful lives of other intangible assets within
the first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted
for using the purchase method. As of June 30, 2001, the net
carrying amount of goodwill is $2,056,832. Amortization expense
for the year ended June 30, 2001 was $261,258. Currently, the
Company is assessing, but has not yet determined how the
adoption of SFAS 141 and SFAS 142 will impact its financial
position and results of operation.
In August 2001, the FASB issued SFAS No. 143 "Accounting for
Asset Retirement Obligations". SFAS No. 143 requires the fair
value of a liability for an asset retirement obligation to be recognized
in the period in which it is incurred if a reasonable estimate of fair
value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 is effective for the fiscal year ending June 30, 2003.
Management believes the adoption of this statement will have no
material impact on the financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-lived Assets." SFAS No. 144
requires that those long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in
continuous operations or in discontinued operations. Therefore,
discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have
not yet occurred. SFAS No. 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2001 and,
generally, is to be applied prospectively. Currently, the Company is
assessing, but has not yet determined how the adoption of SFAS
144 will impact its financial position and results of operation.
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
16. Reconciliation to Accounting Principles Generally Accepted in the
United States (continued)
If US GAAP were followed, the effect on the consolidated balance sheet
would be as follows:
2001 2000
Total assets per Canadian GAAP $19,050,175 $ 23,511,208
Unrealized gain on marketable securities(e) 34,077 -
Total assets per US GAAP $ 19,084,252 $ 23,511,208
Total liabilities per Canadian GAAP $ 7,692,734 $ 11,403,851
Unamortized debt discount (c) (155,180) (219,327)
Total liabilities per US GAAP $ 7,537,554 $ 11,184,524
Share capital per Canadian and US GAAP $32,207,289 $ 29,322,289
Other paid in capital per Canadian GAAP - -
Compensation expense (a) 301,931 97,891
Debt discount (c) 683,162 568,002
Unrealized gain on marketable securities (e)34,077 -
Other paid in capital per US GAAP 1,019,170 665,893
Deficit
Deficit end of the year per Canadian GAAP(20,849,848) (17,214,932)
Amortization of debt discount (527,982) (348,675)
Compensation expense (301,931) (97,891)
Deficit end of the year per US GAAP (21,679,761) (17,661,498)
Total shareholders' equity per US GAAP $11,546,698 $12,326,684
If US GAAP were followed, the effect on the consolidated statements of
loss would be as follows:
2001 2000 1999
Net loss from continuing operations
according to Canadian GAAP $ (974,406) $(1,436,907) $(2,258,698)
Compensation expense adjustment (a) (204,040) - (97,891)
Amortization of debt discount (c) (179,307) (348,675) -
Net loss from continuing operations
according to US GAAP (1,357,753) (1,785,582) (2,356,589)
Loss from discontinued operations(2,660,510)(1,250,992) (5,696,655)
Net loss according to US GAAP (4,018,263) (3,036,574) (8,053,244)
Deemed dividend on preferred shares(f)(420,000) - -
Net loss for common shareholders $(4,438,263) $(3,036,574) $(8,053,244)
Net loss according to US GAAP $(4,018,263) $(3,036,574) $(8,053,244)
Unrealized gain on marketable securities (e)34,077 - -
Comprehensive net loss -US GAAP $(3,984,186)$(3,036,574)$(8,053,244)
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
16. Reconciliation to Accounting Principles Generally Accepted in the
United States (continued)
2001 2000 1999
Basic and diluted net loss per common share
from continuing operations
according to US GAAP $ (0.42) $(0.57) $(1.02)
Basic and diluted net loss per common share
according to US GAAP $ (1.04) $(0.97) $(3.49)
Shares used in the computation of basic
and diluted earnings per share 4,256,502 3,135,857 2,306,546
17. Subsequent Events
Exercise of options and warrants
On August 30, 2001 a director of the Company exercised 15,000
options for consideration of $22,500.
On September 28, 2001 shareholders of the Company exercised
1,000,000 Series B Warrants for total consideration of $800,000.
18. Segmented Information
The Company's operations are separated into two distinct segments; the
engineering and offshore division, consisting of the operations of M&M,
and the oil and gas division performing oil and gas exploration and
production. M&M is an engineering and construction company,
performing installation, erection, welding, maintenance and ancillary
fabrication services.
The following is the Company's segmented information for continuing
operations:
For the year ended June 30, 2001
Engineering
and Offshore Oil and Gas
Division Division Corporate Total
Revenue $18,770,318 $ 382,740 $ - $19,153,058
EBITDA (1) $ 112,811 $ 207,307 $(109,138) $ 210,980
Amortization 631,634 45,364 - 676,998
Segment operating margin (518,823) 161,943 (109,138) (466,018)
Interest and tax 81,182(1,077,690) 4,896 (991,612)
Write down of capital assets1,500,000 - - 1,500,000
Net earnings (loss) from
continuing operations$(2,100,005)$1,239,633 $(114,034) $ (974,406)
Capital assets and Oil and Gas
Interests $ 3,268,096$ 2,017,493 $ - $5,285,589
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
18. Segmented Information (continued)
For the year ended June 30, 2000
Engineering
and Offshore Oil and Gas
Division Division Corporate Total
Revenue $18,924,369 $ - $ - $18,924,369
EBITDA (1) $ 1,693,077 $ - $(1,956,715)$(263,638)
Depreciation and amortization 627,377 - - 627,377
Segment operating margin 1,065,700 - (1,956,715) (891,015)
Minority interest - - - -
Interest and income taxes 544,848 - 1,044 545,892
Net earnings (loss) from
continuing operations$ 520,852 $ - $(1,957,759) $(1,436,907)
Capital assets $ 4,875,362 $ - $ $4,875,362
For the year ended June 30, 1999
Engineering
and Offshore Oil and Gas
Division Division Corporate Total
Revenue $21,079,649 $ - $ - $21,079,649
EBITDA (1) $ 1,052,741 $ - ($2,150,580) $(1,097,839)
Depreciation and amortization453,531 - - 453,531
Segment operating margin 599,210 - (2,150,580) (1,551,370)
Minority interest 286,703 - - 286,703
Interest and income taxes 375,072 - 71,154 446,226 Net loss from
continuing operations$(62,565) $ - $(2,221,734)$(2,284,299)
(1) EBITDA is defined as earnings (loss) before interest,
taxes, amortization and minority interest.
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
19. Discontinued Operations
Effective June 30, 2001 the Company adopted a formal plan to dispose
of its power segment of business (the "Power Division"). The Company
intends to exercise its option under the terms of the Revised VBC
Agreement to cause VBC to purchase the Company's equity shares in
the KEOPL (see Note 2) and has adopted a formal plan of disposition of
its interest in the Karnataka Project (see Note 3).
Effective, May 30, 2000, the Company divested its 51% ownership
interest in its Norwegian engineering design subsidiary, Merlin, for $10
cash. Effective, June 30, 2000 the Company adopted a formal plan of
disposition for its barge mounted power plant construction subsidiary
ASIH.
The results of each of Power Division, Merlin and ASIH have been
accounted for as discontinued operations. Estimated disposal costs
have been included in the loss from discontinued operations.
The accounting for these discontinued operations is summarized as
follows:
2001 2000 1999
Revenues
Merlin $ - $5,575,145 $9,426,021
ASIH - - -
Power division - - -
$ - $5,575,145 $9,426,021
Earnings (loss) from operations
Merlin $ - $ (41,428) $ (803,429)
ASIH - (688,221) (4,472,363)
Power division (48,414) (667,658) (420,863)
(48,414) (1,397,307) (5,696,655)
Gain (loss) from disposal of operations
Merlin - 666,610 -
ASIH - (520,295) -
Power division (2,612,096) - -
(2,612,096) 146,315 -
Loss from discontinued operations$(2,660,510) $(1,250,992)$(5,696,655)
Energy Power Systems Limited
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
June 30, 2001, 2000 and 1999
19. Discontinued Operations (continued)
The Company's consolidated balance sheets include the following
amounts related to the discontinued operations:
2001 2000
Investment $3,500,000 $ -
Other assets - 9,490,021
Total net assets $3,500,000 $ 9,490,021
20. Contingent Liability
A statement of claim has been filed against the Company by a former
financial adviser alleging breach of contract. The plaintiff has claimed for
special damages in the amount of approximately $270,000 and
entitlement to a success fee of 1% of the gross debt/equity financing of
the Andhra Pradesh project less up to 20% of any corporate
contributions by the Company or its affiliates. Management believes that
the claim is without merit and has filed a counter claim. No provision has
been made in these financial statements for this claim.