SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|_| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1999
Commission File No. 0-9989
|X| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
STAKE TECHNOLOGY LTD.
---------------------
(Exact name of registrant as specified in its charter)
CANADA
(Jurisdiction of Incorporation)
Not Applicable
(I.R.S. Employer Identification No.)
2838 Highway 7
Norval, Ontario L0P 1K0, Canada
(Address of Principle Executive Offices)
(905) 455-1990
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to 12(g) of the Act:
Common Shares, no par value
---------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
At November 1, 1999, the registrant had 20,701,587 common shares outstanding,
the only class of registrant's common stock outstanding. There were no other
classes of stock outstanding and the aggregate market value of voting stock held
by non-affiliates at such date was U.S. $16.5M. The Company's common shares are
traded on Nasdaq Small Cap Market tier of The Nasdaq Stock Market under the
symbol STKL. Please note: The company's stock symbol changed from STKLF to STKL
effective May 19, 1999.
There are 24 pages in the September 30, 1999 10-QSB and the index follows the
cover page.
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STAKE TECHNOLOGY LTD. 1 September 30, 1999 10-QSB
<PAGE>
STAKE TECHNOLOGY LTD.
FORM 10-QSB
September 30, 1999
PART I - FINANCIAL INFORMATION*
Item 1. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 2. Consolidated Financial Statements
Consolidated Balance Sheets as at September 30, 1999, and December
31, 1998.
Consolidated Statements of Retained Earnings for the Period Ended
September 30, 1999, and the Year Ended December 31, 1998.
Consolidated Statements of Operations for the Nine Months ended
September 30, 1999 and 1998.
Consolidated Statements of Operations for the Third Quarter (July 1
- September 30, 1999 and 1998).
Consolidated Statements of Cashflow for the Nine Months ended
September 30, 1999 and 1998.
Condensed Notes to Consolidated Financial Statements.
PART II - OTHER INFORMATION
All financial information is expressed in Canadian Dollars
The noon rate of exchange on November 1, 1999 was Cdn. $1 = U.S.
$0.6810
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STAKE TECHNOLOGY LTD. 2 September 30, 1999 10-QSB
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Acquisition of Sunrich, Inc.
On July 29, 1999, the Company's shareholders approved the acquisition of
Sunrich, Inc. by way of merger with a wholly owned subsidiary of Stake
Technology Ltd., and on August 2, 1999 the transaction closed. The purchase
price of 100% of the Sunrich shares was the issuance of 5,519,481 common shares
of StakeTech and warrants to acquire up to additional 212,000 common shares. At
November, 1999, 5,603,294 common shares have been issued or are committed to be
issued and 83,813 warrants exercisable at US $1.00 to December 31, 1999,
increasing to US $2.00 on January 1, 2000 and expiring on December 29, 2000 are
outstanding related to the Sunrich acquisition. The acquisition consideration
issued for accounting purposes was valued at $6,320,000. Under the purchase
method of accounting, the share of net assets acquired was $4,288,000 resulting
in goodwill of $2,032,000 being recorded on the acquisition of Sunrich.
Sunrich Inc. is an agritech company headquartered in Hope, Minnesota in the
agricultural heartland of the USA. Sunrich, is an industry leader in the
development and supply of soy food products to U.S. and international markets.
Sunrich offers a complete line of soyfoods including whole soybeans specifically
developed for traditional Japanese food manufacturing, food ingredients such as
liquid soy milk bases and powders, soy flours, TVP (textured soy protein, a meat
alternative) and retail products of frozen veggie burgers and soy vegetables.
The acquisition by Stake of Sunrich creates a consolidated entity that will
focus on supporting healthy lifestyles by providing nutritious organic food
products as well as preserving the environment by providing industry with
recycling services and cleaner production processes.
The addition of the net assets and goodwill from the Sunrich acquisition doubles
the size of the company's assets at September 30, 1999. Stake has accounted for
the results of operations of Sunrich, for the first period since acquisition
August 2, 1999 to September 30, 1999, in the third quarter - September 30, 1999
10QSB, which results in a substantial increase in revenues for the period.
Major Developments in Company's Proprietary Steam Explosion Technology in 1999
During 1999, the Company continued to apply its Steam Explosion Technology to
specific opportunities in the pulp and paper industry. In the first half of
1999, testing in the Company's Technical Centre focused on two projects, one in
South Africa to process sugarcane bagasse and one in North America to convert
hardwood.
The Company has been actively seeking to establish marketing alliances that can
strengthen its ability to sell steam explosion pulping systems internationally
and on August 17, 1999, the Company signed an agreement with Pacitec Inc., of
Arlington, Texas for marketing StakeTech's non-woody pulping systems to the
Peoples Republic of China.
Under the terms of the agreement, Pacitec acquires exclusive rights to market
StakeTech's proprietary pulping systems for non-woody applications in China for
a license fee of US $4.0 million payable over twelve years. Maintenance of
rights is conditional on achieving performance milestones that total to the sale
of a minimum of 40 StakeTech Systems for a total value of approximately US $160
million. All rights to the design and manufacture of StakeTech's proprietary
steam explosion pulping systems are retained by StakeTech.
Pacitec is a U.S. trade and development company with offices in Arlington, Texas
and Beijing, China. Pacitec specializes in developing business opportunities in
China and acts as a sales agent for such companies as Halliburton Energy
Services and Kellogg Brown & Root. Pacitec is in partnership with the China
National Beijing
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STAKE TECHNOLOGY LTD. 3 September 30, 1999 10-QSB
<PAGE>
Major Developments in Company's Proprietary Steam Explosion Technology in 1999
(continued)
Contracting & Engineering Institute for Light Industry (BCEL) a leading
engineering design institute in China. BCEL is an experienced engineering firm
with EPC capability and has completed over 20 projects in the pulp and paper
industry since 1981.
In the third quarter, a test program was initiated in the Company's Technical
Centre to evaluate straw from China as part of the Pacitec marketing program.
Major Developments at Barnes Environmental International in 1999
Sales at B.E.I. for the first nine months were comparable to the same period in
1998, as the addition of new products with good future growth have been able to
offset temporary declines in certain other product lines.
Operating earnings from B.E.I. for the first nine months of 1999 compared to
1998 have decreased by $216,000 due to lower margins being earned on the 1999
product mix compared to 1998, as well as increased administrative and other
costs. In addition, certain non-recurring income in 1998 related to currency
adjustments and the sale of non-essential assets contributed over $200,000 to
BEI 1998 results as compared to an expense of $87,000 for these items in the
nine months to September 30, 1999. Earnings from BEI to September 30, 1999 were
$1,703,000 compared to $2,206,000 for the comparative period of 1998.
Major Developments at Sunrich since acquisition date of August 2, 1999.
On October 26, 1999 the FDA published its final rule authorizing the labeling of
products that contain at least 6.25 grams of soy protein with a claim relating
to soy's heart disease-fighting properties. The FDA has concluded that 25 grams
of soy protein a day, as part of a diet low in saturated fat and cholesterol,
may reduce the risk of heart disease.
Stake feels that Sunrich is well positioned to benefit from the FDA ruling. The
health advantages of soy combined with increased concern over Genetically
Modified Organisms (GMO) food products has resulted in increased demand for
Sunrich products and led Sunrich to broaden its Identity Preserved (IP) grain
program. Through the Sunrich IP Grain Program, Sunrich can confidently supply
its international customers whole soy and grains that meet their specific needs,
whether that be high protein content for tofu, or providing Non-GMO product.
Year 2000
The Company has internally prepared for Year 2000 by upgrading and testing its
manufacturing/other equipment and computer hardware and software for compliance.
In addition, the Company has planned to implement contingency plans for any
power or unexplained system failures including printing and backing up all
accounting, engineering and other corporate files prior to December 31, 1999.
The Company has sent letters to its key suppliers and customers, to ensure that
they are Year 2000 compliant. Unfortunately, the response to our enquiry letters
has been low, despite repeated requests. Therefore, Stake cannot confirm whether
it will or will not be affected by the Year 2000 issue.
The Company did receive a letter from American Stock Transfer and Trust Company
(ASTTC), the administrator of the Company's common shares that their systems are
compliant. If any shareholders have questions about their accounts, you should
directly contact (ASTTC) at 1-800-937-5449 or (212) 936-5100.
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STAKE TECHNOLOGY LTD. 4 September 30, 1999 10-QSB
<PAGE>
The Nine Months to September 30, 1999 Operations compared to September 30, 1998
The Company reported earnings of $905,000 or $0.06 per common share in the nine
months of 1999 compared to earnings of $786,000 or $0.05 per common share in the
nine months of 1998. Earnings for the third quarter, (July 1, 1999 - September
30, 1999) were $225,000 or $0.01 per common share (1998 - $438,000 - $0.03).
Earnings from B.E.I. in 1999 to date were $1,703,000 (1998 - $2,206,000),
earnings from Sunrich since August 2, 1999 before tax were $125,000, (after tax
- - $78,000), steam explosion activities loss for nine months were ($330,000) and
unallocated corporate costs were a loss of ($546,000), (1998 loss of
($1,420,000) for corporate and steam explosion).
Consolidated revenues for the nine months ended September 30, 1999 increased 69%
to $27,805,000 compared to $16,431,000 for the nine months ended September 30,
1998. The increase in revenues is due to the acquisition of Sunrich in August,
1999. Sunrich's revenues for August and September, 1999 were $11,056,000.
Sunrich's sales for the two months since acquisition include the sale of both
organic and non-organic corn, soybeans and other grains of $9,046,000, the sale
of food ingredients of $1,656,000 and other sales of $354,000.
B.E.I. revenues for the first nine months of 1999 were $16,503,000 (1998 -
$16,368,000), $190,000 (1998 - $14,000) in revenues from the steam explosion
technology division and $56,000 (1998 - $49,000) from general corporate
activities. In 1999, B.E.I. sales consisted of sales of abrasives, foundry sands
and other products of $13,472,000 (1998 - $12,625,000), recycling revenues of
$1,655,000 (1998 - $2,417,000) and other income $1,376,000 (1998 - $1,326,000).
The 7% increase in abrasives, foundry sands and other products sales in 1999
over 1998 is due to an increase in the number of products B.E.I. is distributing
and further expansion into the U.S. The decrease in recycling revenues is due to
poorer weather conditions in 1999 compared to 1998 and lower landfill prices
resulting in less materials being received for recycling in 1999 compared to
1998. The increase in steam explosion sales is due to the receipt of the first
licence fee instalment from Pacitec.
Cost of sales increased to $23,700,000 for the nine months ended September 30,
1999 from $12,867,000 for the nine months ended September 30, 1998, again
principally due to the consolidation of Sunrich for August and September.
Cost of sales to date in 1999, from Sunrich is $10,272,000, from B.E.I. is
$13,320,000 (1998 - $12,752,000), steam explosion technology of $81,000 (1998 -
$94,000) corporate office $27,000 (1998-$21,000).
Sunrich's gross margin for the two months since acquisition was 7.1%. B.E.I's
margin was 19.28% in 1999 compared to 22.1% in 1998 due to a lower margin
product mix in 1999 compared to 1998. Consolidated gross margins to September
30, 1999 are 14.8% compared to 21.7% in 1998, due to the lower margins earned on
Sunrich's product lines.
Research and development costs related to Steam Explosion Technology activities
decreased in the period to $242,000 for the nine months of 1999 from $293,000
for the nine months ended September 30, 1998, due to cost reductions implemented
in the last quarter of 1998.
Administration and market development expenditures increased in the nine months
of 1999 to $2,582,000 compared to $2,384,000 for the nine months ended September
30, 1998. Sunrich's administration costs for the August and September was
$605,000. Therefore, administration costs in the rest of the Company in 1999 are
significantly lower due principally to lower acquisition cost write-offs in 1999
compared to 1998.
Long-term debt interest was $102,000 for the nine months of 1999 (1998-
$107,000). Interest on Canadian long-term debt decreased to $79,000 in the first
nine months of 1999 from $107,000 in the nine months of 1998 due to the lower
debt balance in 1999 over 1998, resulting from scheduled repayments. Interest on
U.S. long-term debt held in the Sunrich subsidiary was $23,000 since August 2,
1999.
The share of losses on equity accounted investees of $21,000 (1998 - ($9,000))
is from the Company's 35% equity investment in Easton Minerals Ltd. (Easton).
Equity losses of the magnitude reported in 1999 are expected to continue on an
annual basis until the Company disposes of this investment.
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STAKE TECHNOLOGY LTD. 5 September 30, 1999 10-QSB
<PAGE>
Liquidity and Capital Resources at September 30, 1999 and 1998
The dividend on preference shares of subsidiary company of $22,000 (1998 -
$22,000) and the imputed interest of preference shares of a subsidiary company
of $23,000 (1998 - $25,000) are related to the acquisition of B.E.I. made in
1995 and are paid to a former director of the Company.
Cash and short-term deposits increased by $1,111,000 to $1,292,000 at September
30, 1999 compared to cash of $181,000 held at December 31, 1998. The increase in
cash is due to the cash acquired on the acquisition of Sunrich of $366,000, and
additional cash generated by B.E.I. for nine months and Sunrich for two months,
offset by cash used by steam explosion and corporate expenses of $745,000.
Trade accounts receivable increased to $9,961,000 at September 30, 1999 from
$3,805,000 at December 31, 1998. Trade accounts receivables at September 30,
1999 related to Sunrich operations were $5,445,000; B.E.I. operations
receivables were $4,295,000 (December 31, 1998 - $3,727,000) and steam explosion
and general corporate activities receivables were $221,000 (December 31, 1998 -
$78,000). B.E.I.'s increase in trade accounts receivable is due to a temporary
increase in the age of the receivable balance.
Inventories increased to $5,884,000 at September 30, 1999 from $2,878,000 at
December 31, 1998. Sunrich's inventory at September 30, 1999 was $3,102,000 and
B.E.I.'s was $2,782,000 (December 31, 1998 - $2,878,000). The increase in the
balance at September 30, 1999 is due to the acquisition of Sunrich. There are no
inventories in the steam explosion division.
Investments and advances totalled $578,000 at September 30, 1999 compared to
$565,000 at December 31, 1998, due to the equity loss accounted for on Easton of
$21,000 plus cash advances made during the year totalling $34,000.
Property, plant and equipment at September 30, 1999 have increased by $5,041,000
principally due to the acquisition of Sunrich. On August 2, 1999, Stake acquired
physical assets of Sunrich with a fair value of $4,946,000 that has been
included in this balance. In addition, $613,000 in capital additions has been
made by the Company on equipment upgrades during the year to date and
depreciation of $518,000 has been charged.
The Company has capital commitments of approximately $450,000 at of September
30, 1999. Sunrich's commitments total $320,000 mainly related to the
construction of an additional grain storage bin. BEI's 1999 capital budget is
$500,000, of which $425,000 was spent in the first nine months, and $75,000 will
be spent in the last quarter. Corporate office computer upgrades and Company
wide integration of computer operations will cost approximately $50,000 in the
last quarter of 1999.
Accounts payable and accrued liabilities increased from $2,937,000 at December
31, 1998 to $8,491,000 at September 30, 1999. The largest reason for the
increase is due to the inclusion of $4,957,000 of Sunrich' accounts payable
balances at September 30, 1999. In addition, the increase is also partially due
to legal and other closing costs related to the acquisition of Sunrich being
included in accounts payable at September 30, 1999, that did not exist in 1998.
The accrued recycling reserve of $284,000 (December 31, 1998 - $393,000) is
included in the account payable balance which relates to BEI's business and
represents the future costs to process and dispose of the reclaimed materials
that B.E.I. has accepted for recycling, and were on site at September 30, 1999.
The Company also has bank lines of credit totalling $7,500,000 based on
margining of trade accounts receivable and a ratio of inventories and a $400,000
unused equipment purchase line of credit. The Company is also required to
maintain cash deposits of $400,000 as collateral for the Canadian facilities.
$3,000,000 of this credit line can be drawn from the Company's principal
Canadian bank and is available at Canadian prime. $4,500,000 (US$3,000,000) can
be drawn and secured against the Company's wholly owned subsidiary, Sunrich, and
bears interest at Sunrich's choice of LIBOR plus 2 1/2% or the US lenders prime
lending rate. The rate at September 30, 1999 was 7.9%
Notes payables at September 30, 1999 total $2,812,000. The Company's subsidiary,
Sunrich has drawn US$1,260,000, (Canadian $1,852,000) against the US $3,000,000
line of credit. Also included in the Note Payable balance on the financial
statements is a US $653,000 Note Payable (Canadian $960,000) related to and
secured by certain Sunrich
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STAKE TECHNOLOGY LTD. 6 September 30, 1999 10-QSB
<PAGE>
Liquidity and Capital Resources at September 30, 1999 and 1998 (continued)
inventories, which bears interest at 8.25%. Sunrich repaid the US $653,000 Note
Payable in October, 1999 from operating cash flow.
At September 30, 1999, the Company is also contingently responsible for
$2,052,000, which was drawn under letters of credit from the Canadian line of
credit; $750,000 under the conditions of BEI's Certificate of Approval,
$1,164,000 for the importation of inventory and $138,000 to several suppliers.
Included in long term debt as a result of the acquisition of Sunrich Inc. are
two mortgages, and various equipment and vehicle loans. One mortgage is for US
$832,000 and is held on Sunrich's Hope, Minnesota property. This mortgage bears
interest at .25% above the lenders reference rate and bears interest only on a
monthly basis, with annual escalating yearly principal payments ranging from US
$47,000 in 1999 to a final payment of US $113,000 on February 1, 2009; its
maturity date. The second mortgage is for US $285,000 and is secured by
Sunrich's Cresco, Iowa physical assets. This mortgage also bears interest at the
lender's reference rate plus .25% and requires combined interest and principal
payments of US$8,333 monthly and matures on July 1, 2013. Both mortgages require
the Sunrich subsidiary, to maintain certain financial covenants. At September
30, 1999, Sunrich, Inc. meets these covenants.
The equipment and vehicle loans totalling $113,000 are also held by the
Company's subsidiary, Sunrich and are owed to three different lenders. These
loans bear interest between 0.9% and 9.3% and mature at various times to March
2001.
Also included in long term debt is a Canadian term loan which decreased from
$2,100,000 from December 31, 1998 to $1,600,000 at September 30, 1999, due to a
$300,000 payment in May, 1999 and a payment of $200,000 in August. In November,
1999, the Company paid a further $200,000 on this loan, and has therefore
completed the required $700,000 debt reduction on this loan for 1999. The term
loan bears interest at Canadian prime + 1% or banker's acceptances + 1.25%; the
Canadian prime interest rate is currently 6.25%. Principal payments totalling
$700,000 in 1999, $600,000 in 2000 and $800,000 in 2001 are required to be made
per annum, with a minimum of $100,000 to be paid each quarter, and interest is
to be paid monthly. Full or partial repayment of the term loan will be permitted
based on the maturity of the underlying debt instruments
Capital leases on the balance sheet are related to certain sorting and
manufacturing equipment held by the Company's subsidiary, Sunrich. Capital lease
obligations at September 30, 1999 total $500,000 of which $124,000 are required
current payments in the year.
Substantially all of the Company's assets in Canada and the US are pledged as
collateral under these lending agreements, with the exception of the real
property at Stake's corporate offices in Norval, Ontario Canada.
The Company considers its relationship with its principal bankers, and its
subsidiary's banks to be very satisfactory.
The Company believes that its working capital and its available lines of credit
at November 1, 1999 are sufficient for the Company's operations during 1999, and
2000.
The Company's substantial increase in shares issued and common stock value on
the balance sheet is due to the acquisition of Sunrich that was paid for by the
issuance of shares and warrants. Note 9 to the financial statements explains in
detail the shares issued for this transaction as well as other capital
transactions that have occurred in the period.
Cash flow provided by operations for the first nine months ended September 30,
1999 was $2,016,000 compared to cash used of ($197,000) for the nine months
ended September 30, 1998. The cash flow provided from earnings after non-cash
items increased from $1,243,000 in 1998 to $1,552,000 in 1999 due to higher net
earnings and higher depreciation expenses in 1999 over 1998. Non cash working
capital related to operations increased by a net of $464,000 in 1999 compared to
a use of $1,440,000 in 1998, due to short term borrowings in 1999 offsetting the
increase in trade accounts receivable.
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STAKE TECHNOLOGY LTD. 7 September 30, 1999 10-QSB
<PAGE>
Liquidity and Capital Resources at September 30, 1999 and 1998 (continued)
Cash used in investment activities increased to ($579,000) in the first nine
months of 1999 from cash used of ($351,000) in the first nine months of 1998 due
principally to a $235,000 increase in the amount of property, plant and
equipment assets acquired in 1999 compared to 1998.
Cash used for financing activities was ($326,000) for the first nine months of
1999 is comparable to ($315,000) used for the first nine months of 1998.
Scheduled repayment of debt totalling $500,000 and preference shares redemption
in each year and the relaxation of cash restrictions in 1998 were partially
offset in both 1999 and 1998 by the issuance of common shares from options and
warrants.
PART II - OTHER INFORMATION.
Item 6.
1. An S-4 dated June 24, 1999 was filed by Stake related to the acquisition
of Sunrich, Inc, by way of merger with a wholly owned subsidiary of Stake
was deemed effective at 1 p.m. on June 24, 1999 by the SEC.
2. An 8K dated August 11, 1999 reporting the closing of the acquisition of
Sunrich Inc. on August 2, 1999 was filed with the SEC and Nasdaq on August
12, 1999.
PART I - FINANCIAL INFORMATION
Item 2.
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STAKE TECHNOLOGY LTD. 8 September 30, 1999 10-QSB
<PAGE>
Consolidated Financial Statements
Stake Technology Ltd.
For the Nine Months ended September 30, 1999 and 1998
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STAKE TECHNOLOGY LTD. 9 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Consolidated Balance Sheets as at September 30, 1999 and December 31, 1998
(Expressed in Canadian Dollars)
================================================================================
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
===================================================================================================
<S> <C> <C>
Assets (note 5)
Current Assets
Cash and cash equivalents $ 1,292,000 $ 181,000
Cash held as security deposit (note 5) 400,000 400,000
Accounts receivable - trade 9,961,000 3,805,000
Inventories 5,884,000 2,878,000
Miscellaneous receivables and other assets 579,000 161,000
Deferred taxes 375,000 --
----------------------------
18,491,000 7,425,000
Property, Plant and Equipment - at cost
less accumulated amortization of $2,969,000
(December 31, 1998 - $2,451,000) 10,866,000 5,825,000
Investments - at cost
quoted market value - $315,000
(December 31, 1998 - $1,258,000) 578,000 565,000
Goodwill at cost - less accumulated
amortization of $459,000
(December 31, 1998 - $358,000) 3,828,000 1,897,000
Patents, trademarks and licences and other assets - at cost,
less accumulated amortization of $922,000
(December 31, 1998 - $900,000) 373,000 384,000
----------------------------
$34,136,000 $16,096,000
============================
Liabilities
Current Liabilities
Notes payable (note 5) $ 2,812,000 --
Accounts payable and accrued liabilities 8,491,000 2,937,000
Current portion of long-term debt (note 6) 732,000 700,000
Current portion of capital leases (note 7) 124,000 --
Current portion of preference shares 140,000 237,000
----------------------------
12,299,000 3,874,000
Long-term debt (note 6) 2,623,000 1,400,000
Capital leases (note 7) 376,000 --
Preference shares of subsidiary company 717,000 749,000
Deferred taxes 520,000 --
----------------------------
16,535,000 6,023,000
----------------------------
Shareholders' Equity
Capital stock (note 8) 11,090,000 4,467,000
Contributed surplus 4,635,000 4,635,000
Retained earnings (note 8) 1,876,000 971,000
----------------------------
17,601,000 10,073,000
----------------------------
$34,136,000 $16,096,000
============================
</TABLE>
(See accompanying notes to consolidated financial statements)
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STAKE TECHNOLOGY LTD. 10 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Consolidated Statements of Retained Earnings
For the Period Ended September 30, 1999 and the Year Ended December 31, 1998
(Expressed in Canadian Dollars)
================================================================================
Nine months
ended Year ended
September 30, December 31,
1999 1998
================================================================================
Retained Earnings - Beginning of the year $ 971,000 $ 149,000
Net Earnings for the period 905,000 822,000
-----------------------------
Retained Earnings - End of period $1,876,000 $ 971,000
=============================
(See accompanying notes to consolidated financial statements)
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STAKE TECHNOLOGY LTD. 11 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Consolidated Statements of Operations
For the Nine Months ended September 30, 1999 and 1998
(Expressed in Canadian Dollars)
================================================================================
<TABLE>
<CAPTION>
1999 1998
========================================================================================================
<S> <C> <C>
Revenues $ 27,805,000 $ 16,431,000
-------------------------------
Cost of goods sold 23,700,000 12,867,000
-------------------------------
Gross profit 4,105,000 3,564,000
-------------------------------
Expenses
Research and development 242,000 293,000
Administration, market development
and demonstration 2,582,000 2,384,000
Amortization of patents, trademarks, licences and goodwill 118,000 104,000
Gain on sale of property, plant and equipment (15,000) (60,000)
-------------------------------
2,927,000 2,721,000
-------------------------------
Earnings from operations 1,178,000 843,000
Interest on long-term debt (102,000) (107,000)
Other interest expense (30,000) --
Interest and other income 43,000 52,000
Foreign exchange (loss) gain (72,000) 54,000
Share of losses of equity accounted investees (21,000) (9,000)
Dividend on preference shares of subsidiary company (22,000) (22,000)
Imputed interest on preference shares of subsidiary company (23,000) (25,000)
-------------------------------
Earnings before taxes 951,000 786,000
-------------------------------
Provision for income taxes (383,000) (315,000)
Tax recovery 337,000 315,000
-------------------------------
Net earnings for the period $ 905,000 $ 786,000
===============================
Net earnings per share for the period $ 0.06 $ 0.05
===============================
</TABLE>
(See accompanying notes to consolidated financial statements)
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STAKE TECHNOLOGY LTD. 12 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Consolidated Statements of Operations
For the Third Quarter (July 1 - September 30, 1999 and 1998)
(Expressed in Canadian Dollars)
================================================================================
<TABLE>
<CAPTION>
1999 1998
=======================================================================================================
<S> <C> <C>
Revenues $ 16,696,000 $ 6,226,000
-------------------------------
Cost of goods sold 15,185,000 4,805,000
-------------------------------
Gross profit 1,511,000 1,421,000
-------------------------------
Expenses
Research and development 82,000 93,000
Administration, market development
and demonstration 1,049,000 868,000
Amortization of patents, trademarks, licences and goodwill 40,000 35,000
Gain on sale of property, plant and equipment (15,000) --
-------------------------------
1,156,000 996,000
-------------------------------
Earnings from operations 355,000 425,000
Interest on long-term debt (51,000) (33,000)
Other interest expense (24,000) --
Interest and other income 19,000 20,000
Foreign exchange (loss) gain (6,000) 42,000
Share of losses on equity accounted investees (7,000) --
Dividend on preference shares of subsidiary company (8,000) (7,000)
Imputed interest on preference shares of subsidiary company (7,000) (9,000)
-------------------------------
Earnings before taxes 271,000 438,000
-------------------------------
Provision for income taxes (105,000) (175,000)
Tax recovery 59,000 175,000
-------------------------------
Net earnings for the period $ 225,000 $ 438,000
===============================
Net earnings per share for the period $ 0.01 $ 0.03
===============================
</TABLE>
(See accompanying notes to consolidated financial statements)
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 13 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Consolidated Statements of Cash Flows
For the Nine Months ended September 30, 1999 and 1998
(Expressed in Canadian Dollars)
================================================================================
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
=========================================================================================================
<S> <C> <C>
Cash flows from operating activities
Net earnings for the period $ 905,000 $ 786,000
Items not affecting cash -
Amortization 641,000 508,000
Share of losses of investees 21,000 9,000
Gain on sale of property, plant and equipment (15,000) (60,000)
-------------------------------
1,552,000 1,243,000
-------------------------------
Change in non-cash working capital
related to operations
Accounts receivable - trade (1,058,000) (2,336,000)
Inventories (18,000) 275,000
Miscellaneous receivables and other assets 6,000 124,000
Notes payable 1,487,000 --
Accounts payable and accrued liabilities 47,000 497,000
-------------------------------
Net cash provided from (used in) operating activities 2,016,000 (197,000)
-------------------------------
Cash flows from investment activities
Acquisition of a company (note 4) 64,000 --
Acquisition of property, plant and equipment (613,000) (378,000)
Proceeds on sale of property, plant and equipment 15,000 88,000
Acquisition of patents, trademarks and licences (11,000) (10,000)
Increase in investments and advances (34,000) (51,000)
-------------------------------
Net cash (used in) investing activities (579,000) (351,000)
-------------------------------
Cash flows from financing activities
Redemption of preference shares in subsidiary company (129,000) (142,000)
Reduction in cash held as security deposit -- 202,000
Repayment of long-term debt (500,000) (500,000)
Issuance of common shares 303,000 125,000
-------------------------------
Net cash (used in) financing activities (326,000) (315,000)
-------------------------------
Increase in Cash during the Period 1,111,000 (863,000)
Cash and cash equivalents - Beginning of year 181,000 740,000
-------------------------------
Cash and cash equivalents (Bank indebtedness) - End of period $ 1,292,000 $ (123,000)
===============================
</TABLE>
Cash and cash equivalents consist of unrestricted cash and short-term deposits
maturing in less than 90 days.
(See accompanying notes to consolidated financial statements)
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 14 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 1999
(Expressed in Canadian Dollars)
================================================================================
1. The information presented in the accompanying Consolidated Financial
Statements has not been audited by independent chartered accountants. In
the opinion of the Company, such statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position of the Company, the results of its operations and
the changes in its financial position for the applicable periods, in
conformity with generally accepted accounting principles in Canada, which
differ in some respects from accounting principles accepted in the United
States, the effect of which is explained in note 11, applied on a
consistent basis. The consolidated balance sheet at December 31, 1998 has
been taken from the Company's Annual Report to Shareholders for the year
then ended. The accompanying consolidated financial statements should be
read in conjunction therewith.
2. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
3. Description of Business and significant accounting policies
Stake Technology Ltd. (the "Company") was incorporated under the laws of
Canada on November 13, 1973 and operates in three principal businesses.
Through its division, Barnes Environmental International (B.E.I.), the
Company sells abrasives and industrial materials and recycles inorganic
materials. Through its wholly owned subsidiary of Sunrich Inc., the
company sells food ingredients, which include organic and non-GMO product
lines. The Company also operates a division developing and commercializing
a proprietary steam, explosion technology for processing of biomass into
higher value products. The company's assets and employees at September 30,
1999 are split equally in the US and Canada. The company's operations
through to July 31, 1999 where largely in Canada. With the acquisition of
Sunrich on August 2, 1999, approximately 65% of the revenues in the third
quarter were from US based operations.
These financial statements are prepared in accordance with accounting
principles generally accepted in Canada. Differences arising from the
application of accounting principles generally accepted in the United
States are described in note 11. The significant policies are outlined
below:
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany accounts have been eliminated on
consolidation.
Cash and cash equivalents
Cash and cash equivalents consist of unrestricted cash and
short-term deposits with a maturity at acquisition of less than 90
days.
Inventories
Inventories of grain are valued at market less any necessary
adjustments. All other Inventories are valued at the lower of cost
and estimated realizable value. Cost is determined on a first in
first out basis.
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 15 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 1999
(Expressed in Canadian Dollars)
================================================================================
3. Significant Accounting Policies - continued
Investments and marketable securities
Investments in companies over which the Company exercises
significant influence are accounted for by the equity method whereby
the Company includes its proportionate share of earnings and losses
of such companies in earnings. Other long-term investments are
recorded at cost and are written down to their estimated recoverable
value when there is evidence of a decline in value which is other
than temporary.
Short-term marketable securities are carried at the lower of cost or
quoted market value.
Amortization of capital assets
Amortization is provided on plant and equipment on the diminishing
balance basis at rates of 20% to 33% per annum for office furniture
and equipment, machinery and laboratory equipment and vehicles and
4-8% for buildings. Amortization is calculated from the time the
asset is put into use.
Costs of acquiring or filing patents, trademarks and licences rights
are capitalized and amortized on a straight-line basis over their
expected lives of 10 to 20 years. Costs of renewing patents,
trademarks and licences are expensed as incurred.
Revenue recognition
Revenue from the sale of grain, food ingredients, industrial
minerals and other sales are recognized upon the transfer of
ownership which is usually shipment.
Tipping fee revenue which consists of a per ton fee paid to the
Company for waste recycling materials being received by the Company
is recognized at the time the waste material is received. Provision
is made for the net costs of processing and disposal of material.
The percentage of completion method is used to account for
significant contracts in progress when related costs can be
reasonably estimated. The Company uses costs incurred to date as a
percentage of total expected costs to measure the extent of progress
towards completion.
Revenue from consulting and contract revenue is recognized when the
service is completed.
License fees related to sales of the Company's technologies are
recorded as revenue when earned and collection is reasonably
assured.
Foreign currency translation
Revenues and expenses arising from foreign currency transactions are
translated into Canadian dollars using the exchange rate in effect
at the transaction date. Monetary assets and liabilities are
translated using the rate in effect at the balance sheet date.
Related exchange gains and losses are included in the determination
of earnings.
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 16 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 1999
(Expressed in Canadian Dollars)
================================================================================
3. Significant Accounting Policies - continued
Goodwill
Goodwill represents the excess of cost of investment in subsidiaries
and businesses over the assigned value of net assets acquired.
Goodwill is amortized on a straight-line basis over its estimated
life of twenty years. The Company reviews the recoverability of
goodwill whenever circumstance indicate that the carrying amount may
not be recoverable. The measurement of possible impairment is based
primarily on the ability to recover the balance of the goodwill from
expected future operating cash flows on an undiscounted basis.
Income taxes
During 1998, the Company adopted the asset and liability method of
accounting for income taxes whereby deferred income tax assts are
recognized for deductible temporary differences and operating loss
carryforwards, and deferred income tax liabilities are recognized
for taxable temporary differences. Temporary differences are the
difference between the amount of assets and liabilities recorded for
income tax and financial reporting purposes. Deferred income tax
assets are recognized only to the extent that management determines
that it is more likely then not that the deferred income tax assets
will be realized. Deferred income tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the
date of enactment or substantive enactment. The income tax expenses
or benefit is the income tax payable or refundable for the period
plus or minus the change in deferred income tax assets and
liabilities during the period. The adoption of the liability method
has had no impact on the reported earnings for the periods
presented.
Earnings per share
The computation of earnings per share is based on the weighted
average number of common shares outstanding during the period.
Use of estimates
The preparation of these financial statements requires management to
make estimates and assumptions that affect revenues and expenses
during the reporting periods, in addition to the reported amounts of
assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements. Actual results could differ
from those estimates.
Derivative Instruments
The Company's wholly owned subsidiary, Sunrich, Inc. uses
derivatives for the purpose of hedging grain commodity prices that
exist as a part of its ongoing business operations.
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 17 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 1999
(Expressed in Canadian Dollars)
================================================================================
3. Significant Accounting Policies continued
Commodity Contracts
The Company's wholly owned subsidiary, Sunrich, Inc. uses grain
commodity futures and forward contracts to manage price fluctuations
in various grain commodities traded or used in its business. The
Company reflects grain commodity contract gains and losses as,
adjustments to the basis of underlying hedged grain commodities
purchased; gains or losses are recognized in the statement of
earnings as a component of cost of goods sold upon sale of the
hedged grain commodity. In general, derivatives used as hedges must
be effective at reducing the risk associated with the exposure being
hedged and must be designated as a hedge at the inception of the
contract. Changes in market values of derivative instruments must be
highly correlated with changes in market values of underlying hedged
items both at inception of the hedge and over the life of the hedge
contract.
Cash flows related to derivative financial instruments are
classified in the statements of cash flows in a manner consistent
with those of transactions being hedged.
Financial Instruments
The Company's financial instruments recognized in the consolidated
balance sheet and included in working capital consist of cash and
cash equivalents, accounts receivable and accounts payable and
accrued liabilities. The fair value of these instruments approximate
their carrying value due to their short term maturities.
The Company's financial instruments that are exposed to credit risk
include cash and cash equivalents and accounts receivable. The
Company places its cash with institutions of high credit worthiness.
The Company's trade accounts receivables are not subject to a high
concentration of credit risk. The Company routinely assesses the
financial strength of its customers and as a consequence, believes
that its accounts receivable risk exposure is limited. The Company
maintains an allowance for losses based on the expected
collectibility of the accounts.
4. Acquisition of a Company
In August, 1999, the Company acquired 100% of the common shares of
Sunrich Inc. The issue of 5,519,481 common shares and up to 212,000
common share warrants satisfied the acquisition price. 106,000 of
the purchase agreement warrants were exercisable for 30 days at US
$0.50, and if this warrant was exercised the shareholder would be
entitled to another warrant at higher prices. Within the 30 day
period, 83,813 warrants were exercised at US $0.50 per common share,
which resulting in an additional 83,813 new warrants being issued
which are exercisable at US $1.00 to December 31, 1999 increasing to
US $2.00 on January 1, 2000 and expiring on December 29, 2000. As
the warrants were issued at US $0.50 and were below the market price
of the common shares of the Company at that time, the difference
between the exercise price and fair market value of the shares have
also been added to the acquisition equation.
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 18 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 1999
(Expressed in Canadian Dollars)
================================================================================
4. Acquisition of a Company (continued)
The Sunrich Inc. share of the net assets acquired and consideration
given is summarized below:
Share of assets acquired -
Cash $ 366,000
Net working capital 3,204,000
Property, plant and equipment 4,946,000
Goodwill 2,032,000
Notes payable (1,325,000)
Long-term debt (2,371,000)
Deferred taxes (532,000)
------------
$ 6,320,000
------------
Consideration -
Common shares and warrants $ 6,320,000
------------
The Company has consolidated 100% of the operations of Sunrich Inc.
from August 2, 1999 to September 30, 1999.
5. Bank Facilities and Notes Payable
The Company also has bank lines of credit totalling $7,500,000 based on
margining of trade accounts receivable and a ratio of inventories and a
$400,000 unused equipment purchase line of credit. $3,000,000 of this
credit line can be drawn from the Company's principal Canadian bank and is
available at Canadian prime. $4,500,000 (US$3,000,000) can be drawn
against the Company's wholly owned subsidiary, Sunrich's assets.
The Company has provided a general collateral agreement representing a
first charge on all Canadian assets of Stake Technology Ltd. (excluding
real property) as collateral for a $3,000,000 operating bank facility and
a term loan facility of $1,600,000 at September 30, 1999. The Company has
also provided first mortgages in the amount of $2,575,000 on certain land
and buildings located in Waterdown, Ontario and a pledge of certain book
debts, inventories and other assets. The Company is also required to
maintain cash deposits of $400,000 as collateral for the loan facility. As
at September 30, 1999, the Company is contingently liable under letters of
credit in the amount of $2,052,000, which can be drawn on these Canadian
facilities.
The Company subsidiary, Sunrich Inc. has a available a US $3,000,000 line
of credit facility secured most of the assets of Sunrich Inc - excluding
real property located in Hope, Minnesota and Cresco, Iowa. At September
30, 1999 US $1,260,000 was outstanding (Canadian $1,852,000) as a Note
Payable at September 30, 1999. The Note Payable bears interest at
Sunrich's choice of LIBOR plus 2 1/2% or the US lenders prime lending
rate. The rate at September 30, 1999 was 7.9%. In addition, included in
the Note Payable balance on the financial statements at September 30, 1999
is a US $653,000 Note Payable (Canadian $960,000) to another lender
related to and secured by certain Sunrich inventories, which bears
interest at 8.25%. Sunrich repaid the US $653,000 Note Payable in October,
1999 from operating cash flow.
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 19 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 1999
(Expressed in Canadian Dollars)
================================================================================
6. Long term debt
In addition to the long-term debt disclosed in the December 31, 1999
audited financial statements, the acquisition of Sunrich resulted in
additional long-term debt being reflected on the September 30, 1999
balance sheet, as listed:
(a) A mortgage for US $832,000 held on Sunrich's Hope, Minnesota property.
This mortgage bears interest at 0.25% above the lenders reference rate and
bears interest only on a monthly basis, with annual escalating yearly
principal payments ranging to $47,000 in 1999 to a final payment of
$113,000 on February 1, 2009; its maturity date.
(b) A second mortgage is for US $285,000 and is secured by Sunrich's Cresco,
Iowa physical assets. This mortgage also bears interest at the lender's
reference rate plus 0.25% and requires combined interest and principal
payments of US$8,333 monthly and matures on July 1, 2013. Both mortgages
require the Sunrich subsidiary, to maintain certain financial covenants.
At September 30, 1999, Sunrich's balance sheet meets these covenants.
(c) A number of equipment and vehicle loans totalling $113,000 are also held
by the Company's subsidiary, Sunrich and are owed to three different
lenders. These loans bear interest between 0.9% and 9.3%, are secured by
the underlying assets and mature at various times to March 2001.
7. Capital leases
Capital leases on the balance sheet are related to certain sorting and
manufacturing equipment held by the Company's subsidiary, Sunrich. Capital
lease obligations at September 30, 1999 total $500,000 of which $124,000
are required current payments over the next year.
8. Capital Stock
September 30, December 31,
1999 1998 1998
---- ---- ----
(a) Issued and fully paid -
20,685,837 common shares
(September 30, 1998 and
December 31, 1998 - 14,779,718) $ 11,090,000 4,478,000 $ 4,467,000
========================= ===========
(b) During 1997, the shareholders of the Company agreed to amend the Company's
by-laws. These changes included reducing the stated capital account of the
Company in respect of its common shares in the amount of $25,026,000 and
applying this amount against the deficit.
(c) At December 31, 1998, the Company had 1,182,500 warrants outstanding to
acquire common shares. Of these warrants, 650,000 were exercisable at U.S.
$2.25 per share, and 532,500 were exercisable at U.S. $2.00 per share. As
at December 31, 1998, the warrants expiry date was September 30, 1999. In
December 1998, the Company offered all warrant holders a 4 for 1 exchange
of the 1,182,500 warrants for 295,625 new warrants with an exercise price
of U.S. $0.50 per share expiring on January 31, 1999; provided the new
warrants above were exercised prior to January 31, 1999, 295,625
additional warrants with an exercise price of U.S. $1.00 to December 31,
1999, rising to U.S. $2.00 on January 1, 2000 and expiring on December 31,
2000 would be issued.
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 20 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 1999
(Expressed in Canadian Dollars)
================================================================================
8. Capital Stock (continued)
During January, 1999, 283,125 of the 295,625 warrants were exercised to
acquire 283,125 common shares for proceeds of $212,000. The 50,000
warrants exercisable at U.S. $2.00, that were not converted expired on
September 30, 1999.
During the first nine months in 1999, 19,700 new warrants were exercised
to acquire 19,700 common shares for net proceeds of $26,000. In October
1999, 15,750 new warrants were exercised to acquire 15,750 common shares
for gross proceeds of $24,000.
From this transaction, at November 1, 1999, the Company has 247,675
warrants with an exercise price of U.S. $1.00 to December 31, 1999, rising
to U.S. $2.00 on January 1, 2000 and expiring on December 31, 2000.
(d) As a result of the Sunrich acquisition, 5,519,481 common shares have been
issued or committed to be issued valued at US $4,750,000. All of these
shares have been registered with the SEC, however under a agreed
restriction program, 1/5 of these shares will be issued in unrestricted
form on or after August 2, 1999, with the remaining 4/5's released in 90
day intervals of August 2, 1999 over the next year. In addition:
(i) 83,813 of the up to 106,000 new Sunrich warrants with an exercise
price of U.S. $0.50 per share were exercised with gross proceeds of
$41,000.
(ii) as 83,813 warrants in (i) were exercised prior to or on September 1,
1999, an additional 83,813 Sunrich warrants with an exercise price
of U.S. $1.00 to December 31, 1999, rising to U.S. $2.00 on January
1, 2000 and expiring on December 29, 2000 were issued.
(e) On July 29 and August 2, 1999, the Board of Directors granted 640,500
options from the 1998 and 1999 Stock Option Plans at U.S. $1.063. Of
these, 412,000 options were granted to Sunrich employees and consultants.
The 640,500 options granted vest as follows: 248,500 options vest
immediately, 87,000 vest annually each on the anniversary date of August 2
over the next four years, and 44,000 vest on August 2, 2004.
Therefore, at November 1, 1999, there were options vested to employees,
consultants and directors to acquire 1,508,750 common shares at exercise
prices of U.S. $1.03125 to U.S. $1.875, and unvested options totalling
392,400 common shares at an exercise price of U.S. $1.063.
9. Commitments and Contingencies
In addition to those disclosed in the audited financial statements at
December 31, 1998:
(a) The Company's subsidiary, Sunrich Inc.'s. net position in the grain
market at September 30, 1999 is long 198,699 bushels of various
grains. The Company's exposure is to price fluctuations on this
balance. An increase in the commodity's market price will result in
a gain, and a reduction will result in a loss. The Company accounts
for changes to its net position and market value of its position on
a monthly basis.
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 21 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 1999
(Expressed in Canadian Dollars)
================================================================================
9. Commitments and Contingencies (continued)
(b) The Company's subsidiary, Sunrich Inc. at September 30, 1999 is
storing 575,162 bushels of commodities for third parties, and is
responsible for any deficiencies of grade or shortages of quantity
that may arise in connection with commodities stored for others.
10. Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two
digits rather four to identify a year. Date sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when the information using year 2000 dates is processed. In addition,
similar problems may arise in some systems, which use certain dates in
1999 to represent something other than that date. The effects of Year 2000
Issue may be experienced before, on or after January 1, 2000, and, if not
addressed, the impact on the operations and financial reporting may range
from minor errors to significant systems failure which could effect an
entity's ability to conduct normal business operations. It is not possible
to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers,
or other third parties, will be fully resolved.
11. United States Accounting Principles Differences
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada ("Canadian GAAP")
which conform in all material respects applicable to the Company with
those in the United States ("U.S. GAAP") during the periods presented
except with respect to the following:
(a) Under U.S. GAAP, the amounts due from related parties at September
30, 1999 were $84,000 (December 31, 1998 - $33,000) would be shown
separately on the balance sheet. Also, under U.S GAAP, the allowance
for doubtful accounts at September 30, 1999 of $479,000 (December
31, 1998 - $133,000) must be disclosed. Also, included in accounts a
payable and accrued liability is an accrual for recycling costs of
$284,000 (December 31, 1998 - $393,000).
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 22 September 30, 1999 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 1999
(Expressed in Canadian Dollars)
================================================================================
11. United States Accounting Principles Differences (continued)
(b) Accordingly, the following would have been reported under U.S. GAAP:
<TABLE>
<CAPTION>
(In thousands)
-----------------------------------------------
Nine months Year ended
ended September 30, December 31,
------------------- ------------
(unaudited) (audited)
1999 1998 1998 1997
<S> <C> <C> <C> <C>
Net Earnings - as reported $905 $786 $822 $149
Dilution gain -- -- (26) (226)
Development costs expensed -- (32) (35) (62)
-----------------------------------------------
Net Earnings (loss) - U.S. GAAP $905 $754 $761 ($139)
===============================================
Net Earnings (loss) per share - U.S. GAAP $0.06 $0.05 $0.05 $(0.01)
===============================================
Weighted average number of common
shares outstanding 16,233 14,676 14,702 14,391
===============================================
Shareholder's equity - as reported 17,601 10,048 10,073 9,060
Cumulative development costs expensed (164) (161) (164) (129)
-----------------------------------------------
Shareholders' equity - U.S. GAAP $17,437 $9,887 $9,909 $8,931
===============================================
</TABLE>
12. Comparative Balances
Certain comparative account balances have been reclassified to achieve
comparability to current period balances.
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 23 September 30, 1999 10-QSB
<PAGE>
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 hereunto duly authorized.
STAKE TECHNOLOGY LTD.
\s\ Leslie N. Markow
Date November 1, 1999
Stake Technology Ltd.
by Leslie N. Markow
Vice President - Finance
& Chief Financial Officer
- --------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 24 September 30, 1999 10-QSB
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from Form 10-QSB and is
qualified in it's entirety by reference to such financial statements.
</LEGEND>
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 0.6810
<CASH> 1,692,000
<SECURITIES> 0
<RECEIVABLES> 9,961,000
<ALLOWANCES> 479,000
<INVENTORY> 5,884,000
<CURRENT-ASSETS> 18,491,000
<PP&E> 10,866,000
<DEPRECIATION> 2,969,000
<TOTAL-ASSETS> 34,136,000
<CURRENT-LIABILITIES> 12,299,000
<BONDS> 3,716,000
0
0
<COMMON> 11,090,000
<OTHER-SE> 6,511,000
<TOTAL-LIABILITY-AND-EQUITY> 34,136,000
<SALES> 27,805,000
<TOTAL-REVENUES> 27,805,000
<CGS> 23,700,000
<TOTAL-COSTS> 2,877,300
<OTHER-EXPENSES> 95,000
<LOSS-PROVISION> 49,700
<INTEREST-EXPENSE> 132,000
<INCOME-PRETAX> 951,000
<INCOME-TAX> 46,000
<INCOME-CONTINUING> 905,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 905,000
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
