Document/Exhibit Description Pages Size
1: 10KSB Annual Report -- Small Business 76 374K
2: EX-3.1 Certificate 7 23K
4: EX-10.11 Agreement 27 92K
3: EX-10.9 Agreement 27 95K
5: EX-21 List of Subsidiaries of Stake Technology, Inc. 2 6K
6: EX-24 Powers of Attorney 13 26K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2000
Commission File No. 0-9989
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 |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Yes |X| No |_|
Revenue for the year ended December 31, 2000: CDN $101,653,000
At March 7, 2001 the registrant had outstanding 29,022,305 common shares, 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$35,554,000. The Company's common shares
traded on Nasdaq Small Cap Market tier of The Nasdaq Stock Market under the
symbol STKL.
Transitional Small Business Disclosure Format
Yes |_| No |X|
STAKE TECHNOLOGY LTD.
--------------------
Index and Cross Reference Sheet
Annual Report
on Form 10-KSB for
Year Ended December 31, 2000
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FORM 10-KSB Page
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PART I
Item 1. Description of Business..............................................................................1
Item 2. Description of Property.............................................................................16
Item 3. Legal Proceedings.................................................................................. 16
Item 4. Submission of Matters to a Vote of
Security Holders.............................................................................. 16
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters....................................................................17
Item 6. Management Discussion and Analysis or
Plan of Operations ............................................................................17
Item 7. Financial Statements................................................................................28
Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure................28
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...................................................29
Item 10. Executive Compensation..............................................................................33
Item 11. Security Ownership of Certain Beneficial
Owners and Management..........................................................................37
Item 12. Certain Relationships and Related Transactions......................................................37
Item 13. Exhibits and Reports on Form 8-K....................................................................39
i
Currency Presentation
All dollar amounts herein are expressed in Canadian dollars. Amounts expressed
in United States dollars are preceded by the symbols "US$". On March 7, 2001,
the noon buying rate, in New York City for cable transfers in Canadian dollars
for customs purposes by the Federal Reserve Bank of New York was US$0.645 for
$1.00 Canadian.
The following table sets forth, for each of the years indicated, information
with respect to the exchange rate of the Canadian dollar into United States
currency. (1) The rates of exchange for the Canadian dollar, expressed in US
dollars, in effect at the end of the years indicated, (2) the average of
exchange rates in effect on the last day of each month during such years and (3)
the high and low exchange rates during such years.
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==========================================================================================================
RATES 1996 1997 1998 1999 2000
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Last Day..(1).. $0.7301 $0.6999 $0.6530 $0.693 $0.6666
----------------------------------------------------------------------------------------------------------
Average..(2).. $0.7332 $0.7221 $0.6712 $0.673 $0.6733
----------------------------------------------------------------------------------------------------------
High..(3).. $0.7526 $0.7467 $0.7045 $0.6537 $0.6973
----------------------------------------------------------------------------------------------------------
Low..(3).. $0.7212 $0.6945 $0.6382 $0.693 $0.6413
==========================================================================================================
PART I
Item 1. Description of Business
Stake Technology Ltd. ("Stake" or the "Company") operates in three principal
businesses; (1) natural food product sourcing, processing, and packaging, (2)
distribution and recycling of environmentally responsible aggregate products and
(3) engineering and marketing of a clean pulping system using patented steam
explosion technology. The Company was incorporated under the laws of Canada on
November 13, 1973. The principle executive offices and the Steam Explosion
Technology Group are located at 2838 Highway 7, Norval, Ontario, Canada, L0P
1K0, telephone: (905) 455-1990, fax: (905) 455-2529, e-mail: info@staketech.com
and web site: www.staketech.com.
SunRich Food Group, Inc. consists of four legal entities, SunRich Inc., Northern
Food & Dairy, Inc., Nordic Aseptic Inc, and Star Valley LLC. The SunRich Food
Group produces organic and non-GMO food ingredients with a specialization in
soymilk and other soy products. The SunRich Food Group operates from five plants
in Minnesota and one plant in each of Iowa and Wyoming. The Sunrich Food Group
can be contacted at 3824 - 93rd Street S.W., Hope, Minnesota, 56046-0128,
telephone: (507) 451-3316 fax: (507) 451-2910, e-mail: info@sunrich.com and web
site: www.sunrich.com.
The Environmental Industrial Group includes BEI/PECAL, a division of the Stake
Technology Ltd. and Temisca, Inc. This Group sources specialty sands from its
Temisca property in Northern Quebec, as well as sells and distributes abrasives
and other industrial materials from third party suppliers to the foundry, steel
and marine/bridge cleaning industries. The Group also recycles inorganic
materials under a special permit from the Ministry of Environment and Energy of
Ontario, one of two such licences issued in Canada's largest province. The
Environmental Industrial Group can be contacted at 407 Parkside Drive,
Waterdown, Ontario, Canada, L0R 2H0, telephone: (905) 689-6661, fax: (905)
689-0485, e-mail: info@barnesenvironmental.com and web site: www.bei.com. The
Environmental Industrial Group also has a warehouse and sales facility in
Montreal, Quebec, a manufacturing and distribution facility in, New Orleans,
Louisiana, and a sand quarry and processing facility located in Ville Marie,
Quebec.
1
Item 1. Description of Business (continued)
Segmented Information
The Company operates in three industries:
(1) The SunRich Food Group produces, markets and packages organic and
transmutagenetic food organisms (non-GMO) food products and ingredients
with a focus on soy milk; and
(2) The Environmental Industrial Group manufactures, processes, sells and
recycles inorganic materials, which are used in the foundry, steel, bridge
and ship cleaning industries; and
(3) The Steam Explosion Technology Group owns numerous patents on steam
explosion technology systems and designs and subcontracts the manufacture
of equipment that process non-woody fibres with a high pressure steam
process.
The Company's operations and assets are located in both Canada and the US.
Acquisitions during 2000 and to date in 2001
The SunRich Food Group
Jenkins & Gournoe, Inc.
In February, 2001, the Company's wholly owned subsidiary, SunRich Food Group,
Inc acquired 100% of the common shares of Jenkins & Gournoe, Inc. (First Light
Foods), a private Illinois company that owns certain soy trademarks including
Soy-Um, and Rice-Um that are sold under an agreement to a major California based
food retailer. The purchase price was US$1,900,000 and was paid by the issuance
of 833,333 common shares issued by Stake, 35,000 warrants exercisable at US$1.70
for five years, US$300,000 in cash, a note payable for US$700,000, which is
repayable quarterly over 2 years by payments of US$87,500, with interest at US
Prime, and acquisition costs of approximately US$100,000. There is also
contingent consideration that may be payable on this acquisition; (a) if certain
profit targets are met up to an additional 140,000 warrants exercisable at
market at the time they are earned, may be issued in 2002 - 2005, as well as (b)
a percentage of gross profits in excess of US$1,100,000 per annum from 2001-
2005 will be paid to the vendors of First Light Foods. The acquisition of First
Light Foods complements the SunRich Food Group's strategy of becoming a
vertically integrated group - from seed to merchandisable products of soy milk.
As the acquisition of First Light Foods closed after December 31, 2000, none of
its operations or assets are included in the December 31, 2000 10-KSB.
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 at US$1.50 for five years, and
cash consideration of $608,000 for a total purchase price of $11,190,000 The
issuance of the shares for acquisition represented approximately 24.5% of the
outstanding common shares of the Company after the transaction, and results in
Mr. Dennis Anderson, the principal vendor of Northern owning 19% of Stake, at
December 31, 2000. Mr. Anderson remains the President of Northern and is the
Vice President of Operations of the SunRich Food Group.
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 concentrate in the
US with approximately 55% of the US soy milk market. Northern also produces and
dries soy sauce, tofu and other speciality food ingredients such as dietary
fibres, natural food preservatives, grain fractions, dried honey coatings, dried
molasses, cheese flavours, starter media, margarine enhancement and dried meat
flavours.
2
Item 1. Description of Business (continued)
In October, 2000, Northern started operation of one of these three plants to
produce a natural food preservative under a long-term contact for a major
European food company.
As the acquisition of Northern was completed on September 15, 2000, the net
assets of Northern are included in the December 31, 2000 balance sheet.
Northern's results of operations are included for the 106-day period of
September 16 - December 31, 2000.
Nordic Aseptic, Inc.
In the second quarter of 2000, Northern and SunRich, Stake's only food company
as at December 31, 1999 created a 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 15, 2000, Nordic acquired certain assets of Hoffman
Aseptic Inc. by the assumption of certain debts, resulting in a purchase price
of $380,000.
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 operating
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 operating results are included for the period of September 16 -
December 31, 2000. The net assets of Nordic are included in the December 31,
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 an
additional soy processing facility to serve the western US market and was formed
under the name of Star Valley LLC. With the acquisition of Northern on September
15, 2000, the Company owns 100% of this facility. Star Valley LCC has been
amalgamated into Northern and will operate as a division of Northern within the
SunRich Food Group effective January 2, 2001. This facility is under
construction and operations are expected to commence in the summer of 2001.
Environmental Industrial Group
PECAL
On February 29, 2000 Stake acquired 100% of the shares of George F. Pettinos
(Canada) Limited, operating as PECAL, from US Silica Company for $4,682,000 cash
which was financed by the assumption of a new five-year term loan of $2,600,000
and an expansion of the Company's Canadian line of credit from $3,000,000 to
$5,000,000. On December 29, 2000, the Company renegotiated the Canadian debt
agreement and as a result $1,800,000 of the increased line of credit was
reallocated to a long-term facility and reduced the Canadian line of credit from
$5,000,000 to $4,000,0000.
The acquisition of PECAL complements the business of the Company's division,
Barnes Environmental International (now all part of the Environmental Industrial
Group). PECAL was a 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 the Environmental Industrial Group's product lines in several key areas
and will help to build sales in Ontario and the US.
The PECAL plant located in Hamilton, Ontario was retained and manufactures and
produces coated sand, foundry mixes and provides wholesaler and distribution
service. The PECAL administration office located at a separate rented site was
closed in May 2000 and certain employees relocated to the Environmental
Industrial Group's Waterdown Head Office.
3
Item 1. Description of Business (continued)
Temisca, Inc.
On October 31, 2000, the Company acquired Temisca, Inc. a private sand deposit
and processing company in Ville Marie, Quebec. The purchase price was $1,676,000
consisting of cash paid to the vendor and acquisition costs of $926,000 and the
issuance of a $750,000 note payable which bears interest at 5% and is repayable
over five years.
The acquisition of Temisca gives the Environmental Industrial Group its first
directly controlled raw material source that will allow the Group to increase
its sales to existing and new customers. The properties of the Temisca sands are
suited to filtration, frac sand, golf course sand and abrasive applications. The
acquisition of Temisca also provides the Environmental Industrial Group with
better transportation opportunities due to the physical location of Temisca to
the Environmental Industrial Group's suppliers and customers.
SunRich Food Group
The SunRich Food Group has been created in the last eighteen months with the
acquisition of four companies; starting with SunRich Inc, in August 1999, the
purchase of Nordic Aseptic, Inc. in August 2000, the creation of Star Valley
during 2000, the acquisition of Northern Food & Dairy, Inc. in September, 2000
and most recently the acquisition of First Light Foods (Jenkins & Gournoe) in
February 2001. The acquisition of these companies establishes a unique
vertically integrated food company that is now a significant presence in the
growing soy market.
These acquisitions have also significantly increased the size of the Company's
balance sheet, the size of its operations and results in a majority of the
revenues and assets of the Company being based in the US in 2000.
The SunRich Food Group is composed of three vertically integrated business units
operating in various segments of the food industry.
1) SunRich, Inc. sources and markets Identity Preserved (IP) specialty grain and
natural, certified organic food ingredients to domestic and foreign food
processors. Products include, IP corn, food grade soybeans, soymilk, soymilk
powders, grain (corn, rice and oat) sweeteners and maltodextrins, organic
vegetable oils, organic corn, soy and oat flours and organic feed ingredients.
2) Northern Food & Dairy, Inc. is a technical processor of specialty and
functional food ingredients. Principal products and processes are soymilk
extraction, fractionalize, extract and hydrolyze grain products, extract and
refine soluble fiber, ferment and hydrolyze natural food preservatives, spray
dry a variety of technically difficult products, formulate and dry powdered
honey and sweeteners and formulate and blend dairy powders.
3) Nordic Aseptic, Inc. is an aseptic packager of shelf stable beverages and
liquid products. Products packaged include shelf stable soymilk, rice beverages,
soy/fruit smoothies, soups and broths.
Vertical integration of soymilk and organic sweetener production allows the
SunRich Food Group to control the entire production chain from sourcing specific
IP soybeans and grains through processing, formulating and retail packaging of
branded soymilk and beverages.
The group's sales revenue slows during December to March each year when bulk
grain shipments are inhibited by winter weather. Food ingredient sales,
processing revenue and retail food product sales are not as seasonal except for
lapses in production when customers draw down inventories at the end of fiscal
periods.
Bulk commodity products sales are freight cost sensitive which can limit their
competitiveness in particular markets. Competitive bulk and container freight
give the group access to Japanese and Mexican export markets but uncompetitive
European freight limits possibilities in that market. Food ingredients enjoy
much wider distribution because of their product uniqueness and higher margin
that diminishes the effect of freight costs.
4
Item 1. Description of Business (continued)
Major Developments during 2000
The SunRich Food Group was formed in 2000 with the acquisition of Northern Food
& Dairy, Inc. in September 2000 and the purchase of Nordic Aseptic Inc. from
Hoffman Aseptic Packaging in August 2000. SunRich's capabilities of raw material
sourcing and ingredient marketing coupled with Northern's technical processing
expertise to produce and market ingredients for the high growth natural, organic
and nutraceutical food markets and Nordic's aseptic packaging capabilities,
create a business group that is vertically integrated in businesses such as
soymilk starting with contracting of IP soybeans from growers, proceeding
through the processing of raw materials into high quality ingredients and
packaging retail soymilk products for consumers.
Major Products
Identity Preserved grains: The demand for non-genetically modified soybeans from
foreign customers and the increase demand from domestic soyfoods manufacturers
fueled an increase in business volume. These trends are expected to continue
through 2001.
Soymilk and soy ingredients: Soymilk and soy ingredients are marketed throughout
the United States where the Group has a strong presence, providing approximately
55% of the soy concentrate to the US market. The SunRich Food Group is
continuing to develop new customers as the demand for soy base products
experiences continued growth.
Organic and Natural Food Ingredients: The natural food market is one of the
fastest growing markets in the food industry. The SunRich Food Group markets
grain sweeteners and maltodextrins under the names Maisweet, Arrosweet and
Oatsweet. Organic and natural vegetable oils were introduced in 2000 and are
marketed to customers throughout the United States and exported to customers in
Hong Kong and Japan.
Powdered Honey and Molasses: The Group produces and markets dried sweeteners
such as powdered honey and molasses, which are marketed to United States food
manufacturers.
Toll Spray drying: Technical processing and spray drying is contracted with
various customers to produce food ingredients at the three Northern plants.
Aseptic Packaging: Contract processing of shelf stable liquid products for
retail markets is performed at Nordic Aseptic. Major products packed are
soymilk, broth and soups.
Custom Ingredients: Northern produces unique food ingredients on a contract
basis utilizing customer's proprietary technology. Products produced include:
Benefiber: A soluble guar based fiber food ingredient, produced under
license for Taiyo Kaguka and Novartis.
Betatrim: Fractionalized oat based food ingredients produced under
agreement for Quaker Oats and Rhodia.
Microguard: A natural food preservative produced for Rhodia.
Dairy Blends: The Group produces custom blended powdered dairy ingredients
for several customers in the United States.
Competition
Today's grain market is subject to change, which results in constantly changing
market pressures and competitive forces. The SunRich Food Group's specialty
grain operation competes in the larger US commercial grain procurement market.
The SunRich Food Group's organic specialty grains compete in the smaller niche
US commercial organic grains market.
5
Item 1. Description of Business (continued)
Food ingredients are unique niche items developed for specific customers or
processed for specific customers. Primary customers are Japanese or American.
The SunRich Food Group competes with other product developers and specialty
processors for the specialty ingredient business.
The SunRich Food Group's competitive advantages are:
o Established IP grain producer network with over 20 years of experience
o grain conditioning and storage facilities
o USDA grain warehouse, State of Minnesota, Department of Agriculture -
Dairy Division inspected processing plants
o organically certified handler and processor
o technical staff that identifies product specifications to meet the needs
of the end user and create innovative products or processes.
o modern processing facilities
o the ability to process, formulate and package for the retail market
o fully integrated from the seed to the end product
Distribution, Marketing and Sales
Distribution systems: SunRich is located in Hope, Minnesota one mile west of the
Interstate 35 and alongside the Union Pacific Railroad. The railroad is utilized
for the grain elevator business and distribution of product nationally. The Hope
facility is 70 miles from Minneapolis/St. Paul, which also gives it access to
the Mississippi River for grain, export business and "containerized" shipments
to the west coast for export.
Northern and Nordic are located near Interstate 94 in Alexandria, Minnesota. The
facilities are 120 miles west of Minneapolis / St. Paul.
Sales and Marketing: The SunRich Food Group sales and marketing team consists of
ten individuals, who develop all of the promotional materials, travel to and
make contact with customers, both domestically and internationally and respond
to the high volume of inquires channelled through the SunRich Food Group's
customer service department or interactive domain on the World Wide Web at
www.sunrich.com.
The SunRich Food Group ensures that it provides its customers with the highest
quality identity-preserved specialty grains, by serving as a grower's supplier
of seed, purchaser of the grower's identity-preserved specialty crops and
distributor of identity-preserved specialty products. The SunRich Food Group's
"full circle" approach allows the SunRich Food Group to satisfy the specific
needs of foreign and domestic food manufacturers and processors by providing
products in the varieties and quantity needed in a timely fashion; transporting
products to meet customers' needs by being able to package in containers, truck,
rail or barge; providing product information and technical support during the
growing, processing, and marketing phases, and offering complete service of
product, including formulation, processing, grading, quality control and
packaging.
Suppliers
SunRich Food Group's raw materials needs are sourced from suppliers who provide
products delivered on contract to comply with required specifications or
identity preserved grains, which are contracted for a specific use and graded
upon delivery to SunRich's facility.
6
Item 1. Description of Business (continued)
The SunRich Food Group's needs are sourced from domestic and foreign growers and
suppliers. Products are sourced utilizing over 1,000 suppliers with availability
subject to world market conditions. There are a number of alternative sources of
supply for all raw materials with critical process customer supply relationships
highlighted below.
Identity Preserved and Organic grains are primarily sourced from over 1,000
North American growers and suppliers via annual contracts or spot market
purchases. There is ample supply of grains to satisfy SunRich Food Group's needs
with expanding production in other parts of the world to provide additional
supply if crop or market conditions limit North American supply.
Dairy ingredients are purchased from a number of suppliers, primarily dairy
producer cooperatives. Product is purchased in the spot market with certain
ingredients purchased via short-term supply contracts.
Maltodextrin is purchased on contract from several suppliers. There is
substantial production capacity among these Unites States suppliers for
maltodextrin.
Honey, molasses, high fructose corn syrup and flour are purchased to
specification in the spot market. The supply for these ingredients is sufficient
for the present. Supply shortfalls will have an effect on availability and price
and would be reflected in finished product pricing for the Group.
The other ingredients, such as guar, oat flour and carbon are supplied by
process customers and are not purchased by suppliers of the SunRich Food Group.
Regulation
The SunRich Food Group is affected by governmental agricultural policies.
Government-sponsored price supports and acreage set aside programs are two
examples of policies that may affect the SunRich Food Group's business. There
can be no assurance that government policies will not change from time to time
in a manner adverse to the SunRich Food Group's business.
In addition, several of the SunRich Food Group's business activities are subject
to US environmental regulations. The SunRich Food Group is involved in the
manufacture, supply, processing and marketing of organic seed and food products
and, as such, is voluntarily subject to certain organic quality assurance
standards. The SunRich Food Group is currently in compliance with all state and
federal fertilizer, pesticide, food processing, grain buying and warehousing,
and wholesale food-handling regulations. Regulatory agencies include the United
State Department of Agriculture (USDA), which monitors both the food and grain
business. While the SunRich Food Group endeavours to comply in all material
respects with applicable environmental, safety and health regulations, there can
be no assurance that existing environmental regulations will not be revised or
that new regulations will not be adopted or become applicable that may have a
material adverse effect on the SunRich Food Group's business or financial
condition.
Research and Development
In 2000, the SunRich Food Group developed new soy ingredients to accommodate new
product adaptation of soy ingredients into various food items. The expanding
interest to incorporate soyfoods in consumer's diets creates numerous
opportunities to develop soy ingredients that can be incorporated into food
developer's menu items. The SunRich Food Group continues to research processing
systems and products that are required for the growing natural foods market.
Employees
The SunRich Food Group has 205 full-time employees; 66 salaried employees and
139 hourly workers. The salary workers comprise; 6 who are senior managers
engaged in executive and administrative activities, 23 who are production
managers, 12 who are engaged in sales and marketing, 21 who are engaged in
accounting,
7
Item 1. Description of Business (continued)
administration and customer service, and 4 who are salaried
production/maintenance employees. The 139 hourly workers are engaged in
production, elevator operations, maintenance, and delivery services. The SunRich
Food Group has no union activity and management considers its relations with its
SunRich Food Group employees to be good.
Properties
The SunRich Food Group operates from eight locations in Minnesota and Iowa. The
Star Valley soy processing plant is located in Afton, Wyoming and is expected to
begin operations in the summer of 2001. There are two administration facilities,
one located in Hope, Minnesota, which is one hour south of Minneapolis, and one
in Alexandria Minnesota, which is two hours north of Minneapolis and six
production facilities. The Hope administration offices are located at 3824
Southwest 93rd Street, Hope, Minnesota, 56046 and covers approximately 4,100
square feet. The Alexandria administration offices are located on Geneva Road in
Alexandria and are approximately 4,000 square feet.
The Hope production facility is adjacent to the Union Pacific Railroad and
utilizes this for its grain elevator business. The Hope site is also adjacent to
Interstate 35, is not located in a flood hazard zone and is centrally located
within the Owatonna County fire-fighting district. There are three
food-processing plants in Alexandria, Bertha and Fosston, Minnesota, which are
all in northern Minnesota and are equipped with a multiple of sophisticated
stainless steel food production equipment. These facilities have adequate access
to Interstate 94. None of these plants are located in a flood hazard zone and
two of the three are within communities with local fire fighting services. The
SunRich Food Group also has an aseptic packaging plant in Alexandria, Minnesota,
ten minutes from the Alexandria administration office and an organic dry-milling
corn plant in Cresco, Iowa.
The Environmental Industrial Group
The Environmental Industrial Group has two principal business lines:
(1) The manufacture and distribution of industrial mineral based
products such as speciality sands, bentonite clays, abrasives and
products for foundry and the steel industry, many of which can
subsequently be recycled; and
(2) The recycling of waste industrial mineral by-products and materials
from site reclamation projects; these materials are cleaned, crushed
and blended to specific chemistry for resale to cement, steel and
related industries
The Environmental Industrial Group's processing of cement additives slows down
during January to mid March corresponding to reduced cement production and
difficult winter operating conditions, while the foundry and steel businesses
are not considered seasonal, which partially offset the seasonal factors. Also,
the establishment of the Louisiana manufacturing facility centre during 1998 has
helped to mitigate the seasonality of the Environmental Industrial Group sales.
The distribution of products is freight sensitive for lesser value added
products and is focused on the Ontario and Quebec markets while the higher value
products such as abrasives, garnets, resin-coated sand and frac sand are shipped
throughout the US. The annual volume of materials processed and distributed is
approximately 250,000 tonnes.
Major Developments during 2000
The major development in 2000 was the purchase of a competitor known as PECAL in
February 2000 and the acquisition of Temisca in October 2000, which adds a
direct raw material source to the Group. These acquisitions have broadened the
Group by expanding the product range offered to existing customers and enable
the entry into new market areas.
8
Item 1. Description of Business (continued)
In the second half of 2000, the Environmental Industrial Group expanded its
distribution facility in Louisiana to include an abrasive manufacturing plant
and began to import raw materials directly by ship. This facility facilitates
the distribution of Barshot products to the marine and industrial markets in the
US Gulf area.
Major Products
Barshot: The Environmental Industrial Group has a licence agreement with the
patent holder of "Specular Hematite as an Impact Material" which gives the Group
the exclusive right to market this material in two central Canadian provinces
and 13 Great Lake and northeast Atlantic region states. The Group also has the
first right of refusal for a licence in 5 other US states.
Specular Hematite is marketed under the name "Barshot" as a recyclable abrasive
providing higher profit margins for the user and competing with existing
materials such as garnet, staurolite, aluminium oxide, various slags and steel
grit. The Group is continuing to develop agents/distributors primarily for the
US exclusive territory, focusing on companies and contractors capable of
recycling Barshot.
In 2000, the Environmental Industrial Group continued to develop certain
specialty grades of Specular Hematite to be used in industrial markets for
higher value applications.
Slag Abrasives: The Environmental Industrial Group continues to market copper
slag abrasives under the name "Ebony Grit" into the Ontario and Quebec markets.
In 2000, the Group began shipment to New York, New Jersey and Michigan, which
has significantly expanded this product's sales.
Garnets: In the second half of 2000, an exclusive agreement was signed with a
sand supplier in China, complimenting the established Distributor Agreement with
a garnet sand supplier in India. This high value product is sold to the water
jet cutting and wet and dry abrasive blasting markets.
Silica Sands: The Environmental Industrial Group will continue to supply its
major foundry customers in Quebec and Ontario with silica products; however,
growth in this market in 2000 was limited due to competition from a lakesand
supplier. The acquisition of Temisca Inc. in the last quarter of 2000 provides
the Group with a lower cost and secured supply of silica raw materials. The
properties of the Temisca silica sands are suited to the filtration, frac sand,
golf course sand and abrasive applications.
Resin Coated Sand: With the first quarter 2000 acquisition of PECAL, the Group
is now the dominant supplier of resin coated sand in Ontario and Quebec with the
products manufactured at the PECAL Hamilton facility and through the
distribution of a US sourced product. Resin coated sand is used exclusively by
the foundry industry.
Zircon Sands: In 2000, the Environmental Industrial Group continued the
recycling of higher value added products and has an agreement with a large
automobile manufacturer in southern Ontario to recycle very high value zircon
sand used in the manufacturing of engine castings. This product is produced at
the Waterdown location, with a portion of the recycled product sold back to the
automobile manufacturer, and the remainder sold into the industrial materials
market.
A quality system was put into place during 1996 and 1997 and the BEI operations
within the Environmental Industrial Group were awarded ISO-9002 registration
after successful completion in May, 1997. A number of ISO-9002 update audits
have been successfully completed, the most recent in December, 2000. In the
first quarter of 2001, the PECAL facility achieved ISO registration and by the
end of 2001, the Group is striving to have all of its operations ISO-9002
registered.
Competition
The Environmental Industrial Group conducts its businesses primarily in the
region comprising the Quebec-Detroit corridor and through its new operations at
Temisca there will be expansion further into northern Ontario and Quebec. It
also distributes through its facility in New Orleans, to the Louisiana Gulf
region. The Group is
9
Item 1. Description of Business (continued)
competitive in various surrounding areas such as New York, Michigan, New Jersey
and Ohio, for abrasive and other higher value products.
In 1994, the Waterdown site was awarded a Certificate of Approval from the
Ontario Ministry of Environment and Energy to recycle non-hazardous and
hazardous solid waste. The significance of this Certificate of Approval is that
the Environmental Industrial Group can now recycle certain types of solid waste,
which it could not recycle without a Certificate of Approval, as these materials
have been declared hazardous by the Ontario Ministry of Environment and Energy
over the past few years. The Certificate of Approval has no fixed expiry date,
however the Company must comply with requirements listed in the terms of the
Certificate of Approval to maintain its good standing.
Materials that can be recycled under the Certificate of Approval represent
approximately 25% of the materials processed by the Environmental Industrial
Group, however management expects that, through product formulation changes, the
Group will be able to process additional quantities of materials and incorporate
these materials into certain of its existing products. In addition to its higher
profit potential, there is a strong strategic fit for the Environmental
Industrial Group to process non-hazardous, hazardous and recyclable materials.
The Certificate of Approval serves as a barrier to entry by other operators. The
Environmental Industrial Group has one of only two Certificates of Approval in
Ontario for the recycling of these materials. The Environmental Industrial Group
therefore competes in its recycling business with the holder of the other
Certificate of Approval; Philip Services Corp. and Ontario landfill site
operators, including those operated by municipal and regional governments.
Furthermore, due to the difficulty in gaining local community and political
support, it is very expensive and time consuming to obtain a Certificate of
Approval.
At present, most solid industrial waste that is hazardous is disposed of at
hazardous waste landfill sites. There are three hazardous landfill sites
operating in this market: Chemical Waste Management (New York state),
Safety-Kleen (Sarnia, Ontario) and Stablex (Blaineville, Quebec).
In general, the Environmental Industrial Group's competitive advantages in its
core recycling area include:
o Superior knowledge of many industrial minerals and the local markets
for these materials.
o Long-standing relationships with both generators and potential users
of industrial mineral waste.
o Efficient and cost effective material handling and processing
skills, based on decades of experience.
o Expertise necessary to provide cement companies and other customers
with materials of a consistent and reliable quality and the ability
to adjust chemical composition as required.
o The ability to combine the sale of certain materials with a waste
removal service as one transaction.
o The ability to inventory some materials. This is attractive to
cement companies as a source of uninterrupted and "just in time"
supply.
o The Environmental Industrial Group's Waterdown site is known in the
market as a recycler, in contrast to the large traditional waste
management companies, which derive most of their profit from
landfill and trucking operations.
o The Specular Hematite licence and certain exclusive supply
arrangements.
Suppliers
Most of the Environmental Industrial Group's critical raw materials are
purchased through approved suppliers to
10
Item 1. Description of Business (continued)
ensure the highest quality and the supplier's ability to adhere to the Group's
requirements.
There is an abundance of inorganic materials that are increasingly becoming
subject to federal, provincial and state legislative restrictions. The Group
expects the supply of contaminated materials from remediation projects to
increase, due to increased awareness by the general public and the resulting
laws that will require these wastes to be recycled in the future. However, the
availability of these materials could be reduced if the demand for recycling
subsides.
While the Environmental Industrial Group's sources of hazardous and
non-hazardous waste materials are expected to eventually come from a variety of
industries, many of the opportunities identified to date are from its existing
customer base in the foundry, steel and industrial sandblasting industries.
The Environmental Industrial Group receives materials from over 2,000 suppliers.
While the Group has several alternative sources of supply for many of the inputs
it requires, it also has several key supplier relationships, which are
summarized below.
The Group obtains its key abrasive raw materials from certain Canadian mines.
Specular Hematite reserves at the current mine supplier are estimated to be
sufficient to supply the Group's needs for many years. Ebony Grit, a product
produced from copper slag is supplied on exclusive basis by a Canadian mining
and refining company. The Environmental Industrial Group has adequate inventory
reserves of this product to meet 2001 demand.
The Group has the exclusive right to distribute certain high purity silica sand
to the foundry industry in Quebec and Ontario for US Silica.
The Group represents Bentonite Performance Minerals focusing on sales to the
foundry market, as well as other bentonite sales to the industrial market in
Quebec and Ontario.
The Group has recently signed an exclusive North American agreement to market
garnet from a supplier in India and a second agreement with a supplier in China.
Regulation
The Environmental Industrial Group's business primarily involves the handling of
materials, which are inorganic, and mineral based. These types of materials are
generally benign and should not give rise to environmental problems.
Accordingly, to date there has been low potential for environmental liabilities
to arise. The Ontario Ministry of Environment and Energy has the right to
inspect the Waterdown site and review the results of third party monitoring and
perform its own testing.
Based on known existing conditions and the Group's experience in complying with
emerging environmental issues, the Company is of the view that future costs
relating to environmental compliance will not have a material adverse effect on
its financial position, but there can be no assurance that unforeseen changes in
the laws or enforcement policies of relevant governmental bodies, or the
discovery of changed conditions on the Company's real property or in its
operations, will not result in the occurrence of significant costs.
Research and Development
Environmental: In 2000, the Environmental Industrial Group continued to evaluate
the processing and recycling of a number of waste mineral streams into higher
value added products. These spent materials originating primarily from the
foundry, steel and industrial sectors can often be separated back into their
original composition, which increases the value of the recycled product and can
lead to a greater number of markets.
Specular Hematite: In 2000, the Environmental Industrial Group continued to
study the use of Specular
11
Item 1. Description of Business (continued)
Hematite in a number of value-added markets, requiring fast cutting and cleaning
speed, as well as developing new markets in nuclear shielding, non-slip flooring
and ballast products.
Employees
The Environmental Industrial Group's 60 employees are engaged in the following,
10 in sales and marketing, 9 in administrative positions, 1 responsible for
environmental compliance, 4 in research and quality control, 4 in production
supervision and traffic, 4 in plant maintenance, 2 in plant engineering, and 26
are operators at the Company's three plants.
The Environmental Industrial Group's 15 production and maintenance employees at
the Waterdown location are represented by Teamsters Local Union #879. The
current Collective Bargaining Contract with the Teamsters is in effect from July
5, 1999 to June 30, 2002. The 11 hourly employees at the plant in Hamilton are
represented by United Steelworkers of America #16506 and the Agreement is in
effect to February 2002. The Company experienced no work stoppages in 2000.
Properties
The Environmental Industrial Group has five locations: the primary operating
facility, administrative, laboratory and principal production facilities are
located on a 31.6 acre site at 407 Parkside Drive, Waterdown, Ontario, Canada
L0R 2H0, which is 40 miles west of Toronto. In addition, the Group has a
production facility in Hamilton, Ontario, a distribution/warehouse facility in
Lachine (Montreal), Quebec, the Temisca sand property in northern Quebec and a
distribution/production facility outside of New Orleans, Louisiana.
The main Waterdown site has a Canadian Pacific Railways rail spur and good
access to major highways. This property is owned by the Company and has been
pledged as collateral for Canadian $ denominated long-term debt. The Hamilton
production facility consists of 3.55 acres and is also pledged for the Canadian
$ denominated long term debt.
The Ville Marie, Quebec sand deposit and production facility consists of
approximately 120 acres that are owned and 20 acres that are under various
mineral leases. There is production and storage equipment on this site and the
owned land is pledged towards the long-term debt of Temisca Inc. The production
facilities at Temisca are located on leased property. The Montreal, Quebec and
Louisiana facilities are leased. The Montreal, Quebec distribution center's
lease runs until 2004 and Louisiana's lease is renewable yearly by the Company
and the Port Authority of New Orleans.
Steam Explosion Technology Group
The Company has developed the StakeTech System, including process engineering
and the hardware required.
The patented StakeTech System provides a method for the rapid and continuous
steam treatment of biomass under high pressure. The biomass that can be
processed in the system includes material such as wood chips, sugarcane bagasse,
cereal straws and waste paper.
In their natural state, these materials are not easily separated into their
component parts. By processing with the addition of high-pressure steam, the
StakeTech System breaks the chemical and physical bonds that exist between the
components of these materials allowing their subsequent separation and
processing into products and components that potentially have wide and diverse
applications. The Company has demonstrated its equipment and technology on a
commercial scale in several applications including the production of the
sweetener xylitol, alcohol and pulp for paper.
In 1993, the Company completed the turnkey supply of a US$3 million biomass
demonstration plant to the Italian Commission for New Technology for Energy and
the Environment ("ENEA") in Italy. This plant is the first facility in the world
to utilize continuous steam explosion combined with continuous extractions to
12
Item 1. Description of Business (continued)
fractionate biomass into its components to serve in several fibre and chemical
end-use applications.
In 1996, the Company delivered a StakeTech System to Weyerhaeuser Company
(Weyerhaeuser), which passed its performance tests and was fully accepted by
Weyerhaeuser. This was the first sale of a StakeTech System to the pulp and
paper industry.
Since 1995, the Company has focused marketing efforts relative to the Steam
Explosion Technology on the production of pulp for paper from non-woody fibres
and the production of cellulose derivatives.
In August, 1999, Pacitec Inc. acquired exclusive rights to market StakeTech's
proprietary pulping systems for non-wood applications in China for a license fee
of US$4.0 million payable over twelve years. Maintenance of these rights is
conditional on Pacitec making scheduled license fee payments and selling a
minimum of 40 StakeTech Systems valued at approximately US$160 million over the
twelve-year period. StakeTech retains all rights to the design and manufacture
of StakeTech's proprietary steam explosion pulping systems.
Pacitec is a US 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 Contracting & Engineering Institute for Light Industry (BCEL) a
leading engineering design institute in China. BCEL is an experienced
engineering firm with Engineering, Procurement and Construction (EPC) capability
and has completed over 20 projects in the pulp and paper industry since 1981.
StakeTech's steam explosion business is not affected by seasonality.
Major Developments in Steam Explosion Technology in 2000
In 2000, Steam Explosion Technology continued to focus on marketing pulping
systems to China through Pacitec Inc. In 2000, Pacitec maintained its exclusive
rights and all license fee payments due from Pacitec in 2000 were received and
taken into revenue in the third quarter of 2000.
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 in China and has
initiated the project approval process for conversion of the mill to StakeTech's
pulping process. This project became the focus of the Company's China initiative
in 2000.
In 2000, the Company continued to work with a European client in regards to
applying steam explosion to the production of certain high value cellulose
derivative products. In 2000, this client requested and received a quotation
from the Company for a continuous steam explosion system. This project is at the
technical development and evaluation stage.
Competition
The Company is focussing its marketing efforts on applying the Steam Explosion
Technology to the production of pulp for paper.
The Company believes the ability of StakeTech Systems to operate at high
pressure presents advantages in terms of reducing chemical requirements and
improving product yields.
The Company's success in marketing to the pulp and paper industry will depend on
the extent to which the StakeTech System can be shown to have advantages over
the technology of existing suppliers. These existing suppliers include:
Ahlstrom, Kvaerner, Valmet and Andritz Sprout-Bauer.
The Company is aware of other groups that are attempting to develop and market
new pulping processes. These include the NACO process from Italy and the Saicca
process from Spain.
13
Item 1. Description of Business (continued)
It is anticipated that competition from suppliers of alternative systems and
equipment in these markets will be strong and that the potential advantages for
the StakeTech System will have to be demonstrated.
Suppliers
Waste biomass such as straw is currently available in abundant supply in many
parts of the world. If other economic uses for waste biomass increase, the
Company may find that the supply of such raw materials is reduced. The
unavailability or significantly increased cost of raw materials would have a
materially adverse effect on the Company's steam explosion technology business.
In respect of the design and engineering of the customized steam explosion
technology systems, the Company provides equipment fabricators with detailed
drawings and equipment specifications. All major pieces of equipment and major
components have at least two alternate Company approved suppliers.
Regulation
Stake steam explosion technology may use chemicals in addition to steam to treat
fibrous material. This technology does not generally produce appreciable
pollutants and the Company believes that its existing facilities are in full
compliance with applicable laws concerning the environment. The Company has not
to date found it necessary to spend material amounts in order to comply with
applicable environmental laws. It is anticipated that future sales or licenses
of the Company's technology will be made where the StakeTech System is but one
part of a larger process, as for example in the manufacture of pulp. In these
instances, the overall project may be subject to Federal, State or local
provisions regulating the discharge of materials into the environment.
Compliance with such provisions may result in significant increases in the costs
associated with the overall project.
Proprietary Technology
The Company recognizes that there exists a threat of others attempting to copy
the Company's proprietary StakeTech System and/or appropriate the technology. To
mitigate this risk, the normal business practice of the Steam Explosion
Technology Group includes the signing of confidentiality agreements with all
parties to which confidential information is supplied including all customers
and licensees. The Company also holds several patents on its equipment and
process technology.
In 2000, the company received approval of a patent application made under the
Patent Cooperation Treaty (PCT) agreement. This patent application covers
certain proprietary equipment designs relating to the StakeTech System and this
approval served as the basis for a patent application made in China in January
2001. China is a signatory to the PCT.
Research and Development
In 2000, Steam Explosion research and development activities related to client
specific investigations and focused on the production of pulp from a variety of
non-wood fibres including straw, flax fibres and kenaf.
Employees
The Steam Explosion Technology Group has 3 employees: 1 engaged in technical
support and R&D, 1 engaged in engineering and 1 engaged in marketing and sales.
Since the division subcontracts out the production of its equipment, it does not
anticipate significantly increasing the size of its work force until it receives
a contract for its equipment. The Company depends and will continue to depend in
the foreseeable future on the services of its employees in this division. The
loss of one senior person, Mr. John Taylor would have a serious adverse effect
on the Company's ability to successfully develop the steam explosion business.
14
Item 1. Description of Business (continued)
Environmental Hazards
The Company believes, with respect to both its operations and real property,
that it is in material compliance with environmental laws at all of its
locations and specifically with the requirements of its Certificate of Approval
issued by the Ontario Ministry of the Environment and Energy on the
Environmental Industrial Group property in Waterdown, Ontario Canada.
Easton Minerals Ltd.
In addition to its core businesses, the Company has a 32% interest in Easton
Minerals Ltd. (Easton), a mining exploration company listed on the Canadian
Venture Exchange (EM-CDNX). Easton is in the process of diversifying its
business interests beyond mining exploration. The Company's investment is
represented by two of Stake's directors who are members of the Easton Board of
Directors. It is the Company's intention to sell its interest in Easton in the
future, as mining development and exploration is not related to the Company's
primary businesses.
Employees
As of March 7, 2001 the Company had a total of 273 employees; 205 in the SunRich
Food Group, 60 in the Environmental Industrial Group, 5 at StakeTech's corporate
office and 3 in the Steam Explosion Technology Group. A detail of the roles of
these employees at each location is discussed in the description of each
segment.
Corporate office employees include the CEO, the CFO and three
financial/administration support staff members. The President/COO of the Company
is included in the steam explosion employees.
The Company depends and will continue to depend in the foreseeable future on
the services of its present officers and key employees. The loss of three or
more of these senior persons from the SunRich Food Group, the Environmental
Industrial Group, and/or Mr. Taylor from the Steam Explosion Technology Group
would have a serious adverse effect on the Company's ability to implement its
business plans on a timely basis.
Commodities
The SunRich Food Group uses the commodity futures market on the Chicago Board of
Trade to "hedge" its grain positions, as it is common in the grain industry. The
SunRich Food Group will buy or sell future contracts to offset its cash grain
purchase and sales contracts, effectively protecting the company's margins. This
process is considered a "hedge" and is non-speculative in nature. The accounting
for commodities is monitored daily and the transactions arising from these
activities are booked to as income or expense on a monthly basis.
There are no future contracts in the Environmental Industrial Group or the Steam
Explosion Technology Group or related to corporate activities.
15
Item 2. Description of Properties
Steam Explosion Technology Group and Corporate
The Company's executive offices and the Steam Explosion Technology Group are
located at 2838 Highway 7, Norval, Ontario, Canada L0P 1K0. The property is
approximately 10 acres and is within 15 minutes of Pearson (Toronto)
International Airport. The property consists of three principal buildings, the
corporate office; which covers approximately 7,500 square feet, a separate
laboratory facility and a pilot plant facility. The Company owns this property
and no lien or mortgage is held against this property.
Environmental Industrial Group
The Environmental Industrial Group operates from five locations, three owned and
two leased. The primary operating facility, administrative, laboratory and
principal production facilities are located on a 31.6-acre site at 407 Parkside
Drive, Waterdown, Ontario, Canada L0R 2H0, which is 40 miles west of Toronto. In
addition, the Group has a production facility in Hamilton, Ontario, a
distribution/warehouse facility in Lachine (Montreal), Quebec, a production
facility in Northern Quebec and a distribution/production facility outside of
New Orleans, Louisiana. A detailed description of these properties is included
in the description of this segment earlier in this document.
SunRich Food Group
The SunRich Food Group operates from eight locations in Minnesota and Iowa.
SunRich Food Group owns all of these locations. There are two sales and
administration facilities; one is located in Hope, Minnesota, which is one hour
south of Minneapolis and the other Alexandria, Minnesota, which is two hours
north of Minneapolis and six production facilities, located in Hope, Alexandria,
Fosston and Bertha, Minnesota, as well as in Cresco, Iowa and one under
construction in Afton, Wyoming. The Hope administrative offices and the main
contact location for the SunRich Food Group is located at 3824 Southwest 93rd
Street, Hope, Minnesota, 56046. A detailed description of these properties is
included in the description of this segment earlier in this document.
Item 3. Legal Proceedings
The Company has filed a claim against a former director relating to certain
actions taken when he was the President of its operating division, BEI. The
former director has counter-claimed against the Company and its subsidiaries,
the Chairman of the Company and Easton, the Company's 32% equity investment. In
addition, this former director has claimed that the Montreal distribution
facility that the Environmental Industrial Group leases from the former director
needs significant repairs.
The Company and its legal counsel believe in the first matter their claim has
merit and that the counter-claim is without merit. In the second matter, the
Company has determined that it is connected to the first matter, and the Company
and its legal counsel believe the claim is without merit as to the full extent
of the claim. It cannot be determined if there will be any recovery by the
Company at this time or if there will be an additional loss to the Company, and
no provision has been made in the Company's financial statements in respect of
these matters.
The SunRich Food Group has not been and is not currently a party to any material
litigation.
The Environmental Industrial Group has not been and is not currently a party to
any material litigation.
The Steam Explosion Technology Group has not been and is not currently a party
to any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's shareholders during the
fourth quarter of the year ended December 31, 2000.
16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The following table indicates the high and low bid prices for Stake's common
shares for each quarterly period during the past two years as reported by
Nasdaq. The Company's common shares trade on The Nasdaq Small Cap Market tier of
The Nasdaq Stock Market under the symbol STKL. The prices shown are
representative inter-dealer prices, do not include retail mark ups, markdowns or
commissions and do not necessarily reflect actual transactions.
Trade Prices (US Dollars)
[Enlarge/Download Table]
====================================================================================================
2000 HIGH LOW
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First Quarter 2.4688 0.7812
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Second Quarter 1.9062 1.0312
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Third Quarter 1.8125 1.0938
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Fourth Quarter 1.8125 1.25
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1999 HIGH LOW
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First Quarter 1.46875 0.625
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Second Quarter 1.53125 0.75
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Third Quarter 1.46875 0.46875
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Fourth Quarter 1.46875 0.6875
====================================================================================================
At December 31, 2000, the Company has 750 record holders. Based on proxy
requests from shareholders and nominee holders at the last annual meeting date,
the Company estimates that there are at least 3,300 beneficial holders of the
Company's common shares. The Company has never paid dividends on its common
stock and does not anticipate paying dividends for the foreseeable future. The
receipt of cash dividends by United States shareholders from a Canadian
corporation, such as the Company, may be subject to Canadian withholding tax.
There have been two sales of unregistered securities in 2000 and 2001 connected
to acquisitions the Company has made. The first is the 7,000,000 common shares
issued to purchase Northern Food & Dairy, Inc. in September, 2000 and the
833,333 common shares issued as part of the consideration to acquire Jenkins &
Gournoe in February, 2001. Both of these acquisitions are discussed under
Section 1. Description of Business.
Item 6. Management's Discussion and Analysis or Plan of Operations
The Company is pleased to report net earnings of $3,374,000 or $0.15 per share
in 2000 compared to $1,524,000 or $0.09 per share in 1999, and a 115% increase
in revenue for 2000 to $101,653,000 (1999 - $47,304,000).
All operating companies were profitable with the exception of Nordic, which is
in a start-up phase of its Tetra pak packaging facility and recorded a
$1,104,000 after tax loss for the period. In addition, SunRich's profits were
reduced by a $707,000 after tax loss for the year from its discontinued veggie
burger product line. The related closure costs were expensed in the year and are
included in the $707,000. Although these losses reduced earnings per share by
$0.08, earnings per share still rose by 67% for 2000 versus 1999.
The assets of the Company have grown 162% from $35,434,000 in 1999 to
$92,866,000 at December 31, 2000, and the shareholders equity has increased 84%,
from $18,098,000 to $33,277,000, while the number of shares issued have
increased 36.5% from 20,653,788 at December 31, 1999 to 28,186,972 at December
31, 2000.
17
Item 6. Management's Discussion and Analysis or Plan of Operations (continued)
The changes to the size of the Company's operations and assets are primarily a
result of the Company's acquisition strategy over the past year.
Acquisition of Businesses
The acquisition of these companies has been accounted for using the purchase
method and the purchase price has been allocated to the assets acquired and the
liabilities assumed based on management's best estimate of fair values, and
described in detail in table format in note 2 of the audited financial
statements. The consolidated financial statements include the results of
operations of the acquired business from the date of the acquisition.
PECAL - 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 for
$4,682,000 cash. The acquisition of PECAL eliminated a competitor in some
product lines and expands the products offered for sale by the Environmental
Industrial Group. The excess of the purchase price over the net assets acquired
on PECAL is $1,103,000, was allocated to goodwill and will be amortized over
twenty years, giving rise to an annual charge of $55,000.
Northern - On September 15, 2000, the Company acquired 100% of the common shares
of Northern Food & Dairy, Inc, from its three shareholders for $11,190,000 by
the issuance of 7,000,000 common shares and 500,000 common share warrants
exercisable at US$1.50 for five years, and cash consideration of $608,000. The
excess of the purchase price over the net assets acquired on Northern is
$6,341,000 was allocated to goodwill and will be amortized over twenty years,
giving rise to an annual charge of $317,000.
Nordic - On April 19, 2000, SunRich Inc. and Northern created a corporate joint
venture to operate a soymilk packaging plant owned by Hoffman Aseptic Inc. On
August 15, 2000, Nordic acquired certain assets of Hoffman Aseptic Inc. and
assumed certain debts. The total cash cost of this acquisition at August 15,
2000 was $380,000. Upon the acquisition of Northern on September 15, 2000, the
Company owned 100% of Nordic as of September 15, 2000. The excess of the
purchase price over the net assets acquired on Nordic is approximately $157,000
was allocated to goodwill and will be amortized over twenty years and will
result in an annual charge of $8,000.
Temisca - On October 31, 2000, the Company acquired Temisca, Inc. a private sand
deposit and manufacturing company in Ville Marie, Quebec. The purchase price was
$1,676,000 and was paid by the payment of $926,000 to the vendor as well as
acquisition costs and the issuance of a $750,000 note payable which bears
interest at 5% and is repayable over 5 years. There was no goodwill on the
acquisition of Temisca.
1997 Change to Capital Structure
A change to the Company's capital structure in 1997 was made under rules of the
Canadian Business Corporations Act, the Company's incorporating statute that
must be disclosed in its financial statements for 10 years to December 31, 2006.
In 1997, the shareholders of the Company agreed to reduce the stated capital
account of the Company's common shares by $25,026,000 through a reduction of the
deficit.
2000 Operations Compared with 1999 Operations
Consolidated
Revenues in 2000 increased by 115% to $101,653,000 from $47,304,000 in 1999 and
the Company's earnings for 2000 increased by 121% to $3,374,000 or $0.15 per
common share compared to $1,524,000 or $0.09 per share for the year ended
December 31, 1999. The increase in the Company's revenues is due to the 2000
results having SunRich's operations being included for twelve months rather than
five months in 1999 and the acquisitions of PECAL, Northern and Nordic during
2000.
18
Item 6. Management's Discussion and Analysis or Plan of Operations (continued)
While earnings increased 121%, earnings per share increased 67% as earnings per
share in 2000 was based on an increased number of shares outstanding due to the
acquisition transactions in 2000. The weighted average number of common shares
in 2000 was 22,975,986 (1999 - 17,384,644).
US readers should note that due to differences between Canadian and US GAAP,
earnings for the 2000 under US GAAP are $2,571,000 or $0.11 per common share
(1999 - $1,449,000 or $0.08 per common share). Note 17 to the audited financial
statements itemize these differences.
Cost of sales increased by 117% to $87,046,000 for the year ended December 31,
2000 compared to $40,127,000 for the year ended December 31, 1999. As noted in
the revenue analysis above, the increase in cost of sales is related to the
sales increase resulting from the acquisitions made in mid 1999 and during 2000.
The Company's consolidated gross margin was 14.4% in 2000 compared to 15.2% in
1999 due to slightly lower margins in the SunRich Food Group.
Research and development costs relate to the Steam Explosion Technology Group
and were $200,000 in 2000 compared to $367,000 in 1999. The decrease in research
based steam explosion activities in 2000 was as a result of lower employee costs
due to a more focused effort towards the marketing and sale of the technology
rather than research.
Administration and market development expenditures increased 113% in 2000 to
$10,570,000 compared to $4,953,000 for the year ended December 31, 1999. The
increase in administrative costs is due to the acquisitions made in mid 1999 and
during 2000, and the increased costs of operating a larger public company.
Amortization of patents, trademarks, licences and goodwill increased to $524,000
in 2000, compared to $183,000 in 1999 due to the amortization of new goodwill
arising on the acquisitions of Northern, Nordic and PECAL in 2000 and a full
year of amortization on the mid 1999 SunRich acquisition.
The Company's earnings from operations increased by 98% to $3,313,000 in 2000
from $1,674,000 in 1999, as a result of these previously related changes to the
Company.
Interest on long-term debt and other interest expense increased to $1,527,000 in
2000 from $361,000 in 1999, due principally to the SunRich Food Group's debt
obligations. Canadian debt held by the Environmental Industrial Group and
Corporate Office represents $416,000 of interest expense in 2000 and SunRich
Food Group's interest expense in 2000 was $1,111,000.
Interest and other income increased to $402,000 in 2000 from $181,000 in 1999
due an increase in interest earned in the Company in 2000 over 1999, principally
due to the interest income on long term receivable.
The gain on purchase of preference shares of $175,000 (1999 - $nil) results from
the purchase of the preference shares outstanding in a subsidiary company at a
value less than their carrying value.
The share of losses of equity accounted investees of $48,000 (1999 - $321,000)
and dilution gain of $140,000 (1999 - $nil) is related to the Company's 32%
equity investment in Easton Minerals Ltd. (Easton) a mining exploration company
listed on the Canadian Venture Exchange (EM-CDNX). Dilution gains result from
the increase in equity value of Easton due to issues of capital above Stake'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 due to the development stage
nature of Easton, and accordingly, the effects of this gain are reversed in Note
17 of the Company's financial statements.
19
2000 Operations Compared with 1999 Operations (continued)
The Company's investment in Easton is carried at a book value of $382,000. The
market value of Easton at December 31, 2000 is $531,000; at March 7, 2001 the
market value was $442,000 (March 13, 2000 - $3,932,000). On June 15, 1998, the
Company's Board decided to sell its holdings in Easton as mining development and
exploration are not related to the Company's primary businesses, and has filed
appropriate notification of this intent with Easton's regulators.
Earnings before taxes increased by 134% to $2,506,000 in 2000 from $1,072,000 in
1999, as a result of these changes.
The Company recorded the benefit of previously unrecognized Canadian loss tax
loss carry forwards of $1,798,000 (1999 - $635,000) and provided a tax provision
of $864,000 (1999 - $183,000) on the net earnings of the SunRich Food Group. Due
to the complex US tax structure, the Company was unable to recognize the tax
benefit of Nordic's start-up losses. The Company has since restructured the
SunRich Food Group, which provides for more effective tax strategies. The Nordic
tax loss carry forward will be recognized when Nordic becomes profitable. The
resulting net tax recovery increased net earnings by 122% to $3,374,000 from
$1,524,000 in 1999.
Segmented Operations Information
The SunRich Food Group
The SunRich Food Group contributed 68.7% or $69,822,000 of the $101,653,000 in
total revenue (1999 - five months - $24,991,000). In 2000, SunRich sales were
$59,693,000, and Northern sales were $10,129,000, for the three and one-half
month period since acquisition on September 15, 2000. As Nordic was in
pre-operating stage until December 31, 2000 all revenues and certain operating
costs were deferred in accordance with Canadian GAAP.
The Sunrich Food Group's cost of sales in 2000 was $60,721,000 (1999 - five
months - $22,340,000). The SunRich Food Group's margin in 2000 was 13% (1999 -
10.6%). The increased margin results from higher margins in the food processing
business of Northern.
In 2000, the SunRich Food Group's administration costs were $6,800,000 (1999 -
five months - $2,005,000). The increase in these costs is due to the twelve
versus five months of administration costs being included for SunRich, and the
administration costs of Northern and Nordic since acquisition.
Pre-tax earnings of the SunRich Food Group were $1,230,000 (1999 - five months -
$492,000). The net earnings of the Sunrich Food Group were $366,000 (1999 - five
months - $309,000). The net earnings of the SunRich Food Group were
significantly impacted by the after tax loss from the start-up of the Nordic
Tetra-Pak operations of $1,104,000 and a $707,000 after tax loss from the veggie
burger business that was closed prior to December 31, 2000. The Company expects
Nordic to be profitable by the third quarter of 2001.
The Company has not recognized the benefits of the Nordic tax losses of
approximately $2,200,000. Therefore, the effective tax rate increased in 2000 to
70% compared to 37% in 1999. The benefit of a portion of these losses will be
recognized when Nordic becomes profitable. The remaining portion of the losses
relates to Northern's interest prior to the Company's acquisition of Northern
would be applied to reduce goodwill.
Environmental Industrial Group
The Environmental Industrial Group contributed 30.8% or $31,286,000 of 2000
consolidated sales (1999 - $21,829,000). In 2000, the Environmental Industrial
Group sales increased by 43.3% due to the purchase of PECAL in February and
Temisca in October, 2000 and growth in the existing business lines. Sales
consisted of sales of abrasives, foundry sands and other products of $29,081,000
(1999 - $19,215,000), recycling revenues of $1,832,000 (1999 - $2,614,000) and
Temisca sales for two winter months were $373,000 (1999 - $nil).
20
2000 Operations Compared with 1999 Operations (continued)
Cost of sales in 2000 attributable to the Environmental Industrial Group were
$26,272,000 (1999 - $17,667,000), The Environmental Industrial Group's margin
decreased to 16% in 2000 from 19.1% in 1999, due to tight price competition in
some of the Environmental Industrial Group's principal product lines.
The Environmental Industrial Group's operations accounted for $2,253,000 of
consolidated administration costs (1999 - $1,722,000). The 30.8% increase in
these costs is due to the addition of three salesmen and the retention of
administration staff from the PECAL acquisition to create a new customer service
function for the Environmental Industrial Group and the costs of running a
larger Group with more locations.
Pre-tax earnings from operations of the Environmental Industrial Group were
$2,579,000 (1999 - $2,058,000).
Tax expense of $66,000 (1999 - $nil) for the Environmental Industrial Group
relates to the earnings of Temisca Inc. Due to the loss carry forwards of the
Canadian legal entity, no provision for income taxes has been recorded for the
earnings of BEI/PECAL. The benefits of these loss carry forwards of $1,798,000
(1999 - $635,000) have been recorded in the Steam Explosion Technology Group and
Corporate segment.
Net earnings of the Environmental Industrial Group were $2,513,000 for fiscal
2000 compared to $2,058,000 for fiscal 1999.
Steam Explosion Technology Group and Corporate Activities
Of the $101,653,000 in total revenues 0.5% or $545,000 was derived from the
Steam Explosion Technology Group and corporate sales (1999 - $484,000).
Steam Explosion Technology Group and general corporate revenues of $545,000 in
2000 were generated from steam explosion licence fee revenue and private
industry projects of $231,000 (1999 - $410,000) and other corporate revenues
were $314,000 (1999 - $74,000). No steam explosion equipment sales were made in
2000 or 1999.
Steam Explosion Technology Group's cost of sales was $53,000 (1999 - $120,000),
which primarily relates to standard amortization charges.
Steam Explosion Technology Group and corporate margins were $492,000 or 90.3% on
$545,000 of revenue or (1999 - $364,000 on $484,000 of revenue or 75.2%) due to
the nature of the revenues in this Group.
Steam Explosion Technology Group's marketing and demonstration and corporate
administration expenses were $1,517,000 (1999 - $1,226,000). The increase in
these costs were due to more aggressive investor relations activities, the
increased costs of insurance, salaries and other costs of operating a larger
public company and increased marketing and travel costs incurred towards
securing a steam explosion equipment sale in China.
The loss from operations before tax of $1,303,000 (1999 - $1,478,000) is
principally due to the additional corporate costs of operating a larger public
company being charged to this segment.
Liquidity and Capital Resources at December 31, 2000
Assets
Cash and short-term deposits decreased to $1,013,000 at December 31, 2000 from
$2,464,000 at December 31, 1999. The decrease is due to cash being used to run
the corporate office and the cash costs to pay the fees and other costs
associated with acquiring companies over the year being drawn from existing cash
as the operating groups internally use the cash they produced for their
respective businesses.
Trade accounts receivable increased to $13,111,000 at December 31, 2000 from
$7,016,000 at December 31,
21
Liquidity and Capital Resources at December 31, 2000 (continued)
1999 due largely to the acquisitions. Trade receivables at December 31, 2000
related to the Environmental Industrial Group were $4,836,000 (1999 -
$3,375,000); SunRich Food Group was $8,250,000 (1999 - $3,463,000) and general
corporate activities and Steam Explosion Technology Group was $25,000 (1999 -
$178,000).
The note receivable of $5,186,000 and the other long-term payable of $1,651,000
are all related to an agreement with a major European based company to supply
product that was signed by Northern before it was acquired. This agreement
required Northern to expand a food processing plant to the customer's
specifications. In accordance with the terms of the agreements the customer is
required to pay Northern 36 monthly instalments of US$119,000 following the
customer's acceptance of the plant specifications. The agreement also requires
Northern to provide the customer with a product rebate beginning three years
after production at the plant commences, until US$1,720,000 is repaid.
Upon acquisition of Northern on September 15, 2000, the Company assigned fair
values of $5,534,000 to the note receivable and $1,587,000 to the product rebate
payable based on the cash flows associated with these financial instruments
discounted at a rate of 9.5%.
During the period of September 16 to December 31, 2000, Northern received
payments of $543,000 on the note receivable from this agreement and recorded
imputed interest income of $131,000 from the note receivable, which is included
in the $402,000 of interest and other income. Imputed interest expense of
$47,000 was recorded on the product rebate payable and is included in the
$1,455,000 of interest expense on the income statement.
Inventories increased to $15,290,000 at the end of 2000 from $8,589,000 at
December 31, 1999, principally due to the acquisitions made during the year. The
SunRich Food Group comprise $10,064,000 of this balance (1999 - $5,145,000) and
the Environmental Industrial Group's inventory was $5,226,000 (1999 -
$3,444,000). The Steam Explosion Technology Group is not required to carry
inventory.
Future income tax assets of $954,000 at December 31, 2000 (1999 - $1,020,000)
consists of $715,000 (1999 - $635,000) of Canadian tax losses and scientific
research expenditures recorded by the Canadian entity in the current year and
the remaining balance of $239,000 (1999 - $385,000) relates to the SunRich Food
Group's 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 $300,000 at of
December 31, 2000, relating to normal equipment replacement at the SunRich Food
Group, the Environmental Industrial Group, in the Steam Explosion Technology
Group and corporate office.
In 2000, $667,000 (1999 - $500,000) was spent in the Environmental Industrial
Group for machinery and equipment improvements in Waterdown, establishment of
additional facilities is Louisiana, general upgrading of computers and the
acquisition of accounting software that is year 2000 compliant. In 2000, the
SunRich Food Group spent $4,631,000 (1999 - $591,000) on capital expenditures
principally on the construction of new production facilities at Northern's plant
in Fosston connected to the agreement with the major European Company and a new
grain storage bin at SunRich's location in Hope. In 2000, $55,000 (1999 -
$47,000) was spent by the Steam Explosion Technology Group and at corporate
office primarily on computer equipment.
The Company's capital budget for 2001 is $7,660,000. The Environmental
Industrial Group's capital budget for 2001 is $1,205,000 and is to improve and
replace production equipment. SunRich Food Group's capital budget is
US$4,291,000 principally for production equipment expansion and replacement, and
the remaining equipment needs of the Wyoming soy plant, but the largest
individual component of the capital plans for 2001 is a proposal to construct
additional warehouse space attached to Nordic's plant to decrease the dependence
and costs of third party storage and decrease the cost of moving inventories.
There are no plans to make significant capital expenditures during 2000 at
Stake's steam explosion pilot plant. Corporate office has a capital budget of
$50,000 to make office furniture and computer upgrades. The Company's
22
Liquidity and Capital Resources at December 31, 2000 (continued)
capital needs will be provided by a combination of internal cash flow, capital
leases and new mortgages or loans.
Investments increased to $382,000 in 2000 from $281,000 in 1999 due primarily to
the dilution gain of $140,000 (1999 - $nil), by advances of $9,000 (1999 -
$37,000) offset by the equity loss on Easton of $48,000 (1999 - $321,000).
During the year, advances of $104,000 were converted to 980,103 common shares of
Easton.
Goodwill increased to $11,231,000 at December 31, 2000 from $3,922,000 at
December 31, 1999 due to the $1,103,000 in goodwill recorded on the acquisition
of PECAL, $157,000 of goodwill acquired on the purchase of Nordic and the
$6,341,000 in goodwill recorded on the acquisition of Northern offset by
amortization of this goodwill on these three purchases from the date of
acquisitions and goodwill recorded on BEI in 1995 and the acquisition of SunRich
in 1999.
The Company deferred $768,000 of pre-operating costs related to Nordic, which is
comprised of the portion of the operating losses from April to December 31, 2000
that were related to the start up phase of the plant. This amount will be
written off equally over the next 36 months. The Company also expensed
$1,104,000 of certain operating costs, administration expenses and interest
costs related to Nordic during 2000, which were in addition to the costs
deferred during the year. US readers should note that the $768,000 of
pre-operating costs have been expensed under US GAAP.
Patents, trademarks, licences and other assets have decreased to $432,000 from
$446,000 at December 31, 1999 due mainly to standard amortization.
Current liabilities
Accounts payable and accrued liabilities increased to $19,359,000 in 2000 from
$10,179,000 in 1999. The increase is due to the addition of the larger balances
from the larger SunRich Food Group, which are $15,259,000 of the balance at
December 31, 2000.
Included in the accounts payable and accrued liabilities is an accrued recycling
reserve of $298,000 (1999 - $384,000) which relates to the Environmental
Industrial Group and represents the future costs to process and dispose of the
reclaimed materials that the Waterdown site that has the Certificate of Approval
from the Ontario Ministry of the Environment and Energy has accepted for
recycling and were on site at December 31, 2000.
Customer deposits of $1,262,000 at December 31, 2000 (1999 - $1,618,000) are
related to cash deposits made by the SunRich Food Group customers in 2000 for
year 2001 customer purchases. No recognition of revenue or accrual of costs is
booked on these transactions until the goods are shipped.
Lines of Credit
The Company has Canadian bank lines of credit of $4,300,000 and US$4,000,000. Of
these amounts the $4,000,000 is from the Company's' primary Canadian banker for
use of the Environmental Industrial Group, the Steam Explosion Technology Group
and the corporate office, which is secured against a margin of accounts
receivable and inventory of BEI/PECAL. In addition, Temisca, Inc., which is part
of the Environmental Industrial Group, has an unsecured line of credit of
$300,000. The SunRich Food Group has two separate lines of credit totalling
US$4,000,000 with two different financial institutions, of which US$1,000,000 is
secured against a margin of accounts receivable and inventory of Northern and
US$3,000,000 is secured against a margin of accounts receivable and inventory of
SunRich. At December 31, 2000, US$900,000 is drawn against the US$3,000,000
facility and US$950,000 against the US$1,000,000 facility. The Environmental
Industrial Group is not drawn against the $4,000,000 facility at December 31,
2000, and Temisca had $125,000 drawn against the $300,000 facility at December
31, 2000.
In addition to the above cash draws against the lines of credit, at December 31,
2000, $900,000 (1999 - $1,116,000) was drawn on an off balance sheet basis
against the $4,000,000 Canadian facility for a letter of
23
Liquidity and Capital Resources at December 31, 2000 (continued)
credit to the Ontario Ministry of the Environment and Energy for the Certificate
of Approval; to two key suppliers and for security on the Louisiana lease. There
are no amounts drawn on an off balance sheet basis against the US lines of
credit at December 31, 2000.
Long Term Debt - Corporate Debt
The Company's term bank loan from the acquisition of BEI in 1995 was reduced to
$800,000 at December 31, 2000 from $1,400,000 at the end of 1999 by scheduled
payments of $600,000.
During the year, the Company borrowed an additional $4,200,000 to finance the
purchase of PECAL. Under a new payment schedule both the $800,000 and the
$4,200,000 each have a 5-year amortization period and currently a 3-year term
with payments of $300,000 per quarter being pro-rated against both the $800,000
and $4,200,000 loan based on quarterly payments started on January 31, 2001 with
interest at the bank reference rate + 1 % or banker's acceptances + .0.88%; the
Canadian prime interest rate is currently 6.75%. Full or partial repayment of
the term bank loan is permitted based on the maturity of the underlying debt
instruments. These term loans are collateralized by first mortgages on certain
property located in Waterdown and Hamilton, Ontario and a pledge of certain book
debts, investments and other assets of the Canadian parent company.
In December, 2000, Stake the Canadian parent company advanced the SunRich Food
Group US$1,000,000 which was the proceeds of a US$1,000,000 four year loan from
its principal Canadian bankers which bears interest at US bank reference rate +
1% and is repayable in blended interest and principal payments of US$25,000 per
month. The US dollar term loan is collateralized by an assignment of the shares
of Northern.
Environmental Industrial Group Debt
There are three loans related to this group totalling $1,705,000 requiring
payments of $18,000 monthly and one annual payment of $150,000. The note payable
of $750,000 is unsecured and is due to the vendor of Temisca, Inc., and is
repayable over 5 years and bears interest semi annually at 5%. The mortgage
payable for $491,000 bears interest at 8%, and is repayable over 60 months. The
$464,000 term loan bears interest at 7.87% on a renewable 3-year term loan. The
mortgage payable and the term loan are collateralized by property, plant and
equipment of Temisca.
SunRich Food Group Debt
The SunRich Food Group has eight individually significant loans and mortgages
payable, which total $21,216,000 at December 31, 2000 (1999 - $2,184,000).
There are three loans secured directly against SunRich, Inc. assets, which total
$3,810,000 at December 31, 2000 (1999 - $2,184,000). These loans include a
$412,000 note payable with payments of US$3,094 through July, 2013 and a note
payable of $398,000 with interest and principal payments of US$29,048 through to
November, 2006. Both loans are at the US bank reference rate, which at December
31, 2000 was 8.75%.
The third note payable included in this balance is for $3,000,000 with interest
only at 9.375% to February 2002 and thereafter semi-annual principal and
interest payment of US$66,000 through February, 2016. These three loans are
secured against the property, plant, equipment and intangibles of SunRich, Inc.
There are four loans directly secured against Northern's assets that total
$12,120,000 at December 31, 2000.
These loans include a note payable for $6,251,000 with interest at 9.45% due in
monthly payments of US$144,043 through September, 2003. Collateral for this loan
consists of the Fosston production facility and equipment related to this plant
constructed under agreement for a major European company as well as an
assignment of the production contract and the note receivable. The note payable
for $4,824,000 has monthly payments of US$53,918 through September, 2007 with
interest at 3% above 30 day commercial paper rate (9.3% at December 31, 2000).
24
Liquidity and Capital Resources at December 31, 2000 (continued)
The mortgage payable of $583,000 bears interest at 10% payable at US$6,000 per
month through October, 2008 and is collateralized by equipment. The mortgage
payable of $462,000 is secured against certain property with interest only at
9.375% due August 2005, comprise the remaining balances of Northern's debt
payable. All of Northern's assets are secured under these four agreements.
Nordic has a $5,286,000 loan which bears interest at US Prime + 1% which at
December 31, 2000 was 9.5%. Monthly principal payments of US$44,048 through
August, 2007 are required and the loan is collateralized by the property, plant,
equipment and intangibles of Nordic.
Northern and SunRich have co-guaranteed this loan payable by Nordic. The loan
contains restrictive financial covenants for Northern, SunRich and Nordic. As at
December 31, 2000, Nordic was not in compliance with certain of the financial
covenants. However, on April 12, 2001, the Company entered into an agreement
with the lender whereby the lender agreed to not take any action until April 15,
2002, with respect to the various covenant breaches, which existed at December
31, 2000. As part of the agreement the Company renegotiated the financial
covenants of the bank loan payable and agreed to place US$264,000 on deposit
with the lender. This agreement is subject to the Company complying with certain
new financial covenants detailed in the agreement. As at April 12, 2001, the
Company is in compliance with the new financial covenants and expects to remain
in compliance throughout 2001. At December 31, 2000, $4,493,000 of the
$5,286,000 bank loan payable has been classified as a long-term obligation in
these financial statements.
The Company has total capital lease obligations of $859,000 principally for
production equipment in the SunRich Food Group and to a lesser extent for the
Environmental Industrial Group which bear interest at a weighted rate of 10.25%
and are due in various instalments through 2005.
There are also other loans, which total $1,275,000, which are predominately
related to the SunRich Food Group for miscellaneous debts, and car loans which
bear interest at a weighted average of 7.5% and are due in varying instalments
through to July, 2007.
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
the various Sunrich Food Group bankers to be satisfactory.
The Company believes that the cash to be generated from operations in 2001, its
current cash and cash equivalents, its available lines of credit and its ability
to secure additional financing through combining its US lines of credit in 2001,
are sufficient for the Company's operations during 2001.
Other long-term liabilities
The long-term future tax liability of $1,508,000 (1999 - $579,000) relates
principally to the SunRich Food Group and is related to the values assigned in
the opening balance sheet on the acquisition of Northern in 2000 and SunRich in
1999. These balances represent differences between accounting and tax basis of
assets and liabilities primarily related to property, plant and equipment offset
by the benefit of losses carried forward.
The short-term portion of the preference shares in subsidiary companies
increased from $240,000 in 1999 to $387,000 in 2000 due to $148,000 of
preference shares of Temisca. This balance is due when Temisca achieves certain
profit and balance sheet stability tests which management anticipates will be
achieved during fiscal 2001. The remaining balance is the scheduled yearly
payments for the preference shares related to the purchase of land in the BEI
acquisition.
The long-term portion of the preference shares of subsidiary companies was
reduced to $462,000 from $607,000 as a result of the scheduled payments in 2000,
which totalled $170,000 in cash payments.
25
Liquidity and Capital Resources at December 31, 2000 (continued)
Cash Flow
Cash flow provided by operations before working capital changes for the year
ended December 31, 2000 increased by $1,935,000 to $4,421,000 (1999 -
$2,486,000) due principally to the $1,850,000 in increased earnings in 2000 over
1999.
Cash flow provided by operations after working capital changes decreased to
$55,000 for the year ended December 31, 2000 (1999 - $5,004,000) due to a
significant use of cash required to pay acquired obligations in 2000, primarily
by Northern and PECAL.
Cash used in investment activities increased to $10,820,000 in 2000 (1999 -
$1,273,000) due principally to larger acquisition of property, plant and
equipment in 2000 of $5,353,000 compared to 1999 of $1,138,000 due to the
greater number of locations of both the Sunrich Food Group and the Environmental
Industrial Group; due to the acquisitions in the past year, as well as the
larger amount of net investment of $5,359,000 made in acquiring companies (1999
- $24,000).
Cash provided by financing activities was $9,270,000 in 2000 (1999 - used for
financing of $1,422,000). The increase in cash from financing in 2000 is
principally due the new debt acquired to purchase PECAL and to finance certain
acquisitions of property, plant and equipment offset by scheduled debt
repayments in 2000. In 1999, the debt repayments exceeded the issuance of new
debt.
1999 Operations Compared with 1998 Operations
Revenues in 1999 increased by 114% to $47,304,000 from $22,077,000 in 1998 and
the Company's earnings for 2000 were $1,524,000 or $0.09 per common share
compared to $822,000 or $0.06 per share for the year ended December 31, 1998.
Revenues in 1999 were derived from the SunRich Food Group of $24,991,000, from
the Environmental Industrial Group 1999 sales were $21,829,000 (1998 -
$21,995,000) and Steam Explosion Technology Group and corporate sales in 2000
were $484,000 (1998 - $82,000). Substantially all revenues in 1998 were derived
from the Environmental Industrial Group.
In 1999, Environmental Industrial Group sales consisted of sales of abrasives,
foundry sands and other products were $19,215,000 (1998 - $19,006,000) and
recycling revenues were $2,614,000 (1998 - $2,989,000). The SunRich Food Group's
$24,991,000 of sales since acquisition were from identity preserved specialty
products of $13,320,000 or 53% of sales, soy and soybean product sales of
$5,450,000 or 22% of sales; other grain sales of $4,328,000 or 17% of sales;
feed sales of $1,140,000 and other sales of $753,000. Steam Explosion Technology
Group's and general corporate revenues of $484,000 in 2000 were generated
primarily from steam explosion licence fee revenue of $399,000 (1998 - nil).
Private industry technology projects generated revenue in 2000 of $11,000 (1998
- $16,000), and other corporate revenues were $74,000 (1998 - $66,000). No
equipment sales were made in 1999 or 1998.
Cost of sales increased by 132% to $40,127,000 for the year ended December 31,
1999 compared to $17,308,000 for the year ended December 31, 1998. The increase
in cost of sales is primarily related to the acquisition of SunRich. Cost of
sales in 1999 attributable to the Environmental Industrial Group were
$17,667,000 (1998 - $17,195,000), and on SunRich cost of sales was $22,340,000.
Steam Explosion Technology Group cost of sales was $120,000 (1998 - $113,000),
which primarily relates to standard amortization charges.
Environmental Industrial Group's cost of sales in 1999 from abrasives, foundry
and other products was $15,745,000 (1998 - $14,515,000) and recycling of
$1,922,000 (1998 - $2,680,000). The margins in products contained in the
abrasive, foundry and other category have improved slightly to 26.5 % from 23.6%
in 1998. Recycling margins have increased in 1999 over 1998 due to an increase
in the incoming recycling fees and stable freight costs.
26
1999 Operations Compared with 1998 Operations (continued)
SunRich's cost of sales since acquisition from identity preserved specialty
products of $11,944,000; soy and soybean product sales of $4,778,000 other grain
sales of $4,225,000; feed sales of $1,062,000; and other sales of $331,000.
The Company's gross margin was 15.1% in 1999 compared to 21.6% in 1998 due to
the lower margins in the SunRich Food Group. The Environmental Industrial
Group's margin decreased to 19.1% in 1999 from 21.8% in 1998, due to tight price
competition in some of the principal product lines. SunRich's margin was 10.6%
for the five months since acquisition. Steam Explosion Technology and Corporate
Group and corporate margins were 75.2% due to the nature of the revenues in this
Group.
Research and development costs, principally related to Steam Explosion
Technology and Corporate Group was $367,000 in 1999 compared to $357,000 for the
year ended December 31, 1998 due to minor increases in research into non-wood
applications for steam explosion technology during 1999.
Administration and market development expenditures increased in 1999 to
$4,953,000 compared to $3,419,000 for the year ended December 31, 1998. In 1999,
SunRich Food Group's administration costs were $2,005,000, Environmental
Industrial Group's operations accounted for $1,722,000 of the administration
costs (1998 - $1,902,000) and Steam Explosion Technology and Corporate Group's
marketing and demonstration and corporate administration expenses were
$1,226,000 (1998 - $1,517,000). The principal reason for the increase in these
expenses in 1999 over 1998 results from the inclusion of SunRich's
administration costs, however based on operations that were in place at the end
of 1998, administration costs decreased by $459,000 due to less acquisition cost
write-offs and certain administration efficiencies.
Amortization of patents, trademarks, licences and goodwill increased to $183,000
in 1999, compared to $139,000 in 1998 due to the amortization of the new
goodwill arising on the acquisition of SunRich offset by certain other assets in
this category that the Environmental Industrial Group has fully amortized in the
year.
The gain on sale of property, plant and equipment of $5,000 (1998 - $60,000) in
1999 is due to the sale of non-essential equipment for net proceeds of $13,000.
In 1998, the gain was due to the sale of non-essential land for net proceeds of
$89,000 at a location separate from the Company's principal operations.
Interest and other income decreased to $181,000 in 1999 from $57,000 in 1998 due
an increase in interest earned on the higher cash balances that the
Environmental Industrial Group had available during 1999 over 1998.
Interest on long-term debt and other interest expense increased to $361,000 in
1999 from $134,000 in 1998 due to the inclusion of SunRich Food Group's debt
obligations.
The share of losses of equity accounted investees of $321,000 (1998 - $29,000)
and dilution gain of $nil (1998 - $26,000) is related to the Company's 35%
equity investment in Easton Minerals Ltd. (Easton) a mining exploration company
listed on the Canadian Venture Exchange (EM-CDNX). US readers should note that
dilution gains are not recognized as income for US GAAP purposes due to the
development stage nature of Easton, and accordingly, the effects of this gain
are reversed in Note 17 of the Company's financial statements.
The foreign exchange loss of $76,000 (1998 - gain of $67,000) is attributable to
the weakening in 1999 and the strengthening in 1998 of the US $ on the Company's
net foreign transactions and balances.
The loss on sales of marketable securities was $nil in 1999 (1998 - $16,000) was
related to the disposal on non-core investments. The dividend on preference
shares of a subsidiary company of $25,000 (1998 - $30,000) and the imputed
interest of preference shares of a subsidiary company of $31,000 (1998 -
$33,000) are related to the preference shares issued for the acquisition of BEI.
27
Item 7. Financial Statements
Financial statements are set forth on pages F-1 through F-33 of this Report and
are incorporated herein by reference.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
28
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
(a) Identification of directors and executive officers:
Information concerning the directors and executive officers as at March 7, 2001
is set forth below:
[Enlarge/Download Table]
Year First Number of Shares
Elected Position Class of Beneficially Owned/Number % of
Name Age Director With Company Shares of Vested Options Class
--------------------------------------------------------------------------------------------------------------------
J.N. Kendall 61 1978 Chairman of the Board, Common 301,013/358,000 (1) 2.17%
CEO & Director
--------------------------------------------------------------------------------------------------------------------
C.A. Ing 68 1984 Secretary and Director Common 66,335/57,500 (2) 0.41%
--------------------------------------------------------------------------------------------------------------------
J. Riz* 53 1986 Independent Director Common 33,600/57,500 (3) 0.30%
--------------------------------------------------------------------------------------------------------------------
J.D. Taylor 48 1994 President, COO & Director Common 97,027/198,000 (4) 0.97%
--------------------------------------------------------------------------------------------------------------------
T. Bergqvist 69 1989 Independent Director Common 20,000/57,500 (5) 0.25%
--------------------------------------------------------------------------------------------------------------------
M. Boyd * 49 1995 Independent Director Common 5,000/50,000 (6) 0.18%
--------------------------------------------------------------------------------------------------------------------
J. Rifenbergh 70 1996 Director Common 313,448/107,500 (7) 1.38%
--------------------------------------------------------------------------------------------------------------------
A. Routh 50 1999 Director and President Common 553,781/80,000 (8) 2.08%
of the Food Group
--------------------------------------------------------------------------------------------------------------------
D. Anderson 56 2000 Director and Operations Common 5,356,335/2,000 (9) 17.62%
Manager of the Food Group
--------------------------------------------------------------------------------------------------------------------
L. Anderson 52 2000 Director and Part-time Common 367,089/1,500 (10) 1.2%
CFO of the Food Group
--------------------------------------------------------------------------------------------------------------------
K. Houde* 42 2000 Independent Director Common 0 /10,000 (11) 0.03%
--------------------------------------------------------------------------------------------------------------------
L N. Markow 40 N/A CFO Common 29,050/57,500 (12) 0.28%
--------------------------------------------------------------------------------------------------------------------
All Directors
and Officers as
a group (twelve) Common 7,142,678/1,037,000 (13) 26.9%
--------------------------------------------------------------------------------------------------------------------
Percentage ownership is calculated based on total Common Shares outstanding at
March 7, 2001 of 29,022,305 outstanding plus all Common Shares subject to an
option currently exercisable, which at March 7, 2001 total 1,385,425 of which
1,037,000 related to directors and officers noted above and described below and
347,425 are options vested to other employees of the Company. This calculation
does not include options that have not yet vested or warrants currently
outstanding. Therefore the % of Class is based on 30,407,730 common shares.
*Mr. Riz and Boyd and Ms. Houde are members of the Company's audit committee.
All members of the audit committee are independent directors. Mr. Boyd is
Chairman of the Audit Committee.
29
Directors, Executive Officers, Promoters and Control Persons (continued)
(1) Includes options to purchase 27,500 common shares, 102,500 common shares
and 228,000 common shares at US$1.063 per share pursuant to the 1993, 1996
and 1998 Stake Employee/Director Stock Option Plans respectively.
(2) Includes options to purchase 7,500 common shares, 13,750 common shares and
26,250 common shares at US$1.063 per share pursuant to the 1993, 1996 and
1998 Stake Employee/Director Stock Option Plans respectively.
Includes options to purchase 10,000 common shares at US$1.313 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
(3) Includes options to purchase 7,500 common shares, 13,750 common shares and
26,250 common shares at US$1.063 per share pursuant to the 1993, 1996 and
1998 Stake Employee/Director Stock Option Plans respectively.
Includes options to purchase 10,000 common shares at US$1.313 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
(4) Includes options to purchase 27,500 common shares, 55,000 common shares
and 115,500 common shares at US$1.063 per share pursuant to the 1993, 1996
and 1998 Stake Employee/Director Stock Option Plans respectively.
(5) Includes options to purchase 7,500 common shares, 13,750 common shares and
26,250 common shares at US$1.063 pursuant to the 1993, 1996 and 1998 Stake
Employee/Director Stock Option Plans respectively.
Includes options to purchase 10,000 common shares at US$1.313 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
(6) Includes options to purchase 13,750 common shares and 26,250 common shares
at US$1.063 per share pursuant to the 1996 and 1998 Stake
Employee/Director Stock Option Plans respectively.
Includes options to purchase 10,000 common shares at US$1.313 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
(7) Includes options to purchase 21,250 common shares, 26,250 common shares
and 50,000 common shares at US$1.063 per share pursuant to the 1996, 1998
and 1999 Stake Employee/Director Stock Option Plans respectively.
Includes options to purchase 10,000 common shares at US$1.313 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
(8) Includes options to purchase 80,000 common shares at US$1.063 pursuant to
1999 Stake Option Plan.
(9) Includes options to purchase 2,000 common shares at US$1.313 per share
pursuant to the 1999 Stake Employee/Director Stock Option Plan.
(10) Includes options to purchase 1,500 common shares at US$1.313 per share
pursuant to the 1999 Stake Employee/Director Stock Option Plan.
(11) Includes options to purchase 10,000 common shares at US$1.313 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
30
Directors, Executive Officers, Promoters and Control Persons (continued)
(12) Includes options to purchase 12,500 common shares, 23,000 common shares
and 20,000 common shares at US$1.063 per share pursuant to the 1993, 1996
and 1998 Stake Employee/Director Stock Option Plans respectively.
Includes options to purchase 2,000 common shares at US$1.313 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
(13) Includes options to purchase 90,000 common shares at US$1.063 per share
pursuant to the 1993 Stake Employee/Director Stock Option Plan with an
expiry of December 31, 2004.
Includes options to purchase 256,750 common shares at US$1.063 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan with an
expiry of December 31, 2003.
Includes options to purchase 62,000 common shares at US$1.313 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan with an
expiry date of December 20, 2005.
Includes options to purchase 494,750 common shares at US$1.063 pursuant to
the 1998 Stake Stock Option Plan with an expiry date of December 11, 2003.
Includes options to purchase 130,000 common shares of US$1.063 pursuant to
1999 Stake Stock Option Plan, with an expiry date of August 1, 2004.
Includes options to purchase 3,500 common shares of US$1.063 pursuant to
1999 Stake Stock Option Plan, with an expiry date of August 1, 2005.
(b) Set forth below is a biographical description of each director of the
Company:
Jeremy N. Kendall has served as a Director of the Company since September 1978.
In June 1983, he was elected Chairman of the Board and Chief Executive Officer
of the Company. He is Chairman of the Board of all of the Company's subsidiaries
except 1108176 Ontario Limited. He is also Chairman of Jemtec Inc., Easton
Minerals Ltd. and Logicsys Inc. He is also a Director of a number of private and
charitable organizations.
Cyril A. Ing was elected a Director in January 1984 and became an employee in
August 1985. He was an independent consultant specializing in engineering
projects involving the combustion of biomass from May of 1982 to August 1985.
For the previous 10 years he was President of the Conat Group, a holding
company, whose major subsidiary, Westair Systems Inc., is a distributor and
manufacturer of industrial dehumidification equipment. In March 1990, Mr. Ing
retired from full time employment.
Joseph Riz was elected a Director of the Company in July 1986. He is presently
managing director of Tricapital Management Ltd., a merchant banking and
financial advisory firm. From 1983 to 1985 he was an Executive Vice President of
Crowntek, Inc..
Tim Bergqvist was elected a director of the Company in January of 1989. He has
recently retired as the Chairman of Eucalyptus Pulp Mills PLC. He is currently
Chairman of Quinta da Rosa (Vinhos do Porto) Lda in Portugal.
John Taylor was elected to the Board of Directors in December 1994. He was
appointed President and Chief Operating Officer of the Company in 1991. From
1986-1991, Mr. Taylor was the Company's Vice-President of Marketing and
Planning.
Michael Boyd was elected to the Board of Directors in December 1995. Mr. Boyd is
Managing Director Merchant Banking of HSBC Capital (Canada) Inc., a
merchant-banking subsidiary of the HSBC Bank Canada.
31
Directors, Executive Officers, Promoters and Control Persons (continued)
Jim Rifenbergh was elected to the Board of Directors in April 1996. Mr.
Rifenbergh is past President and Chairman of Brown Printing Company of Waseca,
Minnesota, a $440 million printing company with plants throughout the United
States. He is also a Director of SunRich Food Group, Inc., the Company's
subsidiary and a number of other private companies and organizations.
Allan Routh was elected to the Board of Directors in September 1999. Mr. Routh
is President of the SunRich Food Group, Inc., the Company's subsidiary.
Dennis Anderson was elected to the Board of Directors in September 2000; Mr.
Anderson is the Vice President Operations Manager of the SunRich Food Group, the
Company's subsidiary and he is the Company's largest shareholder.
Larry (Andy) Anderson was elected to the Board of Directors in September 2000.
Mr. Anderson is a CPA and acts as a part time financial officer to the SunRich
Food Group. Prior to his involvement with the SunRich Food Group, Mr. Anderson
was a partner in a Minneapolis CPA firm.
Katrina Houde was elected to the Board of Directors in December 2000. Ms. Houde
has extensive experience both with production and administrative function with
food companies, having most recently been the President of Cuddy Food, Inc. a
large turkey and chicken processor.
Board Compensation
In addition to annual grants of options, Directors who are not Company officers
receive a director fee of $1,500 for each board meeting attended in person as
well as $250 for participating in committee meetings and telephone meetings and
reimbursement of travelling and administrative expenses to attend meetings and
manage their Board responsibilities. The Corporate Secretary receives an
additional $500 per quarter for his additional responsibilities.
(c) Identification of Executive Officers of Registrant:
The following table shows certain information with respect to the Company's
Officers, including its Executive Officers, as of March 7, 2001:
[Enlarge/Download Table]
Name Age Officers of Stake
-------------------------------------------------------------------------------------------------
Jeremy N. Kendall * 61 Chairman of the Board (1983)
Chief Executive Officer (1983)
Director (1978)
-------------------------------------------------------------------------------------------------
John D. Taylor * 48 Director (1994)
President and Chief Operating Officer (1991)
Vice President, Marketing and Planning (1986)
-------------------------------------------------------------------------------------------------
Cyril A. Ing * 68 Corporate Secretary and Director (1984)
-------------------------------------------------------------------------------------------------
Leslie Markow 40 Vice President - Finance and Chief Financial
Officer (1997), Controller (1991)
Assistant Corporate Secretary (1993) (A)
-------------------------------------------------------------------------------------------------
* Director's biographies are detailed in the preceding pages
(A) Ms. Markow joined the Company in 1991 and was appointed Chief Financial
Officer in 1997. She is also CFO of Easton Minerals Limited the Company's
32% owned investment and a director of Jemtec Inc.. Ms. Markow was with
Coopers & Lybrand now known as PricewaterhouseCoopers LLP from 1983-1991,
last as an Audit Manager. Ms. Markow is a Canadian Chartered Accountant.
There are no family relationships between any of the Officers or Directors of
the Company.
32
Directors, Executive Officers, Promoters and Control Persons (continued)
Officers of the Company are elected by the Board of Directors at its first
meeting after each Annual Meeting of Shareholders and serve a term of office
until the next Annual Meeting. Officers elected by the Board of Directors at any
other time serve a term of office until the next Annual Meeting.
The Annual Meeting of Shareholders for 2001 will be held on June 14, 2001 at a
location in downtown Toronto, Canada.
Item 10. Executive Compensation
EXECUTIVE COMPENSATION
The following tables set forth all remuneration paid by the Company and its
subsidiaries during the last three years ended December 31, 2000, 1999 and 1998
to its C.E.O. and executive officers earning in excess of US$100,000:
SUMMARY COMPENSATION TABLE
(STATED IN US DOLLARS)
[Enlarge/Download Table]
Annual Compensation Awards Payouts
========================================================================================================================
Restricted
Name and Principal Other Annual Stock All Other
Occupation Year Salary Bonus Compensation Awards Options LTIP Compen-
SARs Pay-outs sation
------------------------------------------------------------------------------------------------------------------------
Jeremy Kendall - C.E.O. 2000 $169,263 $45,590 $6,910 (1)
------------------------------------------------------------------------------------------------------------------------
John D Taylor - C.O.O. 2000 $115,479 $32,870 $15,560 (1)
------------------------------------------------------------------------------------------------------------------------
Allan Routh - President of 2000 $110,000 $20,000 $6,555 (1)
the SunRich Food Group
------------------------------------------------------------------------------------------------------------------------
Jeremy Kendall - C.E.O. 1999 $154,478 $4,889 $17,524 (1)
------------------------------------------------------------------------------------------------------------------------
John D Taylor - C.O.O. 1999 $112,245 $14,747 $11,494 (1) - - - -
------------------------------------------------------------------------------------------------------------------------
Jeremy Kendall - C.E.O. 1998 $159,417 $81,704 $10,415 (1) - - - -
------------------------------------------------------------------------------------------------------------------------
John Taylor - C.O.O. 1998 $110,753 $48,600 $6,033 (1)
========================================================================================================================
(1) Represents taxable benefit of automobile, life insurance, retirement
savings contributions, short-term loans and benefit received over
exercise price of stock options exercised.
Note: Mr. Dennis Anderson's compensation exceeds US$100,000 per annum as the
Vice-President of Operations of the SunRich Food Group, however as Northern was
acquired on September 15, 2000, the compensation in the three and one half
months since acquisition did not exceed US$100,000.
33
Item 10. Executive Compensation (continued)
The following table contains information concerning individual grants of stock
options made during the last completed fiscal year, to the following executive
officers:
OPTION GRANTS IN PAST FISCAL YEAR
[Enlarge/Download Table]
========================================================================================================================
% of Total Options Exercise on Base
Name Options Granted to Employees price ($/Share) Expiration Date
Granted in Fiscal Year
------------------------------------------------------------------------------------------------------------------------
Jeremy N. Kendall 0 N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------
John D. Taylor 0 N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------
Allan Routh 0 N/A N/A N/A
========================================================================================================================
DECEMBER 31, 2000 OPTION VALUES
(STATED IN US DOLLARS)
[Enlarge/Download Table]
========================================================================================================================
(a) (b) (c) (d) (e)
------------------------------------------------------------------------------------------------------------------------
Number of Value of Unexercised in
Name Shares Acquired Value Realized Unexercised Options the Money Options at
on Exercise in in at 12/31/00 12/31/00
2000 (#) 2000 ($) Vested/ Vested/
Not Yet Vested Not Yet Vested
------------------------------------------------------------------------------------------------------------------------
Jeremy N. Kendall 0 N/A 358,000/4,500 $134,071/$1,685
------------------------------------------------------------------------------------------------------------------------
John D. Taylor 10,000 $8,432 198,000/4,500 $74,151/$1,685
------------------------------------------------------------------------------------------------------------------------
Allan Routh 0 N/A 80,000/120,000 $29,960/$44,940
========================================================================================================================
1993, 1996, 1998 and 1999 Employee/Director Stock Option Plans
The Board of Directors adopted the 1993 Employee/Director Stock Option Plan on
June 17, 1993, at which time 500,000 common shares with no par value of the
Company were reserved for issuance under the Plan. The shareholders of the
Company approved this Option Plan at the Annual and Special Meeting of
Shareholders on June 18, 1993.
In March, 1994, the Board of Directors approved the issue of 96,000 options to
employees and directors of the Company at a price of US$0.4375. The price of
these options reflected the price of the Company's stock on that date.
In October, 1994, the Board of Directors approved an amendment to the 1986, 1988
and 1993 Stock Option Plans which reduced the exercise price from US$1.00 and
US$0.4375 respectively to US$0.25 for all directors and employees. Consultants
option exercise price remained at US$1.00.
The option price of the $1.00 options was reduced to the market price of US$0.25
in October, 1994 as the market price of the Company's common shares had
experienced a significant decline in 1994, and the Board of Directors determined
that as stock options comprise a significant motivating benefit to the employees
of the Company, and the only benefit received by the directors of the Company,
it was necessary for the options to reflect current market Prices to ensure the
continued relevance of the Stock Option Plan at Stake.
34
1993, 1996, 1998 and 1999 Employee/Director Stock Option Plans (continued)
In February, 1995, 34,500 options, exercisable at US$0.25 per share were granted
from the 1993 Employee/Director Stock Option Plan and were approved by the Board
of Directors. Stake granted these options to all Stake employees and the
salaried employees of Environmental Industrial Group to commemorate the
acquisition of 51% of BEI.
In June, 1995, 72,000 options, exercisable at US$0.25 per share from the 1988
Employee/Director Stock Option Plan were approved by the Board of Directors and
awarded to two senior officers and a director. Also in June, 1995, 240,000
options were granted at US$0.625 per share from the 1993 Employee/Director Stock
Option Plan and approved by the Board of Directors. 180,000 of these options
were granted to employees, 60,000 to directors.
In December 1995, 7,500 options were granted to a new director of the Board at
$1.4375 per share from the 1993 Employee/Director Stock Option Plan and approved
by the Board of Directors.
In January 1996, 235,000 options were granted at US$1.8125 from the 1993
Employee/Director Stock Option Plan and approved by the Board of Directors. From
this grant 147,500 options vested immediately and 87,500 vested January 1, 1997.
The 1996 Employee/Director Stock Option Plan was adopted by the Board of
Directors in December, 1995, at which time 550,000 common shares, no par value
of the Company were reserved for issuance under the Plan. The shareholders of
the Company approved this Option Plan at the Annual and Special Meeting of
Shareholders on June 17, 1996.
In April 1996, 25,500 options were granted to employees and a director at
US$1.75 per common share from the 1996 Employee/Director Stock Option Plan. All
of the options were vested at December 31, 1996.
In August 1996, 8,000 options were granted at US$1.875 per common share from the
1996 Employee/Director Stock Option Plan. 4,000 of these options vested at
December 31, 1996, 2,000 vested February 9, 1997 and 2,000 vested on May 9,
1997.
In December 1996, 279,500 options were granted at US$1.21875 per common share
from the 1996 Employee/Director Stock Option Plan. 67,500 options were granted
to directors vesting immediately and 212,000 to employees, which vested one half
on July 1, 1997, and one half on January 1, 1998.
In January 1997, 12,000 options were granted at US$1.66 per common share under
the 1996 Employee/Director Stock Option Plan vesting at the rate of 1,000 per
month from January 31, 1997. All 12,000 were vested at the end of 1997.
In August, 1997 8,000 options were granted at US$1.03125 per common share from
the 1996 Employee/Director Stock Option Plan. 4,000 of these options vested at
December 31, 1998, 2,000 vested February 9, 1998 and 2,000 vested on May 9,
1998. All 8,000 of these options were retracted in 1998 due to the employee
leaving.
In December 1997, 5,000 options were granted at US$1.375 from the 1996
Employee/Director Stock Option Plan, which vested 2,500 on March 31, 1998, and
2,500 on June 30, 1998, respectively.
In December 1997, the Board of Directors extended the expiry of all options
exercisable at $1.8125 from February 12, 1998 to February 12, 2000.
Also in December 1997, 893,000 options were granted at US$1.25 under the 1996
Employee/Director Stock Options Plan and from the 1998 Employee/Director Stock
Option Plan, which was approved by the shareholders in June, 1998.
From the 1997 grants, 260,000 of these options vested at December 31, 1998, and
12,000 vested at the rate of 1,000 per month throughout 1998, 309,125 of the
options vested on August 31, 1998 and the remaining
35
1993, 1996, 1998 and 1999 Employee/Director Stock Option Plans (continued)
301,125 options vested on January 1, 1999. 35,750 options vesting during 1998
and 2000 were retracted due to employees leaving and the death of a director.
In December, 1998, the Board of Directors extended the expiry of all options
exercisable at US$1.8125 from February 12, 1998 to December 31, 2004, and
approved the issuance of 5,000 options from the 1998 Stock Option Plan to a new
employee at US$0.75, of which 2,500 vested in 1998 and 2,500 vested in 2000.
In 1999, 303,625 options that were granted in prior periods at US$1.25 vested,
and 12,000 options were retracted.
In addition, 620,000 options from 1998 and 1999 Stock Options Plans were granted
at US$1.063. These options vest as follows: 253,600 vest immediately, 82,900
vest annually on the anniversary date of August 2, over the next four years and
34,800 vest on August 2, 2004.
At December 31, 1999, there were options to acquire 1,501,850 shares that have
vested; 459,250 at exercise prices ranging from US$1.22 to US$1.75 per share
expiring on March 10, 2001; 672,200 at exercise prices ranging from US$0.75 to
US$1.38 per share expiring on December 11, 2003, 131,900 at US$1.063 expiring
August 2, 2004, 182,500 at US$1.8175 expiring December 31, 2004, and 56,000 at
US$1.063 which expire August 2, 2005, under the 1993, 1996, 1998 and 1999
Employee/Director Stock Option Plans.
In January 2000, the Board of Directors re-priced all options that exceeded
US$1.063 to US$1.063.
During 2000, the Company retracted 3,000 common shares. From January 1, 2000 to
December 31, 2001, 298,225 options were exercised at US$1.063 for gross proceeds
of $436,000.
During 2000, 295,500 options were granted, 108,000 options were granted with
immediate vesting, 48,300 vest in 2001 and 47,300 vest in 2002 and 2003 and
44,600 vest in 2004. Of these 295,500 options that were granted, 246,500 were
granted at US$1.313, 4,000 were granted at US$1.41, 41,000 were granted at
US$1.375 and 4,000 were granted at US$0.91.
At December 31, 2000, there are options to acquire 1,385,425 shares that have
vested; 313,875 at US$1.063 expiring on March 10, 2001; 595,950 at exercise
prices ranging from US$0.75 to US$1.063 per share expiring on December 11, 2003;
139,800 at US$1.063 expiring August 2, 2004; 138,000 at US$1.063 expiring
December 31, 2004; 90,800 at US$1.063 expiring on August 2, 2005; 8,000 at
US$1.375 to $1.41 on April 4, 2005; 1,600 at US$0.91 expiring on December 11,
2004; 97,400 at US$1.313 expiring on December 20, 2005; under the 1993, 1996,
1998 and 1999 Employee/Director Stock Option Plans.
At December 31, 2000, an additional 472,100 options (1999 - 366,400) to acquire
472,100 common shares at prices ranging from US$0.75 to US$1.375 (1999 - $ 0.75
to US$1.25) have been granted but not vested.
Subsequent to year-end, from January 1, 2001 to March 7, 2001, 2,000 options
were exercised for US$1.063 for net proceeds of $3,000.
In March, 2000, 304,375 options exercisable at US$1.063 that were to expire on
March 10, 2001 were extended to December 31, 2003.
36
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information concerning share ownership of
all persons known by the Company to own beneficially 5% or more of the Company's
outstanding Common Shares and all directors and officers of the Company as a
group as of March 7, 2001.
[Enlarge/Download Table]
===================================================================================================================
Name and Address Class of Share Amount of Ownership Percent of Class (2)
of Beneficial Holder
-------------------------------------------------------------------------------------------------------------------
Dennis Anderson Common 5,356,335 18.46%
2214 Geneva Road NE, Alexandria
Minnesota USA 56308
===================================================================================================================
Gruber & McBaine Capital Management Common 3,498,900 12.06%
50 Osgood Place, San Francisco
California USA 94133
===================================================================================================================
All Directors and Officers Common (1) 1,786,343(a) 6.2% (a)
As a group (eleven) after excluding Dennis 7,142,678(b) 24.6% (b)
Anderson who is disclosed above (a) and not
excluding Mr. Anderson's shares (b)
===================================================================================================================
(1) For details of shares owned by officers and directors, see Page 28 - Item
9 (a) - Identification of Directors and Executive Officers.
(2) Percentage ownership is calculated based on total Common Shares
outstanding at March 7, 2001 of 29,022,305. It does not include warrants
or options that have vested or have not yet vested.
Item 12. Certain Relationships and Related Transactions
Warrants
During 1995, the Company issued 1,220,000 warrants to acquire additional
1,220,000 common shares. Of these warrants, 37,500 warrants were exercised in
1996, and the remaining 1,182,500 warrants; 650,000 were exercisable at US$2.25,
and 532,500 were exercisable at US$2.00. In 1997, these warrants were extended
to December 31, 1998.
In 1995, a management director of the Company subscribed for and paid for 75,000
common shares in the private placement of shares. This transaction entitled this
director the right to exercise 37,500 warrants of the 532,500 warrants noted
above at US$2.00 for 2 years. In addition, an independent director of the
Company held 70,000 of the 532,500 warrants noted above which entitled this
director to exercise 70,000 common shares at US$2.00 for 2 years to October 3,
1997. As described above, both of these warrants were extended to December 31,
1998.
In 1997, subsequent to the extension of the expiration date, the third party
holder of the 650,000 warrants exercisable at US$2.25, and the independent
director of the Company who held 70,000 of the 532,500 warrants exercisable at
US$2.00 asked the Company to find interested parties to purchase their
respective warrants. As a result of this request, third parties purchased the
right to 525,000 of the US$2.25 warrants and 13,000 of the US$2.00 warrants.
Employees purchased the right to 125,000 of the US$2.25 warrant and 37,000 of
the US$2.00 warrant. The director sold 37,000 warrants to employees of the
Company and 13,000 to a third party for $0.15 per warrant.
37
Item 12. Certain Relationships and Related Transactions (continued)
During 1998, all 1,182,500 warrants including those noted above held by
employees and a director had their expiry date extended to June 30, 2000, by the
Company's Board.
In December 1998, the Company offered all the warrant holders of the 1,182,500
warrants a 4 for 1 exchange for their warrants at a price of US$0.50 until
January 31, 2000 (162,000 warrants were held by employees and 20,000 by the
director). As a result, employees and the director were offered the same terms
and conditions as all of the warrant holders which was:
(a) by exchanging their existing warrants 45,500 new warrants would be issued,
exercisable at US$0.50 expiring on January 31, 2000; and
(b) provided that this US$0.50 warrant was exercised prior to January 31,
2000, 45,500 additional warrants would be issued with an exercise price of
US$1.00 to December 31, 2000, rising to US$2.00 on January 1, 2000 and
expiring on December 29, 2000.
In January, 1999 all 45,500 exchanged warrants were exercised for proceeds of
$34,000, and 45,500 new warrants were issued to the respective employees and
director with an exercise price of US$1.00 to December 31, 1999, increasing to
US$2.00 on January 1, 2000 and expiring on December 31, 2000.
During 1999, two employees exercised 35,400 of the 45,500 new warrant issued to
employees and a director for gross proceeds of $35,400.
In October 2000, the Board of Directors authorized a 30-day reduction in the
exercise price of these warrants reducing the price to US$1.50 from US$2.00. A
director exercised 9,375 warrants at US$1.50 for gross proceeds of $21,900 and
the remaining 725 warrants issued to other employees expired without being
exercised.
Loans
Included in other long-term debt is an uncollateralized loan of $178,000 due to
a shareholder, payable in monthly instalments of principal and interest of
US$2,543 through to August 24, 2005, bearing interest at 8%.
Rental property
The Company leases certain real estate from a shareholder under operating leases
that expire in August, 2010. Annual rental under each of the leases is $2.
38
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
[Download Table]
STAKE TECHNOLOGY LTD. Form 10-KSB
---------------------
(a) Documents filed as part of this Report Page
----
1. Financial Statements F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets as at
December 31, 2000 and 1999 F-3, F-4
Consolidated Statements of Earnings -
For the Years ended December 31, 2000 and 1999 F-5
Consolidated Statements of Retained Earnings -
For the Years ended December 31, 2000 and 1999 F-6
Consolidated Statements of Cash Flows -
For the Years ended December 31, 2000 and 1999 F-7
Notes to Consolidated Financial Statements -
For the Years ended December 31, 2000 and 1999 F-8- F33
3. Exhibits
3.1 - Amalgamation of Stake Technology Ltd and 3754481 Canada Ltd.
(formerly George F. Pettinos (Canada) Limited) (I)
3.3 - Bylaw No. 14 approved by shareholders - June 17, 1997 (D)
10.1 - Court Order dated January 20, 1995 awarding certain assets
of Barmin Inc. to Barnes Environmental Inc. (A)
10.2 - Shareholder Agreement dated January 20, 1995 between Stake
Technology Ltd., Bentonite of Canada Inc. and Barnes
Environmental Inc. (A)
10.3 - 1993 Employee/Director Stock Option Plan dated May 19, 1993
(B)
10.4 - Share Purchase Agreement dated November 15, 1995 between
Stake Technology Ltd., Bentonite of Canada Inc. and Peter
Barnes. (B)
10.5 - 1996 Employee/Director Stock Option Plan dated September 27,
1996 (C)
10.6 - 1998 Stock Option Plan dated December 12, 1997 (E)
10.7 - Agreement and Plan of Reorganization among Stake Technology
Ltd, Stake Minnesota, Inc. and SunRich, Inc. dated April 8,
1999. (F)
10.8 - 1999 Stock Option Plan dated February 18, 1999 (G)
10.9 - Agreement to purchase George F. Pettinos (Canada) Limited
dated February 28, 2000 (I)
10.10 - Agreement to purchase Northern Food & Dairy, Inc. dated
September 15, 2000 (H)
39
Exhibits (continued)
10.11 - Agreement to purchase Temisca, Inc. dated October 31, 2000
(I)
21 - List of subsidiaries (I)
24 - Powers of Attorney (I)
(A) Previously filed as an Exhibit to Company's annual report of
Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference.
(B) Previously filed as an Exhibit to Company's annual report of
Form 10-KSB for the year ended December 31, 1995 and
incorporated herein by reference.
(C) Previously filed as an Exhibit to Company's annual report of
Form 10-KSB for the year ended December 31, 1996 and
incorporated herein by reference.
(D) Previously filed as an Exhibit to Company's annual report of
Form 10-KSB for the year ended December 31, 1997 and
incorporated herein by reference.
(E) Previously filed as an Exhibit to Company's annual report of
Form 10-KSB for the year ended December 31, 1998 and
incorporated herein by reference.
(F) Previously filed as an Exhibit to the Company's registration
statements number 333-10454 on Form S-4 filed June 24, 1999.
(G) Previously filed as an Exhibit to Company's annual report of
Form 10-KSB for the year ended December 31, 1999 and
incorporated herein by reference.
(H) Previously filed as an Exhibit to the Company's Form 8K filed
September 28, 2000.
(I) Filed herewith.
Filings of 8K
Form 8K filed March 12, 2000 relating to the acquisition of PECAL.
Form 8K filed September 28, 2000 relating to the acquisition of
Northern Food & Dairy, Inc. Form 8K amendment filed November 28, 2000
relating to the acquisition of Northern Food & Dairy, Inc.
40
STAKE TECHNOLOGY LTD.
Date: April 12, 2001 /s/ Leslie N. Markow
--------------------
Stake Technology Ltd. -
Leslie N. Markow- Vice President - Finance and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated have signed this report below.
[Enlarge/Download Table]
Signature Title Date
------------------------------------------------------------------------------------------------------------
* April 12, 2001
-----------------
Jeremy N. Kendall Chairman, Chief Executive Officer
and Director (Principal Executive Officer)
* April 12, 2001
-----------------
John D. Taylor President and Chief Operating Officer
* April 12, 2001
-----------------
Leslie N. Markow Vice President-Finance (Chief Financial
Officer) (Principal Financial and Accounting
Officer)
*
----------------- April 12, 2001
Cyril A. Ing Director and Corporate Secretary
* April 12, 2001
-----------------
Joseph Riz Director
* April 12, 2001
-----------------
Tim Bergqvist Director
*
-----------------
Michael Boyd Director April 12, 2001
*
-----------------
Jim Rifenbergh Director April 12, 2001
*
-----------------
Allan Routh Director April 12, 2001
*
-----------------
Dennis Anderson Director April 12, 2001
*
-----------------
Larry Anderson Director April 12, 2001
*
-----------------
Katrina Houde Director April 12, 2001
* By her signature set forth below, Leslie N. Markow, pursuant to a duly
executed power of attorney filed with the Securities and Exchange Commission as
an exhibit to this report, has signed this report on behalf of and as
Attorney-In-Fact for this person.
/s/ Leslie N. Markow - Leslie N. Markow -Attorney-in-Fact
-----------------------
41
Stake Technology Ltd.
Consolidated Financial Statements
December 31, 2000 and 1999
(expressed in Canadian dollars)
F-1
[Letterhead of PricewaterhouseCoopers]
March 20, 2001, except as to note 7(a),
which is as of April 12, 2001
Auditors' Report
To the Shareholders of
Stake Technology Ltd.
We have audited the consolidated balance sheets of Stake Technology Ltd. as at
December 31, 2000 and 1999 and the consolidated statements of earnings, retained
earnings and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada and the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2000
and 1999 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
F-2
Stake Technology Ltd.
Consolidated Balance Sheet
As at December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
2000 1999
$ $
Assets (note 7)
Current assets
Cash and cash equivalents 1,013,000 2,464,000
Cash held as security deposit (note 7) -- 400,000
Accounts receivable - trade 13,111,000 7,016,000
Current portion of note receivable (note 3) 2,150,000 --
Inventories (note 4) 15,290,000 8,589,000
Other receivables and prepaid expenses 1,341,000 530,000
Future income taxes (note 10) 954,000 1,020,000
-------------------------
33,859,000 20,019,000
Note receivable (note 3) 3,036,000 --
Property, plant and equipment (note 5) 43,158,000 10,766,000
Investments (note 6) 382,000 281,000
Goodwill - at cost, less accumulated
amortization of $925,000
(1999 - $516,000) 11,231,000 3,922,000
Pre-operating costs - at cost, less
accumulated amortization of $nil 768,000 --
Patents, trademarks, licences and other
assets - at cost, less accumulated
amortization of $1,034,000
(1999 - $925,000) 432,000 446,000
-------------------------
92,866,000 35,434,000
=========================
Approved by the Board of Directors
/s/ Jeremy N. Kendall Director /s/ John D. Taylor Director
---------------------------- ----------------------------
(see accompanying notes to consolidated financial statements)
F-3
Stake Technology Ltd.
Consolidated Balance Sheet ...continued
As at December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
2000 1999
$ $
Liabilities
Current liabilities
Bank indebtedness (note 7) 3,405,000 --
Accounts payable and accrued liabilities 19,359,000 10,179,000
Customer deposits 1,262,000 1,618,000
Current portion of long-term debt (note 7) 6,799,000 1,158,000
Current portion of preference shares of
subsidiary companies (note 8) 387,000 240,000
-------------------------
31,212,000 13,195,000
Long-term debt (note 7) 24,756,000 2,955,000
Other long-term payable (note 3) 1,651,000 --
Future income taxes (note 10) 1,508,000 579,000
Preference shares of subsidiary companies (note 8) 462,000 607,000
-------------------------
59,589,000 17,336,000
-------------------------
Shareholders' Equity
Capital stock (note 9)
Authorized
Unlimited common shares without par value
Issued
28,186,972 (1999 - 20,653,788) common shares 22,710,000 11,163,000
Contributed surplus 4,635,000 4,635,000
Retained earnings (note 9) 5,869,000 2,495,000
Currency translation adjustment 63,000 (195,000)
-------------------------
33,277,000 18,098,000
-------------------------
92,866,000 35,434,000
=========================
Commitments and contingencies (notes 7 and 12)
(see accompanying notes to consolidated financial statements)
F-4
Stake Technology Ltd.
Consolidated Statement of Earnings
For the years ended December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
[Download Table]
2000 1999
$ $
Revenues 101,653,000 47,304,000
Cost of goods sold 87,046,000 40,127,000
----------------------------
Gross profit 14,607,000 7,177,000
----------------------------
Expenses
Research and development 200,000 367,000
Administration, market development and
demonstration 10,570,000 4,953,000
Amortization of patents, trademarks, licences
and goodwill 524,000 183,000
----------------------------
11,294,000 5,503,000
----------------------------
Earnings from operations 3,313,000 1,674,000
Interest on long-term debt (1,455,000) (308,000)
Other interest (72,000) (53,000)
Interest and other income 402,000 181,000
Foreign exchange gain (loss) 71,000 (76,000)
Gain on redemption of preference shares (note 8) 175,000 --
Gain on dilution of investment interests
in equity accounted investee (note 6) 140,000 --
Share of losses of equity accounted investee (note 6) (48,000) (321,000)
Dividend on preference shares of subsidiary
company (note 8) (20,000) (25,000)
----------------------------
Earnings before income taxes 2,506,000 1,072,000
----------------------------
Recovery of (provision for) income
taxes (note 10)
Current (528,000) (3,000)
Future 1,396,000 455,000
----------------------------
868,000 452,000
----------------------------
Net earnings for the year 3,374,000 1,524,000
============================
Earnings per share (note 13)
Basic 0.15 0.09
============================
Fully diluted 0.14 0.09
============================
(see accompanying notes to consolidated financial statements)
F-5
Stake Technology Ltd.
Consolidated Statement of Retained Earnings
For the years ended December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
2000 1999
$ $
Retained earnings - Beginning of year 2,495,000 971,000
Net earnings for the year 3,374,000 1,524,000
-------------------------
Retained earnings - End of year 5,869,000 2,495,000
=========================
(see accompanying notes to consolidated financial statements)
F-6
Stake Technology Ltd.
Consolidated Statement of Cash Flows
For the years ended December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
[Enlarge/Download Table]
2000 1999
$ $
Cash provided by (used in)
Operating activities
Net earnings for the year 3,374,000 1,524,000
Items not affecting cash
Amortization 2,713,000 1,070,000
Share of losses of investee 48,000 321,000
Gain on redemption of preference shares (175,000) --
Gain on dilution of interest in investee (140,000) --
Gain on sale of property, plant and equipment (19,000) (5,000)
Imputed interest (59,000) 31,000
Future income taxes (1,396,000) (455,000)
Writedown of other assets 75,000 --
--------------------------
4,421,000 2,486,000
Change in non-cash working capital balances related to operations
Accounts receivable - trade 1,813,000 3,110,000
Inventories (2,399,000) (2,922,000)
Other receivables and prepaid expenses (470,000) 338,000
Accounts payable and accrued liabilities (2,894,000) 336,000
Customer deposits (416,000) 1,656,000
--------------------------
55,000 5,004,000
--------------------------
Investing activities
Acquisitions of companies - net of cash acquired (5,359,000) (24,000)
Acquisition of patents, trademarks, licences and other assets (81,000) (87,000)
Acquisition of property, plant and equipment (5,353,000) (1,138,000)
Proceeds on sale of property, plant and equipment 207,000 13,000
Increase in investments and advances (9,000) (37,000)
Proceeds from note receivable 543,000 --
Increase in pre-operating costs (768,000) --
--------------------------
(10,820,000) (1,273,000)
--------------------------
Financing activities
Purchase and redemption of preference shares of subsidiary companies (275,000) (170,000)
Cash held as security deposit 400,000 --
Increase in bank indebtedness 1,980,000 --
Repayment of long-term debt and notes payable (11,364,000) (3,680,000)
Issuance of long-term debt and notes payable 17,564,000 2,133,000
Issuance of common shares 965,000 295,000
--------------------------
9,270,000 (1,422,000)
--------------------------
Foreign exchange gain (loss) on cash held in a foreign currency 44,000 (26,000)
--------------------------
Increase (decrease) in cash during the year (1,451,000) 2,283,000
Cash and cash equivalents - Beginning of year 2,464,000 181,000
--------------------------
Cash and cash equivalents - End of year 1,013,000 2,464,000
==========================
Supplemental cash flow information
Interest paid 1,355,000 298,000
Income taxes paid 445,000 3,000
(see accompanying notes to consolidated financial statements)
F-7
Stake Technology Ltd.
Notes to Consolidated Financial Statements
For the years ended December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
1 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 SunRich Food Group manufactures and sells agricultural products with a
focus on soy, soymilk and other food products. The Environmental
Industrial Group sells abrasives and 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 December 31, 2000 are located in Canada and the U.S.
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 17. 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 and transactions 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
Raw materials, finished goods and merchandise inventory 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. The SunRich Food Group 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
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.
F-8
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Property, plant and equipment
Property, plant and equipment is stated at cost, less accumulated
amortization.
Amortization is provided on property, plant and equipment on the
diminishing balance or, in the case of certain U.S.-based subsidiaries,
straight-line method at rates based on the estimated useful lives of the
assets as follows: 10% to 33% for office furniture and equipment,
machinery and equipment and vehicles and 4-8% for buildings. Amortization
is calculated from the time the asset is put into use.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to
which it relates. During the year, approximately $25,000 (1999 - $nil) of
interest was capitalized.
Pre-operating costs
Net costs incurred in the pre-operating stage of start-up businesses are
deferred until the business reaches commercial operation or the passage of
a certain period of time as predetermined by management. During 2000, the
Company acquired Nordic Aseptic, Inc. (Nordic), which was considered a
start-up business from the date of acquisition to December 31, 2000.
Certain operating costs, net of income earned during the pre-operating
period, have been deferred. Amortization of these net costs will commence
January 1, 2001 and will be amortized on a straight-line basis over 3
years.
Patents, trademarks, licences and other assets
Costs of acquiring or registering patents, trademarks and licences 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 incurred in connection with obtaining long-term financing are
deferred and amortized over the term of the related financing agreement.
Revenue recognition
i) Environmental Industrial Group
Revenue from the sale of industrial minerals is recognized upon
shipment.
Tipping fee revenue is recognized upon receipt of the recycling
materials. Provision is made for the net costs of processing of the
material.
ii) SunRich Food Group
Grain sales are recorded at the time of shipment. Revenues from
custom drying services are recorded upon provision of services and
on completion of quality testing. All other SunRich Food Group
revenue is recognized upon the sale and shipment of a product or the
providing of a service to a customer.
F-9
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
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.
Licence fees related to sales of the Company's technologies are
recorded as revenue when earned and collection is reasonably
assured.
Foreign currency translation
The SunRich Food Group is considered to be a self-sustaining operation.
The SunRich Food 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
translation adjustment in shareholders' equity.
Other 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.
Long-term monetary debt of the Company that is denominated in foreign
currencies is translated at exchange rates in effect at the balance sheet
dates and the resulting gains or losses are deferred and amortized over
the period of the debt.
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 SunRich Food
Group's customers for merchandise inventory to be purchased during the
spring planting season.
Income taxes
The Company follows 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 assets and
liabilities are adjusted for the
F-10
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
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 SunRich Food Group enters into exchange-traded commodity futures and
options contracts to hedge its exposure to price fluctuations on grain
transactions 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 Company's
assessment of its exposure from expected price fluctuations. Exchange
purchase and sales contracts may expose the Company to risk in the event
that a counterparty 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 futures 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.
2 Acquisitions of businesses
During 2000, the Company acquired four businesses (1999 - one business).
These acquisitions have been accounted for as purchases, and accordingly,
the financial statements include the results of operations of the acquired
businesses from the dates of acquisition.
2000
On February 29, 2000, the Company acquired 100% of the outstanding shares
of George F. Pettinos (Canada) Limited (PECAL), from US Silica Company,
for cash consideration of $4,682,000. In certain markets, PECAL was a
competitor of the Environmental Industrial Group and at the acquisition
date, management intended to amalgamate the operations of PECAL with those
of the Environmental Industrial Group. Accordingly, included in the
purchase price allocation was a restructuring reserve of $245,000. The
restructuring reserve consisted primarily of severance costs related to
the closing of PECAL's administration offices. The restructuring plan was
completed by December 31, 2000.
F-11
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
On September 15, 2000, the Company acquired 100% of the outstanding common
shares of Northern Food and Dairy, Inc. (Northern) for total consideration
of $11,190,000. The consideration paid consisted of the issuance of
7,000,000 common shares, 500,000 common share warrants exercisable for
US$1.50 for five years and cash consideration of $608,000. Northern is a
U.S. based manufacturer and supplier of soymilk and other food products
and ingredients that are produced in three production facilities in
Minnesota.
In April 2000, the Company and Northern created a corporate joint venture
(Nordic) to operate an aseptic packaging plant owned by Hoffman Aseptic
Inc. (Hoffman) located in Northern Minnesota. The plant packages aseptic
soymilk. Nordic assumed management control of the plant on April 19, 2000
and on August 15, 2000, Nordic acquired the assets of Hoffman by the
assumption of certain debts and the payment of cash consideration of
$380,000. For the period of April 19, 2000 to September 15, 2000, Nordic
was a 50% owned corporate joint venture and, therefore, the results for
this period were proportionately consolidated. Upon the acquisition of
Northern on September 15, 2000, the Company acquired the remaining 50%
interest in Nordic. Accordingly, the results of Nordic have been fully
consolidated effective September 15, 2000.
On October 31, 2000, the Company acquired 100% of the outstanding shares
of Temisca Inc. (Temisca) for cash consideration of $926,000 and the
issuance of a note payable of $750,000. The note payable bears interest at
5% and is repayable in annual installments of $150,000. Temisca is a
producer of specialty sands and owns and/or obtained mineral licences on
16 properties in Quebec.
The net assets acquired and consideration given is summarized below:
[Enlarge/Download Table]
PECAL Northern Nordic Temisca Total
$ $ $ $ $
Net assets acquired
Cash 162,000 1,030,000 -- 45,000 1,237,000
Net working capital 1,447,000 (1,313,000) (267,000) 790,000 657,000
Long-term note receivable -- 5,534,000 -- -- 5,534,000
Property, plant and equipment 2,235,000 21,480,000 3,198,000 2,084,000 28,997,000
Other long-term assets -- 91,000 43,000 -- 134,000
Goodwill 1,103,000 6,341,000 157,000 -- 7,601,000
Bank indebtedness -- (1,410,000) -- (400,000) (1,810,000)
Long-term debt (46,000) (15,912,000) (2,751,000) (1,340,000) (20,049,000)
Other long-term payable -- (1,587,000) -- -- (1,587,000)
Redeemable preference shares -- -- -- (427,000) (427,000)
Net future income tax asset
(liability) (219,000) (3,064,000) -- 924,000 (2,359,000)
-----------------------------------------------------------------------
4,682,000 11,190,000 380,000 1,676,000 17,928,000
=======================================================================
Consideration given
Common shares -- 10,552,000 -- -- 10,552,000
Warrants -- 30,000 -- -- 30,000
Long-term debt -- -- -- 750,000 750,000
Cash 4,682,000 608,000 380,000 926,000 6,596,000
-----------------------------------------------------------------------
4,682,000 11,190,000 380,000 1,676,000 17,928,000
=======================================================================
F-12
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
1999
Effective August 2, 1999, the Company acquired 100% of the common shares
of SunRich Inc. (SunRich) in exchange for 5,471,866 common shares of the
Company and 104,821 warrants of the Company. The warrants were exercisable
for 30 days at US$0.50, and if these warrants were exercised, the
shareholders would be entitled to another warrant exercisable at US$1.00
to December 31, 1999, rising to US$2.00 on January 1, 2000 and expiring on
December 29, 2000.
Certain shareholders of SunRich chose to exercise dissenter's rights and
received $49,000 in cash for their SunRich shares.
The net assets acquired and consideration given is summarized below:
$
Net assets acquired
Cash 368,000
Net working capital 3,044,000
Property, plant and equipment 4,911,000
Goodwill 2,183,000
Notes payable (1,325,000)
Long-term debt (2,370,000)
Net future income tax liability (18,000)
----------
6,793,000
==========
Consideration
Common shares 6,346,000
Warrants 55,000
Cash 392,000
----------
6,793,000
==========
The following amounts are included in the financial statements and
represent the Company's proportionate share of earnings of Nordic for the
period from April 19, 2000 to September 15, 2000:
$
Sales --
==========
Net loss for the period (192,080)
==========
Cash used in operations (1,754,000)
==========
Cash used in investing activities (1,534,000)
==========
Cash provided from financing activities 3,425,000
==========
F-13
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
3 Note receivable/Other long-term payable
Prior to the Company's acquisition of Northern on September 15, 2000 (note
2), Northern signed an agreement with a major European based customer to
supply product. This required Northern to expand its food processing plant
to the customer's specifications. In accordance with the terms of the
agreement, the customer is required to pay Northern 36 monthly instalments
of US$119,000 following the customer's acceptance of the plant
specifications. The agreement also requires Northern to provide the
customer with a product rebate beginning three years after production at
the new plant commences until US$1,720,000 is repaid.
Upon acquisition of Northern on September 15, 2000, the Company assigned
fair values of $5,534,000 to the note receivable and $1,587,000 to the
product rebate payable based on the cash flows associated with these
financial instruments discounted at a rate of 9.5%.
During the period from September 16, 2000 to December 31, 2000, Northern
received payments of $543,000 and recorded imputed interest income of
$131,000 on the note receivable. Imputed interest expense of $47,000 was
recorded on product rebate payable.
The fair values of the note receivable and product rebate payable at
December 31, 2000 approximate their carrying amounts but could vary with
fluctuations in interest rates.
4 Inventories
2000 1999
$ $
Raw materials 4,991,000 2,196,000
Finished goods and merchandise 7,834,000 4,003,000
Grain 2,465,000 2,390,000
-----------------------
15,290,000 8,589,000
=======================
Grain inventories consist of the following:
2000 1999
$ $
Company owned grain 2,208,000 2,479,000
Unrealized gain (loss) on
Contracts with producers 156,000 (172,000)
Futures contracts 101,000 83,000
-----------------------
2,465,000 2,390,000
=======================
F-14
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
5 Property, plant and equipment
2000
--------------------------------------
Accumulated
Cost Amortization Net
$ $ $
Land and buildings 20,531,000 2,037,000 18,494,000
Machinery and equipment 29,828,000 5,970,000 23,858,000
Office furniture and equipment 1,083,000 766,000 317,000
Vehicles 848,000 359,000 489,000
--------------------------------------
52,290,000 9,132,000 43,158,000
======================================
1999
--------------------------------------
Accumulated
Cost Amortization Net
$ $ $
Land and buildings 8,218,000 1,790,000 6,428,000
Machinery and equipment 7,946,000 4,334,000 3,612,000
Office furniture and equipment 945,000 580,000 365,000
Vehicles 633,000 272,000 361,000
--------------------------------------
17,742,000 6,976,000 10,766,000
======================================
Included in machinery and equipment is equipment under capital lease with
a cost of $1,096,000 (1999 - $699,000) and net book value of $773,000
(1999 - $552,000).
F-15
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
6 Investments
2000 1999
$ $
Easton Minerals Ltd.
32% (1999 - 35%) common share ownership 382,000 186,000
Advances -- 95,000
-----------------
382,000 281,000
=================
Easton Minerals Ltd. (Easton) is a small mining exploration company listed
on the Canadian Venture Exchange. The quoted market value of the shares
held by the Company at December 31, 2000 was $531,000 (1999 - $550,000),
however, this value is based upon limited trading volumes of the common
shares of Easton. It is unlikely that these values could be realized upon
sale of all or a portion of the Company's holdings in Easton, particularly
given the significant number of shares held by the Company.
During 2000, advances of $104,000 were converted into 980,103 common
shares of Easton.
The Company's share of losses of Easton for 2000 amounted to $48,000 (1999
- $321,000). In 2000, Easton issued 2,533,334 common shares to third
parties for cash consideration of $475,000, and a dilution gain on this
transaction of $140,000 was recognized on the reduction of the Company's
percentage ownership of Easton.
F-16
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
7 Long-term debt and bank facilities
Long-term debt consists of the following:
[Enlarge/Download Table]
2000 1999
$ $
SunRich
Note payable, interest at bank's reference rate (8.75% at December
31, 2000), due in monthly payments of principal and interest of
US$3,094 through July 2013, collateralized by
property, plant and equipment 412,000 410,000
Note payable, interest at 8.75%, interest only through May 2000 and
thereafter due in monthly interest and principal payments of
US$29,048 through November 2006, collateralized by equipment
and intangibles 398,000 433,000
Note payable, interest at prime, due May 31, 2000 -- 208,000
Note payable, interest at 9.375%, interest only through to February
2002 and thereafter, due in semi-annual payments of principal
and interest of US$66,000 through February 1, 2016,
collateralized by equipment and general intangibles 3,000,000 1,133,000
Northern
Note payable, interest at 9.45%, due in monthly payments of
US$144,043 through September 2003, collateralized by plant and
equipment and assignment of a production contract 6,251,000 --
Note payable, interest at the 30-day commercial paper rate, plus 3%
(9.3% at December 31, 2000), due in monthly payments of
US$53,918 through September 2007, collateralized by equipment 4,824,000 --
Mortgage payable, interest at 10%, due in monthly payments of
US$6,000 through October 2008, collateralized by property 583,000 --
Mortgage payable, interest only at 9.375%, due August 2005,
collateralized by property 462,000 --
Nordic
Bank loan payable, U.S. prime plus 1%, due in monthly instalments of
principal of US$44,048 plus interest through August 2007,
collateralized by property, plant, equipment and intangible
assets (a) 5,286,000 --
-----------------------
Carried forward 21,216,000 2,184,000
=======================
F-17
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
[Enlarge/Download Table]
2000 1999
$ $
Brought forward 21,216,000 2,184,000
Stake Corporate
U.S. dollar term loan of US$1,000,000 payable in monthly payments of
principal and interest of US$25,000, commencing January 31,
2001. Interest accrues at the U.S. bank reference rate plus 1%
(10% at December 31, 2000) (c) 1,500,000 --
Term loan payable in quarterly instalments of $48,000 beginning
January 31, 2001 until January 31, 2003 at which time the
remaining balance is repayable in full. Interest is payable
monthly at the bank reference rate plus 1% (8.5% at
December 31, 2000) (b and c) 800,000 1,400,000
Term loan payable in quarterly instalments of $252,000, beginning
January 31, 2001 until January 31, 2003 at which time the
remaining balance is repayable in full. Interest is payable
monthly at the bank reference rate plus 1% (8.5% at December
31, 2000) (c) 4,200,000 --
Note payable, required annual payments of $150,000, interest at 5%
payable semi-annually, uncollateralized 750,000 --
Temisca
Mortgage payable in 60 monthly blended interest and principal
payments of $7,000. Remaining balance is payable at maturity on
January 2002. Interest accrues at 8%, collateralized by
property, plant and equipment 491,000 --
Term loan payable in monthly blended interest and principal payments
of $11,000. Interest accrues at 7.87%, collateralized by
property, plant and equipment 464,000 --
Other
Other with a weighted average interest rate of 7.5%, due in varying
instalments through July 2007 (note 11) 1,275,000 179,000
Capital lease obligations due in monthly payments through 2005, with
a weighted average interest rate of 10.25% 859,000 350,000
-----------------------
31,555,000 4,113,000
Less: Current portion 6,799,000 1,158,000
-----------------------
24,756,000 2,955,000
=======================
F-18
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
The loans and capital leases detailed above require payments as follows:
$
2001 6,828,000
2002 7,035,000
2003 7,444,000
2004 2,274,000
2005 2,640,000
Thereafter 5,388,000
----------
31,609,000
Less interest on capital lease obligations
with a weighted average interest rate of 10.25% 54,000
----------
31,555,000
==========
a) Northern and SunRich have co-guaranteed a bank loan payable by
Nordic of $5,286,000. The loan contains restrictive financial
covenants for Northern, SunRich and Nordic. As at December 31, 2000,
Nordic was not in compliance with certain of the financial
covenants. However, on April 12, 2001, the Company entered into an
agreement with the lender whereby the lender agreed to forebear
taking any action, until April 15, 2002, with respect to the various
covenant breaches which existed at December 31, 2000. As part of the
agreement, the Company renegotiated the financial covenants of the
bank loan payable and agreed to place US$264,000 on deposit with the
lender. As at April 12, 2001, the Company is in compliance with the
new financial covenants and expects to remain in compliance
throughout 2001. At December 31, 2000, $4,493,000 of the $5,286,000
bank loan payable has been classified as a long-term obligation in
these financial statements.
b) In the event of default under the term bank loan of $800,000 (1999 -
$1,400,000), a former director of the Company has a right to acquire
all of the common shares of a subsidiary company of the Company for
$1. The sole asset of the subsidiary is 19.2 acres of land with a
book value of $1,312,000. If this occurred, the liability in respect
of the first and second preference shares of the subsidiary company
reflected in these financial statements (note 8) would be
extinguished without payment.
c) The Company has provided a general collateral agreement representing
a first charge on all Canadian assets other than real property of
the Company as collateral for a $4,000,000 operating bank facility,
the term bank loans and the U.S. dollar term loan. The Company has
also provided first mortgages in the aggregate amount of $3,743,000
on certain land and buildings located in Waterdown and Hamilton,
Ontario, an assignment of the Northern common shares and a pledge of
certain book debts, inventories and other assets as collateral. The
Company is also required to maintain cash deposits of $nil (1999 -
$400,000) as collateral for the loan facility. As at December 31,
2000, the Company has issued letters of credit in the amount of
$900,000 on this operating facility. As at December 31, 2000, the
Company has available borrowings under the operating bank facility
of $3,100,000. The operating facility bears interest at the Canadian
bank reference rate plus 0.2%.
d) Temisca has an unsecured line of credit of $300,000 of which
$125,000 was drawn at December 31, 2000. The line of credit bears
interest at the bank reference rate plus 0.25% (8.5% at December 31,
2000).
F-19
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
e) SunRich maintains a line of credit with a bank, which provides for
maximum borrowings of up to US$3,000,000 based on eligible accounts
receivable and inventories, with interest at the U.S. bank's
reference rate or LIBOR rate plus 2.5% (9.5% at December 31, 2000)
and collateralized by accounts receivable and inventories at
December 31, 2000. SunRich has drawn US$900,000 (CAN$1,350,000)
against this facility at December 31, 2000.
f) Northern maintains a line of credit with a bank which provides for
maximum borrowings of US$1,000,000 of eligible accounts receivable
and inventory, with an interest rate at the bank's reference rate
plus 1.5% (10.5% at December 31, 2000). Borrowings under this line
of credit are due on demand and are collateralized by accounts
receivable, inventories and certain equipment of Northern.
Borrowings under this line of credit totalled US$950,000
(CAN$1,425,000) at December 31, 2000.
g) The aggregate value of debt denominated in U.S. dollars at December
31, 2000 amounted to US$14,141,000 (1999 - US$1,513,000).
h) The fair value of the long-term debt would not be materially
different from the carrying amount. The effective interest rate at
December 31, 2000 is 9.1% (1999 - 8.1%).
8 Preference shares of subsidiary companies
2000 1999
$ $
400,000 (1999 - 500,000) first preference shares (a) 400,000 500,000
385,834 (1999 - 455,834) second preference shares (a) 301,000 347,000
146,795 (1999 - nil) H preference shares (b) 148,000 --
-----------------
849,000 847,000
Less: Current portion of preference shares 387,000 240,000
-----------------
462,000 607,000
=================
a) First and Second preference shares
The Company is required to purchase 100,000 first preference shares
issued by 1108176 Ontario Inc., its subsidiary, per annum at $1 per
share plus unpaid dividends thereon calculated at 5% per annum,
commencing December 31, 1996, until the term bank loan described in
note 7(b) is repaid. Thereafter, the Company is required to purchase
200,000 first preference shares per annum under the same terms and
conditions.
In January 2000, 100,000 first preference shares were purchased for
$100,000, and a dividend of $25,000 was paid. Payment for a further
purchase of 100,000 first preference shares and a dividend of
$20,000 was delivered in trust to the Company's lawyer in January
2001 pending receipt of the shares purchased.
F-20
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
The second preference shares of the subsidiary company with a stated
value of $1 per share are non-dividend bearing and are redeemable
monthly at the rate of 5,833 shares ($5,833) per month until fully
paid out. The Company is required to fund the redemption. As a
result of the fixed repayment requirements, the second preference
shares have been discounted at an imputed rate of 8%. During the
year, 70,000 (1999 - 70,000) second preference shares were redeemed.
Imputed interest on the second preference shares during the year
amounted to $24,000 (1999 - $31,000).
The Company is required to purchase all of the outstanding first
preference shares at $1 per share in the event of a change in the
current Chairman of the Company or upon the sale of BEI.
b) H preference shares
The Company is required to redeem the H preference shares issued by
Temisca, its subsidiary, plus unpaid interest thereon calculated at
3% if certain financial ratios are achieved by Temisca. Upon
acquisition of Temisca on October 31, 2000, the Company assigned a
fair value of $427,000 to the H preference shares based on the
Company's anticipated date of redemption at a discount rate of 8%.
Subsequent to the acquisition of Temisca, the Company offered to
redeem all of the H preference shares at prices ranging from $0.33
to $0.40 per share. Holders of 279,885 H preference shares accepted
the Company's offer and a gain of $175,000 was recorded. During the
period from October 31, 2000 to December 31, 2000, the Company
recorded imputed interest expense of $1,000 on these preference
shares.
c) The fair market values of the first and second preference shares and
the H preference shares would not be materially different from their
carrying amounts and could vary with fluctuations in interest rates.
F-21
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
9 Capital stock
a) During 1997, the shareholders of the Company agreed to reduce the
stated capital account of the Company's common shares by $25,026,000
through a reduction of the deficit.
b) The following is a summary of changes in share capital during the
year.
[Enlarge/Download Table]
Warrants Common shares Total
------------------------ ----------------------- ----------
Number $ Number $ $
Balance at December 31, 1998 1,182,500 -- 14,779,718 4,467,000 4,467,000
Shares and warrants issued to
acquire SunRich (note 2) 104,821 55,000 5,471,866 6,346,000 6,401,000
4 for 1 warrant exchange (c) (849,375) -- -- -- --
Warrants exercised (402,204) (55,000) 402,204 350,000 295,000
Warrants issued 366,804 -- -- -- --
Warrants expired (71,142) -- -- -- --
----------------------------------------------------------------
Balance at December 31, 1999 331,404 -- 20,653,788 11,163,000 11,163,000
Warrants exercised (c) (234,959) -- 234,959 529,000 529,000
Warrants expired (c) (96,445) -- -- -- --
Options exercised (d) -- -- 298,225 436,000 436,000
Shares and warrants issued to
acquire Northern (note 2) 500,000 30,000 7,000,000 10,552,000 10,582,000
----------------------------------------------------------------
Balance at December 31, 2000 500,000 30,000 28,186,972 22,680,000 22,710,000
================================================================
c) At December 31, 1998, the Company had outstanding 1,182,500 warrants
to acquire common shares. Of these warrants, 650,000 were
exercisable at US$2.25 per share, and 532,500 were exercisable at
US$2.00 per share. As a result of extensions to the original expiry
dates approved in 1997 and 1998, the warrants were to expire on June
30, 1999. In December 1998, the Company offered to the warrant
holders a 4 for 1 exchange of the 1,182,500 warrants with an
exercise price of US$0.50 per share expiring on January 31, 1999.
Provided the new warrants were exercised prior to January 31, 1999,
an equivalent number of additional warrants with an exercise price
of US$1.00 to December 31, 1999, rising to US$2.00 on January 1,
2000 and expiring on December 29, 2000 would be issued.
During January 1999, 283,125 of the new warrants were exercised to
acquire 283,125 common shares for proceeds of $212,000. Accordingly,
283,125 additional warrants were issued. Of these additional
warrants, 35,400 warrants were exercised for proceeds of $38,000.
During August 1999, 83,679 of the warrants issued to acquire SunRich
were exercised to acquire 83,679 common shares for proceeds of
$45,000. Accordingly, 83,679 additional warrants were issued.
During 2000, the exercise price of the additional warrants issued in
1999 was reduced, for a 30-day period, from US$2.00 to US$1.50.
During this 30-day period, 234,959 warrants were exercised resulting
in 234,959 common shares being issued for proceeds of $529,000. The
remaining 96,445 additional warrants issued in 1999 expired on
December 29, 2000.
F-22
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
As at December 31, 2000, the Company had 500,000 warrants
outstanding with an exercise price of US$1.50 and an expiry date of
September 15, 2005 (note 2).
d) Director/employee option plans
The Company grants options to employees and directors from time to
time under employee/director stock option plans. The Company has
authorized 2,123,400 (1999 - 2,123,400) shares to be made available
for the stock option plans. The following is a summary of grants
during the year.
Exercise
price Number of
Grant date Expiry date $ options
January 6, 2000 December 11, 2004 US$0.91 4,000
April 4, 2000 April 4, 2005 US$1.38 41,000
June 28, 2000 April 4, 2005 US$1.41 4,000
December 20, 2000 December 20, 2005 US$1.31 246,500
--------
295,500
========
Employee stock options granted by the company contain exercise
prices, which are equivalent to the share price on the grant date.
Any consideration paid by employees on exercise of stock options or
purchase of stock is credited to share capital.
The 295,500 options granted vest as follows: 108,000 options vested
in 2000, 48,300 vest in 2001, 47,300 vest in 2002, 47,300 vest in
2003 and 44,600 vest in 2004. Details of the options exercisable and
changes during the periods presented are as follows:
[Enlarge/Download Table]
Granted Balance
Balance at with Vested as at
Exercise December 31, immediate from prior December 31,
Expiry date price 1999 Retracted Exercised vesting year grants 2000
-----------------------------------------------------------------------------------------------------------------
March 10, 2001 US$1.06 459,250 -- (145,375) -- -- 313,875
US$0.75 to
December 11, 2003 US$1.06 672,200 -- (98,350) -- 22,100 595,950
August 2, 2004 US$1.06 131,900 (2,000) (10,000) -- 19,900 139,800
December 31, 2004 US$1.06 182,500 -- (44,500) -- -- 138,000
August 2, 2005 US$1.06 56,000 -- -- -- 34,800 90,800
US $1.38 to
April 4, 2005 US$1.41 -- (1,000) -- 9,000 -- 8,000
December 11, 2004 US $0.91 -- -- -- 1,600 -- 1,600
December 20, 2005 US $1.31 -- -- -- 97,400 -- 97,400
--------------------------------------------------------------------------------
1,501,850 (3,000) (298,225) 108,000 76,800 1,385,425
================================================================================
F-23
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
[Enlarge/Download Table]
Granted Balance
Balance as at with Vested as at
Exercise December 31, immediate from prior December 31,
Expiry date price 1998 Retracted vesting year grants 1999
----------------------------------------------------------------------------------------------------
US$1.22 to
March 10, 2001 US$1.75 471,250 (12,000) -- -- 459,250
US$0.75 to
December 11, 2003 US$1.38 302,875 -- 65,700 303,625 672,200
August 2, 2004 US$1.06 -- -- 131,900 -- 131,900
December 31, 2004 US$1.82 182,500 -- -- -- 182,500
August 2, 2005 US$1.06 -- -- 56,000 -- 56,000
-------------------------------------------------------------------
956,625 (12,000) 253,600 303,625 1,501,850
===================================================================
The weighted average exercise price of the above outstanding options
at December 31, 2000 is US$1.09 per share (1999 - US$1.29 per
share). On January 7, 2000, all options with an option price in
excess of US$1.06 were repriced to US$1.06. The weighted average
price of options exercised in the year was US$1.06 (1999 - US$nil).
At December 31, 2000, options to acquire an additional 472,100
common shares at US$0.75 to US$1.38 have been granted but have not
yet vested. Options that have not vested are excluded from the above
table. The weighted average exercise price of the 472,100 (1999 -
366,400) options granted but not vested is US$1.17 (1999 - US$1.06).
Subsequent to year-end, 2,000 options were exercised to acquire
2,000 common shares for gross proceeds of $3,000. In addition, on
March 5, 2000, the Board approved a resolution extending the
exercise period of 304,375 options, from March 10, 2001 to December
31, 2003.
F-24
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
10 Income taxes
The effective income tax rate on consolidated earnings is influenced by
items such as available losses carried forward and non-deductible
expenses:
[Enlarge/Download Table]
2000 1999
$ $
Net earnings before income taxes 2,506,000 1,072,000
========================
Income taxes at Canadian statutory rates of 42% (1999 - 44%) 1,053,000 472,000
Increase (decrease) by the effects of
Current year non-capital loss not recognized 457,000 --
Application of prior year losses and scientific research
expenditures carried forward (695,000) (433,000)
Reduction in valuation allowance (1,798,000) (635,000)
Differences in foreign, capital gains and manufacturing and
processing tax rates (63,000) (20,000)
Non-taxable income/non-deductible expenses 178,000 164,000
------------------------
Recovery of income taxes (868,000) (452,000)
========================
Future tax assets (liabilities) of the Company are as follows:
2000 1999
$ $
Differences in capital assets basis (3,191,000) (608,000)
Accounting reserves not deducted for tax 239,000 278,000
Capital and non-capital losses 1,279,000 241,000
Tax benefit of scientific research expenditures 2,125,000 2,913,000
Pre-operating costs (307,000) --
Other 81,000 12,000
------------------------
226,000 2,836,000
Valuation allowance (780,000) (2,395,000)
------------------------
(554,000) 441,000
========================
2000 1999
$ $
Future income taxes asset 954,000 1,020,000
Future income taxes liability (1,508,000) (579,000)
------------------------
(554,000) 441,000
========================
F-25
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
The Company has approximately $5,300,000 in Canadian scientific research
expenditures which can be carried forward indefinitely to reduce future
years' taxable income, and approximately $150,000 in scientific research
investment tax credits which can be used to reduce future years' income
taxes payable. These scientific research investment tax credits expire in
varying amounts from 2001 to 2006.
The SunRich Food Group has capital and non-capital loss carry-forwards of
approximately $2,693,000 at December 31, 2000 available to reduce future
federal and state income tax that begins to expire in 2002.
The Environmental Industrial Group has non-capital losses carry-forwards
of $139,000 at December 31, 2000 available to reduce future federal and
provincial income tax. These non-capital losses expire in varying amounts
from 2001 to 2002.
A valuation allowance of $780,000 (1999 - $2,395,000) has been recorded to
reduce the net benefit recorded in the financial statements related to the
capital and non-capital loss carry-forwards. The valuation allowance is
deemed necessary as a result of the uncertainty associated with the
ultimate realization of these future tax assets. Of this amount,
approximately $333,000 relates to the acquisition of SunRich in 1999 and
Nordic in 2000 and accordingly, any recognition of these amounts in the
future will be accounted for as a reduction of the related goodwill.
11 Related party transactions and balances
In addition to transactions disclosed elsewhere in these financial
statements, the Company entered into the following related party
transactions:
a) During 2000, the Company charged affiliated companies $66,000 for
services rendered (1999 - $66,000). Included in accounts receivable
at December 31, 2000 is $168,000 (1999 - $56,000) due from
affiliated companies. Also included in accounts receivable at
December 31, 2000 is $105,000 (1999 - $88,000) due from
officers/directors of the Company;
b) Included in other long-term debt is an uncollateralized loan of
$178,000 due to a shareholder, payable in monthly instalments of
principal and interest of US$2,543 through to August 24, 2005,
bearing interest at 8%; and
c) The Company leases certain real estate from a shareholder under
operating leases that expire in August 2010. Annual rental under
each of the leases is $2.
12 Commitments and contingencies
a) The Company has filed a claim against a former director relating to
certain actions taken when he was the President of one of the
Company's operating division. The former director has counter
claimed against the Company and its subsidiaries, the Chairman of
the Company and Easton, the Company's 32% equity investment. It
cannot be determined if there will be any recovery by the Company at
this time or if there will be any loss to the Company, and no
provision has been made in these financial statements in respect of
this matter.
F-26
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
b) The Company believes, with respect to both its operations and real
property, that it is in material compliance with current
environmental laws. Based on known existing conditions and the
Company's experience in complying with emerging environmental
issues, the Company is of the view that future costs relating to
environmental compliance will not have a material adverse effect on
its financial position, but there can be no assurance that
unforeseen changes in the laws or enforcement policies of relevant
governmental bodies, the discovery of changed conditions on the
Company's real property or in its operations, or changes in use of
such properties and any related site restoration requirements, will
not result in the incurrence of significant costs. No provision has
been made in these financial statements for these future costs since
such costs, if any, are not determinable at this time.
c) An irrevocable letter of credit for $750,000 has been placed with
the Ontario Ministry of Environment and Energy as a security deposit
for the Certificate of Approval granted to the Company for certain
recycling activities. This letter of credit must remain in place
indefinitely as a condition of the Certificate of Approval.
Additional letters of credit totalling $150,000 have been placed
with various third parties as security on transactions occurring in
the ordinary course of operations.
d) In the normal course of business, the SunRich Food Group holds grain
for the benefit of others. The Company is liable for any
deficiencies of grade or shortage of quantity that may arise in
connection with such grain.
e) The Company has a commitment to buy from growers at set prices and
times and also has commitments to sell to terminals at set prices
and times. To offset the risk of market movement in prices, the
Company will buy or sell future positions with commodity brokers.
The quantities of commodities of these open futures contracts at
December 31, 2000 are as follows:
Number of bushels
--------------------
Corn Soybeans
Company-owned grain 196,972 145,938
Purchase contracts 170,032 (51,260)
Sales contracts (244,559) (260,550)
Futures contracts 50,000 320,000
--------------------
Total net position (short) long 172,445 154,128
====================
f) During 1999, the Company entered into a 12-year exclusive licence
agreement related to the sales of the Company's steam explosion
equipment in China.
g) Commitments under operating leases, principally for distribution
centres and warehouse, are as follows:
$
2001 1,030,000
2002 941,000
2003 883,000
2004 830,000
2005 and thereafter 1,498,000
---------
5,182,000
=========
F-27
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Rent expense incurred in the year amounted to $1,038,000 (1999 -
$195,000).
13 Earnings per share
The calculation of earnings per share is based on the weighted average
number of shares outstanding of 22,975,986 (1999 - 17,384,644). Fully
diluted earnings per share reflect the dilutive effect of the exercise of
warrants and options as disclosed in note 9. The number of shares for the
fully diluted earnings per share calculation was 25,333,604 (1999 -
19,217,852). Interest on the funds, which would have been received had the
warrants and options been exercised at the beginning of the year, amounts
to $182,000 (1999 - $158,000) on an after tax bases, calculated at
Canadian bank prime.
14 Financial instruments
The Company's financial instruments recognized in the consolidated balance
sheets and included in working capital consist of accounts receivable,
other receivables and accounts payable and accrued liabilities. The fair
values 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 creditworthiness. The Company's
trade accounts receivable 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
credit risk exposure is limited. The Company maintains an allowance for
losses based on the expected collectibility of the accounts.
Information on the Company's other financial instruments is contained in
other notes to the consolidated financial statements.
15 Segmented information
The Company operates in three industry segments: (a) Steam Explosion
Technology Group: the design, engineering, and sale of customized steam
explosion technology systems; (b) Environmental Industrial Group, which
recycles and sells or disposes of certain non-hazardous and hazardous
industrial waste and resale of inorganic minerals and (c) the SunRich Food
Group, which manufactures, markets, distributes and packages grains and
other food products with a focus on soy products. The Company's assets,
operations and employees are located in Canada and the United States.
F-28
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
[Enlarge/Download Table]
Industry segments
2000
----------------------------------------------------------
Steam
Explosion
Technology Enrironmental
Group and Industrial SunRich
Corporate Group Food Group Consolidated
$ $ $ $
External sales by market
Canada 169,000 25,549,000 397,000 26,115,000
U.S. 376,000 5,737,000 67,515,000 73,628,000
Asia -- -- 1,795,000 1,795,000
Europe -- -- 115,000 115,000
----------------------------------------------------------
Total sales to external customers 545,000 31,286,000 69,822,000 101,653,000
==========================================================
Interest expense -- 416,000 1,111,000 1,527,000
==========================================================
Income tax expense (recovery) (1,798,000) 66,000 864,000 (868,000)
==========================================================
Segment net income 495,000 2,513,000 366,000 3,374,000
==========================================================
Identifiable assets 3,094,000 21,465,000 68,307,000 92,866,000
==========================================================
Amortization 220,000 781,000 1,712,000 2,713,000
==========================================================
Expenditures on property, plant and equipment 55,000 667,000 4,631,000 5,353,000
==========================================================
Equity accounted investments 382,000 -- -- 382,000
==========================================================
1999
----------------------------------------------------------
Steam
Explosion
Technology Enrironmental
Group and Industrial SunRich
Corporate Group Food Group Consolidated
$ $ $ $
External sales by market
Canada 85,000 18,554,000 -- 18,639,000
U.S. 399,000 3,275,000 24,481,000 28,155,000
Asia -- -- 510,000 510,000
----------------------------------------------------------
Total sales to external customers 484,000 21,829,000 24,991,000 47,304,000
==========================================================
Interest expense -- 144,000 217,000 361,000
==========================================================
Income tax expense (recovery) (635,000) -- 183,000 (452,000)
==========================================================
Segment net income (loss) (843,000) 2,058,000 309,000 1,524,000
==========================================================
Identifiable assets 2,919,000 13,513,000 19,002,000 35,434,000
==========================================================
Amortization 257,000 477,000 336,000 1,070,000
==========================================================
Expenditures on property, plant and equipment 47,000 500,000 591,000 1,138,000
==========================================================
Equity accounted investments 186,000 -- -- 186,000
==========================================================
F-29
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Geographic segments
[Enlarge/Download Table]
2000 1999
------------------------------------ ------------------------------------
Canada U.S. Total Canada U.S. Total
$ $ $ $ $ $
Property, plant and
equipment 9,944,000 33,214,000 43,158,000 5,373,000 5,393,000 10,766,000
========== ========== ========== ========== ========== ==========
Goodwill 2,774,000 8,457,000 11,231,000 1,785,000 2,137,000 3,922,000
========== ========== ========== ========== ========== ==========
Total assets 21,526,000 71,340,000 92,866,000 16,219,000 19,215,000 35,434,000
========== ========== ========== ========== ========== ==========
16 Subsequent event
Subsequent to year-end, the Company acquired 100% of the common shares of
Jenkins & Gournoe, Inc., which operates under the name of First Light
Foods, Inc. Consideration consisted of the issuance of 833,333 common
shares, US$300,000 in cash, a US$700,000 note payable and up to 175,000
warrants. The purchase price is subject to change contingent on the
operating results of the acquired Company.
First Light Foods, Inc., which owns several trademarked soymilk brands
that are marketed as the private label brands of a major California food
chain, will be part of the SunRich Food Group.
17 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:
Under U.S. GAAP, the gain on dilution in the amount of $140,000 in 2000
(1999 - $nil) resulting 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 exploration company. Also, under U.S. GAAP, certain
development and pre-operating costs of $768,000 (1999 - $75,000) deferred
in these financial statements would be expensed. Amortization of $157,000
(1999 - $nil) related to the development and start-up costs would not have
been expensed.
During the year, the Company repriced certain options as described in note
9. As a result, $52,000 (1999 - $nil) of compensation expense would be
recognized under U.S. GAAP.
The net effect of income taxes on the above items is insignificant.
F-30
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Accordingly, the following would have been reported under U.S. GAAP:
[Enlarge/Download Table]
2000 1999
$ $
Net earnings for the year - as reported 3,374,000 1,524,000
Dilution gain (140,000) --
Development costs 157,000 (75,000)
Pre-operating costs (768,000) --
Stock option compensation expense (52,000) --
==========================
Net earnings for the year - U.S. GAAP 2,571,000 1,449,000
==========================
Basic and fully diluted earnings per share - U.S. GAAP 0.11 0.08
==========================
Weighted average number of common shares outstanding 22,975,986 17,384,644
==========================
Shareholders' equity - as reported 33,277,000 18,098,000
Cumulative development, start-up costs and pre-operating costs (850,000) (239,000)
Cumulative stock compensation expense (52,000) --
--------------------------
Shareholders' equity - U.S. GAAP 32,375,000 17,859,000
==========================
Comprehensive income
U.S. 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
distributions to owners. The comprehensive income statement reconciles the
reported net income to the comprehensive income.
The following is a comprehensive income statement (prepared in accordance
with U.S. GAAP) which, under U.S. GAAP, would have the same prominence as
other financial statements.
2000 1999
$ $
Net earnings for the year - U.S. GAAP 2,571,000 1,449,000
Currency translation adjustment 258,000 (195,000)
-----------------------
Comprehensive income 2,829,000 1,254,000
=======================
F-31
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Other U.S. GAAP disclosures
2000 1999
$ $
Allowance for doubtful accounts 939,000 665,000
=================
Inventory provisions 61,000 134,000
=================
Accrued recycling costs 298,000 384,000
=================
Pro forma data (unaudited)
Condensed pro forma income statement, as if the acquisitions of PECAL,
Northern, Nordic and Temisca had occurred at the beginning of the previous
year, is as follows:
2000 1999
$ $
Revenue 134,169,000 93,727,000
========================
Net income 1,752,000 1,550,000
========================
Earnings per share 0.08 0.09
========================
Employee stock compensation
Effective January 1, 1996, Financial Accounting Standards Board Statement
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123),
encourages, but does not require, companies to include in compensation
cost at the fair value of stock options granted. The Company has decided
not to adopt the fair value method. A company that does not adopt this new
method must disclose pro forma net income and earnings per share giving
effect to the method of compensation cost described in SFAS No. 123.
The Company's stock option plan is described in note 9. Employee stock
options granted by the Company in 1999 and 2000 were granted at prices
which were at the value of stock on the grant date, vest at various dates
ranging from the date of the grants to August 2, 2004 and expire 2 to 6
years subsequent to the grant date.
The fair value of the options granted during 1999 and 2000 was estimated
using the Black-Scholes option-pricing model with the assumptions of a
dividend yield of 0% (1998 - 0%), an expected volatility of 51% (1999 -
84%), a risk-free interest rate of 5% (1999 - 4%), and an expected life of
1 to 6 years.
The total value of 295,500 (1999 - 620,000) stock options that were
granted by the Company to employees during 1999 was $260,000 (1999 -
$632,000). Of this total amount, under SFAS No. 123, the cost of stock
compensation expense for the year ended December 31, 2000 would be
$107,000 (1999 - $239,000). The unrecognized value of $153,000 (1999 -
$393,000) will be charged to pro forma net earnings in future years
according to the vesting terms of the options. Compensation expense of
options granted in 1999 and vesting in 2000 is $86,000 (1999 - $307,000).
The resulting pro forma net earnings (loss) and earnings (loss) per share
for the year ended December 31, 2000 under U.S. GAAP are $2,378,000 (1999
- ($903,000)) and $0.10 (1999 - ($0.05)), respectively.
F-32
Stake Technology Ltd.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. The Company's adoption of SFAS No. 123 for
pro forma disclosure purposes does not apply to awards prior to 1995, and
additional awards in future years are anticipated.
Recent accounting developments
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting of
Derivative Instruments and Hedging Activities. SFAS No. 133 requires that
all derivatives be recorded on the balance sheets at their fair value.
Changes in fair value are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designed
as part of a hedge transaction and, if it is, the type of hedge
transaction. The impact on the Company's consolidation results of
operations, financial position or cash flow will be dependent on the level
and types of derivative instruments the Company will have entered into at
the time SFAS No. 133 is implemented.
In June 1999, FASB issued an Exposure Draft to defer the effective date of
SFAS No. 133 to all fiscal quarters of all fiscal years beginning after
June 15, 2000. As a result, the standard will be adopted by the Company in
fiscal 2001.
F-33
Dates Referenced Herein and Documents Incorporated by Reference
7 Subsequent Filings that Reference this Filing
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