Amendment to Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405/A Amendment to Form 10-K405 96 512K
2: EX-10.12 Credit Agreement 89 303K
3: EX-10.13 Facility B Loan Authorization Agreement 16 62K
4: EX-10.14 2001 Stock Option Plan 5 23K
5: EX-21 List of Subsidiaries 1 6K
6: EX-24 Powers of Attorney 14 25K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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-K 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-K or any
amendment to this Form 10-K.
Yes |X| No |_|
Revenue for the year ended December 31, 2001: CDN $143,069,000
At March 8, 2002 the registrant had outstanding 41,129,328 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$76,136,543. The Company's common shares
traded on Nasdaq Small Cap Market tier of The Nasdaq Stock Market under the
symbol STKL and on November 6, 2001 the Company listed on the Toronto Stock
Exchange under the symbol SOY.
There are 58 pages in the December 31, 2001 10-K including this page and the
index after the cover page.
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Stake Technology Ltd. December 31, 2001 - 10-K
STAKE TECHNOLOGY LTD.
--------------------
Table of Contents
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FORM 10-K Page
----
PART I
Item 1. Business............................................................4
Item 2. Properties.........................................................20
Item 3 Legal Proceedings..................................................20
Item 4. Submission of Matters to a Vote of Security Holders................21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................22
Item 6 Selected Financial Data............................................25
Item 7. Management's Discussion and Analysis of Financial Conditions
and Results of Operations..........................................26
Item 7A Quantitative and Qualitative Disclosures about Market Risk.........37
Item 8 Financial Statements and Supplementary Data........................38
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure...........................................38
PART III
Item 10. Directors and Executive Officers of the Registrant.................39
Item 11. Executive Compensation.............................................50
Item 12. Security Ownership of Certain Beneficial Owners and Management.....53
Item 13. Certain Relationships and Related Transactions.....................53
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K...55
Index to Financial Statements................................................F-1
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Stake Technology Ltd. ii December 31, 2001 - 10-K
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 8, 2002,
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$0.6306 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.
[Enlarge/Download Table]
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RATES 1997 1998 1999 2000 2001
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Last Day (1) $0.6999 $0.6530 $0.693 $0.6666 $0.6279
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Average (2) $0.7221 $0.6712 $0.673 $0.6733 $0.6457
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High (3) $0.7467 $0.7045 $0.6537 $0.6973 $0.6711
---------------------------------------------------------------------------------------------------------
Low (3) $0.6945 $0.6382 $0.693 $0.6413 $0.6230
=========================================================================================================
Note Regarding Forward-Looking Financial Information
Certain statements included herein may constitute "forward-looking statements"
within the meaning of the United States Private Securities Litigation Reform Act
of 1995. These forward-looking statements include, but are not limited to
references to business strategies, competitive strengths, goals, capital
expenditure plans, business and operational growth plans and references to the
future growth of the business. These forward looking statements are based on
certain assumptions and analyses made by the Company in light of its experience
and its interpretation of current conditions, historical trends and expected
future developments as well as other factors that the Company believes are
appropriate in the circumstance.
However, whether actual results and developments will agree with expectations
and predications of the Company is subject to many risks and uncertainties
including, but not limited to; general economic, business or market risk
conditions; competitive actions by other companies; changes in laws or
regulations or policies of local governments, provinces and states as well as
the governments of United States and Canada; many of which are beyond the
control of the Company. Consequently all forward-looking statements made herein
are qualified by these cautionary statements and there can be no assurance that
the actual results or developments anticipated by the Company will be realized.
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Stake Technology Ltd. 3 December 31, 2001 - 10-K
PART I
Item 1. Business
Overview
Stake Technology Ltd. ("Stake" or the "Company") operates in three principal
businesses; (1) natural food product sourcing, processing, and packaging, (2)
processing, 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
principal executive offices 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.
The SunRich Food Group consists of Sunrich, Inc. (Sunrich), Northern Food and
Dairy, Inc. (Northern), and Nordic Aseptic, Inc. (Nordic). Sunrich, Northern and
Nordic form the basis of the Company's Food Group and operate under the
management of the SunRich Food Group, Inc., producing organic and non-GMO food
ingredients with a specialization in soy milk and other soy and natural food
products. The Food Group operates from five plants in Minnesota and one plant in
both 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
Company, Temisca Inc., Virginia Materials inc. (Virginia Materials) and 51% of
International Materials & Supplies, Inc. (International Materials). This Group
processes, sells and distributes abrasives and other industrial materials to the
foundry, steel and marine/bridge cleaning industries; sources specialty sands
and garnets for the water filtration industry; and recycles inorganic materials
under special permits from government authorities at both its Waterdown, Ontario
and Norfolk, Virginia sites. The Environmental Industrial Group operates from
manufacturing and distribution facilities in Waterdown, Ontario; Hamilton,
Ontario; Ville Marie, Quebec; New Orleans, Louisiana; Norfolk, Virginia;
Keeseville, New York and a warehouse and sales facility in Montreal, Quebec. 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.ca.
The StakeTech Steam Explosion Group is a division of Stake Technology Ltd. and
is located within the corporate office of the Company in Norval, Ontario. There
are separate buildings at this location which contain a demonstration unit of
this division's steam explosion technology process as well as laboratory and
office facilities. This division holds numerous patents on its technology and is
currently marketing this clean pulping system with a special focus on
opportunities in China. The Steam Explosion group can be contacted at 2838 Hwy
7, Norval, Ontario, Canada, L0P 1K0, telephone: (905) 455-1990, fax: (905)
455-2529, e-mail: info@staketech.com and web site: www.steamexplosion.com.
Listing on the Toronto Stock Exchange
The Company listed its common shares on the Toronto Stock Exchange (TSE) under
the symbol "SOY" on November 6, 2001. This listing is in addition to the
Company's listing on the Nasdaq Small Cap Market under the symbol "STKL". The
listing in Canada on the TSE was completed with the intent of broadening
investor and analyst interest in the Company in Canada and to access funds in
Canadian capital markets more efficiently.
Private Placements
During 2001, the Company completed four private placements, which resulted in
11,061,498 common shares being issued for net proceeds of $31,500,000 CDN
(US$20,035,000). These transactions also resulted in 705,750 warrants
exercisable at US $1.75 until March 31, 2004; 3,450,000 warrants exercisable at
US $2.40, (1,200,000 until March 31, 2004 and 2,250,000 until September 30,
2004) plus underwriter options. The underwriter options relate to the third and
fourth private placements and are for 144,000 options exercisable at US $2.00
until June 8, 2003, that if
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Stake Technology Ltd. 4 December 31, 2001 - 10-K
exercised allow the underwriter to also receive 72,000 warrants at US $2.40
until March 31, 2004, plus an additional 150,000 underwriter options at US
$2.00, that if exercised prior to September 28, 2003, allow the underwriter to
also receive 112,500 warrants exercisable at US $2.40 until September 30, 2004.
Segmented Information
The Company operates in three industries:
(1) The SunRich Food Group produces, packages and markets organic and
non-GMO food products and ingredients with a focus on soy milk and related
soy and natural food products; and
(2) The Environmental Industrial Group manufactures, processes, sells and
recycles inorganic materials which are commonly 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 United
States.
Acquisitions during 2000 and 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 owned certain soy trademarks including
Soy-Um and Rice-Um. The total acquisition purchase price was $2,887,000
(US$1,925,000) 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, $557,000
(US$365,000) (including acquisition costs) in cash, a note payable for
$1,049,000 (US$700,000), repayable quarterly over 2 years by payments of
US$87,500, with interest at 8.5%. There is also contingent consideration that
may be payable on this acquisition if; (a) certain predetermined profit targets
are achieved, up to an additional 140,000 warrants may be issued in 2002 through
to 2005, as well as (b) a percentage of gross profits in excess of US$1,100,000
per annum from 2001 to 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 business providing expertise from
seed to merchandisable products of soy milk.
As the acquisition of First Light Foods closed February 1, 2001, its operations
are included for the 11 months of 2001 starting February 1, 2001 and its assets
are included in the December 31, 2001 balance sheet.
Northern Food & Dairy, Inc.
On September 15, 2000, the Company acquired 100% of the common shares of
Northern Food & Dairy, Inc. (Northern) for total consideration of $11,190,000.
The consideration paid consisted of the issuance of 7,000,000 common shares of
Stake, 500,000 common share warrants exercisable at US$1.50 over five years and
cash consideration of $608,000. The issuance of the shares for acquisition
represented approximately 24.5% of the outstanding common shares of the Company
after the transaction, and resulted 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 Executive Vice President of Operations of the
SunRich Food Group.
Northern is a US based manufacturer and supplier of soy milk concentrate and
other natural food products and ingredients that are produced in three
production facilities in northern Minnesota and a fourth facility in Afton,
Wyoming. The Afton facility commenced operation late in 2001 and was built to
serve the western US market. Northern is one of the largest manufacturers of soy
milk concentrate in the US. Northern also produces other specialty food
ingredients including dietary fibres, natural food preservatives, grain
fractions, dried honey coatings, dried molasses, cheese flavours, starter media,
margarine enhancement and dried meat flavours.
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Stake Technology Ltd. 5 December 31, 2001 - 10-K
As the acquisition of Northern was completed on September 15, 2000, the net
assets of Northern are included in the December 31, 2001 and 2000 balance
sheets. Northern's results of operations are included for all of 2001 and for
the 106 day period from September 16 to December 31, 2000.
Nordic Aseptic, Inc.
In April of 2000, Sunrich (Stake's only food company as at December 31, 1999)
and Northern created a joint venture to purchase an aseptic packaging plant
located in Alexandria, Minnesota, to be known as Nordic Aseptic, Inc. (Nordic).
This plant packages aseptic beverages, primarily soy milk, and at the time was
producing for Sunrich and Northern's largest soy milk customer.
Nordic assumed control of the plant in April 2000 and on August 15, 2000, Nordic
acquired certain assets of Hoffman Aseptic Inc. through the assumption of
certain debts and the payment of cash consideration 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 were accounted for based on Sunrich's 50% proportionate
interest from April 19, 2000 to September 15, 2000. Upon the acquisition of
Northern on September 15, 2000, 100% of Nordic's operating results were included
for the period from September 16 to December 31, 2000. Operations of Nordic are
included for all of 2001. The net assets of Nordic are included in the December
31, 2001 and 2000 balance sheets.
Environmental Industrial Group
Virginia Materials
Effective October 31, 2001, the Company's wholly owned subsidiary, Virginia
Materials acquired certain assets of Virginia Materials and Supplies, Inc. as
well as 51% of the outstanding common shares of International Materials and
Supplies, Inc. (International Materials) for cash consideration (including
acquisition costs) of $2,777,000 (US$1,751,000) plus deferred purchase
consideration of $1,824,000 (US$1,150,000) and contingent consideration. The
deferred purchase consideration will be paid upon the Company's purchase of the
vendor's inventory. Management estimates that it will take approximately 18
months to purchase all of the inventory.
In addition, the Company will pay 50% of the profits for a two-year period from
the date of the acquisition. The vendor's share of profit is considered
contingent consideration.
Virginia Materials is a supplier of abrasives to the shipbuilding and repair
industry. It has a production facility located in Norfolk, Virginia and a second
plant is scheduled to open in the second quarter of 2002 in Baltimore, Maryland.
Virginia Materials also recycles spent abrasives which are used in the
production of Portland cement and converts aluminum smelting waste into a
roofing and abrasive product.
International Materials produces industrial garnets as a by-product from a
mining operation and processes these garnets for sale to the water filtration,
water jet cutting and abrasives markets.
As the acquisition of Virginia Materials was completed on October 31, 2001, the
net assets of Virginia Materials are included in the December 31, 2001 balance
sheet. Virginia Materials results of operations are included for the 61 day
period from October 31, 2001 to December 31, 2001.
Temisca Inc.
On October 31, 2000, the Company acquired the outstanding shares of Temisca Inc.
(Temisca), a private sand deposit and processing company in Ville Marie, Quebec.
The purchase price was $1,676,000 consisting of 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 over five years.
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Stake Technology Ltd. 6 December 31, 2001 - 10-K
The acquisition of Temisca gives the Environmental Industrial Group its first
directly controlled raw material source, allowing 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.
As the acquisition of Temisca was completed on October 31, 2000, the net assets
of Temisca are included in the December 31, 2001 and 2000 balance sheets.
Temisca's results of operations are included for a full year in 2001 and for the
61 day period from October 31, 2000 to December 31, 2000.
PECAL
On February 29, 2000, the Company acquired 100% of the outstanding shares of
George F. Pettinos (Canada) Limited, operating as PECAL, from US Silica Company
for cash consideration of $4,682,000. The acquisition of PECAL complemented the
business of the Company's division, Barnes Environmental International (BEI)
(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 possessed strengths in several other businesses that were
closely related to BEI's existing markets. PECAL added to the Environmental
Industrial Group's product lines in several key areas and has built sales in the
Ontario and US markets. The PECAL administration office located at a separate
rented site was closed in May 2000 and certain employees were relocated to the
Environmental Industrial Group's Waterdown office.
As the acquisition of PECAL was completed on February 29, 2000, the net assets
of PECAL are included in the December 31, 2001 and 2000 balance sheets. PECAL's
results of operations are included for all of 2001 and for the 10 month period
of February 29, 2000 to December 31, 2000.
SunRich Food Group
The SunRich Food Group has been built over the past three years with the
acquisition of four companies, starting with Sunrich Inc. in August, 1999, the
purchase of Nordic Aseptic, Inc. in August, 2000, the acquisition of Northern
Food & Dairy, Inc. in September, 2000 and the acquisition of First Light Foods
(Jenkins & Gournoe) in February, 2001. The acquisition of these companies
coupled with significant internal growth and development has established a
unique vertically integrated food company with significant presence in the
growing soy and natural foods markets.
The SunRich Food Group is composed of three key vertically integrated business
groups:
1) Product and Ingredients Group - This group sources and markets Identity
Preserved (IP) specialty grains and natural certified organic food ingredients
to domestic and foreign food processors. Products include specialty soybeans, IP
corn, soy milk powders, grain (corn, rice and oat) sweeteners and maltodextrins,
organic vegetable oils, organic corn, soy and oat flours and organic feed
ingredients.
2) Technical Processing Group - This group focuses on the technical processing
of specialty and functional food ingredients. Principal products and processes
include soy milk extraction; fractionalizion, extraction and hydrolyzation of
various grain products; extraction and refining of soluble fiber; fermentation
and hydrolyzation of natural food preservatives; various drying processes for a
variety of technically difficult products; and formulating and blending of
various dairy products.
3) Packaging Group - This group focuses in the aseptic packaging of shelf stable
beverages and liquid products. Products packaged include shelf stable soy milk,
rice beverages and soy/fruit smoothies.
Vertical integration of soy milk concentrate 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
packaging of branded soy milk 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 certain
periods.
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Stake Technology Ltd. 7 December 31, 2001 - 10-K
Bulk commodity products sales are freight cost sensitive. This can limit their
competitiveness in particular markets. Competitive bulk and container freight
costs 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.
Major Developments during 2001
During 2001, the Sunrich Food Group acquired 100% of the outstanding shares of
Jenkins & Gournoe, Inc. (First Light Foods). This company owned certain beverage
trademarks including Soy-Um and Rice-Um. These marks are co-branded and product
is subsequently sold to a major California based retailer. This acquisition
compliments the Food Group's strategy of vertical integration from field to
table.
In September, 2001 the SunRich Food Group commissioned its second soy milk
concentrate plant in Afton, Wyoming to service customer demands on the west
coast of the United States. Subsequent to commissioning, the Company announced
plans to further expand this facility. When fully operational, this facility
effectively doubles the Food Group's soy concentrate production capacity.
Major Products
Identity Preserved grains: The demand for non-genetically modified soybeans from
foreign customers and the increased demand from domestic soyfoods manufacturers
has continued to fuel an increase in business volume. These trends are expected
to continue in the future as the soy and natural foods markets continue to grow.
Soy milk and soy ingredients: Soy milk and soy ingredients are marketed
throughout the United States where the Group has a strong presence. The SunRich
Food Group is continuing to develop new product offerings and customers as the
demand for soy based products continue to grow.
Organic and Natural Food Ingredients: The natural foods market is one of the
fastest growing segments 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
sold to customers throughout the United States, Hong Kong and Japan.
Aseptic Packaging: Processing and packaging of shelf stable liquid products is
performed at Nordic Aseptic. Major products packed include soy milk and related
soy line beverages.
Custom Ingredients: The Company produces a number of unique functional 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 Japanese and US based customers.
Betatrim: Fractionalized oat based food ingredients produced under
agreement for domestic customers.
Microgard: A natural food preservative.
Dairy Blends: The Group produces custom blended powdered dairy ingredients
for several customers in the United States.
Powdered Honey and Molasses: The Group produces and markets dried sweeteners
such as powdered honey and molasses, which are sold to United States food
manufacturers.
Toll Spray drying: Technical processing and spray drying is contracted with
various customers to produce various food ingredients.
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Stake Technology Ltd. 8 December 31, 2001 - 10-K
Competition
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.
Food ingredients are unique niche items usually developed 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 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
Sunrich is located in Hope, Minnesota one mile west of the Interstate 35 and
alongside the Union Pacific Railroad. The railroad is used for the grain
elevator business and distribution of products nationally. The Hope facility is
70 miles south of Minneapolis/St. Paul, which gives it access to the Mississippi
River for grain transporting and "containerized" shipments to the west coast for
export. A second facility is located in Cresco, Iowa. This facility is 120 miles
southwest of Hope, Minnesota and produces organic corn milled products.
Northern Food and Dairy is headquartered in Alexandria, Minnesota, 120 miles
northwest of Minneapolis/St. Paul. The Alexandria processing plant is located
near Interstate 94, the prime transportation link to and from the area. The
Afton, Wyoming plant is situated on the Idaho/Wyoming border and is utilized to
serve the west coast soy concentrate market. The Bertha drying plant is located
approximately 40 miles northeast of Alexandria, Minnesota where its key supply
plant is located. The Fosston, Minnesota natural preservative facility is
located three hours north of Alexandria, Minnesota.
Nordic Aseptic is located near Interstate 94 in Alexandria, Minnesota. The
facilities are 120 miles northwest of Minneapolis/St. Paul.
The SunRich Food Group ensures that it provides its customers with the highest
quality organic, non-GMO and identity-preserved specialty grains, by serving as
a grower's supplier of seed, purchaser of the grower's 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 grading, formulation, processing, quality control and
packaging.
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Stake Technology Ltd. 9 December 31, 2001 - 10-K
Suppliers
SunRich Food Group's raw materials and packaging needs are sourced from various
suppliers who provide products that are delivered on contract to comply with
required specifications. Products are sourced from 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 1,200
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. The SunRich
Food Group has the ability to divert available product based on market demand
and customer requirements in order to maximize return.
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 United 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 would have an effect on availability and
price and would be reflected in finished product pricing for the Group.
Other ingredients such as guar, oat flour and carbon are supplied by process
customers and are not sourced directly from SunRich Food Group suppliers.
Regulation
The SunRich Food Group is affected by governmental agricultural regulations and
policies. State and federal fertilizer, pesticide, food processing, grain buying
and warehousing, and wholesale food regulations are examples of regulations that
affect this Group. Government-sponsored price supports and acreage set aside
programs are two examples of policies that may affect this Group. 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 regulations or that may
present delays and costs that could adversely affect this Group.
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
States Department of Agriculture (USDA), which monitors both the food processing
and agricultural 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 2001, the SunRich Food Group developed a number of new soy ingredients and
alternatives to accommodate new product adaptation of these ingredients into
various food items. The expanding interest to incorporate soyfoods in consumers'
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 products and processing systems that are required to serve the
growing natural foods market.
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Stake Technology Ltd. 10 December 31, 2001 - 10-K
Employees
The SunRich Food Group has 232 full-time employees; 74 salaried and 158 hourly
workers. The salaried employees are engaged in executive and administrative
activities, production management, sales and marketing, accounting,
administration and customer service. The 158 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 ten company owned production, warehousing
and office facilities located in Minnesota, Iowa and Wyoming and two leased
warehouse properties. In addition the company owns a waterfront property that is
used to provide temporary accommodations for out of town personnel. The
facilities are further detailed within the property section.
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, silica free
abrasives, garnets and other products for the foundry, shipbuilding,
bridge repair and steel industries. Many of these products 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 and certain
abrasives slow down during January to March corresponding to reduced cement
production and difficult winter operating conditions, while the foundry and
steel businesses are not considered seasonal. The establishment of the Louisiana
manufacturing facility during 1998 and the subsequent acquisition of Virginia
Materials helps 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 2001
Effective October 31, 2001, the Environmental Industrial Group acquired certain
assets of Virginia Materials & Supplies, Inc. as well as 51% of the outstanding
common shares of International Materials and Supplies, Inc. (International
Materials). Virginia Materials is a supplier of abrasives to the shipbuilding
and bridge repair industry with a production facility located in Norfolk,
Virginia with a second plant scheduled to open in the second quarter of 2002 in
Baltimore, Maryland. International Materials produces industrial garnets as a
by-product from a mining operation and processes these garnets for sale to the
water filtration, water jet cutting and abrasives markets. These acquisitions
have broadened the Group by expanding the product range in the area of abrasives
and garnet offered to existing customers and will provide the basis for entry
into new market areas, especially in the northeast United States.
Major Products
Barshot/Crystalgrit: 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 the two central
Canadian provinces, Great Lakes and Northeast Atlantic region states and the
state of Alabama and the non-exclusive right for the balance of North America.
The Group also has the first right of refusal for a licence in 5 other US
states.
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Stake Technology Ltd. 11 December 31, 2001 - 10-K
Specular Hematite is marketed under the name "Barshot" or "Crystalgrit" 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 or Crystalgrit.
In 2001, 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 2001, the Group continued shipments to New York, New Jersey and Michigan,
significantly expanding sales of this product. With the acquisition of Virginia
Materials the Environmental Industrial Group has expanded its product offering
with a coal slag abrasive under the name of "Blackblast". This product is
marketed primarily into the Virginia, North Carolina, West Virginia and Alabama
markets and will be expanded and offered across the entire Environmental Group
network in the future.
Garnets: In 2001 the Environmental Industrial Group expanded its product
offering and current markets served with the purchase of 51% of the outstanding
common shares of International Materials and Supplies, Inc., a producer of
garnets for the water jet cutting, water filtration and abrasive industries. The
Group also continued its exclusive agreement with a sand supplier in China,
complimenting this with a Distributor Agreement with a garnet sand supplier in
India. These high value products are sold to the water jet cutting and wet and
dry abrasive blasting markets.
Silica Sands: The Environmental Industrial Group continues to supply its major
foundry customers in Quebec and Ontario with silica products, however, growth in
this market in 2001 was limited due to continued competition from lake sand
suppliers. The acquisition of Temisca Inc. in 2000 provided the Group with a
lower cost and secured supply of silica raw materials which has allowed the
Group to remain the key supplier in this market. 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 acquisition of PECAL in 2000, the Group continues to
be a 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: The Environmental Industrial Group continues to recycle higher
value added products, and in this regard 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.
The Environmental Industrial Group is committed to providing quality products
and services. A quality system was put into place during 1996 and in 1997 the
BEI operations within the Environmental Industrial Group were awarded ISO-9002
registration. A number of ISO-9002 update audits have been successfully
completed since that time. In the first quarter of 2001, the PECAL facility
achieved ISO registration and by the end of 2003, the Group is striving to have
all of its operations ISO-9002 registered.
Competition
The Environmental Industrial Group conducts business throughout North America
with a focus by key region. Key regions comprise the Quebec-Detroit corridor
with expansion into Northern Ontario and Northern Quebec. With new locations in
Virginia and New York, the group has increased its presence and competitive edge
in these areas for the abrasive and garnet markets. It also distributes through
its facility in New Orleans to the Louisiana Gulf region. The Group is
competitive in abrasive and value added products in surrounding areas such as
Michigan, New Jersey and Ohio.
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Stake Technology Ltd. 12 December 31, 2001 - 10-K
The Group competes against a variety of competitors servicing the foundry,
steel, abrasive, water jet and filtration industries. Each of these product
categories are normally served by as many as three competitors. The Group
competes through a combination of exceptional product quality and customer
service combined with competitive pricing in these markets.
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 recycle certain types of solid waste,
which could not be recycled without a Certificate of Approval, as many materials
have been declared hazardous by the Ontario Ministry of Environment and Energy.
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 for 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 and other companies 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 ensure the highest quality and the
supplier's ability to adhere to the Group's requirements.
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Stake Technology Ltd. 13 December 31, 2001 - 10-K
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
continue 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 wider
variety of industries, many of the opportunities to date have come from its
existing customer base in the foundry, steel and industrial blasting industries.
The Environmental Industrial Group receives materials from in excess of 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 an exclusive basis by a Canadian mining
and refining company. Blackblast, a product produced from coal slag is supplied
on an exclusive basis by a US power plant. The Environmental Industrial Group
has adequate inventory reserves of this product to meet 2002 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 now produces its own garnet at it's Keesville, New York facility. In
addition the group has 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. Similar rights of inspection exist at our facility in
Norfolk, Virginia.
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 2001, 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 2001, the Environmental Industrial Group continued to
study the use of Specular 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.
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Stake Technology Ltd. 14 December 31, 2001 - 10-K
Employees
The Environmental Industrial Group has 82 employees, 36 salaried and 46 hourly
workers.
The Environmental Industrial Group's 14 production and maintenance employees at
the Waterdown location are represented by Teamsters Local Union #879. The
current Collective Bargaining Contract with the Teamsters expires June 30, 2002.
The 10 hourly employees at the plant in Hamilton are represented by United
Steelworkers of America #16506 and the Agreement is in effect to February, 2005.
The Company experienced no work stoppages in 2001 and management considers
relations with the unions to be good.
Properties
The Environmental Industrial Group operates from seven locations. The primary
operating facility with administrative, laboratory and principal production is
located on a 31.6 acre site at 407 Parkside Drive, Waterdown, Ontario, Canada
L0R 2H0, located 40 miles west of Toronto. In addition, the Group owns a
production facility in Hamilton, Ontario, a distribution/warehouse facility in
Lachine (Montreal), Quebec and the Temisca sand property in located in northern
Quebec. The Group also leases production/distribution facilities in New Orleans,
Louisiana, Norfolk, Virginia and Keesville, New York.
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 is used for
the processing, storage and distribution of numerous abrasives and related
industrial materials.
The Hamilton production facility consists of 3.55 acres and is used in the
processing of sands and related materials to the steel and foundry industries.
The Montreal distribution/warehouse facility was purchased by the Company in
2001. Prior to this the facility was leased. The facility sits on 3 aces of land
and contains a 20,000 square foot warehouse and office building.
The Temisca (Ville Marie, Quebec) sand deposit and production facility consists
of approximately 100 acres of sand quarry that are owned and 100 acres of
industrial property that are leased. There is production and storage equipment
on this site.
The Louisiana facility is leased from the Port Authority of New Orleans. The
facility is used for processing abrasives for supply primarily to the
shipbuilding and repair industry.
Virginia Materials is located on Peterson Street in Norfolk, Virginia on
approximately 12 acres of land. This facility is leased and the Company owns
certain assets located on the leased property.
International Materials is located in Keeseville, New York on 5 acres of leased
property. The facility is used to process industrial garnets recovered from a
mining operation for sale to the water filtration, water jet cutting and
abrasive industries.
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 suitable raw materials
include 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.
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Stake Technology Ltd. 15 December 31, 2001 - 10-K
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
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. (Pacitec) 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. Under this agreement
Pacitec has the right to terminate this contract at the end of any scheduled
renewal period, the current period is due to end July 28, 2002. 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. The Company 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.
StakeTech's steam explosion business is not affected by seasonality.
Major Developments in Steam Explosion Technology in 2001
In 2001, the Steam Explosion Technology Group continued to focus on marketing
pulping systems to China through Pacitec Inc. In 2001, Pacitec maintained its
exclusive rights and all license fee payments due from Pacitec were received.
In conjunction with Pacitec, the Company is now pursuing equipment sales to
three separate projects in China.
Competition
The Company is focussing its marketing efforts on applying the Steam Explosion
Technology to the production of pulp for paper from non-woody fibres. 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, Metso and Andritz. The Company is aware of other groups that
are attempting to develop and market new pulping processes. These include the
NACO process from Italy, the Saicca process from Spain and the Anbokem process
from Canada.
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 and this could
have a materially adverse effect on the Company's steam explosion technology
business.
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Stake Technology Ltd. 16 December 31, 2001 - 10-K
In respect of the manufacturing of the customized steam explosion technology
systems, the Company provides equipment fabricators with detailed drawings and
equipment specifications. All major equipment components have at least two
alternate 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. To date the Company
has not found it necessary to spend significant 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.
Financial Exposure Related to Bonding and Guarantees
To enter new markets such as China, the Company expects to have to provide
substantial performance guarantees in the form of process guarantees and
equipment guarantees. These guarantees will need to be backed by bank guarantees
and/or surety bonds. The Company will endeavour to reduce the associated risks,
however there will always remain a possibility that the Company's guarantees or
bonds could be called, rightfully or wrongfully and/or the equipment supplied
fails to meet the guarantees and warranties provided resulting in potential
financial losses to the Company.
Research and Development
In 2001, Steam Explosion research and development activities related to client
specific investigations and focused on the production of pulp from straw from
China.
Employees
The Steam Explosion Technology Group has 2 employees; 1 engaged in technical
support and R&D 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.
SunRich Valley, a Division of Stake Technology Ltd.
During 2001 The Company completed an in depth study and decided to enter the
Canadian organic dairy business. As a result the Company has commenced business
in Canada under the name SunRich Valley, a division of Stake Technology Ltd.
(SunRich Valley), with an initial focus on marketing organic dairy products. The
business currently employs four personnel in management, sales, administration
and producer development and expects to realize its
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Stake Technology Ltd. 17 December 31, 2001 - 10-K
first sales late in the first quarter of 2002. The business currently operates
from the Company's corporate office in Norval, Ontario.
Corporate Office
The corporate office of Stake is located in owned premises in Norval, Ontario.
Seven staff are employed in a variety of management, financial and
administration roles.
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. During 2001, Easton entered into
an acquisition agreement with a third party and the stock was halted from
trading pending regulatory review of the transaction. The shares of Easton
resumed trading on January 28, 2002 upon receipt of conditional approval of the
acquisition. 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 18, 2002 the Company had 327 employees broken out by division below:
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Divisions Number of Employees
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Sunrich Food Group 232
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Environmental Industrial Group 82
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Steam Explosion, SunRich Valley and Corporate Office 13
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Total 327
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Risk Factors
The Common Shares of the Company are speculative in nature and involve a high
degree of risk. Accordingly, in analyzing an investment in these securities,
prospective investors should carefully consider the following risk factors,
together with all of the other information appearing, or incorporated by
reference, in this document, in light of his or her particular financial
circumstances and/or investment objectives.
Dependence on Key Personnel, including Directors and Officers
The Company is wholly dependent upon the personal efforts and abilities of its
Officers and Directors. The loss or unavailability to the Company of the
services of its officers, particularly Jeremy N. Kendall, Chairman and Chief
Executive Officer of the Company, John Taylor, President and Chief Operating
Officer of the Company or Allan Routh, President and Dennis Anderson, Executive
Vice President and Director of Operations of SunRich Food Group, Inc., the
Company's wholly-owned subsidiary, would have a materially adverse effect on the
Company's business prospects, ability to raise funds and its potential earning
capacity. If the Company were to lose the services of any of the aforementioned
officers and directors before a qualified replacement could be obtained, its
business could be materially and adversely affected.
Northern Food and Dairy, Inc. has key man insurance for Dennis Anderson in the
amount of U.S. $1,000,000. The beneficiary of this insurance is Northern. The
Company does not carry any other insurance on other executives to compensate for
any such loss. The ability of the Company to attract and retain qualified
management and technical
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Stake Technology Ltd. 18 December 31, 2001 - 10-K
personnel as employees or consultants is critical to the operations of the
Company. To date, the Company has been able to attract and retain sufficient
professional employees and consultants, however, there can be no assurance that
the Company will be able to do so in the future. If the Company were unable to
employ the qualified employees and consultants needed, then its business would
be materially and adversely affected.
Future Capital Needs
The costs associated with some of the growth of the Company's present business
operations and to fund the acquisition strategies of the Company will likely
require additional capital, which may result in additional dilution to the
Company's shareholders. The ability of the Company to raise such funds may delay
or prevent the Company from meeting some of its strategic goals.
Competition
The Company and its subsidiaries carry on their businesses in competition with
companies and individuals with financial resources and staffs larger than the
Company's and the Company is, therefore, subject to competitive factors over
which it has little control or can otherwise affect. Extreme competition for
financial resources exists in our businesses and this competition for funds may
also create risks for the Company if the Company is unable to attain the funds
needed to carry out its strategic plans.
Governmental Regulation and Policies
The Company and its subsidiaries are, and are expected to continue to be,
subject to substantial federal, state, provincial and local environmental
regulation. These regulations exist in virtually all the Company's operational
business locations throughout North America and can present delays and costs
that can adversely affect business development.
Consolidation Within the Food Group's Industry May Require Access to Greater
Financial Resources
The SunRich Food Group, Inc., the Company's wholly-owned subsidiary competes
with substantially larger companies in the natural food, grain and specialty
grain markets who have greater financial resources than the Company. The SunRich
Food Group's ability to retain market share is uncertain because these food
businesses continue to consolidate, leaving potentially less market share for
smaller competitors.
Stake's Steam Explosion Technology Group
The Steam Explosion Technology Group has yet to gain wide acceptance within the
industry and consequently earnings can fluctuate from quarter to quarter. Its
patented steam technology, while proven, has yet to develop a firm customer
base. The success of this division will depend upon its ability to promote
commercial acceptance of the StakeTech system.
Lack of Dividends; Dividend Restrictions
Stake has never paid dividends on its common shares and does not contemplate
paying cash dividends in the foreseeable future. Moreover, Stake is precluded
under the terms of various agreements with its creditors from paying dividends
until the related indebtedness has been satisfied. It is the Company's intention
to retain future earnings to fund growth. Accordingly, investors will not
receive a return on investment in Stake common shares through the payment of
dividends in the foreseeable future and may not realize a return on investment
even if they sell their shares. Any future payment of dividends to Stake
security holders will depend on decisions that will be made by the Board of
Directors and will depend on then existing conditions, including the Company's
financial condition, contractual restrictions, capital requirements and business
prospects. The receipt of cash dividends by United States shareholders from a
Canadian corporation, such as Stake, is subject to a 15% Canadian withholding
tax.
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Stake Technology Ltd. 19 December 31, 2001 - 10-K
Item 2. Properties
A detailed description of these properties is included in the business segment
earlier in this document.
SunRich Food Group
The SunRich Food Group operates from thirteen locations in Minnesota, Iowa and
Wyoming, eleven owned and two leased.
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Division Address
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Sunrich, Inc. 3824-93rd St. SW, Hope, MN 56046
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616-6th Avenue W. Cresco, Iowa 52136
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Northern Food & Dairy, Inc. 2214 Geneva Rd. NE Alexandria, MN 56308
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601-3rd Avenue W. Alexandria, MN 56308
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4601 Co. Road 13 NE Alexandria, MN 56308
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3035 Evergreen Lane S. Alexandria, MN 56308
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308-2nd Avenue NW, Bertha, MN 56437
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701 W. 1st Street, Fosston, MN 56542
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2442 County Road 120 NE, Alexandria, MN 56308
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199 W. 2nd Avenue, Afton, Wyoming 83110
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Nordic Aseptic, Inc. 3915 Minnesota Street, Alexandria, MN 56308
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4761 Hwy 27 East, Alexandria, MN 56308 (Leased)
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3810 Minnesota Street, Alexandria, MN 56308 (Leased)
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Environmental Industrial Group
The Environmental Industrial Group operates from seven locations, four owned and
three leased.
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Division Address
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BEI 407 Parkside Drive, Waterdown, Ontario
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70 Brant Street, Hamilton, Ontario
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2270-43rd Avenue, Lachine, Quebec
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Elaine Street, New Orleans, Louisiana (Leased)
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Temisca, Inc. 1299 Rang I, St. Bruno de Guiges, Quebec
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Virginia Materials & Supply, Inc. 3306 Peterson Avenue, Norfolk, Virginia (Leased)
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International Materials and Supplies, Inc. 56 Industrial Park Rd, Keeseville, New York (Leased)
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Steam Explosion Technology Group, SunRich Valley and Executive Offices
The Company's Executive Group, the Steam Explosion Technology Group and Sunrich
Valley organic dairy operation are located at 2838 Highway 7, Norval, Ontario,
Canada L0P 1K0. The property is approximately 10 acres, is owned by the Company
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 and office
facility and a pilot plant facility.
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. The
Company and its legal counsel believe that the counter-claim is without merit.
During 2001, the SunRich Food Group commenced an action against a supplier for
failure to adhere to the terms of a supply contract. The Company and its legal
counsel believe that this claim has merit. It cannot however be
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Stake Technology Ltd. 20 December 31, 2001 - 10-K
determined if there will be any recovery by the Company at this time and the
Group is providing for the costs of pursuing this suit on a monthly basis. Other
than this action, the SunRich Food Group is not currently a party to any
material litigation.
The Environmental Industrial Group is not currently a party to any material
litigation.
The Steam Explosion Technology Group 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, 2001.
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Stake Technology Ltd. 21 December 31, 2001 - 10-K
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common shares trade in US$ on The Nasdaq Small Cap Market tier of
The Nasdaq Stock Market under the symbol STKL, and as of November 6, 2001, the
Company's shares trade in Canadian $ under the symbol SOY on the Toronto Stock
Exchange. 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 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 on Nasdaq (US Dollars)
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2001 HIGH LOW
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First Quarter US$1.75 US$1.375
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Second Quarter US$2.45 US$1.49
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Third Quarter US$2.05 US$1.41
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Fourth Quarter US$2.17 US$1.63
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2000 HIGH LOW
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First Quarter US$2.4688 US$0.7812
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Second Quarter US$1.9062 US$1.0312
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Third Quarter US$1.8125 US$1.0938
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Fourth Quarter US$1.8125 US$1.25
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The Company listed on the Toronto Stock Exchange on November 6, 2001, therefore
information is only provided for the fourth quarter of 2001.
Trade Prices on TSE (Canadian Dollars)
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2001 High Low
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Fourth Quarter - 06/11/01 forward $3.85 $2.65
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At December 31, 2001, the Company has 714 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 an additional 3,000 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.
Issuance of securities and use of proceeds
Acquisition of Jenkins & Gournoe (First Light Foods)
In February 2001, the Company issued to the shareholders of Jenkins & Gournoe,
Inc., (Jenkins & Gournoe) which operated under the name First Light Foods,
833,333 of its common shares as a component of the purchase price for 100% of
the common stock of Jenkins & Gournoe. In addition, the Company also issued
35,000 warrants to acquire common shares of the Company, which are exercisable
at US $1.70 per share for five years ending February, 2006. Up to an additional
140,000 warrants to acquire common shares of the Company may be issued prior to
2005 if First Light
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Stake Technology Ltd. 22 December 31, 2001 - 10-K
Foods achieves certain pre-determined gross profit targets. The exercise price
for these warrants, if issued, will be the market price of the Company's common
shares at the time the warrants are issued. The warrants will have a term of
five years from the date of issue.
Private Placement 1 - 2001
On April 18, 2001, the Company entered into a transaction for the private
placement of 1,411,498 units. Each unit was comprised of one common share plus a
warrant to purchase one-half of a common share. As a result, the company issued
1,411,498 common shares and 705,750 whole warrants which are exercisable at US
$1.75 to purchase 705,750 common shares until March 31, 2004. The net proceeds
of this transaction was $ 2,651,000 (US $1,728,000) after associated commission,
legal and other related costs.
Private Placement 2 - 2001
The Company entered into an agreement on May 18, 2001 for the private placement,
outside of the United States of 2,400,000 units at US $2.00 per unit. Each unit
consisted of one common share plus a warrant to purchase one-half of a common
share. As a result, the Company issued 2,400,000 common shares and 1,200,000
whole warrants which are exercisable at US $2.40 to purchase 1,200,000 common
shares until March 31, 2004. The net proceeds of this transaction was $6,279,000
(US $4,375,000) after associated commission, legal and other related costs.
The Company's agent on this transaction was paid a cash commission and was
granted a compensation warrant, exercisable until June 8, 2003, to purchase
144,000 option units at US $2.00 per unit. Each option unit is comprised of one
common share plus a warrant to purchase one-half a common share. If exercised in
full, the Company will issue 144,000 common shares and 72,000 whole warrants
which are exercisable at US $2.40 to purchase 72,000 common shares until March
31, 2004.
Private Placement 3 - 2001
The Company entered into a subscription agreement on September 28, 2001 for the
private placement of 3,000,000 units at US $2.00 per unit. Each unit consisted
of one common share plus a warrant to purchase three quarters of a common share.
As a result, the Company issued 3,000,000 common shares and 2,250,000 whole
warrants which are exercisable at US $2.40 to purchase 2,250,000 common shares
until September 30, 2004. The net proceeds of this transaction was $8,841,000
(US $5,650,000) after associated commission, legal and other related costs.
The Company's agent on this transaction was paid a cash commission and was
granted a compensation warrant, exercisable until September 28, 2003 to purchase
150,000 option units at US $2.00 per unit. Each option unit is comprised of one
common share plus a warrant to purchase three-quarters of a common share. If
exercised in full, the Company will issue 150,000 common shares and 112,500
whole warrants which are exercisable at US $2.40 to purchase 112,500 common
shares until September 30, 2004.
Claridge Group Pre-emptive Rights
As part of the subscription agreement, Claridge and the Claridge Group (as
defined below) were granted a contractual pre-emptive right, for as long as they
collectively remain the beneficial owners of five percent (5%) or more of the
Company's outstanding common shares, to purchase a portion of any proposed
offering of the Company's common shares or securities convertible into common
shares (or units if offered in units) to any third party for the purpose of
obtaining financing for the Company. The portion of any such financing to be
offered to each member of the Claridge Group shall be equal to the percentage
that the common shares then owned by such member represents to the total number
of common shares issued and outstanding at the time of such proposed financing.
The Claridge Group is defined as (i) Charles R. Bronfman and his lineal
descendants; (ii) the spouses of any one or more of the foregoing; (iii) any
trust of which any one or more of such persons is a beneficiary; (iv) a
partnership in which one or more of the foregoing entities owns a majority
interest; and (v) any company directly under the control of one or more of the
foregoing.
Under the subscription agreement the Company shall give notice to Claridge and
each member of the Claridge Group, who holds common shares, of any such proposed
offering of common shares or securities convertible into
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Stake Technology Ltd. 23 December 31, 2001 - 10-K
common shares, whether such offerings be by way of private placement or to the
public by way of prospectus, registration statement or otherwise.
Private Placement 4 - 2001
On December 21, 2001, the Company closed a private placement of 4,250,000 common
shares at US $2.10. The net proceeds of this transaction was $13,279,000 (US
$8,282,000) after associated commission, legal and other related costs. By
agreement, one tenth of the gross proceeds is being held in escrow until the
later of (i) a registration statement registering these Shares under the
Securities Act of 1933 has been filed and declared effective by the SEC, or (ii)
four months from the closing date of this private placement, April 21, 2002. A
registration statement was filed by the Company in compliance with such
agreement on February 20, 2002.
Exemption From Registration
The Company's common shares issued in the acquisition and private placements
described above, were issued pursuant to exemptions from the registration
requirements of the Securities Act of 1933 (the "Act") provided by Section 4 (2)
of the Act or Regulation D promulgated under the Act, and in the case of
issuance to non-US persons were issued in transactions to which the Act did not
apply.
Options exercised during the year
During the year ended December 31, 2001, employees and directors exercised
999,425 common share options and an equal number of common shares were issued
for net proceeds of $1,651,000. Subsequent to December 31, 2001, employees
exercised 48,100 common share options and an equal number of common shares were
issued for net proceeds of $130,000.
Use of 2001 private placement and option proceeds
From the proceeds of the 2001 placements, the Company repaid a US $1,000,000
corporate loan that was drawn in 2000 to provide working capital to Northern.
The Company also transferred US $5,911,000 during 2001 and US $700,000
subsequent to December 31, 2001 to the SunRich Food Group, Inc. to fund the
Wyoming soy plant expansion; to replace funds used in the start up of Nordic,
pay corporate income taxes; to reduce lines of credit and improve the Group's
working capital. Of the US$5,911,000 transferred during 2001, US $2,206,000 was
specifically used to repay a line of credit due to US Bank, as this line of
credit was not renewed under the existing terms.
In addition, during 2001 the Company also repaid Canadian lines of credit
totalling $1,755,000, paid the purchase price of $2,777,000 to acquire certain
assets Virginia Materials and Supplies, Inc. and 51% of the outstanding common
shares of International Material and Supplies, Inc. and paid approximately
$800,000 to purchase BEI/PECAL's Montreal distribution centre. In 2002, $500,000
has been used to draw down Canadian lines of credit and $640,000 has been
provided to Virginia Materials, Inc. to finance working capital and capital
additions. The remaining proceeds will be used for working capital as needed and
for future business acquisitions.
As of December 31, 2001, the Company had 41,081,228 common shares outstanding.
As a result of certain departed employees 48,100 options were exercised into
common shares in the first quarter of 2002. As of March 8, 2002, 41,129,328
common shares are outstanding. In addition 7,115,475 common shares have been
reserved for issuance and are detailed as follows:
1) Warrants to purchase 500,000 common shares exercisable at US $1.50
expiring September 15, 2005 from the acquisition of Northern;
2) Warrants to purchase 35,000 common shares exercisable at US $1.70
expiring February 28, 2006 from the acquisition of Jenkins &
Gournoe, Inc.;
3) Warrants to purchase 705,750 common shares exercisable at US $1.75
expiring March 31, 2004 from the private placement completed on
April 18, 2001;
4) Warrants to purchase 1,200,000 common shares exercisable at US $2.40
expiring March 31, 2004 from the private placement completed on June
8, 2001;
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Stake Technology Ltd. 24 December 31, 2001 - 10-K
5) Option to acquire 144,000 common shares which may be acquired by the
agent under the terms of the May 18, 2001 private placement
agreement which was completed June 8, 2001 at US $2.00 until June 8,
2003;
6) Warrants to purchase 72,000 common shares, which may be acquired by
the agent under the terms of the May 18, 2001 private placement
agreement, which closed on June 8, 2003, if the 144,000 options
(noted above in 5) are exercised. The warrants to purchase 72,000
common shares are exercisable at US $2.40 expiring March 31, 2004;
7) Warrants to purchase 2,250,000 common shares exercisable at US $2.40
expiring September 30, 2004 from the private placement completed on
September 28, 2001;
8) Option to acquire 150,000 common shares which may be acquired by the
agent under the terms of the September 28, 2001 private placement
agreement at US $2.00 until September 28, 2003;
9) Warrants to purchase 112,500 common shares, which may be acquired by
the agent under the terms of the September 28, 2001 private
placement agreement if the 150,000 options (noted above in 8) are
exercised. The warrants to purchase 112,500 common shares are
exercisable at US $2.40 expiring September 30, 2004; and
10) Options to acquire 1,946,225 common shares previously granted to
employees, directors and consultants under various Company stock
option plans.
In addition, if certain pre-determined profit targets are achieved by the
First Light Foods business, which was acquired in February 2001, up to an
additional 140,000 warrants may be issued in 2002 through to 2005, at a
rate of up to 35,000 per year. Subsequent to December 31, 2001, the 35,000
warrants issuable in 2002 have been cancelled as First Light Foods did not
meet their profit targets for 2001, therefore 105,000 warrants may be
issued in 2003 to 2005 at a rate of up to 35,000 per year.
Item 6. Selected Financial Data
The following information has been summarized from the Company's consolidated
financial statements.
Summary
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2001 2000 1999 1998 1997
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Total revenues $143,069,000 $101,653,000 $47,304,000 $22,077,000 $16,847,000
----------------------------------------------------------------------------------------------------------------
Net earnings - CDN GAAP 31,000 3,374,000 1,524,000 822,000 149,000
----------------------------------------------------------------------------------------------------------------
Net earnings - US GAAP (328,000) 2,571,000 1,449,000 761,000 (139,000)
----------------------------------------------------------------------------------------------------------------
Total assets 127,521,000 92,866,000 35,434,000 16,096,000 15,024,000
----------------------------------------------------------------------------------------------------------------
Long-term debt (includes 26,517,000 31,555,000 4,113,000 2,100,000 2,600,000
current portion)
----------------------------------------------------------------------------------------------------------------
Other long-term obligations 7,147,000 4,008,000 1,426,000 986,000 1,123,000
includes future taxes (includes
current portion)
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Basic earnings per share - CDN $0.00 $0.15 $0.09 $0.06 $0.01
GAAP
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Basic earnings (loss) per $(0.01) $0.11 $0.08 $0.05 $(0.01)
share - US GAAP
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Cash dividends -- -- -- -- --
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Stake Technology Ltd. 25 December 31, 2001 - 10-K
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
Revenues for 2001 grew by 41% to $143,069,000 versus $101,653,000 in 2000. Net
earnings for the year were $31,000 or $0.00 per share compared to $3,374,000 or
$0.15 per share in 2000. The company's financial position improved dramatically
over the course of 2001 with working capital improving by over $24,000,000 and
the ratio of long-term debt to equity improving to 0.38:1 from 0.95:1 in 2000.
Operating results in 2001 were negatively impacted by a number of factors,
including ongoing losses before income taxes of $2,945,000 at Nordic Aseptic,
Inc., the company's aseptic packaging operation. In addition, the Environmental
Industrial Group was negatively effected in 2001 by the impact of both the
general economic slowdown in the foundry and steel industries and the fall out
as a result September 11th tragedy on the bridge repair and shipbuilding
industries.
With the exception of Nordic, all operating companies were profitable in 2001. A
great deal of energy and focus has been directed to addressing the operating
issues at Nordic and management is confident that the operations will be
profitable in 2002.
The assets of the Company have grown 37% to $127,521,000 from $92,866,000 in
2000, driven primarily by the proceeds of equity financing throughout the year.
These financings increased the number of common shares outstanding from
28,186,972 to 41,081,228.
The changes to the size of the Company's operations and assets are primarily a
result of the Company's business acquisition strategy combined with the specific
financing activities. These items are summarized below.
Business Acquisitions
The acquisitions of the companies detailed below have 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 estimates of
fair values, and described in detail in table format in note 2 to the audited
consolidated financial statements. The consolidated financial statements include
the results of operations of the acquired businesses from the date of
acquisition.
Virginia Materials - On October 31, 2001, the Company's wholly-owned subsidiary,
Virginia Materials, Inc., acquired certain assets of Virginia Materials and
Supplies, Inc. as well as 51% of the outstanding common shares of International
Materials and Supplies, Inc. (International Materials) for cash consideration
and acquisition costs of approximately $2,777,000 (US $1,751,000), plus deferred
purchase consideration of $1,824,000 (US $1,150,000) and contingent
consideration. The deferred purchase consideration will be paid upon the
Company's purchase of the vendor's inventory. Management estimates that it will
take approximately 18 months to purchase all the inventory. In addition, the
Company will pay 50% of the profits for a two-year period from the date of the
acquisition. The vendor's share of profit is considered contingent
consideration.
Virginia Materials is a supplier of abrasives to the shipbuilding and repair
industry. It has a production facility located in Norfolk, Virginia and a second
plant is scheduled to open in the second quarter of 2002 in Baltimore, Maryland.
Virginia Materials also recycles spent abrasives which are used in the
production of Portland cement and converts aluminum smelting waste into a
roofing and abrasive product.
International Materials produces industrial garnets as a by-product from a
mining operation and processes these garnets for sale to the water filtration,
water jet cutting and abrasives markets.
This business is operated within the Environmental Industrial Group.
First Light Foods - On February 1, 2001, the Company acquired 100% of the common
shares of Jenkins and Gournoe, Inc., which operated under the name of First
Light Foods. Consideration consisted of the issuance of 833,333 common shares,
$557,000 (US $365,000) in cash, a $1,049,000 (US $700,000) note payable that is
repayable quarterly over 2 years by payments of US $87,500, plus interest at
8.5% and 35,000 warrants exercisable at US $1.70 for five years to February,
2006. In addition, contingent consideration may be payable on this acquisition
if; (a) certain predetermined profit targets are achieved by the acquired
business up to an additional 140,000 warrants may be issued in 2002 through
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Stake Technology Ltd. 26 December 31, 2001 - 10-K
to 2005, and (b) a percentage of gross profits in excess of US $1,100,000 per
annum from 2001 to 2005 will be paid to the vendors of First Light Foods. First
Light Foods owns several trademarked brands that are co-branded as private label
brands for a major California food chain. The acquisition of First Light Foods
is included in the operations of the SunRich Food Group and compliments this
Group's strategy of becoming a vertically integrated business from seed to
merchandisable products of soymilk.
Temisca - On October 31, 2000, the Company acquired 100% of the outstanding
common shares of Temisca Inc., a private sand deposit and manufacturing company
in Ville Marie, Quebec. The purchase price was $1,676,000 and was paid via cash
consideration of $926,000 and the issuance of a $750,000 note payable bearing
interest at 5% with repayment terms over 5 years.
Northern - On September 15, 2000, the Company acquired 100% of the outstanding
common shares of Northern Food & Dairy, Inc, from its three shareholders, for
total consideration of $11,190,000. The consideration paid consisted of the
issuance of 7,000,000 common shares ($10,552,000), 500,000 common share warrants
exercisable at US$1.50 for five years ($30,000), and cash consideration of
$608,000. Northern is a US based manufacturer and supplier of soymilk and other
natural food products and ingredients. This business is operated within the
SunRich Food Group.
Nordic - On April 19, 2000, Sunrich and Northern created a corporate joint
venture to operate an aseptic packaging plant owned by Hoffman Aseptic Inc. The
plant packages aseptic soy milk. Nordic assumed management control of the plant
on April 19, 2000 and on August 15, 2000, Nordic acquired certain assets of
Hoffman Aseptic Inc. by the assumption of certain debts and the payment of cash
consideration of $380,000. Upon the acquisition of Northern on September 15,
2000, the Company acquired the remaining 50% interest in Nordic Aseptic, Inc..
This business is operated within the SunRich Food Group.
PECAL - On February 29, 2000, the Company acquired 100% of the outstanding
common shares of George F. Pettinos (Canada) Limited, also operated as PECAL,
from US Silica for cash consideration of $4,682,000. In certain markets, PECAL
was a competitor of the Environmental Industrial Group. This business is
operated within the Environmental Industrial Group.
Financing Activities
Private Placement 1 - 2001 - On April 18, 2001, the Company entered into a
transaction for the private placement of 1,411,498 units. Each unit was
comprised of one common share plus a warrant to purchase one-half of a common
share. As a result, the company issued 1,411,498 common shares and 705,750 whole
warrants which are exercisable at US $1.75 to purchase 705,750 common shares
until March 31, 2004. The net proceeds of this transaction was $2,651, 000 (US
$1,728,000) after associated commission, legal and other related costs.
Private Placement 2 - 2001 - The Company entered into an agreement on May 18,
2001 for the private placement, outside of the United States of 2,400,000 units
at US $2.00 per unit. Each unit consisted of one common share plus a warrant to
purchase one-half of a common share. As a result, the Company issued 2,400,000
common shares and 1,200,000 whole warrants which are exercisable at US $2.40 to
purchase 1,200,000 common shares until March 31, 2004. The net proceeds of this
transaction was $6,279,000 (US $4,375,000) after associated commission, legal
and other related costs.
Private Placement 3 - 2001 - The Company entered into a subscription agreement
on September 28, 2001 for the private placement of 3,000,000 units at US $2.00
per unit. Each unit consisted of one common share plus a warrant to purchase
three quarters of a common share. As a result, the Company issued 3,000,000
common shares and 2,250,000 whole warrants which are exercisable at US $2.40 to
purchase 2,250,000 common shares until September 30, 2004. The net proceeds of
this transaction was $8,841,000 (US $5,650,000) after associated commission,
legal and other related costs.
Private Placement 4 - 2001 - On December 21, 2001, the Company closed a private
placement of 4,250,000 common shares at US $2.10. The net proceeds of this
transaction were approximately $13,279,000 (US $8,282,000) after associated
commission, legal and other related costs. By agreement, one tenth of the gross
proceeds is being held in escrow until the later of (i) a registration statement
registering these Shares under the Securities Act of 1933 has been filed and
declared effective by the SEC, or (ii) four months from the closing date of this
private placement,
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Stake Technology Ltd. 27 December 31, 2001 - 10-K
April 21, 2002. A registration statement was filed by the Company in compliance
with such agreement on February 20, 2002.
2001 Operations Compared with 2000 Operations
Consolidated
Revenues in 2001 increased by 41% ($41,416,000) to $143,069,000 from
$101,653,000 in 2000 and the Company's earnings for 2000 decreased to $31,000 or
$0.00 per common share compared to $3,374,000 or $0.15 per common share for the
year ended December 31, 2000. The increase in the Company's revenues in 2001 is
due to a number of factors including the acquisitions of First Light Foods
($9,607,000) and Virginia Materials ($1,407,000) plus the full year impact of
the acquisitions completed in 2000. (PECAL, Northern, Nordic and Temisca).
Earnings decreased due to a number of factors including the significant loss
issues at Nordic, weak market/economic conditions that impacted the
Environmental Industrial Group, increased costs of operating a growing public
organization and the benefit of previously unrecognized income tax loss carry
forwards having been fully realized in 2000.
EBITDA (earnings before interest, taxes, depreciation and amortization)
increased by 29% to $8,115,000 from $6,439,000 in 2000. The increase was due to
increased amortization and interest expenses offset by lower earnings as noted
above.
US readers should note that due to differences between Canadian and US GAAP, the
loss for 2001 under US GAAP is ($328,000) or ($0.01) per common share versus
earnings of $2,571,000 or $0.11 per common share in 2000. Note 16 to the audited
financial statements itemize these differences.
Cost of sales increased by 42% to $123,363,000 for the year ended December 31,
2001 compared to $87,046,000 for the year ended December 31, 2000. Consistent
with the revenue analysis above, the increase in cost of sales is related to the
sales increase resulting from the acquisitions completed in 2000 and 2001.
The Company's consolidated gross margin was 13.8% in 2001 compared to 14.4% in
2000. Excluding the impact of the losses incurred related to Nordic Aseptic,
gross margin increased to in excess of $21,000,000 or 14.8%.
Research and development costs increased in 2001 to $757,000 from $200,000 in
2000. The increase is due in most part to activities in the Food Group related
to expanded product development initiatives and a study of the European soy
opportunities.
Selling, general and administration expenditures increased 53% in 2001 to
$16,990,000 compared to $11,094,000 for the year ended December 31, 2000. The
increase in administrative costs is due to the acquisitions made in 2000 and
2001, increased bad debt provisions, the higher costs of operating a larger
public company and increased amortization of trademarks, patents and goodwill.
Interest on long-term debt, other interest expense and financing charges
increased to $3,073,000 in 2001 from $1,527,000 in 2000. The bulk of this
increase is due to the SunRich Food Group's debt obligations. Interest expense
related to the SunRich Food Group totalled $2,560,000, ($1,111,000 in 2000)
including $294,000 of financing charges related to the write-off of costs due to
the new banking agreement. Canadian debt held by the Environmental Industrial
Group and Corporate Office represents $513,000 of interest expense in 2001
($416,000 in 2000).
Interest and other income increased to $846,000 in 2001 from $402,000 in 2000
due to an increase in interest earned on higher cash/investment balances
throughout the year and the annualised impact of interest income on the long
term receivable.
The gain on purchase of preference shares of $24,000 (2000 - $175,000) results
from the purchase of the preference shares outstanding in a subsidiary company
at a value less than their carrying value.
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Stake Technology Ltd. 28 December 31, 2001 - 10-K
The share of losses of equity accounted investee of $42,000 (2000 - $48,000) and
dilution gain of $140,000 in 2000 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 for this investment. 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
16 of the Company's financial statements.
The Company's investment in Easton is carried at a book value of $583,000.
(2000 - $442,000). During 2001 Easton entered into an acquisition agreement with
a third party and the stock was subsequently halted from trading pending CDNX
review of the transaction. The stock resumed trading on January 28, 2002 and
since that time the value of the Company's shareholdings have ranged from
$265,000 to $707,000 based on limited traded volumes. It is unlikely that these
values could be realized upon the sale of all or a position of the Company's
holding in Easton, particularly given the significant number of shares held by
the Company.
Income taxes increased as a percentage of earnings in 2001 due to expenses in
most part to loss carry forward benefits realized in 2000 and increases in
non-deductible expenses in 2001. In 2000 the Company recorded the benefit of
previously unrecognized Canadian 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.
Segmented Operations Information
The SunRich Food Group
The SunRich Food Group contributed $111,452,000 or 77.9% of total Company
consolidated revenues in 2001 versus $69,822,000 or 68.7% in 2000. The increase
of $41,630,000 in Food Group sales (59.6%) was due to a number of factors
including the acquisition of First Light Foods in 2001, which contributed sales
of $9,607,000, increased sales at Nordic in 2001 versus 2000 of $10,016,000, in
addition to the full impact of the Northern acquisition completed in 2000.
Gross margin in the SunRich Food Group increased by $4,968,000, an increase of
54.6% to $14,069,000 in 2001 versus $9,101,000 in 2000, representing 71.4% of
the Company's 2001 consolidated gross margin. The increase in gross margin
resulted from the acquisitions noted above, combined with improved product
margins on food ingredient and organic feed products, partially offset by the
significant losses incurred at Nordic during the year. Excluding losses at
Nordic, gross margin increased to 13.9% of revenues versus 13.0% in the prior
year.
Research and development costs increased to $547,000 in 2001 as a result of
expanded product development initiatives and a study of opportunities related to
the European soy foods market. Continued product development is important as the
soy and natural food markets continue to grow.
Selling, general and administrative expenses increased to $10,985,000 in 2001
versus $7,072,000 in 2000. The increase is due primarily to the acquisition of
First Light Foods in 2001, the full impact of the Northern and Nordic
acquisitions in 2000 and increased payroll and related costs as the organization
continues to support the growth in operations.
Interest expense on long-term debt and other interest increased to $2,266,000 in
2001 versus $1,111,000 in 2000. The increase was due to the full impact of the
acquisitions noted above, in addition to increased use of operating lines of
credit throughout the year to support Nordic losses and capital expansion
projects.
Pre-tax earnings of the SunRich Food Group were $790,000 in 2001 versus
$1,230,000 in 2000. Results were positively impacted by the additions of First
Light Foods and Northern, but negatively impacted by the near $3,000,000 pre-tax
loss at Nordic. The Company expects Nordic to be profitable in 2002.
Net earnings improved to $494,000 in 2001 versus $366,000 in 2000.
--------------------------------------------------------------------------------
Stake Technology Ltd. 29 December 31, 2001 - 10-K
Environmental Industrial Group
The Environmental Industrial Group contributed $31,045,000 or 21.7% of the total
Company consolidated revenues, versus $31,286,000 or 30.8% in 2000. Revenues
were favourably impacted by the acquisition of Virginia Materials in 2001 plus
the full effect of the Temisca and PECAL acquisitions completed in 2000. These
increases were partially offset by weak market and economic conditions in the
steel and foundry businesses, the loss of a key distribution agreement, the
economic impact of the September 11th tragedy on the demand for abrasives and
increased competition in the silica sands market.
Gross margin in the Environmental Industrial Group increased to $5,187,000 in
2001 versus $5,014,000 in 2000, representing 26.3% of the Company's consolidated
gross margin in 2001. The increase in margin resulted primarily from the
acquisition and economic impacts as noted above. As a percentage of revenues,
gross margin improved to 16.7% in 2001 from 16.0% in 2000.
Selling, general and administrative expenses increased to $3,885,000 in 2001
versus $2,409,000 in 2000. The increase is due in most part to the acquisition
of Virginia Materials in 2001, the full effect of the Temisca and PECAL
acquisitions in 2000 and increased costs related to provisions for doubtful
accounts.
Interest expense on long-term debt and other interest increased to $463,000 in
2001 versus $416,000 in 2000. The increase in interest expense resulted from
additional borrowings required to finance the acquisitions noted above, and
increased use of operating lines at times during the year to support internal
expansion projects.
Pre-tax earnings of the Environmental Industrial Group were $1,052,000 in 2001
versus $2,579,000 in 2000. Results were positively impacted by the additions of
Virginia Materials, Temisca and PECAL, but negatively impacted by unfavourable
economic and market conditions and increased competitive pressures in key
product groups.
Net earnings were $782,000 in 2001 versus $2,513,000 in 2000 as a result of the
factors noted above.
Steam Explosion Technology Group and Corporate Activities
Revenues for the Steam Explosion Technology Group were $572,000 in 2001 versus
$545,000 in 2000. Both periods reflect revenues earned from steam explosion
licence fees and consulting. No steam explosion equipment sales were recorded in
either 2001 or 2000.
Gross margin in the Steam Explosion Technology Group was $450,000 in 2001 versus
$492,000 in 2000. The gross margin as a percentage of revenue of 78.7% (90.2% in
2000) reflects the nature of the revenues with minimal associated cost of sales.
The Steam Explosion Technology Group and Corporate selling, general and
administration expenses were $2,227,000 in 2001 versus $1,366,000 in 2000. The
increase was due to an increase in the costs of administering a growing public
company including incremental payroll and related costs, public relations and
professional fees, in addition to the ongoing marketing and travel costs
incurred to secure a steam explosion equipment sale in China.
The net loss before taxes of $1,578,000 in 2001 versus $1,303,000 in 2000
reflects the positive effect of foreign exchange gains and interest and other
income partially offset by the increase in selling, general and administration
costs as noted above.
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Stake Technology Ltd. 30 December 31, 2001 - 10-K
Liquidity and Capital Resources at December 31, 2001
Current Assets
Cash and cash equivalents increased to $5,358,000 at December 31, 2001 (2000 -
$1,013,000). The balance is due in most part to cash held at the corporate level
of $4,290,000 due to funds from private placements completed in 2001, plus cash
at SunRich Food Group of $2,723,000 from customer deposits normally received
each December. These amounts are partially offset by the Environmental
Industrial Group line of credit of $1,783,000 that is netted against corporate
cash.
As of December 31, 2001 the company had restricted cash of $1,827,000 (2000 -
Nil) and marketable securities of $10,045,000 (2000 - Nil). The restricted cash
relates primarily to funds received on the last private placement that will be
released upon final approval of S-3 filing and clearance of the Ontario
Securities Commission hold period. The marketable securities are funds from the
last private placement, held at year end in a mutual fund corporation which
holds cash equivalents.
Trade accounts receivable increased to $13,343,000 at December 31, 2001 from
$13,111,000 at December 31, 2000. Trade receivables at December 31, 2001 related
to the SunRich Food Group were $8,104,000 (2000 - $8,250,000). Days sales
outstanding improved within the Food Group versus 2000. Trade receivables in the
Environmental Industrial Group were $5,239,000 (2000 - $4,836,000). Lower
accounts receivable balances due to lower fourth quarter year over year sales
were offset by higher receivables as a result of the Virginia Materials
acquisition in the amount of $909,000.
The note receivable of $3,668,000 (2000 - $5,186,000) and the other long-term
payable of $1,926,000 (2000 - $1,651,000) are all related to an agreement with a
major European based company to supply product. This agreement required Northern
to expand a food processing plant to the customer's specifications and this was
completed in 2001. In accordance with the terms of the agreement the customer
pays 36 monthly instalments of US$119,000 (total receipts in 2001 - $2,219,000,
2000 - $543,000). The agreement also requires that the Company provide the
customer with a product rebate beginning October 2003 until US$1,720,000 is
repaid. Upon the application of purchase accounting in 2000, both the receivable
and payable were fair valued using a discount rate of 9.5 %.
Inventories increased $6,724,000 to $22,014,000 at December 31, 2001. The
SunRich Food Group accounts for $16,446,000 of the total balance (2000 -
$10,064,000) and Environmental Industrial Group $5,568,000 (2000 - $5,226,000).
The Steam Explosion Technology Group is not required to carry significant
inventories. The higher balances in the SunRich Food Group are primarily due to
a change in business practise at Nordic from simply billing a major customer for
processing and packaging to buying and invoicing the full product cost including
raw materials. In addition, the SunRich Food Group increased its inventory of
finished goods related to a specific customer. The Virginia Materials
acquisition increased inventories within the Environmental Industrial group by
$621,000.
Future income tax assets of $1,057,000 at December 31, 2001 (2000 - $954,000)
consists of $715,000 (2000 - $715,000) of Canadian tax losses and scientific
research expenditures recorded by the Canadian entity in 2000 and the remaining
balance of $342,000 (2000 - $239,000) relates to the SunRich Food Group's
accounting reserves not deductible for tax until realized. The Company believes
that it is more likely than not that the tax benefit of the recorded assets will
be realized.
Property, Plant and Equipment
In 2001, the Company spent $6,223,000 (2000 - $5,353,000) on capital
expenditures; the SunRich Food Group spent $4,125,000 (2000 - $4,631,000) on
capital expenditures, principally on the acquisition and build-out of the
production facility in Afton, Wyoming ($1,814,000) and the upgrade of the Hope
conditioning plant ($1,476,000). In 2001, $2,054,000 (2000 - $667,000) was spent
in the Environmental Industrial Group, $730,000 for the purchase of a warehouse
and the remaining on general additions and replacements including, scales,
forklifts and computer equipment. In 2001, $44,000 (2000 - $55,000) was spent by
the Steam Explosion Technology Group and at corporate office primarily on
computer and lab equipment
--------------------------------------------------------------------------------
Stake Technology Ltd. 31 December 31, 2001 - 10-K
Investments
Investments increased to $583,000 in 2001 (2000 - $442,000), due primarily to
net advances of $183,000 (2000 - $60,000) offset by the equity loss on Easton of
$42,000 (2000 - $48,000).
Goodwill
Goodwill increased to $13,602,000 at December 31, 2001 from $11,231,000 at
December 31, 2000. This increase was due to $2,488,000 in goodwill recorded on
the acquisition of Virginia Materials and International Materials offset by
normal amortization.
Pre-operating Costs
In 2001 the company deferred $51,000 in costs related to the start-up of an
organic dairy business based in Canada. Amortization of these costs will
commence no later than June 30, 2002 and will be amortized on a straight-line
basis to December 31, 2003. In 2000, the Company deferred $768,000 of
pre-operating costs related to Nordic, which was 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 is being written off equally over a 36-month
period. As at December 31, 2001 the unamortized balance is $512,000. Readers
should note that the $51,000 and $768,000 of pre-operating costs would have been
expensed under US GAAP in 2001 and 2000 respectively.
Patents, Trademarks, Licenses and Other Assets
Patents, trademarks, licences and other assets have increased to $4,266,000 at
December 31, 2001 (2000 - $432,000) due to the acquisition of trademarks related
to First Light Foods of $3,999,000 partially offset by standard amortization
expense.
Current liabilities
Accounts payable and accrued liabilities increased to $20,437,000 in 2001
(2000 - $19,359,000). The increase is due primarily to the Virginia Materials
acquisition.
Customer deposits of $2,213,000 at December 31, 2001 (2000 - $1,262,000) are
related to cash deposits made by the SunRich Food Group customers in 2001 for
year 2002 customer purchases. No recognition of revenue or accrual of costs is
booked on these transactions until the goods are shipped.
The current portion of Preference Shares in subsidiary companies increased from
$387,000 in 2000 to $458,000 in 2001 and is due to accelerated payments on
preferred shares related to the purchase of land in the BEI acquisition. This
acceleration is due to the repayment of specific outstanding debt.
New Financing Arrangement Replacing Existing Lines of Credit and Long Term Debt
On March 15, 2002, the Company entered into a new financing arrangement with a
major Canadian bank and its U.S. subsidiary. This arrangement includes the
following components:
1. US $15,000,000 demand loan with scheduled quarterly payments to amortize
the debt over seven years.
Interest on the demand loan is payable at the borrower's option at U.S.
dollar base rate or U.S. LIBOR plus a premium based on certain financial
ratios.
While this loan is payable on demand, the lender has indicated that it is
not their intention to demand repayment of this loan in 2002. Accordingly,
the only repayment required in 2002 in respect of this loan relates to the
regular quarterly payments, which in 2002 amount to $1,750,000 (US $
1,100,000).
2. CAN $4,000,000 line of credit facility
--------------------------------------------------------------------------------
Stake Technology Ltd. 32 December 31, 2001 - 10-K
Interest on borrowings under this facility is payable monthly and accrues
at the borrower's option based on various reference rates including
Canadian or U.S. bank prime, or Canadian bankers' acceptances, plus a
margin based on certain financial ratios of the Company.
3. US $5,000,000 line of credit facility
Interest on borrowings under this facility is payable monthly and accrues
at the borrower's option based on various reference rates including U.S.
bank prime, or LIBOR, plus a margin based on certain financial ratios of
the Company.
Total debt of $24,604,000 outstanding at December 31, 2001 was repaid on March
15, 2002 with the proceeds of the new financing arrangement.
The US $15,000,000 demand loan and the Canadian and U.S. line of credit
facilities described above are collateralised by a first priority security
against all of the Company's assets in both Canada and the United States.
The current and long-term portion of the outstanding debt at December 31, 2001
reflects repayment terms contained in the new financing arrangement. Under new
accounting guidelines effective January 1, 2002 all the outstanding new debt as
per current terms would be classified as short term to satisfy Canadian GAAP.
This classification would be required as the facilities are all due on demand.
The Company intends to review these terms in the future. As long as the company
continues to make regular scheduled payments and maintain certain financial
ratios, it is not the banks intention to demand repayment of this facility.
Under U.S. GAAP, the entire US$15 million demand loan would be classified as a
current liability. As a result, currently liabilities would increase by
$21,503,000 and long-term debt would decrease by $21,503,000.
Bank Indebtedness
Bank indebtedness as of December 31, 2001 was $1,921,000 (2000 - $3,405,000).
The decrease versus 2000 was due to the repayment and cancellation of a line of
credit used in the SunRich Food Group and the netting of the Environmental
Industrial Group bank debt of $1,783,000 against corporate cash as the line was
held at the same institution.
Long Term Debt
As at December 31, 2001, the company's long term debt, including current
portion, was $26,517,000, a decrease of $5,038,000 versus the prior year.
Repayment of debt totalled $9,856,000, which included scheduled repayments plus
an accelerated US$1,000,000 on one of the Food Group loans. New debt during the
year totalled US$2,119,000. Included in this was debt with a related party for
US$1,000,000 which was used to repay the amount noted above, plus debts related
to the Virginia Materials and First Light Foods acquisitions. The remaining
difference is attributable to exchange on US denominated debt.
The new financing arrangements previously stated replaces all but $1,913,000 of
the year-end debt including obligations under capital leases. This debt is
secured against specific equipment or is uncollateralized.
Other long-term liabilities
The Company had deferred purchase consideration of $1,657,000 at December 31,
2001 relating to the Virginia Materials acquisition. The deferred purchase
consideration will be paid on the purchase of the vendor's inventory as
acquired. It is expected to take approximately 16 months from December 31, 2001
to satisfy this liability.
The long-term future tax liability of $2,901,000 (2000 - $1,508,000) relates
principally to the SunRich Food Group and represents differences between the
accounting and tax basis of assets and liabilities primarily related to
property, plant and equipment and trademarks offset by the benefit of losses
carried forward and the long term portion of the scientific research
expenditures tax benefit.
--------------------------------------------------------------------------------
Stake Technology Ltd. 33 December 31, 2001 - 10-K
The long-term portion of Preference Shares of subsidiary companies was reduced
to $205,000 from $462,000 as a result of payments in 2001, which totalled
$186,000 in cash payments and the accelerated payments classified as current.
Cash Flow
For the year ended December 31, 2001, cash flow provided by operations before
working capital changes increased by $985,000 to $5,406,000 (2000 - $4,421,000),
due principally to a $3,115,000 increase in amortization and a decline in the
future tax recovery of $1,170,000, offset by lower net earnings of $3,343,000.
Cash flow provided by operations after working capital changes was $510,000 for
the year ended December 31, 2001 (2000 - $55,000) as a result of an increase in
inventory of $5,389,000 partially offset by lower accounts receivable balances
and higher customer deposits.
Cash used in investment activities increased to $17,588,000 in 2001 (2000 -
$10,820,000) as a result of an investment of $10 million in marketable
securities. During 2001, less cash was utilized in the acquisition of businesses
($3,460,000 in 2001 vs. $5,359,000 in 2000), capital spending increased $870,000
(2001 - $6,223,000 vs. 2000 - $5,353,000) and Northern received a full year
repayment from its note receivable in 2001 compared to three months in 2000.
Cash provided by financing activities was $21,317,000 in 2001 (2000 -
$9,270,000). The increase in cash from financing in 2001 is due to the four
equity placements during the year and proceeds from stock options for total
equity proceeds of $33,151,000. This was offset by net repayment of debt and
bank indebtedness of $9,821,000 and restricted cash primarily related to the
last private placement of $1,827,000.
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 was 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 ,Nordic and Temisca
during 2000.
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).
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 was 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 as a result of product mix in businesses acquired.
Research and development costs related to the Steam Explosion Technology Group
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 a more focused
effort towards the marketing and sale of the technology rather than research.
Selling, general and administration expenditures increased 116% in 2000 to
$11,094,000 compared to $5,136,000 for the year ended December 31, 1999. The
increase in administrative costs was due to the acquisitions made in mid 1999
and during 2000, and the increased costs of operating a larger public company.
--------------------------------------------------------------------------------
Stake Technology Ltd. 34 December 31, 2001 - 10-K
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 represented $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) resulted
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) 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 the equity value of Easton due to issues of capital above Stake's
carrying cost of this investment.
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 tax loss
carry forwards of $1,798,000 (1999 - $635,000) and provided a tax reserve of
$864,000 (1999 - $183,000) on the net earnings of the SunRich Food Group. The
net tax recovery contributed to an overall increase in net earnings of 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 $7,072,000 (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 veggie burger business
that was closed prior to December 31, 2000.
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.
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).
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Stake Technology Ltd. 35 December 31, 2001 - 10-K
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 $2,579,000 of
consolidated administration costs (1999 - $1,722,000). The 49.8% 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) has 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 were derived from the
Steam Explosion Technology Group and corporate sales (1999 - $484,000).
The 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.
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Stake Technology Ltd. 36 December 31, 2001 - 10-K
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest rate risk
The primary objective of the Company's investment activities is to preserve
principal and limit risk. To achieve this objective, the company maintains its
portfolio in a variety of securities, including both government and corporate
obligations and money market funds. These securities are generally classified as
cash equivalents and are recorded on the balance sheet at fair value with
unrealised gains or losses reported through profit and loss.
Debt in both fixed rate and floating rate interest carry varying degrees of
interest rate risk. Fixed rate debt may have its fair market value adversely
affected by a decline in interest rates. In general, longer date debts are
subject to greater interest rate risk than shorter dated securities. Floating
rate debt is generally subject to less interest rate risk than fixed rate debt.
As of December 31, 2001, the weighted average interest rate of the fixed rate
debt was 7%. With the new financing arrangement as of March 15, 2002 interest
expense is expected to decline. Presently the Company's new debt is at floating
interest rates that are partially hedged to variable rate investments. Remaining
fixed debt is under $2,000,000 and consequently the fair value would not be
materially affected by changing interest rates.
Foreign currency risk
All US subsidiaries use the US dollar as their functional currency. These
subsidiaries are subject to risks typical of multi-jurisdiction businesses,
including, but not limited to differing economic conditions, changes in
political climate, differing tax structures, other regulations and restrictions,
and foreign exchange rate volatility. Accordingly, the Company's future results
could be materially adversely affected by changes in these or other factors. The
company is exposed to foreign exchange rate fluctuations as the financial
results of US subsidiaries are translated into Canadian dollars on
consolidation. A 10% movement in the levels of foreign currency exchange rates
in favour of (against) the Canadian dollar with all other variables held
constant would result in a decrease (increase) in the translated value of the
Company's net assets in subsidiaries by $2,436,000. These changes would flow
through the Company's cumulative translation adjustment account.
During the year the company realized substantial exchange gains on US
denominated net assets at corporate, due primarily to funds held in US dollar
cash equivalents. The Company's Environmental Group has US based receivables and
payables that on a net basis provide limited exchange exposure. The Company's
Food Group also has limited net exposure to other currencies including Canadian.
It is the company's intention to hold funds in the currency in which the funds
are likely to be used, which will from time to time, potentially expose the
company to exchange rate fluctuations when converted into Canadian dollars. At
year-end US dollar funds were US$2,500,000. A 10% movement in the level of
foreign currency in favour of (against) the Canadian dollar would result in a
decrease (increase) in the company's year end financial instruments by $400,000.
International sales are made by our US based Food Group in US dollars to avoid
currency exposure.
Commodity risk
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 practical 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. As at December 31, 2001, the quantity of
grain not hedged is not significant and therefore a change in the market price
would not have a material impact. There are no futures contracts in the
Environmental Industrial Group or the Steam Explosion Technology Group or
related to corporate activities.
--------------------------------------------------------------------------------
Stake Technology Ltd. 37 December 31, 2001 - 10-K
Item 8. Financial Statements and Supplementary Data
Financial statements are set forth on pages F-1 through F-42 of this Report and
are incorporated herein by reference.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
--------------------------------------------------------------------------------
Stake Technology Ltd. 38 December 31, 2001 - 10-K
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of directors and executive officers as at March 8, 2002 is
set forth below:
[Enlarge/Download Table]
===================================================================================================================================
Number of Shares
Year First Beneficially
Name Elected Position Class of Owned/Number of Vested
Directors: Director/Officer With Company Shares Options % of Class
----------------------------------------------------------------------------------------------------------------------------------
Jeremy N. Kendall 1978 Chairman of the Board, Common 420,317/359,500 (1) 1.83%
C.E.O. & Director
----------------------------------------------------------------------------------------------------------------------------------
Cyril A. Ing, P. Eng. 1984 Secretary and Director Common 66,335/63,500 (2) 0.30%
----------------------------------------------------------------------------------------------------------------------------------
Joseph. Riz, CMA 1986 Independent Director Common 33,600/63,500 (3) 0.23%
----------------------------------------------------------------------------------------------------------------------------------
John D. Taylor 1994 President, C.O.O. & Director Common 97,027/199,500 (4) 0.70%
----------------------------------------------------------------------------------------------------------------------------------
Tim Bergqvist 1989 Independent Director Common 20,000/63,500 (5) 0.20%
----------------------------------------------------------------------------------------------------------------------------------
Michael Boyd 1995 Independent Director Common 0/16,000 (6) 0.038%
----------------------------------------------------------------------------------------------------------------------------------
James Rifenbergh 1996 Independent Director Common 313,448/113,500 (7) 1.0%
----------------------------------------------------------------------------------------------------------------------------------
Allan Routh 1999 Director and President of Common 553,781/110,000 (8) 1.56%
the Food Group
----------------------------------------------------------------------------------------------------------------------------------
Dennis Anderson 2000 Director and Executive Vice Common 3,806,335/4,000 (9) 8.93%
President of Operations of
the Food Group
----------------------------------------------------------------------------------------------------------------------------------
Larry (Andy) Anderson, CPA 2000 Director and Part-time Common 367,089/3,000 (10) 0.87%
Financial Officer of the
Food Group
----------------------------------------------------------------------------------------------------------------------------------
Katrina Houde 2000 Independent Director Common 0 /16,000 (11) 0.038%
----------------------------------------------------------------------------------------------------------------------------------
Camillo Lisio August 2001 Independent Director Common 0/ 16,000 (12) 0.038%
----------------------------------------------------------------------------------------------------------------------------------
Stephen Bronfman (A) October 2001 Independent Director Common 0/10,000 (13) 0.023%
----------------------------------------------------------------------------------------------------------------------------------
Robert Fetherstonhaugh (A) December Independent Director Common 0/10,000 (14) 0.023%
2001
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Other officers:
----------------------------------------------------------------------------------------------------------------------------------
Leslie N. Markow, CA 1997 Chief Administrative Officer Common 29,050/61,000 (15) 0.21%
----------------------------------------------------------------------------------------------------------------------------------
David Kruse, CMA 2000 Vice President , COO Common 0/19,500 (16) 0.046%
Environmental Industrial
Group
----------------------------------------------------------------------------------------------------------------------------------
Steven R. Bromley, CGA September Chief Financial Officer Common 10,000/10,000 (17) 0.047%
2001
===================================================================================================================================
All Directors and Officers Common 5,716,982/1,138,500 (18) 16.07%
as a group
===================================================================================================================================
--------------------------------------------------------------------------------
Stake Technology Ltd. 39 December 31, 2001 - 10-K
Percentage ownership is calculated based on 41,081,228 total common shares
outstanding at December 31, 2001, plus all common shares subject to an option
currently exercisable, which at December 31, 2001 totaled 1,575,425 of which
1,137,500 are related to directors and officers noted above and described below.
The remaining 437,925 are options vested to other employees of the Company. This
calculation does not include options that have not vested or that have not yet
been approved by the directors or warrants or underwriter options/warrants
currently outstanding. Therefore, the "Percentage of Class" column is based on
42,656,653 common shares.
(A) Pursuant to the subscription agreement dated September 28, 2001 (described
under "Issuance of Securities and Use of Proceeds" - "Private Placement 3
- 2000"), so long as any member of the Claridge Group (as defined in such
subsection) remains the beneficial owner of at least five percent (5%) of
the Company's issued and outstanding common shares, the Company will
nominate for election and recommend to its shareholders a person
designated by Claridge to serve on the Company's Board of Directors. For
so long as the beneficial holdings of Claridge shall be at least fifteen
percent (15%) of the Company's issued and outstanding common shares, the
Company shall nominate a second designee of Claridge. Claridge currently
beneficially owns more than fifteen percent (15%) of the Company's issued
and outstanding common shares. Messrs. Bronfman and Fetherstonhaugh
presently serve on the Company's Board pursuant to this agreement.
(1) Includes options to purchase 4,500 common shares at US$1.06 per share
pursuant to 1998 Stake Employee/Director Stock Option Plan
Includes options to purchase 355,000 common shares at US $1.86 per share
pursuant to 2001 Stake Employee/Director Stock Option Plan.
(2) Includes options to purchase 7,500 common shares at US$1.06 per share
pursuant to 1998 Stake Employee/Director Stock Option Plan
Includes options to purchase 10,000 common shares at US$1.313 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
Includes options to purchase 40,000 common shares at US $1.86 per share
pursuant to the 2001 Stake Stock Option Plan.
Includes options to purchase 6,000 common shares at US $2.10 per shares
pursuant to 2002 Stake Stock Option Plan.
(3) Includes options to purchase 7,500 common shares at US$1.06 per share
pursuant to 1998 Stake Employee/Director Stock Option Plan.
Includes options to purchase 10,000 common shares at US$1.31 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
Includes options to purchase 40,000 common shares at US $1.86 per share
pursuant to 2001 Stake Employee/Director Stock Option Plan.
Includes options to purchase 6,000 common shares at US $2.10 per shares
pursuant to 2002 Stake Stock Option Plan.
(4) Includes options to purchase 4,500 common shares at US$1.06 per share
pursuant to 1998 Stake Employee/Director Stock Option Plan.
Includes options to purchase 195,000 common shares at US $1.86 per share
pursuant to 2001 Stake Employee/Director Stock Option Plan.
(5) Includes options to purchase 7,500 common shares at US$1.06 pursuant to
the 1998 Stake Employee/Director Stock Option Plan.
--------------------------------------------------------------------------------
Stake Technology Ltd. 40 December 31, 2001 - 10-K
Includes options to purchase 10,000 common shares at US$1.31 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
Includes options to purchase 40,000 common shares at US $1.86 per share
pursuant to 2001 Stake Employee/Director Stock Option Plan.
Includes options to purchase 6,000 common shares at US $2.10 per shares
pursuant to 2002 Stake Stock Option Plan.
(6) Includes options to purchase 10,000 common shares at US$1.31 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
Includes options to purchase 6,000 common shares at US $2.10 per shares
pursuant to 2002 Stake Stock Option Plan.
(7) Includes options to purchase 7,500 common shares and 50,000 common shares
at US$1.06 per share pursuant to the 1998 and 1999 Stake Employee/Director
Stock Option Plans respectively.
Includes options to purchase 10,000 common shares at US$1.31 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
Includes options to purchase 40,000 common shares at US $1.86 per share
pursuant to 2001 Stake Employee/Director Stock Option Plan.
Includes options to purchase 6,000 common shares at US $2.10 per shares
pursuant to 2002 Stake Stock Option Plan.
(8) Includes options to purchase 110,000 common shares at US$1.06 pursuant to
1999 Stake Option Plan.
(9) Includes options to purchase 4,000 common shares at US$1.31 per share
pursuant to the 1999 Stake Employee/Director Stock Option Plan.
(10) Includes options to purchase 3,000 common shares at US$1.31 per share
pursuant to the 1999 Stake Employee/Director Stock Option Plan.
(11) Includes options to purchase 10,000 common shares at US$1.31 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
Includes options to purchase 6,000 common shares at US $2.10 per shares
pursuant to 2002 Stake Stock Option Plan.
(12) Mr. Lisio was made a director of the Company on August 21, 2001 and 10,000
options were granted upon him joining at US$1.61 per share pursuant to the
2001 Stake Employee/Director Stock Option.
Includes options to purchase 6,000 common shares at US $2.10 per shares
pursuant to 2002 Stake Stock Option Plan.
(13) Mr. Bronfman was elected a director of the Company on September 28, 2001
and 10,000 options were granted at US $2.10 per shares pursuant to the
2002 Stake Employee/Directors Stock Option Plan.
(14) Mr. Fetherstonhaugh was elected a director of the Company on December 13,
2001 and 10,000 options were granted at US $2.10 per shares pursuant to
the 2002 Stake Employee/Directors Stock Option Plan.
(15) Includes options to purchase 4,000 common shares at US$1.31 per share
pursuant to the 1996 Stake Employee/Director Stock Option Plan.
--------------------------------------------------------------------------------
Stake Technology Ltd. 41 December 31, 2001 - 10-K
Includes options to purchase 4,500 common shares at US$1.06 pursuant to
the 1998 Stake Stock Option Plan
Includes options to purchase 52,500 common shares at US $1.86 per share
pursuant to 2001 Stake Employee/Director Stock Option Plan.
(16) Includes options to purchase 5,000 common shares at US $1.86 per share
pursuant to 2001 Stake Employee/Director Stock Option Plan.
Includes options to purchase 4,500 common shares at US$1.06 pursuant to
the 1998 Stake Stock Option Plan.
Includes options to purchase 10,000 common shares at US$1.31 per share
pursuant to the 1993 Stake Employee/Director Stock Option Plan.
(17) Includes options to purchase 10,000 common shares at US$1.53 from the 1999
Stake Employee/Director Stock Option Plan.
(18) Summary of Employee/Director Stock Option Plans:
[Enlarge/Download Table]
-----------------------------------------------------------------------------------------------------------------
#Held by Total
# Held by # Held by Employees
Expiry date Exercise Price Directors Officers /Consultants
-----------------------------------------------------------------------------------------------------------------
December 11, 2003 US$1.86 454,000 31,000 92,100 577,100
-----------------------------------------------------------------------------------------------------------------
December 31, 2003 US$0.75 to US$1.86 279,500 23,000 39,625 342,125
-----------------------------------------------------------------------------------------------------------------
August 2, 2004 US$1.06 100,000 -- 52,800 152,800
-----------------------------------------------------------------------------------------------------------------
December 31, 2004 US$1.06 to US$1.86 77,500 12,500 34,000 124,000
-----------------------------------------------------------------------------------------------------------------
April 5, 2005 US$1.41 -- -- 16,000 16,000
-----------------------------------------------------------------------------------------------------------------
August 2, 2005 US$1.06 110,000 -- 10,400 120,400
-----------------------------------------------------------------------------------------------------------------
October 1, 2005 US$1.31-$1.53 7,000 -- 45,400 52,400
-----------------------------------------------------------------------------------------------------------------
December 20, 2005 US $1.31 10,000 14,000 59,000 83,000
-----------------------------------------------------------------------------------------------------------------
May 5, 2006 US$1.80 -- -- 59,500 59,500
-----------------------------------------------------------------------------------------------------------------
June 4, 2006 US $1.53 -- 10,000 -- 10,000
-----------------------------------------------------------------------------------------------------------------
August 21, 2006 US$1.61 10,000 -- 5,000 15,000
-----------------------------------------------------------------------------------------------------------------
September 20, 2006 US $1.80 -- -- 5,500 5,500
-----------------------------------------------------------------------------------------------------------------
December 12, 2006 US $2.10 -- -- 17,600 17,600
-----------------------------------------------------------------------------------------------------------------
Total 1,048,000 90,500 436,925 1,575,425
-----------------------------------------------------------------------------------------------------------------
(b) Set forth below is a biographical description of each director and officer
of the Company:
Jeremy 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. (6/91 to
present), Easton Minerals Ltd. (1/95 to present). In the past 5 years, Mr.
Kendall has served on the following board of directors: BI Inc. (9/81 to 11/00),
Brigdon Resources Inc. (6/93 to 2/99) and Redaurum Ltd. (6/94 to 12/98). He is
also a Director of a number of private and charitable organizations.
Cyril Ing is a Professional Engineer and 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. In the past 5 years, Mr.
Ing has served on the following board of directors: Wisper Inc. (11/99 to
present), and Jemtec Inc. (11/99 to present).
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
--------------------------------------------------------------------------------
Stake Technology Ltd. 42 December 31, 2001 - 10-K
President of Crowntek, Inc. In the past 5 years, Mr. Riz has served on the Board
of Directors of Telepanel Systems Inc. (4/89 to present).
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. In the past 5
years, Mr. Bergqvist has not served on any other reporting issuers Board of
Directors.
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 to 1991, Mr. Taylor was the Company's Vice President of Marketing and
Planning. In the past 5 years, Mr. Taylor has not served on any other reporting
issuers Board of Directors.
Michael Boyd was elected to the Board of Directors in December 1995. Mr. Boyd
was the former Managing Director Merchant Banking of HSBC Capital (Canada) Inc.,
a merchant-banking subsidiary of the HSBC Bank of Canada. In the past 5 years,
Mr. Boyd has served on the following Board of Directors: Wescam Inc. (06/98 to
present), Afton Food Group Ltd. (5/00 to present), Rtica Inc. (5/97 to present),
and Funtime Gaming Inc. (6/96 to 8/99).
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 large printing company with plants throughout the United States. He
is also a Director of a number of other private companies and organizations. In
the past 5 years, Mr. Rifenbergh has served on the Board of Directors of ARC
Capital Inc. (6/96 to 12/96).
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 wholly owned
subsidiary. Mr. Routh has been involved in the soy industry since 1984. Mr.
Routh has been President and Chief Executive Officer of Sunrich, Inc. since
1994. Mr. Routh is presently serving a term on the Board of Directors of the
Soyfoods Association of North America and served as its President between 1999
and 2000. In the past 5 years, Mr. Routh has not served on any other reporting
issuers Board of Directors.
Dennis Anderson was elected to the Board of Directors in September 2000. Mr.
Anderson is the Executive Vice President Operations of the SunRich Food Group,
Inc., the Company's wholly owned subsidiary. Mr. Anderson was the owner of
Northern Food & Dairy, Inc. for five years prior to the Company's' acquisition.
In the past 5 years, Mr. Anderson has not served on any other reporting issuers
Board of Directors.
Larry (Andy) Anderson was elected to the Board of Directors in September 2000.
Mr. Anderson is a CPA and a member of the American Institute of CPA's and
Minnesota Society of CPA's and acts as a part time financial officer to the
SunRich Food Group, Inc.. Prior to his involvement with the SunRich Food Group,
Inc., Mr. Anderson was a partner in a Minneapolis CPA firm for more than five
years prior to the Company's acquisition of Northern. In the past 5 years, Mr.
Anderson has not served on any other reporting issuers Board of Directors.
Katrina Houde was elected to the Board of Directors in December 2000. Ms. Houde
is currently an independent consultant. For the five years prior to her election
to the Stake Board, Ms. Houde was with Cuddy International Corp., a large
international poultry company with 2,200 employees worldwide. Ms. Houde held
several senior executive positions at Cuddy International Corp., and served as
President of Cuddy Food Products. Her positions at Cuddy encompassed a wide
range of responsibilities including human resources, IT, finance, public
relations, strategic planning, and governmental affairs, as well as overall
accountability for all operating divisions. In the past 5 years, Ms. Houde has
not served on any other reporting issuers Board of Directors.
Camillo Lisio spent the last 18 years with Saputo Inc., most recently as
President and Chief Operating Officer, until his recent decision to pursue other
business and personal interests. Mr. Lisio has been active in business and civic
affairs. Other than serving on the Board of Directors of Saputo Inc., he was
also a director of the Santa Cabrini Hospital, the International Dairy Foods
Association and the National Dairy Council of Canada. Early in his career, he
was with CFMB, a multilingual radio station in Montreal, where as interim
President, he transitioned the station following the death of the founder. In
the past 5 years, Mr. Lisio has served on Board of Directors: of Saputo Inc.
(03/98 to 4/01) and Uniforet Inc. (10/98 to 4/01).
--------------------------------------------------------------------------------
Stake Technology Ltd. 43 December 31, 2001 - 10-K
Stephen Bronfman is Chairman of Claridge SRB Investments Inc., a privately held
company with worldwide interests, formed in 1998 to manage his existing holdings
and to evaluate future investment opportunities. The Claridge Group currently
owns approximately 17.0% of the issued and outstanding common shares of Stake
Technology Ltd.. Mr. Bronfman has been active in numerous business and civic
affairs. Mr. Bronfman sits on the Board of Directors of The David Suzuki
Foundation; The Saidye Bronfman Centre for the Arts; The Samuel and Saidye
Bronfman Family Foundation; and The Summit School Foundation. Previously Mr.
Bronfman served on the Board of Directors of The Seagram Company, Ltd. and was
Co-Chairman of the Executive Committee of the Montreal Expos Baseball Club.
Robert Fetherstonhaugh is a Chartered Accountant and is the Executive Vice
President of The Claridge Group. Mr. Fetherstonhaugh has a broad business
background both in North America and internationally, previously serving as
Deputy Chairman of Trader.com, an international publishing company, and a former
partner at KPMG. Mr. Fetherstonhaugh is also currently a director of Trader.com
and Unity Wireless Corporation.
Steven Bromley is a Certified General Accountant and joined the Company in June
2001. The Board of Directors appointed Mr. Bromley Chief Financial Officer on
September 19, 2001. Prior to joining the Company, Mr. Bromley spent over 13
years in the Canadian dairy industry in a wide rage of financial and operational
roles with both Natrel Inc. and Ault Foods Limited. In his last position with
Natrel Inc., Mr. Bromley served as Vice President, Business Development and
Information Systems. From 1997 to 1999 he served on the Board of Directors of
Natrel, Inc.. In the past 5 years, Mr Bromley has not served on any other
reporting issuers Board of Directors.
Leslie Markow is a Chartered Accountant and joined the Company in 1991. Ms.
Markow was appointed Chief Financial Officer in 1997 and held this position
until September 2001 at which time Ms Markow shifted responsibilities to become
the Chief Administrative Officer. Ms. Markow was with Coopers & Lybrand, now
known as PricewaterhouseCoopers LLP, from 1983-1991, last as an Audit Manager.
She is also CFO and nominated as a director of Easton Minerals Limited as well
as being a director of Jemtec Inc., both CDNX listed companies.
David Kruse is a Certified Management Accountant and joined the Company in 1997.
Mr. Kruse was appointed Vice President of the Company and the Chief Operating
Officer of the Environmental Industrial Group in 2000. In the past 5 years, Mr.
Kruse has not served on any reporting issuers Board of Directors
Audit Committee
The following three independent Directors are members of the audit committee:
Michael Boyd, Joseph Riz, and Katrina Houde.
Mr. Boyd is chairman of the Audit Committee. The Audit Committee's duties and
responsibilities are documented in a formal audit committee charter. These
duties include (a) providing oversight of the financial reporting process and
management's responsibility for the integrity, accuracy and objectivity of
financial reports and related financial reporting practices; (b) recommending to
the Board of Directors the appointment of the Company's auditors; (c) providing
oversight of the adequacy of the Company's system of internal controls; and (d)
providing oversight of management practices relating to ethical considerations
and business conduct, including compliance with laws and regulations.
The audit committee meets formally four times a year, once to review the 10K and
annual audited financial statements and before each quarter's earnings are filed
to review interm financial statements and Form 10Q which is filed with the
Securities and Exchange Commission/Nasdaq in the US and the Toronto Stock
Exchange and Ontario Securities Commission in Canada. Other meetings may be held
as at the discretion of the Chair of the Audit Committee, Mr. Michael Boyd.
During, 2001, the audit committee met four times. The Audit Committee has free
and unfettered access to PricewaterhouseCoopers, the Company's auditors.
Corporate Governance (Executive Committee) and Compensation Committee
The following three independent Directors are members of the Corporate
Governance (Executive Committee) and Compensation Committee: Camillo Lisio, Joe
Riz and Robert Fetherstonhaugh.
--------------------------------------------------------------------------------
Stake Technology Ltd. 44 December 31, 2001 - 10-K
On September 13, 2001 the Company created, by board resolution, the Corporate
Governance Committee. This committee also acts as the Company's Compensation
Committee. The Company and the Corporate Governance Committee have developed a
set of formal Corporate Governance Policies that are monitored on an ongoing
basis to ensure that the Company is in compliance with its Corporate Governance
Policies.
The function of the Compensation Committee is to determine the compensation of
the CEO as well as to review and approve the compensation recommended by the CEO
for all other senior officers and employees of the Company. In addition, this
committee oversees the Option Plans of the Company. The Compensation Committee
formally meets in person once a year, normally in December. In addition, several
telephone meetings are held during the year for administrative matters connected
to the responsibilities of this Committee.
Statement of Stake Technology Ltd.'s Corporate Governance Practices:
[Enlarge/Download Table]
Governance Guidelines Stake Technology Ltd.'s Practices
1. The Board of the Directors is responsible In accordance with the Canada Business Corporations Act,
for the stewardship of Stake Technology the business of the Corporation is managed under the
Ltd. ("Corporation"), and specifically direction of its Board of Directors. The Chairman and
for: Chief Executive Officer makes recommendations to the
Board of Directors with respect to matters of corporate
policy after discussion, when appropriate, with the
members of Senior Management. The Board of Directors
then takes the decisions that it deems appropriate,
supervises the execution of such decisions and reviews
the results obtained.
(a.) adoption of a strategic planning process The duties of the Board of Directors include the review
on an annual basis of the three-year strategic plan for
each operating group of the Corporation.
(b.). identification of principal risks, and The Board of Directors' duties include the review of
implementing risk managing systems overall business risks and of the Corporation's
practices and policies for dealing with these risks.
In addition, the Audit Committee assesses principal
risks which the Corporation faces and, where
appropriate, proposes the implementation of risk
management systems.
(c.) succession planning and monitoring senior The Board Governance Committee reviews, reports, and
management where appropriate, provides recommendations to the Board
of Directors on succession planning matters and, with
the Audit Committee and the Board of Directors, monitors
the performance of senior management.
(d.) communications policy Each of the Board of Directors and the Audit committee
reviews and, where required, approves statutory
disclosure documents prior to their distribution to
shareholders.
In addition, the Corporation has a shareholder relations
process to respond to shareholder questions and
concerns. All communications from shareholders are
referred to the Chairman or the appropriate corporate
officer for response. Management promptly advises the
Board of Directors if shareholders raise any significant
issues. In addition, the Corporation communicates with
its shareholders, securities analysts and the media
regularly on developments in its business and results,
through the annual report, interim financial statements
and reports to shareholders, press releases and material
change reports as per communication policy.
(e.) integrity of internal control and The Board of Directors' duties include the assessment of
management information systems the integrity
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Stake Technology Ltd. 45 December 31, 2001 - 10-K
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of the Corporation's internal controls and information
systems. In addition, the Audit Committee has oversight
responsibility of internal controls and management
information systems.
2. Majority of Directors should be The Board of Directors is composed of fourteen persons.
"unrelated" (independent of management Of the fourteen Directors, nine are "unrelated" under
and free from conflicting interest) to the Guidelines and the five others are Senior Officers
the Corporation and the Corporation's of the Corporation. The composition of the Board of
significant shareholder, if any. Directors fairly reflects, therefore, the investment in
the Corporation by the shareholders.
3. Disclose for each Director whether he is Jeremy N. Kendall Related Chairman and Chief
related, and how that conclusion was Executive Officer
reached
John D. Taylor Related President and Chief
Operating Officer
Allan Routh Related Director and President of
the SunRich Food Group,
Inc.
Dennis Anderson Related Director and Executive
Vice President -
Operations of the SunRich
Food Group, Inc.
Larry (Andy) Anderson Related Director and Part-time
Financial Officer of the
Sunrich Food Group, Inc.
Cyril A. Ing Unrelated
Joseph Riz Unrelated
Tim Bergqvist Unrelated
Michael Boyd Unrelated
Jim Rifenbergh Unrelated
Katrina Houde Unrelated
Camillo Lisio Unrelated
Robert Fetherstonhaugh Unrelated
Stephen Bronfman Unrelated
4. Appoint a Committee of Directors The Chairman of the Board or other Directors submits to
responsible for proposing to the full the Board Governance Committee candidates to fill
Board of Directors new nominees to the vacancies on the Board of Directors. If the candidacy is
Board and for assessing Directors on an endorsed by the Board Governance Committee, it is then
ongoing basis submitted to the approval of the Board of Directors. New
Directors are then included in an orientation and
education program (see Item 6).
5. The Board Governance Committee is The Board Governance Committee is composed of three
composed exclusively of outside Directors outside Directors.
6. Implement a process for assessing the An annual review of Board members is undertaken by the
effectiveness of the Board of Directors, Board Governance Committee with advice from the Chairman
its Committees and individual Directors and CEO.
in accordance with overall governance
policy
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Stake Technology Ltd. 46 December 31, 2001 - 10-K
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7. Provide orientation and education New Directors participate in an initial information
programs for new Directors session on the Corporation in the presence of Management
representatives. In addition, they are furnished with
appropriate documentation relating to the commercial
activities of the Corporation and the internal
organization of the Corporation; monthly reports
detailing the commercial activities of the Corporation
and the internal organization of the Corporation. The
meetings in which new Directors participate (including
annual strategic planning sessions) as well as
discussions with other Directors and with management
permit new Directors to familiarize themselves rapidly
with the operations of Corporation. Facility visits can
also be arranged for new Directors.
8. Consider reducing the size of the Board The Board of Directors is of the view that its size and
of Directors, with a view to improving composition is somewhat larger than ideal and intends to
effectiveness reduce its size from 14 to 9 over a period of time,
reducing both related and unrelated Directors.
9. The Board of Directors should review The Board Governance Committee of the Board of Directors
compensation of Directors in light of reviews periodically compensation policies in light of
risks and responsibilities market conditions and practice and in light of risks and
responsibilities.
10. Committees of the Board of Directors The Board Governance Committee is composed of three
should generally be composed of unrelated unrelated Directors. The Board Governance Committee has
(non-management) Directors, a majority of the responsibility, upon the recommendation of the
whom are unrelated Directors Chairman and Chief Executive Officer, for defining
salary classes and levels and extent of participation in
the incentive program. In addition, this Committee
determines, based on the proposal of the Chairman of the
Board, the persons eligible to benefit from the stock
option plan and in which proportion, according to their
position. The Board Governance Committee also assesses
the performance of the Chairman and Chief Executive
Officer; the Committee's recommendations in this regard
are then presented to the Board of Directors. When a
vacancy on the Board of Directors needs to be filled,
the Chairman of the Board recommends the person or
persons whom he deems appropriate to fill the vacancy
and submits his proposal to the Board Governance
Committee. The Board Governance Committee can then
endorse such recommendations, which, if endorsed, are
presented to the Board of Directors.
11. The Board of Directors should expressly The Board Governance Committee is responsible for
assume responsibility for, or assign to a developing and monitoring the Corporation's approach to
committee the general responsibility for, governance issues and for the Corporation's response to
approach to corporate governance issues the Guidelines and recommending these policies to the
Board of Directors.
12.a. Define limits to Management's
responsibilities by developing mandates
for:
(i) the Board of Directors The Board of Directors is, by law, responsible for
managing the business and affairs of the Corporation.
Any responsibility, which is not delegated to either
Management or a Committee remains with the Board of
Directors. In general, all matters of policy and all
actions proposed to be taken which are not in the
ordinary course of business require the prior approval
of the Board of Directors or of a Board committee to
which approval authority has been delegated.
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Stake Technology Ltd. 47 December 31, 2001 - 10-K
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(ii) the CEO The corporate objectives which the Chairman and Chief
Executive Officer is responsible for meeting, with the
rest of Management placed under his supervision, are
determined by the strategic plans and the budget as they
are approved each year by the Board of Directors.
Performance of the Chairman and Chief Executive Officer
and Management is assessed against the achievement of
the strategic plans and the budget.
b. the Board of Directors should approve The Board of Directors governs the strategic plan and
CEO's corporate objective budgets for the Corporation.
13. Establish procedures to enable the Board While there are no formal structures in place to ensure
of Directors to function independently of that the Board of Directors can function independently
management of Management, the Board of Directors of the Corporation
is free to ask one or more members of Management to
withdraw during certain discussions and the Directors of
the Corporation would not hesitate to meet without the
presence of the members of Management who are also
Directors, including the Chairman and Chief Executive
Officer, if the circumstances were to so require.
14(a.) establish an Audit Committee with a The roles and responsibilities of the Audit Committee
specifically defined mandate have been specifically defined by the Audit Committee
and approved by the Board of Directors and include the
review of the annual and interim financial statements of
the Corporation. The Audit Committee has direct
communication channels with both the internal financial
management and external auditors to discuss and review
specific issues as appropriate.
(b.) all members should be non-management The Audit Committee is composed of three outside
Directors Directors, all of whom are "unrelated" and are advised
by the Vice President, Finance and Chief Financial
Officer who can facilitate the understanding by the
remaining members of the Committee of given situations.
15. Implement a system to enable individual Individual Directors could, if required, retain outside
Directors to engage outside advisors, at advisors at the Corporation's expense.
the Corporation's expense
--------------------------------------------------------------------------------
Stake Technology Ltd. 48 December 31, 2001 - 10-K
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,
plus 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 8, 2002:
[Enlarge/Download Table]
===================================================================================================================
Name Age Officers of Stake
-------------------------------------------------------------------------------------------------------------------
Jeremy N. Kendall * 62 Chairman of the Board (1983)
Chief Executive Officer (1983)
Director (1978)
===================================================================================================================
John D. Taylor * 49 Director (1994)
President and Chief Operating Officer (1991)
Vice President, Marketing and Planning (1986)
===================================================================================================================
Cyril A. Ing * 69 Corporate Secretary and Director (1984)
===================================================================================================================
Steven R. Bromley * 42 Vice President, Finance and Chief Financial Officer (2001)
===================================================================================================================
Leslie N. Markow * 41 Vice-President, Corporate Compliance/Regulatory Reporting and Chief
Administration Officer (2001)
Vice President, Finance and Chief Financial Officer (1997- 2001),
Controller (1991-1997), Assistant Corporate Secretary (1993)
===================================================================================================================
David Kruse * 34 Vice President, COO, Environmental Industrial Group (2000)
===================================================================================================================
* Director and Officer biographies are detailed in the proceeding pages
There are no family relationships between any of the Officers or Directors of
the Company.
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 2002 will be held on June 18, 2002 at a
location in downtown Toronto, Ontario, Canada.
--------------------------------------------------------------------------------
Stake Technology Ltd. 49 December 31, 2001 - 10-K
Item 11. Executive Compensation
The following tables set forth all remuneration paid by the Company and its
subsidiaries during the last three years ended December 31, 2001, 2000 and 1999
to its C.E.O. and top four executive officers as well as top two divisional
employees earning in excess of US$100,000:
SUMMARY COMPENSATION TABLE
(STATED IN US DOLLARS)
[Enlarge/Download Table]
Annual Compensation Awards Payouts
================================================================================================================================
Other
Name and Principal Occupation Annual Restricted All Other
Compensation Stock Option LTIP Compensation
Year Salary Bonus (6) Awards SARs Pay-outs (7)
--------------------------------------------------------------------------------------------------------------------------------
Jeremy N. Kendall - C.E.O. 2001 $167,332 $13,347 $14,001 -- -- -- $269,123
--------------------------------------------------------------------------------------------------------------------------------
2000 $169,263 $45,590 $6,910 -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
1999 $154,478 $4,889 $17,524 -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
John D. Taylor - C.O.O. 2001 $109,679 $10,968 $10,003 -- -- -- $147,828
--------------------------------------------------------------------------------------------------------------------------------
2000 $115,479 $32,870 $15,560 -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
1999 $112,245 $14,747 $11,494
--------------------------------------------------------------------------------------------------------------------------------
Steven R. Bromley - C.F.O (1). 2001 $60,282 $6,236 $10,425 -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Leslie N. Markow - C.A.O (2) 2001 $90,381 $8,314 $11,937 -- -- -- $39,800
--------------------------------------------------------------------------------------------------------------------------------
2000 $69,014 $11,824 $13,137
--------------------------------------------------------------------------------------------------------------------------------
1999 $60,573 $5,358 $7,745
--------------------------------------------------------------------------------------------------------------------------------
David Kruse - VP, COO Environmental 2001 $83,925 $1,358 $11,049 -- -- -- $3,790
Industrial Group (3)
--------------------------------------------------------------------------------------------------------------------------------
2000 $62,618 $8,457 $12,345 $12,345
--------------------------------------------------------------------------------------------------------------------------------
Allan Routh - Director and 2001 $116,923 $40,000 $5,370 -- -- -- --
President of the SunRich Food Group
(4)
--------------------------------------------------------------------------------------------------------------------------------
2000 $110,000 $20,000 $6,555
--------------------------------------------------------------------------------------------------------------------------------
1999 $44,423 $60,000 $3,774
--------------------------------------------------------------------------------------------------------------------------------
Dennis Anderson - Director and 2001 $130,960 $18,689 $2,619 -- -- -- --
Executive Vice President of
Operations of the Food Group (5)
--------------------------------------------------------------------------------------------------------------------------------
2000 $18,689 -- $761 -- -- -- --
================================================================================================================================
(1) Mr. Steven R. Bromley joined the Company on June 4, 2001 and was
appointed Vice President, Finance and Chief Financial Officer in
September 2001, at an annual salary before bonuses and benefits of
US$103,292.
(2) Ms. Leslie N. Markow was the Vice President, Finance and Chief
Financial Officer in 1999, 2000. In September 2001, Ms. Markow
relinquished this position and assumed the role of Chief
Administrative Officer.
--------------------------------------------------------------------------------
Stake Technology Ltd. 50 December 31, 2001 - 10-K
(3) Mr. David Kruse was appointed a Vice President of the Company during
2000; therefore 1999 earnings are not reported.
(4) Mr. Alan Routh joined the Company in August 1999; therefore 1999
compensation reflects the five month period from August to December
1999.
(5) Mr. Dennis Anderson joined the Company in September 2000; therefore
2000 compensation reflects the period of September 16 to December
31, 2000.
(6) Other annual compensation represents taxable benefits for automobile
use or reimbursement of costs, life insurance, retirement savings
contributions, and interest on short-term loans.
(7) All Other compensation is the value received over exercise price of
stock options exercised.
Executive employment contracts
Mr. Jeremy Kendall, Chairman & C.E.O., entered into an employment contract with
the Company in October 2001 for a period through February 26, 2020. The contract
anticipates that on February 26, 2005, his 65th birthday, Mr. Kendall may elect
to relinquish the role of C.E.O. and maintain being the Chairman of the Board,
subject to shareholder and Board approval, at a reduced level of compensation.
The contract provides for consulting fees to be paid on a sliding scale over
time until February 20, 2020 to Mr. Kendall or his spouse. These consulting fees
are to be paid even if Mr. Kendall retires fully, the Company no longer requires
his services or if Mr. Kendall passes away before February 26, 2020.
Mr Allan Routh, President of The SunRich Food Group, Inc. has an annual
employment contract renewable on a mutual basis between Mr. Routh and the
Company each August 1st.
Mr. Dennis Anderson, Executive Vice President of The SunRich Food Group, Inc.
has an initial 2 year employment contract that may be renewed on a mutual basis
between Mr. Anderson and the Company starting at the end of the first two year
period which expires on September 20, 2002.
None of the other executives listed in the Summary Compensation Table above have
employment contacts.
--------------------------------------------------------------------------------
Stake Technology Ltd. 51 December 31, 2001 - 10-K
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
Name Options Granted Granted to Employees base price Expiration Date
in Fiscal Year (US$/Share)
-------------------------------------------------------------------------------------------------------------------------------
Jeremy N. Kendall - C.E.O. 355,000 29.3% $1.86 225,000 on December 11, 2003,
102,500 on December 31, 2003,
27,500 on December 31, 2004
-------------------------------------------------------------------------------------------------------------------------------
John D. Taylor - President 195,000 16.1% $1.86 112,000 on December 11, 2003,
and C.O.O. 55,000 on December 31, 2003,
27,500 on December 31, 2004
-------------------------------------------------------------------------------------------------------------------------------
Steven R. Bromley - C.F.O 50,000 - 10,000 4.1% $1.53125 June 4, 2006
vested on grant and
10,000 on each of
June 4, 2002 to 2005
===============================================================================================================================
Leslie N. Markow - C.A.O. 52,500 4.3% $1.86 17,000 on December 11, 2003,
23,000 on December 31, 2003,
12,500 on December 31, 2004
===============================================================================================================================
David Kruse - Vice 5,000 0.4% $1.86 December 11, 2003
President, COO
Environmental Industrial
Group
===============================================================================================================================
No options were granted to Mr. Routh or Mr. Dennis Anderson during 2001.
DECEMBER 31, 2001 OPTION VALUES
(STATED IN US DOLLARS)
[Enlarge/Download Table]
===============================================================================================================================
(a) (b) (c) (d) (e)
-------------------------------------------------------------------------------------------------------------------------------
Name Shares Value
Acquired Realized in Number of Unexercised Value of Unexercised in the Money
on 2000 ($) Options at 12/31/01 Options at 12/31/01
Exercise Vested/Not Yet Vested Vested/Not Yet Vested
in
2001 (#)
-------------------------------------------------------------------------------------------------------------------------------
Jeremy N. Kendall - C.E.O. 355,000 $269,123 359,500/3,000 $115,032/$3,321
===============================================================================================================================
John D. Taylor - C.O.O. 195,000 $147,828 199,500/3,000 $65,432/$3,321
===============================================================================================================================
Steven R. Bromley - C.F.O. -- -- 10,000/40,000 $6,388/$25,550
===============================================================================================================================
Leslie N. Markow - C.A.O. 52,500 $39,800 61,000/9,000 $24,685/$8,463
===============================================================================================================================
David Kruse - Vice President, COO 5,000 $3,790 19,500/18,000 $15,102/16,176
Environmental Industrial Group
===============================================================================================================================
Allan Routh - Director and President -- -- 110,000/90,000 $238,700/$99,630
of the SunRich Food Group
===============================================================================================================================
Dennis Anderson - Director and -- -- 4,000/4,500 $2,571/$3,857
Executive Vice President of
Operations of the Food Group
===============================================================================================================================
--------------------------------------------------------------------------------
Stake Technology Ltd. 52 December 31, 2001 - 10-K
Item 12. 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 8, 2002.
[Enlarge/Download Table]
====================================================================================================================
Name and Address Class of Share Amount of Ownership Percent of Class (2)
of Beneficial Holder
--------------------------------------------------------------------------------------------------------------------
Claridge Israel LLC Common 7,011,600 17.0%
C/o Davies Ward Phillips and Vineberg
625 Madison Avenue Floor 12
New York, New York 10022
====================================================================================================================
Gruber & McBaine Capital Management Common 3,837,100 9.3%
50 Osgood Place, San Francisco
California USA 94133
====================================================================================================================
Dennis Anderson Common 3,806,335 9.3%
2214 Geneva Road NE, Alexandria
Minnesota USA 56308
====================================================================================================================
All Directors and Officers Common (1) 1,910,647(a) 4.6% (a)
As a group (sixteen) - (a) excluding Dennis 5,716,982(b) 13.9% (b)
Anderson who is disclosed above and (b)
not excluding Mr. Anderson's shares
====================================================================================================================
(1) For details of shares owned by officers and directors - Identification of
Directors and Executive Officers.
(2) Percentage ownership is calculated based on total Common Shares
outstanding at March 8, 2002 of 41,129,328. It does not include warrants
or options that have vested or have not yet vested.
Item 13. 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. 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
--------------------------------------------------------------------------------
Stake Technology Ltd. 53 December 31, 2001 - 10-K
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 due to a
shareholder of US$1,592,000 (2000 - $nil) bearing interest at 6% with interest
only payable to January 31, 2003, at which time the full note is due. Also
included in other long-term debt is an uncollateralized loan of US$154,000
(2000 - $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%.
In March 2002, both notes were repaid as part of the Company's new financing
arrangements with the Bank of Montreal and Harris Trust and Savings Bank.
Rental property
The Company leases certain real estate to a shareholder under operating leases
that expire in August 2010. Annual rental under each of the leases is $2.
--------------------------------------------------------------------------------
Stake Technology Ltd. 54 December 31, 2001 - 10-K
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
STAKE TECHNOLOGY LTD. Form 10-K
[Download Table]
(a) Documents filed as part of this Report Page
----
1. Consolidated Financial Statements F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets as at
December 31, 2001 and 2000 F-3, F-4
Consolidated Statements of Earnings -
For the Years ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Retained Earnings -
For the Years ended December 31, 2001, 2000 and 1999 F-6
Consolidated Statements of Cash Flows -
For the Years ended December 31, 2001, 2000 and 1999 F-7
Notes to Consolidated Financial Statements -
For the Years ended December 31, 2001 and 2000 F-8 - F42
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)
--------------------------------------------------------------------------------
Stake Technology Ltd. 55 December 31, 2001 - 10-K
Exhibits (continued)
10.11 - Agreement to purchase Temisca, Inc. dated October 31,
2000 (I)
10.12 Credit Agreement with Bank of Montreal dated February 28
2002 (J)
10.13 Facility B Loan Authorization Agreement with Harris
Trust and Saving Bank (J)
10.14 2001 Stock Option Plan dated March 13, 2001 (J)
21 - List of subsidiaries (J)
24 - Powers of Attorney (J)
(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) Previously filed as an Exhibit to Company's annual report of
Form 10-KSB for the year ended December 31, 2000 and
incorporated herein by reference.
(J) Filed herewith.
No filings of 8K in 2001
Filings of 8K in 2000
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 amendments filed November 28, 2000 relating to the
acquisition of Northern Food & Dairy, Inc.
--------------------------------------------------------------------------------
Stake Technology Ltd. 56 December 31, 2001 - 10-K
STAKE TECHNOLOGY LTD.
Date: March 27, 2002 /s/ Steven R. Bromley
-------------- ---------------------
Stake Technology Ltd.
Steven R. Bromley
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
------------------------------------------------------------------------------------------------------------------------------
* March 27, 2002
-----------------------------
Jeremy N. Kendall Chairman, Chief Executive Officer
And Director (Principal Executive Officer)
* March 27, 2002
-----------------------------
John D. Taylor President and Chief Operating Officer
* March 27, 2002
-----------------------------
Steven R. Bromley Vice President, Finance and Chief Financial
Officer (Principal Financial and Accounting Officer)
* March 27, 2002
-----------------------------
Cyril A. Ing Director and Corporate Secretary
* March 27, 2002
-----------------------------
Joseph Riz Director
* March 27, 2002
-----------------------------
Tim Bergqvist Director
*
-----------------------------
Michael Boyd Director March 27, 2002
*
-----------------------------
Jim Rifenbergh Director March 27, 2002
*
-----------------------------
Allan Routh Director March 27, 2002
*
-----------------------------
Dennis Anderson Director March 27, 2002
*
-----------------------------
Larry Anderson Director March 27, 2002
*
-----------------------------
Katrina Houde Director March 27, 2002
*
-----------------------------
Camillo Lisio Director March 27, 2002
--------------------------------------------------------------------------------
Stake Technology Ltd. 57 December 31, 2001 - 10-K
[Download Table]
*
-----------------------------
Stephen Bronfman Director March 27, 2002
*
-----------------------------
Robert Fetherstonhaugh Director March 27, 2002
* By his signature set forth below, Steven R. Bromley, 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/ Steven R. Bromley - Steven R. Bromley -Attorney-in-Fact
---------------------
--------------------------------------------------------------------------------
Stake Technology Ltd. 58 December 31, 2001 - 10-K
Stake Technology Ltd.
Consolidated Financial Statements
(expressed in Canadian dollars)
F - 1
[LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP]
March 18, 2002
Auditors' Report
To the Shareholders of Stake Technology Ltd.
We have audited the consolidated balance sheets of Stake Technology Ltd. as at
December 31, 2001 and 2000 and the consolidated statements of earnings, retained
earnings and cash flows for each of the three years in the period ended December
31, 2001. 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, 2001
and 2000 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001 in accordance with Canadian
generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
F - 2
Stake Technology Ltd.
Consolidated Balance Sheets
As at December 31, 2001 and 2000
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
[Enlarge/Download Table]
2001 2000
$ $
Assets (note 7)
Current assets
Cash and cash equivalents 5,358,000 1,013,000
Restricted cash (notes 7 and 9) 1,827,000 --
Marketable securities 10,045,000 --
Accounts receivable - trade 13,343,000 13,111,000
Current portion of note receivable (note 3) 2,001,000 2,150,000
Inventories (note 4) 22,014,000 15,290,000
Other receivables and prepaid expenses 2,004,000 1,281,000
Future income taxes (note 10) 1,057,000 954,000
--------------------------
57,649,000 33,799,000
Note receivable (note 3) 1,667,000 3,036,000
Property, plant and equipment (note 5) 49,191,000 43,158,000
Investments (note 6) 583,000 442,000
Goodwill - at cost, less accumulated amortization of $1,569,000
(2000 -$925,000) 13,602,000 11,231,000
Pre-operating costs - at cost, less accumulated amortization of
$256,000 (2000 - $nil) 563,000 768,000
Patents, trademarks, licences and other assets - at cost, less
accumulated amortization of $388,000 (2000 - $1,034,000) 4,266,000 432,000
--------------------------
127,521,000 92,866,000
==========================
(see accompanying notes to consolidated financial statements)
Approved by the Board of Directors
_______________________ Director _______________________ Director
F - 3
Stake Technology Ltd.
Consolidated Balance Sheets... continued
As at December 31, 2001 and 2000
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
[Enlarge/Download Table]
2001 2000
$ $
Liabilities
Current liabilities
Bank indebtedness (note 7) 1,921,000 3,405,000
Accounts payable and accrued liabilities 20,437,000 19,359,000
Customer deposits 2,213,000 1,262,000
Current portion of long-term debt (note 7) 4,195,000 6,799,000
Current portion of deferred purchase consideration (note 2) 1,242,000 --
Current portion of Preference Shares of subsidiary companies
(note 8) 458,000 387,000
--------------------------
30,466,000 31,212,000
Long-term debt (note 7) 22,322,000 24,756,000
Other long-term payable (note 3) 1,926,000 1,651,000
Deferred purchase consideration (note 2) 415,000 --
Future income taxes (note 10) 2,901,000 1,508,000
Preference Shares of subsidiary companies (note 8) 205,000 462,000
--------------------------
58,235,000 59,589,000
--------------------------
Shareholders' Equity
Capital stock (note 9) 57,142,000 22,710,000
Contributed surplus 4,635,000 4,635,000
Retained earnings (note 9) 5,900,000 5,869,000
Currency translation adjustment 1,609,000 63,000
--------------------------
69,286,000 33,277,000
--------------------------
127,521,000 92,866,000
==========================
Commitments and contingencies (notes 7 and 12)
(see accompanying notes to consolidated financial statements)
F - 4
Stake Technology Ltd.
Consolidated Statements of Earnings
For the years ended December 31, 2001, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
[Enlarge/Download Table]
2001 2000 1999
$ $ $
Revenues 143,069,000 101,653,000 47,304,000
Cost of sales 123,363,000 87,046,000 40,127,000
----------------------------------------------
Gross profit 19,706,000 14,607,000 7,177,000
----------------------------------------------
Expenses
Research and development 757,000 200,000 367,000
Selling, general and administration 16,990,000 11,094,000 5,136,000
----------------------------------------------
17,747,000 11,294,000 5,503,000
----------------------------------------------
Earnings before the following 1,959,000 3,313,000 1,674,000
Interest on long-term debt (2,106,000) (1,455,000) (308,000)
Other interest (673,000) (72,000) (53,000)
Interest and other income 846,000 402,000 181,000
Financing charges (note 7) (294,000) -- --
Foreign exchange gain (loss) 565,000 71,000 (76,000)
Gain on redemption of Preference Shares (note 8) 24,000 175,000 --
Share of losses of equity accounted investee (note 6) (42,000) (48,000) (321,000)
Gain on dilution of investment interests in equity
accounted investee (note 6) -- 140,000 --
Dividend on Preference Shares of subsidiary company
(note 8) (15,000) (20,000) (25,000)
----------------------------------------------
Earnings before income taxes 264,000 2,506,000 1,072,000
----------------------------------------------
Recovery of (provision for) income taxes (note 10)
Current (459,000) (528,000) (3,000)
Future 226,000 1,396,000 455,000
----------------------------------------------
(233,000) 868,000 452,000
----------------------------------------------
Net earnings for the year 31,000 3,374,000 1,524,000
==============================================
Earnings per share (note 13)
Basic 0.00 0.15 0.09
==============================================
Diluted 0.00 0.14 0.09
==============================================
(see accompanying notes to consolidated financial statements)
F - 5
Stake Technology Ltd.
Consolidated Statements of Retained Earnings
For the years December 31, 2001, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
2001 2000 1999
$ $ $
Retained earnings - Beginning of year 5,869,000 2,495,000 971,000
Net earnings for the year 31,000 3,374,000 1,524,000
-------------------------------------
Retained earnings - End of year 5,900,000 5,869,000 2,495,000
=====================================
(see accompanying notes to consolidated financial statements)
F - 6
Stake Technology Ltd.
Consolidated Statements of Cash Flows
For the years ended December 31, 2001, 2000 and 1999
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
[Enlarge/Download Table]
2001 2000 1999
$ $ $
Cash provided by (used in)
Operating activities
Net earnings for the year 31,000 3,374,000 1,524,000
Items not affecting cash
Amortization 5,903,000 2,788,000 1,070,000
Share of losses of investee 42,000 48,000 321,000
Gain on redemption of Preference Shares (24,000) (175,000) --
Gain on dilution of interest in investee -- (140,000) --
Gain on sale of property, plant and equipment (81,000) (19,000) (5,000)
Imputed interest - net (239,000) (59,000) 31,000
Future income taxes (226,000) (1,396,000) (455,000)
--------------------------------------------
5,406,000 4,421,000 2,486,000
Change in non-cash working capital balances related to operations
Accounts receivable - trade 502,000 1,813,000 3,110,000
Inventories (5,389,000) (2,399,000) (2,922,000)
Other receivables and prepaid expenses (643,000) (470,000) 338,000
Accounts payable and accrued liabilities (215,000) (2,894,000) 336,000
Customer deposits 849,000 (416,000) 1,656,000
--------------------------------------------
510,000 55,000 5,004,000
--------------------------------------------
Investing activities
Marketable securities (10,045,000) -- --
Acquisitions of companies - net of cash acquired (3,460,000) (5,359,000) (24,000)
Acquisition of patents, trademarks, licences and other assets (16,000) (81,000) (87,000)
Acquisition of property, plant and equipment (6,223,000) (5,353,000) (1,138,000)
Proceeds on sale of property, plant and equipment 171,000 207,000 13,000
Increase in investments (183,000) (9,000) (37,000)
Proceeds from note receivable 2,219,000 543,000 --
Pre-operating costs (51,000) (768,000) --
--------------------------------------------
(17,588,000) (10,820,000) (1,273,000)
--------------------------------------------
Financing activities
Purchase and redemption of Preference Shares of subsidiary companies (186,000) (275,000) (170,000)
Restricted cash (1,827,000) 400,000 --
Increase (decrease) in bank indebtedness (1,625,000) 1,980,000 --
Repayment of long-term debt and deferred purchase consideration (9,856,000) (11,364,000) (3,680,000)
Issuance of long-term debt and notes payable 1,660,000 17,564,000 2,133,000
Issuance of common shares 33,151,000 965,000 295,000
--------------------------------------------
21,317,000 9,270,000 (1,422,000)
--------------------------------------------
Foreign exchange gain (loss) on cash held in a foreign
currency 106,000 44,000 (26,000)
--------------------------------------------
Increase (decrease) in cash during the year 4,345,000 (1,451,000) 2,283,000
Cash and cash equivalents - Beginning of year 1,013,000 2,464,000 181,000
--------------------------------------------
Cash and cash equivalents - End of year 5,358,000 1,013,000 2,464,000
============================================
Supplemental cash flow information
Interest paid 2,850,000 1,355,000 298,000
Income taxes paid 645,000 445,000 3,000
(see accompanying notes to consolidated financial statements)
F - 7
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(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 processes and 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, 2001 are located in the
United States and Canada.
These financial statements are prepared in accordance with accounting
principles generally accepted in Canada. The significant policies are
outlined below.
Differences arising from the application of accounting principles
generally accepted in the United States are described in note 16.
Basis of presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned, with the exception of
International Materials and Supplies, Inc., which the Company owns 51% of
the outstanding common shares. 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 maturity at acquisition of less than 90 days.
Marketable securities
Marketable securities consist of portfolio investments in other companies
and are valued at market.
Inventories
Raw materials, finished goods and merchandise inventories 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. Futures, purchase and sales 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.
F - 8
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
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.
Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated
amortization.
Amortization is provided on property, plant and equipment on the
diminishing balance method 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% to 8% for
buildings. Amortization is calculated from the time the asset is put into
use.
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 2001, the
Company initiated the start-up of an organic dairy business based in
Canada. Certain pre-operating costs of $51,000 have been deferred.
Amortization of these costs will commence no later than June 30, 2002 on a
straight-line basis to the end of December 31, 2003.
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 totaling $768,000 were deferred. Amortization of
these net costs commenced January 1, 2001 and is being amortized on a
straight-line basis over three 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.
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.
The net carrying amount of goodwill deductible for tax purposes totalled
$2,412,000 for 2001 (2000 -$533,000).
F - 9
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Revenue recognition
i) 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.
ii) Environmental Industrial Group
Revenue from the sale of industrial minerals is recognized upon the
sale and shipment or the disposal of non-hazardous material
received.
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 and Virginia Materials, Inc. are self-sustaining
foreign operations. The assets and liabilities of the self-sustaining
foreign operations are translated at exchange rates in effect at the
balance sheet dates. 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 dates. Related exchange gains and
losses are included in the determination of earnings.
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.
F - 10
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
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 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
Effective January 1, 2001, the Company adopted the new recommendations of
the CICA Handbook Section 3500, Earnings per Share. Basic earnings per
share are computed by dividing the income available for common
shareholders by the weighted average number of common shares outstanding
during the year. Diluted earnings per share are computed using the
treasury stock method whereby the weighted average number of common shares
used in the basic earnings per share calculation is increased to include
the number of additional common shares that would have been outstanding if
the dilutive potential common shares had been issued.
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.
F - 11
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
2 Acquisitions of businesses
During 2001, the Company acquired three businesses (2000 - four
businesses). The acquisitions have been accounted for using the purchase
method, and accordingly, the consolidated financial statements include the
results of operations of the acquired businesses from the date of the
acquisitions. The purchase price has been allocated to the assets acquired
and the liabilities assumed based on management's best estimate of fair
values.
2001
On February 1, 2001, the Company acquired 100% of the common shares of
Jenkins and Gournoe, Inc., which operated under the name of First Light
Foods. Consideration consisted of the issuance of 833,333 common shares,
$557,000 (US$365,000) in cash, a $1,049,000 (US$700,000) note payable that
is repayable quarterly over two years by payments of US$87,500, plus
interest at 8.5% and 35,000 warrants exercisable at US$1.70 for five years
to February 2006. In addition, contingent consideration may be payable on
this acquisition; (a) if certain predetermined profit targets are achieved
by the acquired business, up to an additional 140,000 warrants may be
issued in 2002 through to 2005, and (b) a percentage of gross profits in
excess of US$1,100,000 per annum from 2001 to 2005 will be paid to the
vendors of First Light Foods. Contingent consideration will increase the
amount allocated to trademarks. No contingent consideration was paid in
2001.
First Light Foods owns several trademarked brands that are marketed as the
private label brands of a major California food chain. 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 soymilk.
On October 31, 2001, the Company's wholly owned subsidiary, Virginia
Materials, Inc. (Virginia Materials), acquired certain assets of Virginia
Materials and Supplies, Inc. as well as 51% of the outstanding common
shares of International Materials and Supplies, Inc. (International
Materials) for cash consideration (including acquisition costs) of
$2,777,000 (US$1,751,000), deferred purchase consideration of $1,824,000
(US$ 1,150,000) and contingent consideration.
The deferred purchase consideration will be paid on the purchase of the
vendor's inventory. During the period from November 1, 2001 to December
31, 2001, $174,000 (US$110,000) of the deferred purchase consideration has
been paid. Management anticipates paying an additional $1,242,000 of the
deferred purchase consideration during fiscal 2002 based on expected
purchase requirements.
In addition, the Company will pay 50% of the profits earned for a two-year
period from the date of the acquisition. This contingent consideration
will be recorded as an increase to goodwill when the amount of the
contingency is determinable. During the period from November 1, 2001 to
December 31, 2001, the Company paid $141,000 (US$89,000) in respect of the
contingent consideration.
Virginia Materials is a supplier of abrasives to the shipbuilding and
bridge repair industry. International Materials produces industrial
garnets as a by-product from a mining operation and processes these
garnets for sale to the water filtration, water jet cutting and abrasives
markets.
F - 12
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
The net assets acquired and the consideration given is summarized below:
[Enlarge/Download Table]
Virginia
Materials/
First Light International
Foods Materials Total
$ $ $
Net assets acquired
Cash -- 15,000 15,000
Non-cash working capital -- 544,000 544,000
Property, plant and equipment -- 2,293,000 2,293,000
Other long-term assets -- 70,000 70,000
Trademarks 3,999,000 -- 3,999,000
Goodwill -- 2,488,000 2,488,000
Long-term debt -- (539,000) (539,000)
Net future income tax liability (1,112,000) (129,000) (1,241,000)
------------------------------------------------
2,887,000 4,742,000 7,629,000
================================================
Consideration given
Common shares 1,268,000 -- 1,268,000
Warrants 13,000 -- 13,000
Note payable 1,049,000 -- 1,049,000
Deferred purchase consideration -- 1,824,000 1,824,000
Contingent consideration paid -- 141,000 141,000
Cash 557,000 2,777,000 3,334,000
------------------------------------------------
2,887,000 4,742,000 7,629,000
================================================
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.
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 natural food
products and ingredients.
F - 13
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
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). 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 has 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
Non-cash 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
Note payable -- -- -- 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 - 14
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
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
==========
3 Note receivable/Other long-term payable
a) 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 a natural food 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
commencing October 2000. 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 2001, Northern received payments of $2,219,000 (2000 -
$543,000) and recorded imputed interest income of $431,000 (2000 -
$131,000) on the note receivable. Imputed interest expense of
$169,000 (2000 - $47,000) was recorded on product rebate payable.
b) The fair values of the note receivable and product rebate payable at
December 31, 2001 approximate their carrying amounts but could vary
with fluctuations in interest rates.
F - 15
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
4 Inventories
2001 2000
$ $
Raw materials 9,598,000 4,991,000
Finished goods and merchandise 10,072,000 7,834,000
Grain 2,344,000 2,465,000
-----------------------------
22,014,000 15,290,000
=============================
Grain inventories consist of the following:
2001 2000
$ $
Company-owned grain 2,131,000 2,208,000
Unrealized gain on
Sales and purchase contracts 159,000 156,000
Futures contracts 54,000 101,000
---------------------------
2,344,000 2,465,000
===========================
The Company has a commitment to buy grain from growers at set prices and
times and also has commitments to sell grain 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 related to grain inventory and open contracts at December
31, 2001 are as follows:
Number of bushels
---------------------------
Corn Soybeans
Company-owned grain 91,344 86,831
Purchase contracts 268,994 74,593
Sales contracts (122,337) (388,380)
Futures contracts (230,000) 220,000
---------------------------
Total net position (short) long 8,001 (6,956)
===========================
F - 16
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
5 Property, plant and equipment
2001
----------------------------------------
Accumulated
Cost Amortization Net
$ $ $
Land and buildings 22,636,000 2,739,000 19,897,000
Machinery and equipment 37,757,000 9,761,000 27,996,000
Office furniture and equipment 1,922,000 1,004,000 918,000
Vehicles 869,000 489,000 380,000
----------------------------------------
63,184,000 13,993,000 49,191,000
========================================
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
========================================
Included in machinery and equipment is equipment under capital lease with
a cost of $1,067,000 (2000 - $1,096,000) and net book value of $722,000
(2000 - $773,000).
F - 17
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
6 Investments
2001 2000
$ $
Easton Minerals Limited
32% (2000 - 32%) common share ownership 340,000 382,000
Advances 243,000 60,000
----------------------
583,000 442,000
======================
Easton Minerals Limited (Easton) is a small mining exploration company
listed on the Canadian Venture Exchange (CDNX). Easton entered into an
acquisition agreement with a third party during 2001 and the stock was
subsequently halted in June from trading pending CDNX's review of the
potential transaction. The common shares of Easton resumed trading on
January 28, 2002 upon receipt from CDNX of conditional approval of
Easton's acquisition. Easton intends to acquire a company which holds
several mineral properties and one oil property in Argentina. Since the
resumption of trading, the value of the Company's shareholdings in Easton
has ranged from $265,000 to $707,000 based on limited trading volumes and
quoted prices. It is unlikely that these values could be realized upon the
sale of all or a portion of the Company's holdings in Easton, particularly
given the significant number of shares held by the Company.
Easton's acquisition is scheduled to close on or before June 30, 2002.
Subsequent to the acquisition, the Company's ownership share in Easton
will be reduced to approximately 19%.
The Company believes that the acquisition will be completed as planned.
The Company believes that the carrying value of its investment in Easton
is fully recoverable and accordingly, no provision has been recorded in
these financial statements.
The Company's share of losses in Easton for 2001 amounted to $42,000
(2000 - $48,000; 1999 - $321,000). Easton issued no additional shares in
2001. 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 - 18
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
7 Long-term debt and bank facilities
Long-term debt consists of the following:
[Enlarge/Download Table]
2001 2000
$ $
Sunrich
Note payable, interest at bank's reference rate (6.75% at
December 31, 2001), due in monthly payments of principal
and interest of US$3,094 through July 2013, collateralized
by property, plant and equipment (a) 418,000 412,000
Note payable, interest at 8.75%, interest only through May 2002
and thereafter due in semi-annual monthly interest and
principal payments of US$29,044 through November
2006, collateralized by equipment and intangibles (a) 368,000 398,000
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 (a) 3,186,000 3,000,000
Note payable, interest at 8.5%, due in quarterly payments of
US$87,500 plus interest through January 2003,
uncollateralized (a) 697,000 --
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 (a) 4,425,000 6,251,000
Note payable, interest at the 30-day commercial paper rate, plus
3% (5.01% at December 31, 2001), due in monthly
payments of US$53,915 through September 2007,
collateralized by equipment (a) 4,439,000 4,824,000
Mortgage payable, interest at 10%, due in monthly payments of
US$6,000 through October 2008, collateralized by
property (a) 564,000 583,000
Mortgage payable, interest at 9.375%, due in monthly payments
of US$3,260, balance due August 2005, collateralized by
property (a) 474,000 462,000
Note payable, interest at 8%, due in monthly payments of
US$2,543 through August 2005, uncollateralized, due to a
shareholder (note 11(b)) (a) 154,000 178,000
Nordic
Bank loan payable, U.S. prime plus 1% (6% at December 31,
2001), due in monthly instalments of principal of
US$44,048 plus interest through October 31, 2002, balance
due October 31, 2002, collateralized by property, plant,
equipment and intangible assets (a) and (e) 3,178,000 5,286,000
Note payable, interest at 6%, interest only through January 31,
2003, uncollateralized, due to a related party (note 11(b))
(a) 1,592,000 --
-------------------------
Carried forward 19,495,000 21,394,000
-------------------------
F - 19
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
[Enlarge/Download Table]
2001 2000
$ $
Brought forward 19,495,000 21,394,000
Stake Corporate
U.S. dollar term loan of US$1,000,000 repaid during 2001 -- 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 payable monthly at the banker's acceptance rate
plus 1.88% (4.26% at December 31, 2001) (a) 608,000 800,000
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 payable monthly at the banker's acceptance rate
plus 1.88% (4.26% at December 31, 2001) (note 8(a)) (a) 3,192,000 4,200,000
Note payable, required annual payments of $150,000, interest at
5% payable semi-annually, uncollateralized 600,000 750,000
Temisca
Mortgage payable in 60 monthly blended interest and principal
payments of $7,000. Interest accrues at 8%, collateralized
by property, plant and equipment (a) 413,000 491,000
Term loan payable in monthly blended interest and principal
payments of $l1,000. Interest accrues at 7.5%,
collateralized by property, plant and equipment (a) 371,000 464,000
International Materials
U.S. dollar term loan payable in monthly payments of principal
and interest of US$5,266 commencing October 31, 2001.
Interest accrues at 8% collateralized by property, plant and
equipment (a) 401,000 --
U.S. dollar term loan payable in monthly payments of principal
and interest of US$1,620 commencing October 31, 2001.
Interest accrues at 8%, uncollateralized (a) 124,000 --
Other
Other with a weighted average interest rate of 9.2%, due in
varying instalments through July 2007 781,000 1,097,000
Capital lease obligations due in monthly payments through
2005, with a weighted average interest rate of 8.55% 532,000 859,000
-------------------------
26,517,000 31,555,000
Less: Current portion 4,195,000 6,799,000
-------------------------
22,322,000 24,756,000
=========================
F - 20
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
The loans and capital leases detailed above require payments as follows:
$
2002 4,195,000
2003 3,197,000
2004 3,340,000
2005 3,593,000
2006 3,751,000
2007 and thereafter 8,441,000
----------
26,517,000
==========
a) New financing arrangement
On March 15, 2002, the Company entered into a new financing
arrangement with a major Canadian bank and its U.S. subsidiary. This
financing arrangement includes the following components:
i) US$15,000,000 demand loan with scheduled quarterly payments to
amortize the debt over seven years.
Interest on the demand loan is payable at the borrower's
option at U.S. dollar base rate or U.S. LIBOR plus a premium
based on certain financial ratios.
This loan is payable on demand. The lender has advised the
Company that it is not their intention to demand repayment of
this loan (other than the quarterly scheduled repayments) in
the next fiscal year. Accordingly, the amount due in 2002 and
classified as current in respect of this loan is $1,750,000
(US$1,100,000). The remaining $21,503,000 has been classified
as long-term in the balance sheet.
ii) CAN$4,000,000 line of credit facility
Interest on borrowings under this facility is payable monthly
and accrues at the borrower's option based on various
reference rates including Canadian or U.S. bank prime, or
Canadian bankers' acceptances, plus a margin based on certain
financial ratios of the Company.
iii) US$5,000,000 line of credit facility
Interest on borrowings under this facility is payable monthly
and accrues at the borrower's option based on various
reference rates including U.S. bank prime, or LIBOR, plus a
margin based on certain financial ratios of the Company.
Total debt of $24,604,000 outstanding at December 31, 2001 was
repaid on March 15, 2002 with the proceeds of the new financing
arrangement. Financing charges (loan breakage fees and deferred
financing costs) of $294,000 related to the debt outstanding at
December 31, 2001, which was extinguished on March 15, 2002, have
been expensed in 2001.
F - 21
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
The US$15,000,000 demand loan and the Canadian and U.S. line of
credit facilities described above are collateralized by a first
priority security against all of the Company's assets in both Canada
and the United States.
The current and long-term portion of the outstanding debt at
December 31, 2001 reflects repayment terms contained in the new
financing arrangement.
b) As at March 15, 2002, the Company does not have any line of credit
facilities other than those described above and a US$200,000 margin
financing facility. The margin financing facility was fully utilized
at December 31, 2001.
c) The aggregate value of the debt denominated in U.S. dollars at
December 31, 2001 amounted to US$13,265,000 (2000 - US$14,141,000).
d) The fair value of the long-term debt would not be materially
different from the carrying amount (as at March 15, 2002 or December
31, 2001). The effective interest rate on long-term debt at December
31, 2001 is 7% (2000 - 9.1%). The effective interest rate on bank
indebtedness at December 31, 2001 is 7.6% (2000 - 9.8%).
e) The Company must maintain $420,000 (US$264,000) (2000 - $nil) on
deposit with the lender.
8 Preference Shares of subsidiary companies
2001 2000
$ $
300,000 (2000 - 400,000) First preference shares (a) 300,000 400,000
315,834 (2000 - 385,834) Second preference shares (a) 255,000 301,000
108,792 (2000 - 148,335) H Preference Shares (b) 108,000 148,000
-------------------
663,000 849,000
Less: Current portion of Preference Shares 458,000 387,000
-------------------
205,000 462,000
===================
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 loan payable of
$3,192,000 described under Stake Corporate in note 7 is repaid.
Thereafter, the Company is required to purchase 200,000 First
preference shares per annum under the same terms and conditions.
In January 2001, 100,000 First preference shares were purchased for
$100,000, and a dividend of $20,000 was paid. Payment for a further
purchase of 100,000 First preference shares and a dividend of
$15,000 was delivered in trust to the Company's lawyer in January
2002 pending receipt of the shares purchased.
F - 22
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(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 (2000 - 70,000) Second preference shares were redeemed.
Imputed interest on the Second preference shares during the year
amounted to $23,000 (2000 - $24,000).
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 the Company's
division, Barnes Environmental/Pecal.
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 $0.66 per share. Holders of 39,543 (2000 - 279,885) H Preference
Shares accepted the Company's offer and a gain of $24,000 (2000 -
$175,000) was recorded during the year.
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 - 23
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
9 Capital stock
a) The Company is authorized to issue an unlimited number of common
shares without par value and an unlimited number of special shares
without par value.
b) The following is a summary of changes in share capital.
[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 104,821 55,000 5,471,866 6,346,000 6,401,000
4 for 1 warrant exchange (e) (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 (e) (234,959) -- 234,959 529,000 529,000
Warrants expired (e) (96,445) -- -- -- --
Options exercised (f) -- -- 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
------------------------------------------------------------------------
Shares and warrants issued to
acquire First Light Foods
(note 2) 35,000 13,000 833,333 1,268,000 1,281,000
Options exercised (f) -- -- 999,425 1,651,000 1,651,000
April 2001 private placement (c) 705,750 808,000 1,411,498 1,843,000 2,651,000
May 2001 private placement (c) 1,200,000 1,214,000 2,400,000 5,515,000 6,729,000
September 2001 private
placement (c) 2,250,000 2,628,000 3,000,000 6,213,000 8,841,000
December 2001 private
placements (c and d) -- -- 4,250,000 13,279,000 13,279,000
------------------------------------------------------------------------
4,190,750 4,663,000 12,894,256 29,769,000 34,432,000
------------------------------------------------------------------------
Balance at December 31, 2001 4,690,750 4,693,000 41,081,228 52,449,000 57,142,000
========================================================================
F - 24
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
c) During the year, the Company completed four private placements. The
Company issued 11,061,498 common shares and 4,155,750 warrants to
acquire 4,155,750 common shares for total proceeds of $31,500,000
net of costs. The following is a summary of the warrants issued:
Exercise
Expiry date price Number
$ $
March 31, 2004 US$1.75 705,750 808,000
March 31, 2004 US$2.40 1,200,000 1,214,000
September 30, 2004 US$2.40 2,250,000 2,628,000
-------------------------------
4,155,750 4,650,000
===============================
In addition, pursuant to the private placement agreements, the
Company has granted to their agents:
i) Compensation warrant exercisable until June 8, 2003 to
purchase 144,000 option units at US$2.00 per unit. If
exercised in full, the Company will issue 144,000 common
shares and 72,000 warrants exercisable at US$2.40 to acquire
72,000 common shares, which expire on March 31, 2004.
ii) Compensation warrant exercisable until September 28, 2003 to
purchase 150,000 option units at US$2.00 per unit. If
exercised in full, the Company will issue 150,000 common
shares and 112,500 warrants exercisable at US$2.40 to acquire
112,500 common shares, which expire on September 30, 2004.
d) As per the terms of the December 2001 private placement agreement,
the Company was required to place 10% of the gross proceeds in
escrow until the registration statement registering the shares with
the Securities and Exchange Commission was filed. At December 31,
2001, the amount placed in escrow was $1,407,000.
e) 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, Inc. were exercised to acquire 83,679 common shares for
proceeds of $45,000, and 83,679 additional warrants were then
issued.
F - 25
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
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.
As at December 31, 2001, in addition to the warrants issued pursuant
to the private placements, the Company has 500,000 warrants
outstanding with an exercise price of US$1.50 and an expiry date of
September 15, 2005 and 35,000 warrants with an exercise price of
U.S.$1.70 and an expiry date of February 2006 (note 2).
f) 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 2,086,800 (2000 - 2,123,400) shares to be made available
for the stock option plans. The following is a summary of grants
during the year.
Exercise Number of
Grant date Expiry date price options
$
March 23, 2001 October 1, 2005 US$1.53 14,000
May 5, 2001 May 5, 2006 US$1.80 87,500
June 4, 2001 June 4, 2006 US$1.53 50,000
August 21, 2001 August 21, 2006 US$1.61 15,000
September 20, 2001 September 20, 2006 US$1.80 27,500
October 18, 2001 December 11, 2003 US$1.86 490,000
October 18, 2001 December 31, 2003 US$1.86 280,125
October 18, 2001 December 31, 2004 US$1.86 124,000
December 13, 2001 December 31, 2003 US$2.10 62,000
December 13, 2001 December 12, 2006 US$2.10 88,000
---------
1,238,125
=========
Employee/director 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 1,238,125 options granted vest as follows: 1,066,525 options
vested in 2001, 42,900 vest per annum in 2002 to 2005.
During 2001, 999,425 (2000 - 298,225; 1999 - nil) options were
exercised and 999,425 (2000 - 298,225; 1999 - nil) common shares
were issued for net proceeds of $1,651,000 (2000 - $436,000; 1999 -
$nil).
F - 26
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Details of changes in vested employee/director stock options are as
follows:
2001 2000 1999
Balance - Beginning of year 1,385,425 1,501,850 956,625
Granted with immediate vesting 1,066,525 108,000 253,600
Vested from prior year grants 137,900 76,800 303,625
Exercised (999,425) (298,225) --
Retracted (15,000) (3,000) (12,000)
-----------------------------------------
Balance - End of year 1,575,425 1,385,425 1,501,850
=========================================
Details of employee/director stock options exercisable at December
31 are as follows:
[Download Table]
Expiry date Exercise price 2001 2000 1999
March 10, 2001 US$1.06 -- 313,875 459,250
December 11, 2003 US$0.75 to US$1.86 577,100 595,950 672,200
December 31, 2003 US$1.86 to US$2.10 342,125 -- --
August 2, 2004 US$1.06 152,800 139,800 131,900
December 11, 2004 US$0.91 -- 1,600 --
December 31, 2004 US$1.06 to US$1.86 124,000 138,000 182,500
April 4, 2005 US$1.41 16,000 8,000 --
August 2, 2005 US$1.06 120,400 90,800 56,000
October 1, 2005 US$1.31 to US$1.53 52,400 24,800 --
December 20, 2005 US$1.31 83,000 72,600 --
May 5, 2006 US$1.80 59,500 -- --
June 4, 2006 US$1.53 10,000 -- --
August 21, 2006 US$1.61 15,000 -- --
September 20, 2006 US$1.80 5,500 -- --
December 12, 2006 US$2.10 17,600 -- --
---------------------------------------
1,575,425 1,385,425 1,501,850
=======================================
The weighted average exercise price of the employee/director options
exercisable at December 31, 2001 is US$1.63 per share (2000 -
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. 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. The weighted average price of
options exercised in 2001 was US$1.06 (2000 - US$1.06; 1999 - $nil).
At December 31,2001, options to acquire an additional 370,800 common
shares at US$1.06 to US$2.10 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 370,800 (2000 -
472,100; 1999 - 366,400) options granted but not vested is US$1.44
(2000 - US$1.17; 1999 - US$1.06).
Subsequent to year-end, 48,100 options were exercised to acquire
48,100 common shares for gross proceeds of $130,000.
F - 27
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
g) 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 the elimination of the deficit.
10 Income taxes
The effective income tax rate on consolidated earnings is influenced by
the items detailed below:
[Enlarge/Download Table]
2001 2000 1999
$ $ $
Net earnings before income taxes 264,000 2,506,000 1,072,000
=======================================
Income taxes at Canadian statutory rates of 42%
(2000 - 42%; 1999 - 44%) 111,000 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 (68,000) (1,798,000) (635,000)
Differences in foreign, capital gains and
manufacturing and processing tax rates (4,000) (63,000) (20,000)
Non-taxable income/non-deductible expenses 245,000 178,000 164,000
Other (51,000) -- --
---------------------------------------
Provision for (recovery of) income taxes 233,000 (868,000) (452,000)
=======================================
Future tax liabilities of the Company are as follows:
2001 2000
$ $
Differences in capital assets basis (4,507,000) (3,191,000)
Accounting reserves not deducted for tax 349,000 239,000
Capital and non-capital losses 1,209,000 1,279,000
Tax benefit of scientific research expenditures 2,125,000 2,125,000
Pre-operating costs (205,000) (307,000)
Other (52,000) 81,000
--------------------------
(1,081,000) 226,000
Valuation allowance (763,000) (780,000)
--------------------------
(1,844,000) (554,000)
==========================
2001 2000
$ $
Future income taxes asset 1,057,000 954,000
Future income taxes liability (2,901,000) (1,508,000)
--------------------------
(1,844,000) (554,000)
==========================
F - 28
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(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. The Company also has approximately $150,000 in
Canadian scientific research investment tax credits and $450,000 in
Canadian non-capital losses, which can be carried forward to reduce future
years' income taxes payable. These scientific research investment tax
credits and non-capital loss carry-forwards expire in varying amounts from
2002 to 2008.
The SunRich Food Group has non-capital loss carry-forwards of
approximately $2,420,000 (2000 - $2,693,000) at December 31, 2001
available to reduce future federal and state income tax that begins to
expire in 2020.
A valuation allowance of $763,000 (2000 - $780,000) 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 $180,000 relates to the acquisition of 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 2001, the Company charged affiliated companies $133,000 for
services rendered (2000 - $66,000).
Also included in other receivables at December 31, 2001 is $53,000
(2000 - $105,000) due from officers/directors of the Company.
b) Included in other long-term debt is an uncollateralized loan of
$1,592,000 (2000 - $nil) bearing interest at 6% with interest only
payable through January 31, 2003 at which time the full note is due.
Also, included in other long-term debt is an uncollateralized loan
of $154,000 (2000 - $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%.
Subsequent to December 31, 2001, both notes were repaid as part of
the Company's debt refinancing described in note 7.
c) The Company leases certain real estate to a shareholder under
operating leases that expire in August 2010. Annual rental under
each of the leases is $2.
F - 29
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
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 its operating
division, Barnes Environmental/Pecal. 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. The Company and its legal counsel believe that the
counter-claim is without merit.
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 $143,000 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) During 1999, the Company entered into a 12-year exclusive licence
agreement related to the sale of the Company's steam explosion
equipment in China.
f) Commitments under operating leases, principally for distribution
centres, warehouse and equipment, are as follows:
Non-
cancellable Cancellable Total
$ $ $
2002 814,000 771,000 1,585,000
2003 678,000 1,097,000 1,775,000
2004 574,000 1,288,000 1,862,000
2005 492,000 1,288,000 1,780,000
2006 and thereafter 2,807,000 3,017,000 5,824,000
--------------------------------------------------
5,365,000 7,461,000 12,826,000
==================================================
The cancellable operating leases can be cancelled by the Company on
the anniversary date of the related lease. The commitment above
assumes that the leases will not be cancelled during the contract
term.
Rent expense incurred in the year amounted to $957,000 (2000 -
$1,038,000; 1999 - $195,000).
F - 30
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
g) The Company has guaranteed loans of a third party to facilitate the
purchase of equipment used in the processing of certain of the
Company's inventory. As at December 31, 2001, the balance due on
these notes was US$199,000.
13 Earnings per share
The calculation of earnings per share is based on the weighted average
number of shares outstanding of 32,220,352 (2000 - 22,975,986; 1999 -
17,384,644). 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 diluted earnings per share was calculated as follows:
2001 2000 1999
Weighted average number of shares used
in basic earnings per share 32,220,352 22,975,986 17,384,644
Dilutive potential of the following
Employee/director stock options 150,191 381,744 --
Warrants 85,392 -- --
------------------------------------
Weighted average number of shares used
in diluted earnings per share 32,455,935 23,357,730 17,384,644
====================================
14 Financial instruments
The Company's financial instruments recognized in the consolidated balance
sheets and included in working capital consist of cash and cash
equivalents, restricted cash, marketable securities, 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, restricted cash 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.
F - 31
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
15 Segmented information
The Company operates in three industry segments: (a) the SunRich Food
Group, which manufactures, markets, distributes and packages grains and
other food products with a focus on soy products; (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) Steam Explosion Technology Group, which is responsible
for the design, engineering, and sale of customized steam explosion
technology systems. The Company's assets, operations and employees are
located in Canada and the United States.
Industry segments
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2001
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Steam
Explosion
Environmental Technology
SunRich Industrial Group and
Food Group Group Corporate Consolidated
$ $ $ $
External sales by market
Canada 318,000 22,497,000 -- 22,815,000
U.S. 105,775,000 8,546,000 572,000 114,893,000
Asia 5,359,000 -- -- 5,359,000
Europe -- 2,000 -- 2,000
--------------------------------------------------------------------
Total sales to external customers 111,452,000 31,045,000 572,000 143,069,000
====================================================================
Interest expense 2,266,000 463,000 50,000 2,779,000
====================================================================
Income tax expense (recovery) 296,000 270,000 (333,000) 233,000
====================================================================
Segment net income (loss) 494,000 782,000 (1,245,000) 31,000
====================================================================
Goodwill 8,564,000 5,038,000 -- 13,602,000
====================================================================
Identifiable assets 81,349,000 26,995,000 19,177,000 127,521,000
====================================================================
Amortization 4,601,000 1,123,000 179,000 5,903,000
====================================================================
Expenditures on property, plant and equipment 4,125,000 2,054,000 44,000 6,223,000
====================================================================
Equity accounted investments -- -- 583,000 583,000
====================================================================
F - 32
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
[Enlarge/Download Table]
2000
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Steam
Explosion
Environmental Technology
SunRich Industrial Group and
Food Group Group Corporate Consolidated
$ $ $ $
External sales by market
Canada 397,000 25,549,000 169,000 26,115,000
U.S. 67,515,000 5,737,000 376,000 73,628,000
Asia 1,795,000 -- -- 1,795,000
Europe 115,000 -- -- 115,000
--------------------------------------------------------------------
Total sales to external customers 69,822,000 31,286,000 545,000 101,653,000
====================================================================
Interest expense 1,111,000 416,000 -- 1,527,000
====================================================================
Income tax expense (recovery) 864,000 66,000 (1,798,000) (868,000)
====================================================================
Segment net income 366,000 2,513,000 495,000 3,374,000
====================================================================
Goodwill 8,501,000 2,730,000 -- 11,231,000
====================================================================
Identifiable assets 68,307,000 21,465,000 3,094,000 92,866,000
====================================================================
Amortization 1,712,000 856,000 220,000 2,788,000
====================================================================
Expenditures on property, plant and equipment 4,631,000 667,000 55,000 5,353,000
====================================================================
Equity accounted investments -- -- 442,000 442,000
====================================================================
1999
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Steam
Explosion
Environmental Technology
SunRich Industrial Group and
Food Group Group Corporate Consolidated
$ $ $ $
External sales by market
Canada -- 18,554,000 85,000 18,639,000
U.S. 24,481,000 3,275,000 399,000 28,155,000
Asia 510,000 -- -- 510,000
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Total sales to external customers 24,991,000 21,829,000 484,000 47,304,000
====================================================================
Interest expense 217,000 144,000 -- 361,000
====================================================================
Income tax expense (recovery) 183,000 -- (635,000) (452,000)
====================================================================
Segment net income (loss) 309,000 2,058,000 (843,000) 1,524,000
====================================================================
Amortization 336,000 477,000 257,000 1,070,000
====================================================================
Expenditures on property, plant and equipment 47,000 500,000 591,000 1,138,000
====================================================================
F - 33
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Geographic segments
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2001 2000
--------------------------------------- --------------------------------------
U.S. Canada Total U.S. Canada Total
$ $ $ $ $ $
Property, plant and
equipment 38,242,000 10,949,000 49,191,000 33,214,000 9,944,000 43,l58,000
======================================= ======================================
Goodwill 11,040,000 2,562,000 13,602,000 8,457,000 2,774,000 11,231,000
======================================= ======================================
Total assets 88,081,000 39,440,000 127,521,000 71,340,000 21,526,000 92,866,000
======================================= ======================================
16 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 $nil in 2001 (2000
- $140,000; 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 $51,000 (2000 -
$768,000; 1999 - $75,000) deferred in these financial statements would be
expensed. Amortization of $338,000 (2000 - $157,000; 1999 - $nil) related
to the development and pre-operating costs would not have been expensed.
Under U.S. GAAP, the entire US$15 million demand loan would be classified
as a current liability. As a result, current liabilities would increase by
$21,503,000 and long-term debt would decrease by $21,503,000.
During 2000, the Company repriced certain options as described in note 9.
As a result, $511,000 (2000 - $52,000; 1999 - $nil) of compensation
expense would be recognized under U.S. GAAP.
F - 34
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Accordingly, the following would have been reported under U.S. GAAP:
[Enlarge/Download Table]
2001 2000 1999
$ $ $
Net earnings for the year - as reported 31,000 3,374,000 1,524,000
Dilution gain -- (140,000) --
Development and pre-operating costs
expensed 338,000 157,000 --
Pre-operating costs (51,000) (768,000) (75,000)
Stock option compensation expense (511,000) (52,000) --
Tax effect of above items (135,000) -- --
------------------------------------------
Net earnings (loss) for the year - U.S.
GAAP (328,000) 2,571,000 1,449,000
==========================================
Basic and fully diluted earnings per share -
U.S. GAAP (0.01) 0.11 0.08
==========================================
Shareholders' equity - as reported 69,286,000 33,277,000 18,098,000
Cumulative development, start-up costs
and pre-operating costs - net of
related amortization and taxes of
$135,000 (2000 and 1999 - $nil) (698,000) (850,000) (239,000)
Cumulative stock compensation expense -
net of taxes of $nil (563,000) (52,000) --
------------------------------------------
Shareholders' equity - U.S. GAAP 68,025,000 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:
2001 2000 1999
$ $ $
Net earnings (loss) for the year - U.S.
GAAP (328,000) 2,571,000 1,449,000
Currency translation adjustment 1,546,000 258,000 (195,000)
-----------------------------------
Comprehensive income 1,218,000 2,829,000 1,254,000
===================================
F - 35
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Other U.S. GAAP disclosures
2001 2000
$ $
Allowance for doubtful accounts 1,779,000 939,000
==========================
Accrued payroll 1,686,000 1,265,000
==========================
Pro forma data (unaudited)
Condensed pro forma income statement, as if the acquisitions of Jenkins &
Gournoe, Inc., Virginia Materials and International Materials had occurred
at the beginning of 1999, is as follows:
2001 2000 1999
$ $ $
Revenue 150,184,000 126,139,000 66,311,000
==============================================
Net income 1,514,000 4,900,000 2,827,000
==============================================
Earnings per share 0.05 0.21 0.16
==============================================
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 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 2001, 2000 and 1999 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 December 12, 2005 and expire
two to six years subsequent to the grant date.
The fair value of the options granted during 2001, 2000 and 1999 was
estimated using the Black-Scholes option-pricing model with the
assumptions of a dividend yield of 0% (2000 and 1999 - 0%), an expected
volatility of 30% (2000 - 51%; 1999 - 84%), a risk-free interest rate of
3% (2000 - 5%; 1999 - 4%), and an expected life of one to six years.
F - 36
Stake Technology Ltd.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
The total value of 1,238,125 (2000 - 295,500; 1999 - 620,000) stock
options that were granted by the Company to employees and directors during
2001 was $809,000 (2000 - $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, 2001 would be $653,000 (2000 - $107,000; 1999 -
$239,000). The unrecognized value of $156,000 (2000 - $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 prior years and vesting in 2001 is $103,000 (2000 -
$86,000; 1999 - $307,000). The resulting pro forma net earnings (loss) and
basic earnings (loss) per share for the year ended December 31, 2001 under
U.S. GAAP are ($1,084,000) (2000 - $2,378,000; 1999 - $903,000) and
$(0.03) (2000 - $0.10; 1999 - $0.05), respectively.
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 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets". These new standards eliminate pooling as a method of
accounting for business combinations and features new accounting rules for
goodwill and intangible assets. SFAS No. 141 was effective for business
combinations initiated from July 1, 2001. SFAS No. 142 will be adopted on
January 1, 2002. The Company is currently addressing the impact of the
adoption of SFAS No. 142. These new U.S. GAAP standards are substantially
consistent with the changes in the Canadian Standards, Canadian Institute
of Chartered Accountants Handbook Sections 1581 and 3062, and are
effective January 1, 2002.
The Company will be adopting SFAS 143, "Accounting for Asset Retirement
Obligations" in 2003. This standard requires that the fair value of
liabilities for asset retirement obligations be recognized in the period
in which they are incurred and capitalized as part of the asset carrying
value and depreciated over the asset's useful life. The Company has not
determined the effect of adoption of this new standard.
Effective in 2002, the Company will adopt SFAS 144, "Accounting for the
Impairment of Long-Lived Assets". This standard supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed of", and retains the basic principals of SFAS 121, but
broadens the presentation of discontinued operations. The adoption of SFAS
144 is not expected to significantly impact the Company.
Canadian GAAP Accounting Changes
Effective January 1,2002, the Company will adopt a new CICA accounting
standard relating to stock-based compensation and other stock-based
payments. This new standard requires either the recognition of
compensation expense for grants of stock, stock options and other equity
instruments to employees, or, alternatively, the disclosure of pro forma
net earnings and net earnings per share data as if stock-based
compensation had been recognized in earnings. The Company has elected to
disclose pro forma net earnings and earning per share data, therefore,
there is no effect of adopting this new standard on the Company's results
of operations and financial position.
Also, effective January 1, 2002, the Company will adopt a new CICA
accounting standard in respect of foreign currency translation that will
eliminate the deferral and amortization of currency translation
adjustments related to long-term monetary items with a fixed and
ascertainable life.
F - 37
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Stake Technology Ltd.
Notes to Consolidated Financial Statements
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(expressed in Canadian dollars)
During 2001, the CICA issued new Accounting Guideline 13 (AG 13), which
will be effective beginning in 2003. AG 13 addresses the identification,
designation, documentation and effectiveness of hedge accounting and
establishes conditions for applying hedge accounting. Under the guideline,
the Company is required to document its hedging relationships and
explicitly demonstrate that the hedges are sufficiently effective in order
to continue accrual accounting for positions hedged with derivatives.
Otherwise, the derivative financial instruments will be required to be
marked to market with the resultant gain or loss being recognized in
income. The impact of adopting this guideline has not yet been determined.
F - 38
Dates Referenced Herein and Documents Incorporated by Reference
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