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 May, 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: May 15, 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 NINE
NAME OF ISSUER MONTHPERIOD ENDED DATE OF
REPORT
Y M D Y M D
ENERNORTH INDUSTRIES INC. 2003 03 31 2003 05 15
(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 05 15
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DIRECTOR'S SIGNATURE PRINT FULL NAME DATE OF REPORT
Y M D
"James C. Cassina" James C. Cassina 2003 05 15
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EnerNorth Industries Inc.
FORM 51-901F-INTERIM REPORT FOR March 31, 2003
May 15, 2003 PAGE 2
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SCHEDULE A: FINANCIAL INFORMATION
See unaudited consolidated financial statements of the Company for the nine
month period ended March 31, 2003.
SCHEDULE B: SUPPLEMENTARY INFORMATION
1. Please see the unaudited consolidated financial statements for the nine
month period ended March 31, 2003.
Analysis of Administrative Expenditures
For the nine month period ending March 31, 2003
Administration $237,640
Repairs and maintenance 117,109
Advertising and promotion 18,674
Vehicle operating 97,492
Rent 39,993
Insurance 82,991
Foreign exchange 51,847
Exchange and filing fees 89,035
Professional fees 774,275
Municipal taxes 24,364
Travel 113,158
Salaries and benefits 1,350,027
Transfer agent fees 36,421
Annual meeting & shareholder information 106,355
Utilities 123,011
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Total administrative expenditures $3,262,392
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2. Related Party Transactions
During the nine month period ended March 31, 2003 the Company did not
enter into any related party transactions.
EnerNorth Industries Inc.
FORM 51-901F-INTERIM REPORT FOR March 31, 2003
May 15, 2003 PAGE 3
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3. Summary of Securities Issued and Options Granted During the Period
Please see note 4 of the unaudited consolidated financial statements for the
nine month period ended March 31, 2003.
4. Summary of Securities as at end of the Reporting Period
Please see note 4 of the unaudited consolidated financial statements for the
nine month period ended March 31, 2003.
5. List of Directors and Officers:
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 March 31, 2003
May 15, 2003 PAGE 4
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SCHEDULE C: MANGEMENT DISCUSSION AND ANALYSIS
1. Description of Business
Please see Management Discussion and Analysis for the nine month period ended
March 31, 2003 attached as Schedule "A".
2. Discussion of Operations and Financial Conditions
Please see Management Discussion and Analysis for the nine month period ended
March 31, 2003 attached as Schedule "A".
3. Subsequent Events
There were no subsequent events after March 31, 2003 to the date of this
report.
4. Financings, Principal Purposes and Milestones
Please see note 4 of the unaudited consolidated financial statements for the
period ended March 31, 2003.
5. Liquidity and Solvency
Please see Management Discussion and Analysis for the nine month period ended
March 31, 2003 attached as Schedule "A".
Schedule "A"
ENERNORTH INDUSTRIES INC.
(formerly Energy Power Systems Limited)
Management's Discussion And Analysis of Financial Condition
and Operating Results
For the Nine Month Period Ending March 31, 2003
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 March 31, 2003 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 nine month period ending March 31, 2003
and 2002 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. At the date of this report the litigation
is currently in trial. 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 nine month periods ended March 31, 2003 and
2002.
Revenue: The Company's consolidated revenues of $18.0 million for the
nine month period ending March 31, 2003 increased by 8% from $16.7 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 nine month period ending
March 31, 2003 was $2.4 million versus $2.2 million in 2002. The increase in
gross profit was primarily driven by increased sales from the Industrial &
Offshore Division. Gross margins for the Company's Oil & Gas Division
decreased to $0.04 million from $0.1 million during 2002. This decrease was in
part due to increased depletion of the Company's reserves as well as increased
costs of sales.
Administrative expenses: Administrative expenses of $3.3 million for the
nine month period ending March 31, 2003 was 38% higher than administrative
expenses of $2.4 million the previous year. The increase was primarily driven
by increased legal and professional fees related to a litigation currently in
trial. Increases in salaries and benefits and also a reversal of a provision
of approximately $0.3 million in 2002 which did not reoccur in 2003. The
salary increase was due primarily to a 3% across the board increase for the
administrative staff of the Industrial & Offshore Division.
Other income: Other income was $0.1 million for the nine month period
ending March 31, 2003 versus $0.7 million the previous period. The decrease
was primarily attributable to a gain of approximately $0.7 million on
settlement of a legal action in 2002 which did not reoccur in 2003.
Net loss from Operations: As a result of the above consolidated loss from
operations for the nine month period ending March 31, 2003 was $1.0 million
versus consolidated loss from operations of $0.2 million the previous
comparable nine month period.
Net losses from Operations Per Share: As a result of the foregoing, net
losses from operations per share for the nine month period ending March 31,
2003 increased to a loss of $0.21 per share from a loss of $0.06 cents per
share for the nine month period ending March 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at March 31, 2003 were $5.4 million, compared
to $5.6 million for the period ending June 30, 2002. During the nine month
period ending March 31, 2003, the Company issued common shares for cash of
$1.2 million. During the nine month period the Company expended $0.2 million
on the exploration and development of new oil and gas reserves as well as the
acquisition of capital assets. In addition the Company paid down its revolving
line of credit by $0.3 million and repaid $0.3 million of shareholder loans.
Cash of $0.2 million was received from the sale of marketable securities and
cash of $1.1 million was received out of changes in 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 issuance of share capital.
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
March 31, 2003, the principal balance outstanding under the credit facility
was $0.9 million ($0.3 million is also proportionately consolidated through a
joint venture), 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 March 31, 2003 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 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. At March 31, 2003 the balance outstanding for this loan
was $0.5 million of which the Company proportionately consolidates $0.25
million. The loan is payable on a demand basis.
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. M&M was recently awarded a $24.0 million
dollar contract related to the White Rose Oilfield through one of its joint
venture companies. This project should be ongoing for the next 12 month
period. Other proposed projects include 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.