SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 2000
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 8, 2000 registrant had 28,184,847 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 US $32,551,000. The Company's common shares are
traded on the Nasdaq Small Cap Market tier of the Nasdaq Stock Market under the
symbol STKL.
Transitional Small Business Disclosure Format
Yes No. X
There are 24 pages in the September 30, 2000 10-QSB and the index follows the
cover page.
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STAKE TECHNOLOGY LTD. 1 September 30, 2000 10-QSB
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STAKE TECHNOLOGY LTD.
FORM 10-QSB
September 30, 2000
PART I - FINANCIAL INFORMATION
Item 1. Management's Discussion and Analysis or Plan of Operations
Item 2. Consolidated Financial Statements
Consolidated Balance Sheets as at September 30, 2000, and December
31, 1999.
Consolidated Statements of Retained Earnings for the Period Ended
September 30, 2000, and the Year ended December 31, 1999.
Consolidated Statements of Operations for the Nine Months Ended
September 30, 2000 and 1999.
Consolidated Statements of Operations for the Third Quarter - July 1
to September 30, 2000 and 1999.
Consolidated Statements of Cash Flow for the Nine Months Ended
September 30, 2000 and 1999.
Condensed Notes to Consolidated Financial Statements.
PART II - OTHER INFORMATION
All financial information is expressed in Canadian Dollars The
closing rate of exchange on November 8, 2000 was CDN. $1 = U.S.
$0.657
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STAKE TECHNOLOGY LTD. 2 September 30, 2000 10-QSB
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
Management's Discussion and Analysis of Financial Condition,
Results of Operations and Plan of Operations
Acquisitions
Northern Dairy & Food, Inc.
On September 15, 2000, the Company acquired 100% of the common shares of
Northern Food & Dairy, Inc. (Northern) by the issuance of 7,000,000 common
shares, 500,000 common share warrants exercisable for US $1.50 for 5 years, a
$375,000 cash investment in working capital and approximately $40,0000 in
acquisition costs. The issuance of these shares represented approximately 24.5%
of the outstanding common shares of the Company after the transaction.
Northern is a US based manufacturer and supplier of soymilk, other food products
and ingredients that are produced in three production facilities in Northern
Minnesota. Northern is the largest manufacturer of soy milk in the US with
approximately 60% of the US soy milk market. Northern also specializes in dry
soy sauce, tofu and other speciality food ingredients such as dietary fibres,
natural food preservative, grain fractions, dried honey coatings, dried
molasses, cheese flavours, starter media, margarine enhancement and dried meat
flavours.
Recently, Northern started operation of a new plant producing a natural food
preservative under a long-term contact for a major European food company.
As the acquisition of Northern closed September 15, 2000, the net assets of
Northern are included in the September 30, 2000 balance sheet, therefore the
results of operations are only included for the 14 - day period of September 16
- 30, 2000.
Nordic Aseptic, Inc.
In the second quarter of 2000, Northern and SunRich, Stake's existing food
technology company created at joint venture to purchase an aseptic packaging
plant located in Northern Minnesota to be known as Nordic Aseptic, Inc.
(Nordic). This plant packages aseptic soymilk for Northern and SunRich's largest
soymilk customer. The joint venture assumed management control of the plant in
April 2000, and on August 17, 2000, Nordic acquired the assets of Hoffman
Aseptic Inc. by the assumption of certain debts.
Under the terms of the agreement, the joint venture partners were responsible
for the operations of the plant from April 19, 2000 and therefore the results of
Nordic are accounted for based on SunRich's 50% interest from April 19, 2000 to
September 15, 2000. As Northern was acquired on September 15, 2000, 100% of
Nordic's results are included for the period of September 16 - 30, 2000. The net
assets of Nordic are included in the September 30, 2000 balance sheet.
Star Valley
The joint venture's second transaction was the acquisition of a dormant dairy
facility in Wyoming, which is in the process of being converted into a soy
processing facility to serve the Western US market. With the acquisition of
Northern on September 15, 2000, the Company owns 100% of this facility. This
facility is under construction and operations are expected to commence by the
end of the year.
PECAL
On February 29, 2000 Stake acquired 100% of the shares of George F. Pettinos
(Canada) Limited, also known under the trade name PECAL, from US Silica Company
for $4,700,000 in cash and acquisition costs of
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STAKE TECHNOLOGY LTD. 3 September 30, 2000 10-QSB
<PAGE>
approximately $300,000. The acquisition of PECAL complements the business of the
Company's division, Barnes Environmental International (BEI).
PECAL was direct competitor of BEI in the sand, coated sand, bentonite,
chromite, and zircon businesses, and they have strengths in several other
businesses that are closely related to BEI's existing markets. PECAL will add to
BEI's product lines in several key areas, and will help to build sales in
Ontario and the US. PECAL has sales in the range of $15 million per year, with a
history of profitability and a broad customer base.
The PECAL plant is located in Hamilton, Ontario and will continue to manufacture
and produce coated sand, foundry mixes and provide wholesaler and distributor
service. The PECAL administration office located at a separate rented site was
closed in May, 2000 and certain employees were relocated to the BEI Waterdown
Office.
The acquisition cost was financed by the assumption of a new five-year term loan
of $2,600,000, and the expansion of the Canadian line of credit from $3,000,000
to $5,000,000.
As the acquisition of PECAL closed on February 29, 2000, the net assets of PECAL
are included in the September 30, 2000 balance sheet and the operations of PECAL
are included for seven months from March 1, 2000 to September 30, 2000.
Major Developments in the Food Technology Group in 2000
In the nine months of 2000, soymilk sales continue to climb rapidly as soymilk
was introduced throughout many national food chains in the US. Concerns over
genetically modified foods also stimulated SunRich sales of organic products and
the acquisitions of Northern and Nordic and the start up of Star Valley by the
end of the year, allows the food technology group to market a fully integrated
program from seed to aseptic package.
Major Developments at BEI/PECAL in 2000
The nine months of 2000 have been a particularly busy time due to the
acquisition of PECAL and the integration of its operations into BEI. Significant
overhead savings will be realized as a result of the acquisition. Computer
systems, accounting systems and sales forces have now been fully integrated.
Also during the first nine months of 2000, BEI completed an agreement with a
major supplier to permit the sale of Ebony Grit (Copper Slag) into the US and
initial results have been most encouraging.
Major Developments in Steam Explosion Technology in 2000
In the first nine months of 2000, this division continued to focus Steam
Explosion Technology on marketing pulping systems to China through Pacitec Inc.
In August, 1999, Pacitec acquired exclusive rights to market StakeTech's
proprietary pulping systems for non-wood applications in China for a license fee
of U.S. $4.0 million payable over twelve years. Maintenance of these rights is
conditional on payment of these fees and achieving the sale of a minimum of 40
StakeTech Systems valued at approximately U.S. $160 million over the twelve-year
period. StakeTech retains all rights to the design and manufacture of
StakeTech's proprietary steam explosion pulping systems.
In May 2000, Pacitec informed the Company that one of its partners had completed
the acquisition of a majority interest in a pulp and paper mill and has
initiated the project approval process for conversion of the mill to StakeTech's
pulping process. Marketing licence fees due from Pacitec in the third quarter
were received and are included in third quarter revenues.
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STAKE TECHNOLOGY LTD. 4 September 30, 2000 10-QSB
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The Nine Months of 2000 Operations Compared with the Nine Months of 1999
Operations
Acquisitions
On February 29, 2000, the Company acquired 100% of the common shares of George
F. Pettinos (Canada) Limited, also know as PECAL from US Silica Company for
$4,700,000 cash and acquisition costs of approximately $300,000. The acquisition
of PECAL will complement the business of the Company's division, BEI.
On April 18, 2000, through its wholly owned subsidiary SunRich, Inc., the
Company acquired a 50% operating interest in Nordic Aseptic Inc. (Nordic), a
soymilk packaging company.
On September 15, 2000, the Company acquired 100% of the common shares of
Northern Food & Dairy, Inc. (Northern) by the issuance of 7,000,000 common
shares, 500,000 common share warrants exercisable for US. $1.50 for 5 years, a
$375,000 cash investment in working capital and approximately $400,000 in
acquisition costs.
With the acquisition of Northern who was the other partner in Nordic, the
Company now owns 100% of Nordic through Northern and SunRich as of September 15,
2000, as the business assets of business now known as Nordic were acquired
August 17, 2000.
The acquisition of Northern and Nordic, along with SunRich, Inc. acquired in
August, 1999 vertically integrates the U.S. based food technology group from
seed to packaged soymilk.
The acquisition of these companies has been accounted for using the purchase
method, and accordingly, the consolidated financial statements include the
results of operations of the acquired business from the date of the acquisition.
The purchase price has been allocated to the assets acquired and the liabilities
assumed based on management's best estimate of fair values. Given the number of
acquisitions in the year, the complexity of the acquired operations, as well as
the short time that has elapsed since acquisition, the cost and the allocation
of the acquisition is subject to change based on the final resolution of those
estimates. However, management believes that the final resolution of the
estimates will not have a material impact on the financial position or results
of operations of the Company.
The excess of the estimated purchase price over the net assets acquired on PECAL
is approximately $1,500,000, and will be amortized on a straight-line basis over
twenty years.
The excess of the estimated purchase price over the net assets acquired on
Northern is approximately $6,100,000, and will be amortized on a straight-line
basis over twenty years.
There was no goodwill on the acquisition of Nordic, or creation of Star Valley.
Results of Operations
The Company's earnings for the nine months ended September 30, 2000 were up 261%
to $3,271,000 or $0.15 per common share compared to $905,000 or $0.06 per share
for the nine months ended September 30, 2000.
Earnings for the third quarter, July 1 - September 30, 2000 were $1,753,000 or
$0.08 per share compared to $225,000 or $0.01 per share for the third quarter of
1999.
Revenues in the nine months ended September 30, 2000 increased by 153% to
$70,448,000 compared to revenue of $27,805,000 in the nine months of 1999. The
increase in revenues is due principally to a full year of revenue of SunRich,
which was acquired August 2, 1999 and the acquisition of PECAL at the end of
February, 2000.
Revenues of $70,448,000 for the nine months ended September 30, 2000 resulted
from SunRich's operations of $45,345,000 (2 months 1999 - $11,056,000); BEI/
PECAL's operations of $23,276,000 (1999 - $16,503,000) and steam explosion and
corporate sales of $780,000 (1999 - $246,000). Northern's sales for the period
of September 16 - 30, 2000 were $1,047,000.
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STAKE TECHNOLOGY LTD. 5 September 30, 2000 10-QSB
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Cost of sales increased to $59,647,000 for the nine months of 2000 compared to
$23,700,000 for the nine months ended September 30, 1999 due primarily to the
acquisition of SunRich in the summer of 1999 and the acquisition of PECAL in
2000. Cost of sales in the first nine months of 2000 attributable to the
BEI/PECAL segment were $19,182,000 (1999 - $13,320,000); SunRich's cost of sales
was $39,610,000 (two month period in 1999 - $10,272,000) and Northern's cost of
sales for the period of September 16 - 30, 2000 was $783,000. Steam Explosion
and corporate cost of sales were $72,000 (1999 - $108,000), which primarily
relates to standard amortization charges.
The Company's consolidated gross margin was 15.3% for the nine months ended
September 30, 2000 compared to 14.8% in the first nine months of 1999.
BEI/PECAL's margin decreased to 17.6% in the nine months of 2000 from 19.3% in
1999, due to the temporary loss of a high margin product line customer and tight
price competition in some of BEI/PECAL's principal product lines. Sunrich's
margin was 12.6% for the nine months of 2000, compared to 7.1% for the two
months of August and September, 1999 due to increased sales prices of speciality
soybeans and certain operational efficiencies. Northern's margin for the period
of September 16 - 30, 2000 was 25.2%. Nordic's net costs of operation of
$222,000 have been deferred until the plant reaches the end of its start-up
phase. With the full acquisition of this business in August 2000, the Company
expects Nordic to achieve profitable production by the end of 2000.
Steam explosion/corporate margins increased due to the receipt of the annual
license fee from Pacitec, as well as consulting revenue.
Research and development costs were $362,000 in the nine months ended September
30, 2000 compared to $242,000 for the nine months ended September 30, 1999. The
costs in 1999 and 2000 primarily related to the steam explosion technology
division. The increase in 2000 is due to applied research at SunRich.
Administration, market development and demonstration expenditures increased in
the nine months ended September 30, 2000 to $6,898,000 compared to $2,582,000
for the nine months ended September 30, 1999. In the nine months of 2000,
SunRich's administration costs were $3,749,000 (for the two month period of 1999
- $605,000); BEI/PECAL's administration costs were $1,572,000 of the
administration costs (1999 - $1,176,000); steam explosion marketing and
demonstration and corporate administrative expenses were $1,178,000 (1999 -
$801,000); Northern's administrative costs for the period of September 14 - 30,
2000 were $107,000 and Nordic's administrative costs for the period of April 10
- September 30 were $292,000. The principal reason for the increase in these
expenses in 2000 compared to 1999 results from the inclusion of Sunrich's
administration costs for nine months, compared to two months in 1999 as well as
seven months of PECAL's administrative expenses being included with BEI and new
administrative expenses resulting from the acquisition of Northern and Nordic.
The increased corporate administration costs, offset by certain savings in the
steam explosion division in 2000 compared to 1999 are due to the redesign of the
Company's web site, the retention of an investor relations firm starting at the
beginning of 2000, and higher shareholder and investor relation costs.
Amortization of patents, trademarks, licences and goodwill increased to $256,000
in the nine months ended September 30, 2000 compared to $118,000 in the nine
months of 1999 due to the amortization of new goodwill arising on the
acquisition of SunRich, PECAL and Northern, offset by some of the assets in this
category being fully amortized by the end of the 1999.
The gain on sale of property, plant and equipment of $41,000 in the nine months
ended September 30, 2000 (1999 - $15,000) is principally due to a gain of
$84,000 on the sale of non-essential land at a location separate from the
Company's principal operations being offset by a ($43,000) loss on sales of
redundant manufacturing assets.
Interest on long-term debt increased to $416,000 in the nine months ended
September 30, 2000 from $102,000 in the nine months of 1999, due principally to
the acquisition of SunRich and its debt obligations in August, 1999, the new
debt assumed by the Company to purchase PECAL, as well as interest on the debt
in Nordic and Northern for the periods since acquiring these companies.
Interest and other income increased to $79,000 in the nine months ended
September 30, 2000 from $43,000 in the first nine months of 1999 due to
miscellaneous income earned in the year and interest earned on cash balances.
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STAKE TECHNOLOGY LTD. 6 September 30, 2000 10-QSB
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The share of losses of equity accounted investees of ($36,000) in the nine
months ended September 30, 2000 (1999 - ($21,000)) and dilution gain of $140,000
(1999 - nil) is related to the Company's equity investment in Easton Minerals
Ltd. (Easton) which is a mining exploration company listed on the Canadian
Venture Exchange (EM - CDNX). Easton is currently undergoing a change of
business, subject to regulatory and shareholder approval, to acquire an Internet
company that owns the web site: theultimatedream.com.
Dilution gains result from the increase in equity value of Easton due to
issuance of capital above StakeTech's carrying cost of this investment. The
market value of Easton is based on limited trading values and while it is
unlikely that these values will be received upon the sale of this investment at
this time, sale proceeds could add to the Company's net equity and management
plans to use any cash proceeds to reduce debt and increase working capital. US
readers should note that dilution gains are not recognized as income for US GAAP
purposes and accordingly, the effects of this gain are reversed in Note 8 of the
Company's financial statements.
The foreign exchange gain of $68,000 in the nine months ended September 30, 2000
(1999 - loss of ($72,000)) is attributable to changes in the exchange value of
the US$ on the Company's net foreign transactions and balances.
Liquidity and Capital Resources at September 30, 2000
Cash and short-term deposits decreased to $657,000 at September 30, 2000 from
$2,464,000 at December 31, 1999. The decrease is principally due to the use of
cash to finance the purchase of PECAL as well as SunRich's need for cash in the
first nine months of 2000 due to the seasonal nature of its business.
The $400,000 of cash held as a security deposit at December 31, 1999 was
released into non-restricted cash upon the renegotiation of the Canadian banking
agreement during the year.
Trade accounts receivable increased to $17,995,000 at September 30, 2000 from
$7,300,000 at December 31, 1999 due largely to the acquisition of Northern,
PECAL, Nordic and the seasonal nature of SunRich's business. Trade receivables
at September 30, 2000 related to the BEI/PECAL operations were $7,198,000
(December 31, 1999 - $3,375,000); SunRich receivables were $6,032,000 at
September 30, 2000 (December 31, 1999 - $3,747,000); Northern receivables were
$4,207,000; Nordic receivables were $331,000 and general corporate activities
and steam explosion receivables were $227,000 (1999 - $178,000).
The current note receivable of $1,127,000 at September 30, 2000 (nil - December
31, 1999) and the long-term note receivable of $4,479,000 (nil - December 31,
1999) are due from a large European customer of Northern and will be received in
monthly instalments over 36 months, starting October, 2000. As this note is
non-interest bearing, these amounts have been discounted at a rate of 9.5%.
Inventories increased to $13,337,000 at September 30, 2000 from $8,589,000 at
December 31, 1999, due principally to the seasonal nature of SunRich's inventory
balances, offset by the addition of the PECAL, Northern and Nordic's inventory
balances. The Steam Explosion division is not required to carry inventory.
Current and long term future income tax assets total $1,690,000 at September 30,
2000 ($1,020,000 - December 31, 1999) and consists of $1,388,000 of Canadian tax
losses and scientific research expenditures recorded by the Canadian entity and
$302,000 relating to the SunRich tax losses and accounting reserves. The Company
believes that it is more likely than not that the tax benefit of the recorded
assets will be realized.
The Company has formal capital commitments of approximately $500,000 at of
September 30, 2000, relating to normal equipment replacement and production
improvements for BEI/PECAL and the food technology group. In addition,
approximately US $1,000,000 is planned to be spent in the next quarter on
construction and start -up of the Star Valley soy processing facility.
Investments increased to $391,000 at September 30, 2000 from $281,000 at
December 31, 1999 principally due to the dilution gain of $140,000 (1999 - nil)
offset by the equity loss on Easton of ($36,000) (1999 - ($21,000)).
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STAKE TECHNOLOGY LTD. 7 September 30, 2000 10-QSB
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Goodwill increased to $11,199,000 at September 30, 2000 from $3,922,000 at
December 31, 1999 due to the goodwill recorded on the acquisition of PECAL and
Northern offset by amortization of this new goodwill and goodwill recorded on
the SunRich acquisition in 1999 and the BEI acquisition in 1995.
Patents, trademarks, licences and other assets increased to $615,000 at
September 30, 2000 from $446,000 at December 31, 1999, primarily due to the
deferment of $222,000 of start-up costs on Nordic offset by amortization of
these assets and the write off of a non-successful licencing transaction. Under
US GAAP these start-up costs have been expensed.
Bank indebtedness increased to $5,473,000 at September 30, 2000 from nil at
December 31, 1999, due to short-term bank indebtedness being used to finance the
acquisition of PECAL, acquired bank indebtedness on Northern and the use of the
lines of credit to expand the growth of the food technology group. Included in
this balance is $1,886,000 drawn on the Canadian line of credit, plus US
$1,436,000, which is drawn on SunRich's line of credit and US $950,000, which is
drawn on Northern's line of credit.
The financing of the PECAL acquisition partially from current bank line of
credit was done in order that the Company could repay this debt at any time from
the operating efficiencies that will flow from the combination of BEI and PECAL
operations and the closure of the business office of PECAL. The ability to
finance part of the acquisition this way results from an expansion of the
Company's Canadian line of credit from $3,000,000 to $5,000,000 during the year.
The Company therefore has bank lines of credit of $5,000,000 and US $4,000,000
in total based on margining of trade accounts receivable and inventory. As part
of the Northern acquisition agreement, Stake has reserved an additional
US$1,000,000 in credit facilities from its Canadian bankers to advance to
Northern if business operations of Northern require these funds.
At September 30, 2000, amounts drawn against the Canadian line of credit, but
not included in the balance of bank indebtedness at September 30, 2000 is
$891,000 (December 31, 1999 - $1,116,000) for letters of credit. The letters of
credit are issued for $750,000 to the Ontario Ministry of the Environment and
Energy for the Certificate of Approval; $120,000 for two key suppliers and
$21,000 for security on the lease of BEI/PECAL's Louisiana operating base.
SunRich has co-guaranteed with a third party, a US $504,000 lease of a third
party company, for certain production equipment needed to harvest and produce
some of SunRich's products. In addition, SunRich and Northern have each
guaranteed 50% of the long-term loan advanced to Nordic of US $3,700,000 at
September 30, 2000.
Accounts payable and accrued liabilities increased to $20,522,000 at September
30, 2000 from $10,179,000 at December 31, 1999. This increase is due to the
acquisitions in the year. An accrued recycling reserve of $310,000 (December 31,
1999 - $384,000) is included in accounts payable at September 30, 2000 relates
to BEI/PECAL's business and represents the future costs to process and dispose
of the reclaimed materials that BEI/PECAL has accepted for recycling, and were
on site at September 30, 2000.
The current notes payable of $955,000 at September 30, 2000 (December 31, 1999 -
$208,000) bear interest at rates between 8% and 10% and are comprised of
$472,000 used to finance agricultural chemical inventory at the beginning of the
planting season for SunRich's business, as well as $155,000 (December 31, 1999 -
$208,000), which is related to the food technology group's hedging activities,
and may be drawn up to US $200,000 with interest at prime and $328,000 of
miscellaneous notes payable.
There are no customer deposits at September 30, 2000 ($1,618,000 - December 31,
1999) The balance at December 31, 1999 is related to cash deposits made by
SunRich customers in 1999 for year 2000 purchases. No recognition of revenue or
accrual of costs is booked on these transactions until the goods are shipped.
The increase in the short-term portion of long-term debt and long-term debt at
September 30, 2000 compared to December 31, 1999 is due to the acquisition of
Northern and Nordic's debt and a new 5-year term loan for $2,600,000 obtained to
partially finance the acquisition price of PECAL.
The current and long-term portion of debt totals $26,806,000 at September 30,
2000 and is comprised of: US based production equipment loans which total
$17,750,000 at rates based on US prime and LIBOR which currently range from
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STAKE TECHNOLOGY LTD. 8 September 30, 2000 10-QSB
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9.29% to 9.5%; mortgages on buildings and structures of $2,730,000 at rates
ranging from 8% to 10%; capital leases of $370,000 at interest rates between 5%
and 15.4%; miscellaneous US company based long-term loans of $2,506,000 at rates
ranging from 0.9% and 10%; the PECAL acquisition loan of $2,500,000 at September
30, 2000 and existing Canadian long term loan of $950,000 which bears interest
at rates of prime to prime + 1.25%. All of these loans are payable on a monthly
or quarterly basis and mature between November 30, 2000 and July 1, 2013.
Substantially all of the Company's assets are pledged as collateral under
various lending agreements, with the exception of the real property at Stake's
corporate offices in Norval, and the lease and physical assets in Louisiana.
The Company considers its relationship with its principal Canadian bankers and
its various US bankers to be satisfactory.
The Company believes that the cash to be generated from operations, the
operational efficiencies that will flow from BEI/PECAL due to the combination of
their operations, the vertical integration of the food technology group with the
acquisition of Northern and Nordic and the Company's Canadian and US lines of
credit are sufficient for the Company's consolidated operations during 2000.
The increase in the future tax liability of $1,109,000 at September 30, 2000
($579,000 - December 31, 1999) relates principally to acquired tax liabilities
on PECAL and Northern and the difference between the tax and accounting base of
its physical assets. The December 31, 1999 amount relates to SunRich. This
balance represents differences between accounting and taxable income that will
result in taxes being payable in a future period, primarily related to property,
plant and equipment.
Cash flow from operations before working capital changes increased to $4,357,000
in the nine months ended September 30, 2000 compared to $1,575,000 in the first
nine months of 1999, due principally to higher earnings.
Cash flow provided from operations after working capital changes was $1,285,000
for the nine months ended September 30, 2000 compared to cash provided of
$2,039,000 in the first nine months of 1999. This use of cash for working
capital in both 1999 and 2000 is due to the seasonality of the company's
businesses which sees large cash outflows in the first nine months to finance
and pay for inventories, which are then sold resulting in these sales building
the accounts receivable balances to higher than normal levels at September 30,
2000.
Cash used in investment activities increased to ($8,224,000) in the nine months
ended September 30, 2000 compared to cash used of ($579,000) in the nine months
of 1999 is principally due to the acquisition activities of the Company and the
purchase of capital assets.
Cash provided for financing activities was $5,093,000 the nine months ended
September 30, 2000 compared to cash used of ($349,000) in the nine months of
1999. The increase in cash provided by financing is principally due to the new
term loan acquired to purchase PECAL and the use of short-term bank indebtedness
to finance the acquisition of PECAL and to fund the growth of the US food
technology group.
PART II - OTHER INFORMATION.
Item 6.
8K filed March 12, 2000 relating to the acquisition of PECAL.
8K filed September 28, 2000 relating to the acquisition of Northern
PART I - FINANCIAL INFORMATION
Item 2.
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STAKE TECHNOLOGY LTD. 9 September 30, 2000 10-QSB
<PAGE>
Consolidated Financial Statements
Stake Technology Ltd.
For the First Nine Months Ended September 30, 2000
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STAKE TECHNOLOGY LTD. 10 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Consolidated Balance Sheets as at September 30, 2000 and December 31, 1999
(Expressed in Canadian Dollars)
<TABLE>
<CAPTION>
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September 30, December 31,
2000 1999
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<S> <C> <C>
Assets (note 6)
Current assets
Cash and cash equivalents $ 657,000 $ 2,464,000
Cash held as security deposit -- 400,000
Accounts receivable - trade 17,995,000 7,300,000
Note receivable (note 4) 1,127,000 --
Inventories 13,337,000 8,589,000
Miscellaneous receivables and other assets 1,322,000 246,000
Future income taxes 1,020,000 1,020,000
------------------------------
35,458,000 20,019,000
Property, Plant and Equipment - at cost
Less accumulated amortization of $8,358,000
(December 31, 1999 - $6,976,000) 38,014,000 10,766,000
Investments - at cost
Quoted market value - $1,186,000
(December 31, 1999 - $550,000) 391,000 281,000
Long term receivable (note 4) 4,479,000 --
Future income taxes 670,000 --
Goodwill - at cost
Less amortization of $772,000 --
(December 31, 1999 - $516,000) 11,199,000 3,922,000
Patents, trademarks and licences and other assets - at cost
Less accumulated amortization of $1,072,000
(December 31, 1999 - $925,000) 615,000 446,000
------------------------------
$ 90,826,000 $ 35,434,000
==============================
Liabilities
Current liabilities
Bank indebtedness (note 6) 5,473,000 --
Accounts payable and accrued liabilities 20,522,000 10,179,000
Note payable (note 6) 955,000 208,000
Customer deposits -- 1,618,000
Current portion of long-term debt (note 6) 4,512,000 950,000
Current portion of preference shares 140,000 240,000
------------------------------
31,602,000 13,195,000
Long-term debt and bank facilities (note 6) 22,294,000 2,955,000
Future income taxes 1,109,000 579,000
Preference shares of subsidiary company 577,000 607,000
------------------------------
55,582,000 17,336,000
------------------------------
Shareholders' Equity
Capital stock (note 7) 24,715,000 11,163,000
Contributed surplus 4,635,000 4,635,000
Retained earnings (note 7) 5,766,000 2,495,000
Current translation adjustment 128,000 (195,000)
------------------------------
35,244,000 18,098,000
------------------------------
$ 90,826,000 $ 35,434,000
==============================
</TABLE>
(See accompanying notes to consolidated financial statements)
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 11 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Consolidated Statements of Retained Earnings
For the Period Ended September 30, 2000 and the Year Ended December 31, 1999
(Expressed in Canadian Dollars)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Nine months ended Year ended
September 30, 2000 December 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Retained Earnings - Beginning of the Year $ 2,495,000 $ 971,000
Net Earnings for the Period 3,271,000 1,524,000
---------------------------------------
Retained Earnings - End of Period $ 5,766,000 $ 2,495,000
=======================================
</TABLE>
(See accompanying notes to consolidated financial statements)
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 12 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Consolidated Statements of Operations
For the Nine Months Ended September 30, 2000 and 1999
(Expressed in Canadian Dollars)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
September 30, September 30,
2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 70,448,000 $ 27,805,000
-------------------------------
Cost of goods sold 59,647,000 23,700,000
-------------------------------
Gross profit 10,801,000 4,105,000
-------------------------------
Expenses
Research and development 362,000 242,000
Administration, market development
And demonstration 6,898,000 2,582,000
Amortization of patents, trademarks, licences and goodwill 256,000 118,000
Gain on sale of property, plant and equipment (41,000) (15,000)
-------------------------------
7,475,000 2,927,000
-------------------------------
Earnings from operations 3,326,000 1,178,000
Interest on long-term debt (416,000) (102,000)
Other interest (28,000) (30,000)
Interest and other income 79,000 43,000
Foreign exchange gain (loss) 68,000 (72,000)
Gain on dilution of investment interests
in equity accounted investee 140,000 --
Share of loss of equity accounted investees (36,000) (21,000)
Dividend on preference shares of subsidiary company (22,000) (22,000)
Imputed interest on preference shares of subsidiary company (23,000) (23,000)
-------------------------------
Earnings before taxes 3,088,000 951,000
-------------------------------
Recovery of income taxes - future income taxes 652,000 337,000
Provision for income taxes (469,000) (383,000)
-------------------------------
Net Earnings for the Period $ 3,271,000 $ 905,000
===============================
Net Earnings per Share for the Period $ 0.15 $ 0.06
===============================
</TABLE>
(See accompanying notes to consolidated financial statements)
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 13 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Consolidated Statements of Operations
For the Third Quarter (July 1 - September 30, 2000 and 1999)
(Expressed in Canadian Dollars)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
September 30, September 30,
2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 25,007,000 $ 16,696,000
-------------------------------
Cost of goods sold 20,645,000 15,185,000
-------------------------------
Gross profit 4,362,000 1,511,000
-------------------------------
Expenses
Research and development 113,000 82,000
Administration, market development
And demonstration 2,499,000 1,049,000
Amortization of patents, trademarks, licences and goodwill 89,000 40,000
Loss on sale of property, plant and equipment 2,000 (15,000)
-------------------------------
2,703,000 1,156,000
-------------------------------
Earnings from operations 1,659,000 355,000
Interest on long-term debt (185,000) (51,000)
Other interest -- (24,000)
Interest and other income -- 19,000
Foreign exchange gain (loss) 38,000 (6,000)
Gain on dilution of investment interests
in equity accounted investee -- --
Share of loss of equity accounted investees (12,000) (7,000)
Dividend on preference shares of subsidiary company (8,000) (8,000)
Imputed interest on preference shares of subsidiary
company (8,000) (7,000)
-------------------------------
Earnings before taxes 1,484,000 271,000
-------------------------------
Recovery of income taxes - future income taxes 412,000 59,000
Provision for income taxes (143,000) (105,000)
-------------------------------
Net Earnings for the Period $ 1,753,000 $ 225,000
===============================
Net Earnings per Share for the Period $ 0.08 $ 0.01
===============================
</TABLE>
(See accompanying notes to consolidated financial statements)
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 14 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Consolidated Statements of Cash Flow
For the Nine Months ended September 30, 2000 and 1999
(Expressed in Canadian Dollars)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
September 30, September 30,
2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in)
Operating activities
Net earnings for the period $ 3,271,000 $ 905,000
Items not affecting cash
Amortization 1,785,000 641,000
Share of losses of investee 36,000 21,000
Gain on sale of property, plant and equipment (41,000) (15,000)
Gain on dilution of interest in investee (140,000) --
Write off of patents, trademarks, licences and other assets 75,000 --
Imputed interest on preference shares 23,000 23,000
Future income taxes (652,000) --
-----------------------------
4,357,000 1,575,000
Change in non-cash working capital balances
Accounts receivable - trade (3,611,000) (1,058,000)
Inventories (977,000) (18,000)
Miscellaneous receivables and other assets (543,000) 6,000
Accounts payable and accrued liabilities 2,281,000 47,000
Note payable 1,442,000 1,487,000
Customer deposits (1,664,000) --
-----------------------------
1,285,000 2,039,000
-----------------------------
Investments
Acquisition of company - net of cash acquired (4,996,000) 64,000
Cash held as security deposit 400,000 --
Acquisition of property, plant and equipment (3,544,000) (613,000)
Proceeds on sale of property, plant and equipment 238,000 15,000
Increase in investments and advances (6,000) (11,000)
Acquisition of patents, trademarks and licences and other assets (316,000) (34,000)
-----------------------------
(8,224,000) (579,000)
-----------------------------
Financing
Purchase of preference shares in subsidiary company (100,000) (100,000)
Redemptions of preference shares in subsidiary company (53,000) (52,000)
Repayment of long-term debt (723,000) (500,000)
Increase in bank indebtedness 2,147,000 --
Issuance of long-term debt 3,343,000 --
Issuance of common shares 479,000 303,000
-----------------------------
5,093,000 (349,000)
-----------------------------
Foreign exchange loss on cash held in a foreign currency 39,000 --
-----------------------------
(Decrease) increase in cash during the period (1,807,000) 1,111,000
Cash and cash equivalents - Beginning of period 2,464, 000 181,000
-----------------------------
Cash and cash equivalents - End of period $ 657,000 $ 1,292,000
=============================
</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. 15 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 2000
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
1. Independent chartered accountants have not audited the information
presented in the accompanying Consolidated Financial Statements. 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 8, applied on a
consistent basis. The consolidated balance sheet at December 31, 1999 has
been taken from the Company's Annual Report to Shareholders for the year
then ended. The consolidated financial statements as at December 31, 1999
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.
The food technology group located in Minnesota, Iowa and Wyoming, consists
of three separate US wholly owned subsidiaries: SunRich Inc., (SunRich)
acquired August 2, 1999; Northern Food & Dairy, Inc. (Northern) acquired
September 15, 2000, and Nordic Aseptic Inc. (Nordic) of which 50% was
acquired on April 18, 2000 through SunRich and the remaining 50% on
September 15, 2000, with the acquisition of Northern. The food technology
group sources and monitors identity preserved soy and corn products
focusing on organic non-GMO crops, which are then sold to third parties or
sold within the group to be processed into soymilk and food ingredients.
This group also packages and blends soymilk using Tetra-Pak technology.
The industrial minerals and abrasives group is located in Ontario, Quebec,
and Louisiana and consists of the Company's division, Barnes Environmental
International (BEI), and it's now amalgamated company known as PECAL,
which was acquired February 29, 2000. This group sells abrasives,
industrial materials and recycles inorganic materials.
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, operations and employees at September 30, 2000 are
located in both in Canada and the US.
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 8. 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
inter-company accounts and transactions have been eliminated on
consolidation.
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 16 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 2000
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
Cash and cash equivalents
Cash and cash equivalents consist of unrestricted cash and short-term
deposits with maturity at acquisition of less than 90 days.
Inventories
Inventories related to the recycling and industrial minerals business of
BEI/PECAL and merchandise and finished goods inventories of the food
technology group are valued at the lower of cost and estimated net
realizable value. Cost is determined on a first-in, first-out basis.
Inventories of grain are valued at market. Changes in market value are
included in cost of sales. SunRich generally follows a policy of hedging
its grain transactions to protect gains and minimize losses due to market
fluctuations. Hedge contracts are adjusted to market price and gains and
losses from such transactions are included in cost of sales. The Company
has a risk of loss from hedge activity if the grower does not deliver the
grain as scheduled.
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 amount if there is evidence of
a decline in value, which is other than temporary.
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 and
structures. Amortization is calculated from the time the asset is put into
use.
Costs of acquiring or filing patents, trademarks and licenses are
capitalized and amortized on a straight-line basis over their expected
lives of 10 to 20 years. Costs of renewing patents and trademarks are
expensed as incurred.
Costs of starting up new production facilities are deferred until the
facility achieves certain operating parameters and is amortized on a
straight-line basis over three years.
Revenue recognition
i) Food Technology Group
Grain sales are recorded at the time of shipment. All other revenue
of this group is recognized upon the sale and shipment of the
product or the providing of a service to a customer.
ii) Abrasives Group
Revenue from the sale of industrial minerals is recognized upon
shipment.
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 17 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 2000
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
Revenue recognition (continued)
Tipping fee revenue, which consists of a per ton fee paid to
BEI/PECAL for waste recycling materials being received by the
BEI/PECAL is recognized at the time the material is received.
Provision is made for the net costs of processing and disposal of
the material.
iii) Steam Explosion Technology
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 research 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
The companies in the US based food technology group are considered to be
self-sustaining operations. The food technology group's assets and
liabilities are translated at exchange rates in effect at the balance
sheet date. Revenues and expenses are translated at average exchange rates
prevailing during the year. Resulting unrealized gains or losses are
accumulated and reported as currency transaction adjustment in
shareholders' equity.
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.
Goodwill
Goodwill represents the excess of the cost of subsidiaries and businesses
over the assigned value of net assets acquired. Goodwill is amortized on a
straight-line basis over its estimated life of 20 years. The Company
reviews the recoverability of goodwill whenever events or changes in
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.
Customer deposits
Customer deposits principally include prepayments by the food technology
group's customers for fertilizer and chemicals to be purchased during the
spring planting season.
Income taxes
During 1998, the Company adopted the asset and liability method of
accounting for income taxes whereby future income tax assets are
recognized for deductible temporary differences and operating loss
carry-forwards, and future income tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the amounts of assets and liabilities recorded for income tax and
financial reporting purposes. Future income tax assets are recognized only
to the extent that management determines that it is more likely than not
that the future income tax assets will be realized. Future income tax
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 18 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 2000
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
Income taxes (continued)
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 expense or benefit is the income tax payable or refundable for the
period plus or minus the change in future income tax assets and
liabilities during the period.
Derivative instruments
The food technology group enters into exchange-traded commodity futures
and options contracts to hedge its exposure to price fluctuations on grain
transaction to the extent considered practicable for minimizing risk from
market price fluctuations. Futures contracts used for hedging purposes are
purchased and sold through regulated commodity exchanges. Inventories,
however, may not be completely hedged, due in part to the Group's
assessment of its exposure from expected price fluctuations. Exchange
purchase and sales contracts may expose the Company to risk in the event
that counter-party to a transaction is unable to fulfill its contractual
obligation.
The Company manages its risk by entering into purchase contracts with
pre-approved producers. The Company has a risk of loss from hedge activity
if a grower does not deliver the grain as scheduled. Sales contracts are
entered into with organizations of acceptable creditworthiness, as
internally evaluated. All future transactions are marked to market. Gains
and losses on futures transactions related to grain inventories are
included in cost of goods sold.
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 in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
4. Acquisition of Businesses
On February 29, 2000, the Company acquired 100% of the common shares of
George F. Pettinos (Canada) Limited, also know as PECAL from US Silica
Company for $4,700,000 cash and approximately $300,000 in acquisition
costs. The acquisition of PECAL will complement the business of the
Company's division, BEI, which will now be known as BEI/PECAL. Through its
wholly owned subsidiary SunRich, Inc., the Company acquired a 50%
operating interest in Nordic Aseptic Inc. (Nordic), a soymilk packaging
company on April 18, 2000 and on August 17, 2000, the net assets of this
business were acquired by SunRich and its partner by the assumption of
certain debts.
On September 15, 2000, the Company acquired 100% of the common shares of
Northern Food & Dairy, Inc, from its three shareholders by the issuance of
7,000,000 common shares, 500,000 common share purchase warrants
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 19 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 2000
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
4. Acquisition of Businesses (continued)
exercisable at U.S. $1.50 for five years, a $375,000 cash investment in
working capital and approximately $400,000 in acquisition costs.
With the acquisition of Northern, the other partner of Nordic, the Company
owns 100% of Nordic through Northern and SunRich as of September 15, 2000.
The acquisition of Northern and Nordic with SunRich, Inc. acquired in
August 1999, vertically integrate the US based food technology group from
seed to packaged soymilk.
The acquisition of these companies has been accounted for using the
purchase method, and accordingly, the consolidated financial statements
include the results of operations of the acquired business from the date
of the acquisition. The purchase price has been allocated to the assets
acquired and the liabilities assumed based on management's best estimate
of fair values. Given the number of acquisitions in the year, the
complexity of the acquired operations, as well as the short time that has
elapsed since acquisition, the cost and the allocation thereof, of the
acquisition is subject to change based on the final resolution of those
estimates. However, management believes that the final resolution of the
estimates will not have a material impact on the financial position or
results of operations of the Company.
The excess of the estimated purchase price over the net assets acquired on
PECAL is approximately $1,500,000, and will be amortized on a
straight-line basis over twenty years.
The excess of the estimated purchase price over the net assets acquired on
Northern is approximately $6,100,000, and will be amortized on a
straight-line basis over twenty years.
There was no goodwill on the acquisition of Nordic or the start up of Star
Valley.
5. Note Receivable
The current note receivable of $1,127,000 at September 30, 2000 (nil -
December 31, 1999), and the long-term note receivable of $4,479,000 (nil -
December 31, 1999) are due from a large European customer of Northern and
will be received in monthly instalments over 36 months. As the note is
non-interest bearing, these amounts have been discounted at a rate of
9.5%.
6. Long-term debt and banking facilities
Substantially all of the Company's assets are pledged as collateral under
various lending agreements, with the exception of the real property at
Stake's corporate offices in Norval, and the lease and physical assets in
Louisiana.
In addition, to the bank indebtedness reflected in the balance sheet,
there is $891,000 secured against the Canadian line of credit for under
various security arrangements, the largest being the $750,000 financial
assurance provided to the Ontario Ministry of Environment for BEI's
business. SunRich has also co-guaranteed with a third party, a US $504,000
lease of a third party company, for certain production equipment needed to
harvest and produce some of SunRich's products. In addition, SunRich and
Northern have each guaranteed 50% of the long-term loans advanced to
Nordic, which total $3,700,000 at September 30, 2000.
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 20 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 2000
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
6. Long-term debt and banking facilities (continued)
The current notes payable of $955,000 at September 30, 2000 (December 31,
1999 - $208,000) bear interest at rates between 8% and 10% and are
comprised of $472,000 used to finance agricultural chemical inventory at
the beginning of the planting season for SunRich's business, as well as
$155,000 (December 31, 1999 - $208,000), which is related to the food
technology group's hedging activities, and may be drawn up to US $200,000
with interest at prime and $328,000 of miscellaneous notes payable.
The current and long-term portion of debt is $26,806,000 at September 30,
2000 and is comprised of: US based production equipment loans of
$17,750,000 at rates based on US prime and LIBOR which currently range
from 9.29% to 9.5%; mortgages on buildings and structures of $2,730,000 at
rates ranging from 8% to 10%; capital leases of $370,000 at interest rates
between 5% and 15.4%; miscellaneous US company based long-term loans of
$2,506,000 at rates ranging from 0.9% and 10%; the PECAL acquisition loan
of $2,500,000 at September 30, 2000 and existing Canadian long term loan
of $950,000 which bear interest at rates of prime to prime + 1.25%. These
loans are all payable on a monthly or quarterly basis and mature between
November 30, 2000 and July 1, 2013.
7. Capital Stock
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Authorized
Unlimited common shares without par value
(a) Issued and fully paid -
27,949,888 common shares
(September 30, 1999 - 20,604,788
December 31, 1999 - 20,653,788) $ 24,685,000 $ 11,090,000 $ 11,163,000
Warrants 30,000 -- --
--------------------------------------------
$ 24,715,000 $ 11,090,000 $ 11,163,000
--------------------------------------------
</TABLE>
(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) On September 15, 2000, the Company issued 7,000,000 common shares and
500,000 common share purchase warrants at US $1.50 exercisable for five
years. As these shares were issued with restrictive legends, they have
been discounted by 35% from the market price of the company's shares on
the date the transaction that was US $1.5625 to US $1.015625. The warrants
have been valued at $30,000.
(d) To September 30, 2000, 296,100 options have been exercised for gross
proceeds of US $315,000. There were no options exercised between October
1, 2000 and November 8, 2000.
(e) At September 30, 2000, there were options vested to Employees and
Directors to acquire 1,234,650 common shares at exercise prices of US
$0.75 to US$1.4062. In addition, at September 30, 2000 options to acquire
an additional 303,000 common shares at exercise prices of US $1.063 - US
$1.4062 have been granted but have not yet vested.
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 21 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 2000
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
7. Capital Stock (continued)
(f) On September 27, 2000, the Board approved a reduction in the exercise
price of 331,404 warrants from US $2.00 to US $1.50 until October 27,
2000. This price reduction resulted in 234,959 warrants being exercised
and 234,959 shares being issued subsequent to September 30, 2000 for gross
proceeds of US $352,000. The remaining 96,445 warrants are exercisable at
US $2.00 until December 29, 2000.
8. 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 (US GAAP) during the periods presented except
with respect to the following:
Under US GAAP, the gain on dilution in the amount of $140,000 in the first
nine months of 2000 (December 31, 1999 - nil) results from the dilution of
the Company's ownership of the common share equity of Easton would have
been excluded from income and included as a separate component of
shareholders' equity as Easton is a development stage company. Also, under
US GAAP, certain development and start-up costs of $222,000 in the first
nine months of 2000 (December 31, 1999 - $75,000) deferred in these
financial statements would be expensed.
Additional disclosures under US GAAP are as follows: the allowance for
doubtful accounts at September 30, 2000 is $1,071,000 (December 31, 1999 -
$665,000); amounts due from officers and directors are $105,000 at
September 30, 2000 (December 31, 1999 - $44,000), and amounts due to
officers and directors at September 30, 2000 are $125,000 (December 31,
1999 - nil); accounts payable and accrued liabilities includes an accrual
for recycling costs of $310,000 at September 30, 2000 (December 31, 1999 -
$384,000).
Under US GAAP, investments in joint ventures would be accounted for under
the equity method whereas under Canadian GAAP, proportionate consolidation
is used. There is no effect to income of shareholders' equity related to
this GAAP difference.
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 22 September 30, 2000 10-QSB
<PAGE>
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the Nine Months ended September 30, 2000
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
8. United States Accounting Principles Differences (continued)
Accordingly, the following would have been reported under US GAAP:
<TABLE>
<CAPTION>
9 months to 9 months to
Sept 30, Sept 30, Dec. 31, Dec. 31,
2000 1999 1999 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings for the period - as reported $ 3,271,000 $ 905,000 $ 1,524,000 $ 822,000
Dilution gain (taxes - nil) (140,000) -- -- (26,000)
Development and start-up costs expensed (222,000) -- (75,000) (35,000)
Amortization of development costs 138,000 -- -- --
---------------------------------------------------------------------
Net earnings for the period - U.S. GAAP $ 3,047,000 $ 905,000 $ 1,449,000 $ 761,000
=====================================================================
Net earnings per share - U.S. GAAP $ 0.14 $ 0.06 $ 0.08 $ 0.05
=====================================================================
Weighted average number of common shares outstanding 21,268,000 16,233,000 17,385,000 14,702,000
=====================================================================
Shareholders' equity - as reported $ 35,244,000 $ 17,601,000 $ 18,098,000 $ 10,073,000
Cumulative development and start-up costs expensed (248,000) (164,000) (239,000) (164,000)
---------------------------------------------------------------------
Shareholders' equity - US GAAP $ 34,966,000 $ 17,437,000 $ 17,859,000 $ 9,909,000
=====================================================================
</TABLE>
Comprehensive Income
US GAAP requires that a comprehensive income statement be prepared
Comprehensive income is defined as " The change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner events". It includes all changes in equity during a period,
except those resulting from investments by owners and distribution to owners
The comprehensive statement reconciles the reported net income to the
comprehensive income.
The following is a comprehensive income statement (prepared in accordance with
US GAAP), which, under US GAAP, would have the same prominence as other
financial statements.
<TABLE>
<CAPTION>
9 months to 9 months to
September September December December
30, 2000 30, 1999 31, 1999 31, 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings for the period - US GAAP $ 3,047,000 $ 905,000 $ 1,449,000 $ 761,000
Dilution gain (taxes - nil) 140,000 -- -- 26,000
Currency translation adjustment (taxes - nil) 323,000 -- (195,000) --
---------------------------------------------------------------------
Comprehensive income $ 3,510,000 $ 905,000 $ 1,254,000 $ 787,000
=====================================================================
</TABLE>
9. Comparative Balances
Certain comparative account balances have been reclassified to achieve
comparability to current period balances.
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 23 September 30, 2000 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 10, 2000
-----------------
Stake Technology Ltd.
by Leslie N. Markow
Vice President - Finance
& Chief Financial Officer
--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD. 24 September 30, 2000 10-QSB
