SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 |_| At August 7, 2001 registrant had 32,923,203 common shares outstanding, the only class of registrant's common stock outstanding. There were no other classes of stock outstanding and the aggregate market value of voting stock held by non-affiliates at such date was US $41,765,000. The Company's common shares are traded on the Nasdaq Small Cap Market tier of the Nasdaq Stock Market under the symbol STKL. There are 31 pages in the June 30, 2001 10-Q and the index follows the cover page. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 1 June 30, 2001 10-Q
STAKE TECHNOLOGY LTD. FORM 10-Q June 30, 2001 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as at June 30, 2001 and December 31, 2000 Consolidated Statements of Retained Earnings for the six months ended June 30, 2001 and the year ended December 31, 2000 Consolidated Statements of Earnings for the three months ended June 30, 2001 and 2000 Consolidated Statements of Earnings for the six months ended June 30, 2001 and 2000. Consolidated Statements of Cash Flow for the three months ended June 30, 2001 and 2000 Consolidated Statements of Cash Flow for the six months ended June 30, 2001 and 2000 Condensed Notes to Consolidated Financial Statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure about Market Risk PART II - OTHER INFORMATION All financial information is expressed in Canadian Dollars The closing rate of exchange on August 7, 2001 was CDN. $1 = US $0.6514 - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 2 June 30, 2001 10-Q
PART I - FINANCIAL INFORMATION Item 1 - Consolidated Financial Statements Stake Technology Ltd. For the Six Months ended June 30, 2001 - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 3 June 30, 2001 10-Q
Stake Technology Ltd. Consolidated Balance Sheets as at June 30, 2001 and December 31, 2000 Unaudited (Expressed in Canadian Dollars) <TABLE> <CAPTION> ================================================================================================= June 30, December 31, 2001 2000 ================================================================================================= <S> <C> <C> Assets (note 5) Current assets Cash and cash equivalents $ 2,775,000 $ 1,013,000 Restricted cash (note 5(a) and 6(g)) 2,216,000 -- Accounts receivable - trade 17,969,000 13,111,000 Current portion of note receivable 2,031,000 2,150,000 Inventories (note 4) 13,987,000 15,290,000 Other receivables and prepaid expenses 2,414,000 1,341,000 Future income taxes 971,000 954,000 ---------------------------- 42,363,000 33,859,000 Note receivable 2,335,000 3,036,000 Property, plant and equipment - at cost, less accumulated amortization of $11,434,000 (December 31, 2000 - $9,132,000) 43,599,000 43,158,000 Investments 362,000 382,000 Goodwill - at cost, less accumulated amortization of $1,174,000 (December 31, 2000 - $925,000) 10,982,000 11,231,000 Pre-operating costs - at cost, less accumulated amortization of $128,000 (December 31, 2000 - $nil) 640,000 768,000 Patents, trademarks, licences and other assets - at cost less accumulated amortization of $1,151,000 (December 31, 2000 - $1,034,000) (note 3) 4,223,000 432,000 ---------------------------- $104,504,000 $92,866,000 ============================ Liabilities Current liabilities Bank indebtedness (note 5) $ 6,207,000 $ 3,405,000 Accounts payable and accrued liabilities 18,802,000 19,359,000 Customer deposits 227,000 1,262,000 Current portion of long-term debt (note 5) 7,156,000 6,799,000 Current portion of preference shares of subsidiary companies 247,000 387,000 ---------------------------- 32,639,000 31,212,000 Long-term debt (note 5) 21,191,000 24,756,000 Other long-term payable 1,688,000 1,651,000 Future income taxes (note 3) 2,713,000 1,508,000 Preference shares of subsidiary companies 448,000 462,000 ---------------------------- 58,679,000 59,589,000 ---------------------------- Shareholders' Equity Capital stock (note 6) Authorized Unlimited common shares without par value Issued 32,923,203 (December 31, 2000 - 28,186,972) common shares 33,517,000 22,710,000 Contributed surplus 4,635,000 4,635,000 Retained earnings (note 6 (b)) 6,740,000 5,869,000 Currency translation adjustment 933,000 63,000 ---------------------------- 45,825,000 33,277,000 ---------------------------- $104,504,000 $92,866,000 ============================ </TABLE> (See accompanying notes to consolidated financial statements) - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 4 June 30, 2001 10-Q
Stake Technology Ltd. Consolidated Statements of Retained Earnings For the six months ended June 30, 2001 and the year ended December 31, 2000 Unaudited (Expressed in Canadian Dollars) ================================================================================ Six months ended Year ended June 30, 2001 December 31, 2000 ================================================================================ Retained Earnings - Beginning of the Year $5,869,000 $2,495,000 Net Earnings for the Period 871,000 3,374,000 ----------------------------- Retained Earnings - End of Period $6,740,000 $5,869,000 ============================= (See accompanying notes to consolidated financial statements) - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 5 June 30, 2001 10-Q
Stake Technology Ltd. Consolidated Statements of Earnings For the three months ended June 30, 2001 and 2000 Unaudited (Expressed in Canadian Dollars) <TABLE> <CAPTION> ===================================================================================================== June 30, June 30, 2001 2000 ===================================================================================================== <S> <C> <C> Revenues $ 38,208,000 $ 29,432,000 Cost of goods sold 32,142,000 25,564,000 ------------------------------ Gross profit 6,066,000 3,868,000 ------------------------------ Expenses Research and development 107,000 122,000 Administration, market development and demonstration 3,420,000 2,404,000 Amortization of patents, trademarks, licences, pre-operating costs and goodwill 445,000 99,000 ------------------------------ 3,972,000 2,625,000 ------------------------------ Earnings from operations 2,094,000 1,243,000 Interest on long-term debt (638,000) (88,000) Other interest (188,000) (19,000) Interest and other income 247,000 -- Foreign exchange (loss) gain (65,000) 20,000 Share of losses of equity accounted investee (13,000) (12,000) Dividend on preference shares of subsidiary company (8,000) (7,000) ------------------------------ Earnings before income taxes 1,429,000 1,137,000 ------------------------------ Recovery of (Provision for) income taxes Current (457,000) 200,000 Future (136,000) (227,000) ------------------------------ (593,000) (27,000) ------------------------------ Net earnings for the period $ 836,000 $ 1,110,000 ============================== Net earnings per share for the period - Basic $ 0.03 $ 0.05 ============================== - Fully diluted $ 0.03 $ 0.05 ============================== </TABLE> (See accompanying notes to consolidated financial statements) - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 6 June 30, 2001 10-Q
Stake Technology Ltd. Consolidated Statements of Earnings For the six months ended June 30, 2001 and 2000 Unaudited (Expressed in Canadian Dollars) <TABLE> <CAPTION> ===================================================================================================== June 30, June 30, 2001 2000 ===================================================================================================== <S> <C> <C> Revenues $ 68,661,000 $ 45,441,000 Cost of goods sold 58,350,000 39,002,000 ------------------------------ Gross profit 10,311,000 6,439,000 ------------------------------ Expenses Research and development 220,000 249,000 Administration, market development and demonstration 6,990,000 4,356,000 Amortization of patents, trademarks, licences, pre-operating costs and goodwill 554,000 167,000 ------------------------------ 7,764,000 4,772,000 ------------------------------ Earnings from operations 2,547,000 1,667,000 Interest on long-term debt (1,336,000) (231,000) Other interest (270,000) (43,000) Interest and other income 401,000 79,000 Foreign exchange (loss) gain (18,000) 30,000 Gain on dilution of investment interests in equity accounted investee -- 140,000 Share of losses of equity accounted investee (25,000) (24,000) Dividend on preference shares of subsidiary company (14,000) (14,000) ------------------------------ Earnings before income taxes 1,285,000 1,604,000 ------------------------------ Recovery of (Provision for) income taxes Current (322,000) 240,000 Future (92,000) (326,000) ------------------------------ (414,000) (86,000) ------------------------------ Net earnings for the period $ 871,000 $ 1,518,000 ============================== Net earnings per share for the period - Basic $ 0.03 $ 0.07 ============================== - Fully diluted $ 0.03 $ 0.07 ============================== </TABLE> (See accompanying notes to consolidated financial statements) - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 7 June 30, 2001 10-Q
Stake Technology Ltd. Consolidated Statements of Cash Flow For the three months ended June 30, 2001 and 2000 Unaudited (Expressed in Canadian Dollars) <TABLE> <CAPTION> ================================================================================================== June 30, June 30, 2001 2000 ================================================================================================== <S> <C> <C> Cash provided by (used in) Operating activities Net earnings for the period $ 836,000 $ 1,110,000 Items not affecting cash Amortization 1,313,000 455,000 Share of losses of equity accounted investee 13,000 12,000 Loss on sale of property, plant and equipment 10,000 41,000 Gain on settlement of preference shares (25,000) -- Imputed interest (107,000) 8,000 Future income taxes 136,000 155,000 ---------------------------- 2,176,000 1,781,000 Change in non-cash working capital balances related to operations Accounts receivable - trade (4,273,000) (4,467,000) Inventories 1,047,000 2,473,000 Other receivables and prepaid expenses (129,000) (322,000) Accounts payable and accrued liabilities 4,607,000 1,878,000 Note payable -- (1,122,000) Customer deposits (1,563,000) 662,000 ---------------------------- 1,865,000 883,000 ---------------------------- Investing activities (Increase) decrease in patents, trademarks, licences and other assets (24,000) 69,000 Disposal of other assets -- 67,000 Restricted cash (2,216,000) -- Acquisition of property, plant and equipment (1,815,000) (201,000) Proceeds on sale of property, plant and equipment -- 27,000 Increase in investments and advances -- (337,000) Decrease in notes receivable 552,000 -- ---------------------------- (3,503,000) (375,000) ---------------------------- Financing activities Purchase and redemption of preference shares of subsidiary companies (31,000) (26,000) Repayment of long-term debt and note payable (3,333,000) (74,000) Issuance of long-term debt 97,000 -- Repayments of line of credit (520,000) -- Borrowings under line of credit (1,352,000) (2,980,000) Issuance of common shares and warrants 9,521,000 2,000 ---------------------------- 4,382,000 (3,078,000) Foreign exchange gain on cash held in a foreign currency 31,000 106,000 ---------------------------- Increase (decrease) in cash during the period 2,775,000 (2,464,000) Cash and cash equivalents - Beginning of period -- $ 2,464,000 ---------------------------- Cash and cash equivalents - End of period $ 2,775,000 -- ============================ Supplemental cash flow information: Interest paid $ 583,000 $ 99,000 ============================ Income taxes paid $ -- $ -- ============================ </TABLE> (See accompanying notes to consolidated financial statements) - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 8 June 30, 2001 10-Q
Stake Technology Ltd. Consolidated Statements of Cash Flow For the six months ended June 30, 2001 and 2000 Unaudited (Expressed in Canadian Dollars) <TABLE> <CAPTION> ================================================================================================== June 30, June 30, 2001 2000 ================================================================================================== <S> <C> <C> Cash provided by (used in) Operating activities Net earnings for the period $ 871,000 $ 1,518,000 Items not affecting cash Amortization 2,672,000 865,000 Share of losses of equity accounted investee 25,000 24,000 Loss (gain) on sale of property, plant and equipment 13,000 (43,000) Gain on dilution of interest in investee -- (140,000) Gain on settlement of preference shares (25,000) -- Imputed interest (130,000) 16,000 Future income taxes 92,000 95,000 ---------------------------- 3,518,000 2,335,000 Change in non-cash working capital balances related to operations Accounts receivable - trade (4,829,000) (4,292,000) Inventories 1,408,000 2,351,000 Other receivables and prepaid expenses (1,074,000) (253,000) Accounts payable and accrued liabilities 150,000 (2,683,000) Note payable -- (1,122,000) Customer deposits (1,061,000) 840,000 ---------------------------- (1,888,000) (2,824,000) ---------------------------- Investing activities Acquisition of company - net of cash acquired (513,000) (4,508,000) Decrease in patents, trademarks, licences and other assets 10,000 -- Disposal of other assets -- 67,000 Restricted cash (2,216,000) 400,000 Acquisition of property, plant and equipment (2,444,000) (332,000) Proceeds on sale of property, plant and equipment -- 139,000 Increase in investments and advances (5,000) (340,000) Decrease in notes receivable 1,100,000 -- ---------------------------- (4,068,000) (4,574,000) ---------------------------- Financing activities Purchase and redemption of preference shares of subsidiary companies (149,000) (136,000) Repayment of long-term debt and note payable (4,588,000) (521,000) Issuance of long-term debt 97,000 2,635,000 Repayments of line of credit (520,000) -- Borrowings under line of credit 3,341,000 2,470,000 Issuance of common shares and warrants 9,526,000 366,000 ---------------------------- 7,707,000 4,814,000 Foreign exchange gain on cash held in a foreign currency 11,000 120,000 ---------------------------- Increase in cash during the period 1,762,000 2,464,000 Cash and cash equivalents - Beginning of period 1,013,000 $ 2,464,000 ---------------------------- Cash and cash equivalents - End of period $ 2,775,000 -- Supplemental cash flow information: ============================ Interest paid $ 1,248,000 $ 299,000 ============================ Income taxes paid $ -- $ -- ============================ </TABLE> (See accompanying notes to consolidated financial statements) - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 9 June 30, 2001 10-Q
Stake Technology Ltd. Condensed Notes to Consolidated Financial Statements For the six months ended June 30, 2001 Unaudited (Expressed in Canadian Dollars) - -------------------------------------------------------------------------------- 1. Interim Financial Statement The accompanying interim consolidated financial statements of Stake Technology Ltd. have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and in accordance with accounting principles generally accepted in Canada which conform, in all material respects (except as indicated in Note 8), with accounting principles generally accepted in the U.S. Accordingly, these interim consolidated financial statements do not include all of the disclosures required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included; all such adjustments are of a normal, recurring nature. Operating results for the six months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2001. For further information, see the Company's consolidated financial statements, including the accounting policies and notes thereto, included in the Annual Report on Form 10KSB for the year ended December 31, 2000. 2. Description of business and significant accounting policies Stake Technology Ltd. (the Company) was incorporated under the laws of Canada on November 13, 1973 and operates in three principal businesses. The SunRich Food Group manufactures and sells agricultural products with a focus on soy, soymilk and other food products. The Environmental Industrial Group sells abrasives and industrial materials and recycles inorganic materials. The Company also operates a division developing and commercializing a proprietary steam explosion technology for processing of biomass into higher value products. The Company's assets, operations and employees at June 30, 2001 are located in Canada and the United States. The significant policies are outlined below: Basis of presentation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated on consolidation. Cash and cash equivalents Cash and cash equivalents consist of unrestricted cash and short-term deposits with a maturity at acquisition of less than 90 days. Inventories Raw materials, finished goods and merchandise inventory are valued at the lower of cost and estimated net realizable value. Cost is determined on a first-in, first-out basis. Inventories of grain are valued at market. Changes in market value are included in cost of sales. The SunRich Food Group generally follows a policy of hedging its grain transactions to protect gains and minimize losses due to market fluctuations. Hedge contracts are adjusted to market price and gains and losses from such transactions are included in cost of sales. The Company has a risk of loss from hedge activity if the grower does not deliver the grain as scheduled. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 10 June 30, 2001 10-Q
Stake Technology Ltd. Condensed Notes to Consolidated Financial Statements For the six months ended June 30, 2001 Unaudited (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 basis or, in the case of certain US-based subsidiaries, straight-line basis at rates based on the estimated useful lives of the assets as follows: 10% to 33% for office furniture and equipment, machinery and equipment and vehicles and 4-8% for buildings. Amortization is calculated from the time the asset is put into use. Pre-operating costs Net costs incurred in the pre-operating stage of start-up businesses are deferred until the business reaches commercial operation or the passage of a certain period of time as predetermined by management. During 2000, the Company acquired Nordic Aseptic, Inc. (Nordic), which was considered a start-up business from the date of acquisition to December 31, 2000. Certain operating costs, net of income earned during the pre-operating period, have been deferred. Amortization of these net costs is computed on a straight-line basis over 3 years and commenced on January 1, 2001. 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. Revenue recognition i) Environmental Industrial Group Revenue from the sale of industrial minerals is recognized upon shipment or providing of a service to a customer. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 11 June 30, 2001 10-Q
Stake Technology Ltd. Condensed Notes to Consolidated Financial Statements For the six months ended June 30, 2001 Unaudited (Expressed in Canadian Dollars) - -------------------------------------------------------------------------------- ii) SunRich Food Group Grain sales are recorded at the time of shipment. Revenues from custom drying services are recorded upon provision of services and on completion of quality testing. All other SunRich Food Group revenue is recognized upon the sale and shipment of a product or the providing of a service to a customer. iii) Steam Explosion Technology The percentage of completion method is used to account for significant contracts in progress when related costs can be reasonably estimated. The Company uses costs incurred to date as a percentage of total expected costs to measure the extent of progress towards completion. Revenue from consulting and contract research is recognized when the service is completed. Licence fees related to sales of the Company's technologies are recorded as revenue when earned and collection is reasonably assured. Foreign currency translation The SunRich Food Group is considered to be a self-sustaining operation. The SunRich Food Group's assets and liabilities are translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the year. Resulting unrealized gains or losses are accumulated and reported as currency translation adjustment in shareholders' equity. Other revenues and expenses arising from foreign currency transactions are translated into Canadian dollars using the exchange rate in effect at the transaction date. Monetary assets and liabilities are translated using the rate in effect at the balance sheet date. Related exchange gains and losses are included in the determination of earnings. Customer Deposits Customer deposits principally include prepayments by the SunRich Food Group's customers for merchandise inventory to be purchased during the spring planting season. Income taxes The Company follows the asset and liability method of accounting for income taxes whereby future income tax assets are recognized for deductible temporary differences and operating loss carry-forwards, and future income tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the amounts of assets and liabilities recorded for income tax and financial reporting purposes. Future income tax assets are recognized only to the extent that management determines that it is more likely than not that the future income tax assets will be realized. Future income tax assets and liabilities are adjusted for the 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 recoverable for the period plus or minus the change in future income tax assets and liabilities during the period. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 12 June 30, 2001 10-Q
Stake Technology Ltd. Condensed Notes to Consolidated Financial Statements For the six months ended June 30, 2001 Unaudited (Expressed in Canadian Dollars) - -------------------------------------------------------------------------------- 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. 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. 3. Acquisition of a Business First Light Foods On February 1, 2001, the Company acquired 100% of the common shares of Jenkins and Gournoe Inc., which operates under the name of First Light Foods. Consideration consisted of the issuance of 833,333 common shares, US $300,000 in cash, a US $700,000 note payable that is repayable quarterly over 2 years by payments of US $87,500, plus interest at US Prime, 35,000 warrants exercisable at US $1.70 for five years to February, 2006 and acquisition costs of approximately US $60,000. 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- 2005 will be paid to the vendors of First Light Foods. First Light Foods owns several trade marked soymilk 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 The acquisition of First Light Foods has been accounted for using the purchase method, and accordingly, the consolidated financial statements include the results of operations of the acquired business from the date of the acquisition. The purchase price has been allocated to the assets acquired and the liabilities assumed based on management's best estimate of fair values. Given the complexity of the acquired operations, as well as the short time that has elapsed since acquisition, the cost and the allocation thereof, of the acquisition is subject to change based on the final resolution of those estimates. However, management believes that the final resolution of the estimates will not have a material impact on the financial position or results of operations of the Company. The fair value of the net assets acquired consists primarily of trademarks of $4,000,000 and future income tax liabilities of $1,000,000. The trademarks will be amortized over twenty years. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 13 June 30, 2001 10-Q
Stake Technology Ltd. Condensed Notes to Consolidated Financial Statements For the six months ended June 30, 2001 Unaudited (Expressed in Canadian Dollars) - -------------------------------------------------------------------------------- 4. Inventories June 30, December 31, 2001 2000 ---------- ------------ $ $ Raw materials 4,347,000 4,991,000 Finished goods and merchandise 6,983,000 7,834,000 Grain 2,657,000 2,465,000 -------------------------- 13,987,000 15,290,000 ========================== Grain inventories consist of the following: June 30, December 31, 2001 2000 ---------- ------------ $ $ Company owned grain 2,477,000 2,208,000 Unrealized gain on Contracts with producers 14,000 156,000 Futures contracts 166,000 101,000 ------------------------- 2,657,000 2,465,000 ========================= 5. Long-term debt and banking facilities a) The SunRich Food Group and certain of its subsidiary companies have co-guaranteed a bank loan payable by the Group's wholly owned subsidiary Nordic of $4,935,000 (December 31, 2000 - $5,286,000). The loan contains restrictive financial covenants for the SunRich Food Group and certain subsidiaries. As at December 31, 2000 and March 31, 2001, Nordic was not in compliance with certain of the financial covenants. However, on April 12, 2001, the Company entered into an agreement with the lender whereby the lender agreed to forebear taking action (if any), until April 15, 2002, with respect to the various covenant breaches, which existed at December 31, 2000 and March 31, 2001. As part of the agreement, the Company renegotiated the financial covenants of the bank loan payable and agreed to maintain US $264,000 on deposit with the lender. This deposit has been included in restricted cash on the balance sheet of the Company at June 30, 2001. As at April 12, 2001 and June 30, 2001, the Company is in compliance with the new financial covenants and expects to remain in compliance throughout 2001. b) During the first quarter of 2001, the SunRich Food Group issued a US $700,000 note payable in connection with the acquisition of First Light Foods, which is repayable over 2 years by payments of US $87,500 per quarter plus interest at US Prime (note 3). c) During the second quarter of 2001, the Company repaid a US dollar term loan of US $1,000,000. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 14 June 30, 2001 10-Q
Stake Technology Ltd. Condensed Notes to Consolidated Financial Statements For the six months ended June 30, 2001 Unaudited (Expressed in Canadian Dollars) - -------------------------------------------------------------------------------- Substantially all of the Company's assets are pledged as collateral under various lending agreements, with the exception of the real property at Stake's corporate offices in Norval, and the lease and physical assets in Louisiana. 6. Capital stock (a) The following is a summary of changes in share capital during the period. <TABLE> <CAPTION> Warrants Common shares -------------------------------------------------------------------- Number $ Number $ Total $ -------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance at December 31, 2000 500,000 30,000 28,186,972 22,680,000 22,710,000 Shares and warrants to acquire First Light Foods (c) 35,000 13,000 833,333 1,268,000 1,281,000 Options exercised (d) -- -- 91,400 146,000 146,000 US private placement (f) 705,749 808,000 1,411,498 1,843,000 2,651,000 Canadian private placement (g) 1,200,000 1,214,000 2,400,000 5,515,000 6,729,000 -------------------------------------------------------------------- Balance at June 30, 2001 2,440,749 2,065,000 32,923,203 31,452,000 33,517,000 ==================================================================== </TABLE> (b) During 1997, the shareholders of the Company agreed to reduce the capital account of the Company's common shares by $25,026,000 through a reduction of the deficit. (c) In February 2001, the Company issued 833,333 common shares as a component of the purchase price to acquire First Light Foods (note 3) as partial consideration of the acquired company; the Company also issued 35,000 warrants which are exercisable at US $1.70 for five years to February 2006. An additional 140,000 warrants may be issued prior to 2006 if First Light Foods achieves certain gross profits targets. (d) In the first six months of 2001, employees exercised 91,400 options and 91,400 common shares were issued for net proceeds of $146,000. (e) On March 5, 2001, the Board approved a resolution extending the exercise period of 304,375 options from March 10, 2001 to December 31, 2003. (f) 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 705,749 whole warrants which are exercisable at US $1.75 to purchase 705,749 common shares until April 30, 2004. The net proceeds of this transaction were US $1,728,000 after associated commission, legal and other related costs. (g) 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 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. As a result, the Company issued 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. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 15 June 30, 2001 10-Q
Stake Technology Ltd. Condensed Notes to Consolidated Financial Statements For the six months ended June 30, 2001 Unaudited (Expressed in Canadian Dollars) - -------------------------------------------------------------------------------- The net proceeds of this transaction were approximately US $4,375,000 after associated commission, legal and other related costs. One quarter of the gross proceeds of this private placement which amounted to US $1,200,000 is held in escrow at June 30, 2001 and will be released to the Company on the earlier of (i) the second business day following receipt by the Agent and the Escrow Agent of an opinion of the Company's US counsel that the Form S-3 Registration Statement filed by the Company registering the common shares issued or issuable in this private placement has been declared effective by the SEC, or (ii) June 8, 2002, the first anniversary of the closing of this private placement. The escrowed amount is included in restricted cash on the balance sheet at June 30, 2001. (h) As at June 30, 2001 there were options vested to Employees and Directors to acquire 1,366,325 common shares at exercise prices of US $0.75 to US $1.80. In addition, at June 30, 2001 options to acquire an additional 548,900 common shares at US $1.063 to US $1.80 had been granted but had not yet vested. 7. Segmented information The Company operates in three industry segments: (a) Steam Explosion Technology Group: which designs, engineers and sells customized steam explosion technology systems; (b) Environmental Industrial Group, which sells abrasives and industrial materials and recycles in-organic materials and (c) the SunRich Food Group, which manufactures, markets, distributes and packages grains and other food products with a focus on soy products. The Company's assets, operations and employees are located in Canada and the United States. <TABLE> <CAPTION> Industry segments June 30, 2001 ----------------------------------------------------------------- Steam Explosion Technology Group and Environmental SunRich Corporate Industrial Group Food Group Consolidated $ $ $ $ ----------------------------------------------------------------- <S> <C> <C> <C> <C> External sales by market Canada -- 11,971,000 125,000 12,096,000 US 450,000 3,500,000 51,513,000 55,463,000 Asia -- -- 993,000 993,000 Other -- 109,000 -- 109,000 ----------------------------------------------------------------- Total sales to external customers 450,000 15,580,000 52,631,000 68,661,000 ================================================================= Interest expense 50,000 262,000 1,294,000 1,606,000 ----------------------------------------------------------------- Income tax provision (recovery) (227,000) 207,000 434,000 414,000 ----------------------------------------------------------------- Segment net income (loss) (557,000) 586,000 842,000 871,000 ----------------------------------------------------------------- Identifiable assets 10,441,000 19,444,000 74,619,000 104,504,000 ----------------------------------------------------------------- Amortization 86,000 461,000 2,125,000 2,672,000 ----------------------------------------------------------------- Expenditures on property, plant and equipment 12,000 383,000 2,049,000 2,444,000 ----------------------------------------------------------------- Equity accounted investments 362,000 -- -- 362,000 ----------------------------------------------------------------- </TABLE> - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 16 June 30, 2001 10-Q
Stake Technology Ltd. Condensed Notes to Consolidated Financial Statements For the six months ended June 30, 2001 Unaudited (Expressed in Canadian Dollars) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> June 30, 2000 ------------------------------------------------------------------ Steam Explosion Technology Group and Environmental SunRich Corporate Industrial Group Food Group Consolidated $ $ $ $ ------------------------------------------------------------------ <S> <C> <C> <C> <C> External sales by market Canada 34,000 12,267,000 190,000 12,491,000 US 4,000 1,911,000 29,560,000 31,475,000 Asia -- -- 1,424,000 1,424,000 Other -- 27,000 24,000 51,000 ------------------------------------------------------------------ Total sales to external customers 38,000 14,205,000 31,198,000 45,441,000 ================================================================== Interest expense -- 170,000 104,000 274,000 ------------------------------------------------------------------ Income tax provision (recovery) (240,000) -- 326,000 (86,000) ------------------------------------------------------------------ Segment net income (loss) (558,000) 1,335,000 741,000 1,518,000 ------------------------------------------------------------------ Identifiable assets 3,757,000 22,066,000 16,605,000 42,428,000 ------------------------------------------------------------------ Amortization 65,000 372,000 428,000 865,000 ------------------------------------------------------------------ Expenditures on property, plant and equipment 6,000 225,000 101,000 332,000 ------------------------------------------------------------------ Equity accounted investments 365,000 -- -- 365,000 ------------------------------------------------------------------ </TABLE> Geographic segments <TABLE> <CAPTION> June 30, 2001 December 31, 2000 ----------------------------------------------------------------------------------------- Canada US Total Canada US Total $ $ $ $ $ $ <S> <C> <C> <C> <C> <C> <C> Property, plant and equipment 9,933,000 33,666,000 43,599,000 9,944,000 33,214,000 43,158,000 ========================================= ========================================== Goodwill 2,651,000 8,331,000 10,982,000 2,774,000 8,457,000 11,231,000 ========================================= ========================================== Total assets 29,885,000 74,619,000 104,504,000 21,526,000 71,340,000 92,866,000 ========================================= ========================================== </TABLE> 8. United States Accounting Principles Differences These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP) which conform in all material respects applicable to the Company with those in the United States (US GAAP) during the periods presented except with respect to the following: Under US GAAP, the gain on dilution resulting from the dilution of the Company's ownership of the common share equity of Easton Minerals Limited (Easton) would have been excluded from income and included as a separate component of shareholders' equity as Easton is a development stage company. Also, under US GAAP, - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 17 June 30, 2001 10-Q
Stake Technology Ltd. Condensed Notes to Consolidated Financial Statements For the six months ended June 30, 2001 Unaudited (Expressed in Canadian Dollars) - -------------------------------------------------------------------------------- certain development and start-up costs deferred in these financial statements would be expensed. Amortization of related to the development and start-up costs would not have been expensed. During 2001, the Company repriced certain options. As a result compensation expense would be recognized under US GAAP. The net effect of income taxes on the above items is insignificant. Accordingly, the following would have been reported under US GAAP: <TABLE> <CAPTION> Six months ended Year ended -------------------------------------------------- June 30, June 30, December 2001 2000 31, 2000 -------------------------------------------------- <S> <C> <C> <C> Net earnings for the period - as reported $ 871,000 $ 1,518,000 $ 3,374,000 Dilution gain -- (140,000) (140,000) Development, start-up and pre-operating costs expensed 169,000 -- 157,000 Pre-operating costs capitalized -- -- (768,000) Stock option compensation expense (891,000) -- (52,000) -------------------------------------------------- Net earnings for the period - US GAAP $ 149,000 $ 1,378,000 $ 2,571,000 ================================================== Net earnings per share - US GAAP $ 0.01 $ 0.07 $ 0.11 -------------------------------------------------- Weighted average number of common shares outstanding 29,322,000 20,817,000 22,976,000 ================================================== Shareholders' equity - as reported $ 45,825,000 $ 20,102,000 $ 33,277,000 Cumulative development, start-up and pre-operating costs expensed (net of related amortization) (681,000) (164,000) (850,000) Cumulative stock compensation expense (943,000) -- (52,000) -------------------------------------------------- Shareholders' equity - US GAAP $ 44,201,000 $ 19,938,000 $ 32,375,000 ================================================== </TABLE> Other U.S. GAAP disclosures June 30, December 31, 2001 2000 --------- ------- $ $ Allowance for doubtful accounts 1,104,000 939,000 ------------------------ Due from Related Parties 497,000 451,000 ------------------------ Inventory provisions 53,000 61,000 ------------------------ Accrued recycling costs 346,000 298,000 ------------------------ - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 18 June 30, 2001 10-Q
Stake Technology Ltd. Condensed Notes to Consolidated Financial Statements For the six months ended June 30, 2001 Unaudited (Expressed in Canadian Dollars) - -------------------------------------------------------------------------------- Comprehensive Income US GAAP requires that a comprehensive income statement be prepared. Comprehensive income is defined as "The change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner events". It includes all changes in equity during a period, except those resulting from investments by owners and distribution to owners. The comprehensive income statement reconciles the reported net income to the comprehensive income. The following is a comprehensive income statement (prepared in accordance with US GAAP), which, under US GAAP, would have the same prominence as other financial statements. <TABLE> <CAPTION> Six months ended Year ended June 30, June 30, December 2001 2000 31, 2000 ---------------------------------------------- <S> <C> <C> <C> Net earnings for the period - US GAAP $ 149,000 $1,378,000 $2,571,000 Currency translation adjustment 870,000 120,000 258,000 ---------------------------------------------- Comprehensive income $1,019,000 $1,498,000 $2,829,000 ============================================== </TABLE> 9. Comparative Balances Certain comparative account balances have been reclassified to achieve comparability to current period balances. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 19 June 30, 2001 10-Q
PART I - FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Recent corporate developments 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 705,749 whole warrants which are exercisable at US $1.75 to purchase 705,749 common shares until April 30, 2004. The net proceeds of this transaction were US $1,728,000 after associated commission, legal and other related costs. 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. In addition to a commission, the agent was granted a compensation warrant, exercisable until June 8, 2003, to purchase 144,000 option units at the US $2.00 per unit sale price. Each option unit is comprised of one common share plus a warrant to purchase one-half a common share. As a result, the Company issued 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. The net proceeds of this transaction were US $4,375,000 after associated commission, legal and other related costs. One quarter of the gross proceeds of this private placement which amounted to US $1,200,000 is held in escrow at June 30, 2001 and will be released to the Company on the earlier of (i) the second business day following receipt by the Agent and the Escrow Agent of an opinion of the Company's US counsel that the Form S-3 Registration Statement filed by the Company registering the common shares issued or issuable in this private placement has been declared effective by the SEC, or (ii) June 8, 2002, the first anniversary of the closing of this private placement. The escrowed amount is included in restricted cash on the balance sheet at June 30, 2001. To date, from the proceeds of the two private placements, the Company has repaid a US $1,000,000 corporate loan that was drawn in 2000 to provide working capital to Northern Food and Dairy, Inc. The Company also transferred US $1,995,000 (at June 30, 2000 US $745,000 and a further US $1,250,000 subsequent to June 30, 2001) to the SunRich Food Group, Inc. to fund the Wyoming soy plant expansion; to replace funds used in the start up of Nordic, Inc., the Company's aseptic packaging company and improve the Group's working capital. The remaining proceeds will be used for working capital as needed and for future business acquisitions. Developments at SunRich Food Group, Inc. Acquisition in 2001 - Jenkins & Gournoe, Inc. In February, 2001, the Company's wholly owned subsidiary, SunRich Food Group, Inc acquired 100% of the common shares of Jenkins & Gournoe, Inc. (First Light Foods), a private Illinois company that owns certain soy trademarks including Soy-Um, and Rice-Um that are sold under an agreement to a major California based food retailer. The purchase price was approximately $3,000,000 plus certain contingent consideration. The fair value of the assets acquired consists primarily of trademarks of $4,000,000 less future tax liabilities of $1,000,000. 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. Sales for this profitable company are running at approximately US $12 million per annum and the business is growing with the rapid expansion of the California based retailer across the US. First Light Foods operations are included for 150 days in 2001 and its assets are included in the June 30, 2001 balance sheet. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 20 June 30, 2001 10-Q
Nordic start-up losses have decreased in each successive month this year and we expect Nordic to be profitable by the end of the fourth quarter of 2001; however, positive cash flow should be achieved in the third quarter of 2001 due to a number of contracts that Nordic has signed that will increase production levels. In the first week of August, Northern began commissioning its second soy milk plant in Wyoming, with production expected to commence in September 2001. This plant allows Northern to increase total production and better serve its customers needs for Western US distribution. Northern's revenues exceeded their internal budget in the first quarter but had lower sales in the second quarter due to customers reducing inventory and some lost dairy business as result of foot and mouth disease affecting the transfer of raw materials. Northern sales are now improving and the outlook for the second half is encouraging. SunRich's operations were affected by poor winter weather conditions and flooding conditions on the Mississippi River that resulted in certain shipments budgeted for the first quarter being delayed until the second quarter. SunRich has now achieved its budgeted earnings and in fact has had a record first half. Results for the second half from this subsidiary of the Group should equal or exceed budget. Overall soy milk markets remain strong as more consumers recognize the health benefit of soy. Developments at the Environmental Industrial Group The Environmental Industrial Group's aggregates blasting business has secured significant sales contracts for supply of the aggregate materials for most of the major bridges in the city of New York, the Holland Tunnel and 45 bridges in Michigan. Sales of garnets from China continue to expand with the appointment of three new distributors. Significant new markets are being penetrated in 2001 in the water filtration and golf sand trap markets as a result of having a raw material source acquired in the Temisca acquisition. The worldwide shortage of zircon has resulted in significant price increases, which has benefited current inventory balances and margins. During the year, the Environmental Industrial Group successfully, achieved ISO9002 registration for its Hamilton plant operations. During the year, the Temisca sales functions were integrated with the BEI/PECAL national sales force resulting in a growth in sales. The financial systems have been fully integrated in the second quarter. The Environmental Industrial Group was profitable each month during the first half of 2001 however, earnings were affected by two bad debts of foreign controlled customers. The foundry and steel business have slowed in the second quarter with a commensurate slowdown in this Group's sales however business remains above the previous year and costs are being carefully controlled. Developments in the Steam Explosion Technology Group In the second quarter of 2001, activities in the steam explosion group focused on supporting Pacitec Inc. to market the Company's proprietary pulping systems in China. Pacitec acquired certain exclusive marketing rights for China under an agreement signed in August 1999. Securing the first system sale contract to China remains subject to several factors including client financing and approval of various government authorities in China. In the second quarter, the Company also entered into discussions with an overseas group in regard to expanding the Company's marketing efforts into certain other regions. These discussions are at an early stage and the Company is not in a position to predict whether any agreement will be reached. These discussions are covered by a confidentiality agreement between the parties. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 21 June 30, 2001 10-Q
The First Six Months of 2001 Operations Compared with the First Six Months of 2000 Operations Results of operations Revenues in the first six months of 2001 increased by 51% to $68,661,000 from $45,441,000 in 2000 and the Company's earnings for the first six months of 2001 were $871,000 or $0.03 per common share compared to $1,518,000 or $0.07 per share for the six months ended June 30, 2000. Revenues in the second quarter ended June 30, 2001 increased by 30% to $38,208,000 from $29,432,000 in 2000 and the Company's earnings for the second quarter of 2001 were $836,000 or $0.03 per common share compared to $1,110,000 or $0.05 per share in the second quarter of 2000. Revenues have increased due to the inclusion of the revenues from companies acquired over the past year that were not owned by the Company in the first six months of 2000; specifically Northern, Nordic, First Light Foods and Temisca. The decrease in earnings in the first six months of 2001 compared to 2000 is due to general weakness in the industrial minerals business due to the economy and the after tax start-up losses in Nordic of $872,000. The Company expects that Nordic will be profitable by the fourth quarter of 2001. Revenues in the first six months of 2001 from SunRich Food Group operations were $52,631,000 (2000 - $31,198,000). Environmental Industrial Group's 2001 sales to date were $15,580,000 (2000 - $14,205,000) and steam explosion and corporate sales in 2001 to date were $450,000 (2000 - $38,000). Cost of sales increased to $58,350,000 for the first half of 2001 compared to $39,002,000 for the 2000. Cost of sales in the first six months of 2001 attributable to the Environmental Industrial Group segment were $13,079,000 (2000 - $11,848,000), and the SunRich Food Group, cost of sales were $45,200,000 (2000 - $27,106,000). Steam Explosion division costs of sales were $71,000 (2000 - $48,000), which primarily relates to standard amortization charges. The Company's consolidated gross margin improved to 15% in the first half of 2001 compared to 14.2% in the six months ended June 30, 2000 even though there was a negative operating margin of $508,000 resulting from Nordic's start-up costs. Without these costs of Nordic, which were not in the comparative 2000 margin, the Company's margin has increased to 15.8% from 14.2% in 2000 due to better margins in some of the businesses acquired into the SunRich Food Group over the past year. Research and development costs, principally related to steam explosion division as well as applied research done in the SunRich Food Group was $220,000 in the first half of 2001 (2000 - $249,000). Administration, market development and demonstration expenditures increased in the first half of 2001 to $6,990,000 compared to $4,356,000 for the period ended June 30, 2000. The principal reason for the increase in these expenses results from the inclusion of the acquired companies: Northern, Nordic, First Light Foods and Temisca administration costs and as well as one additional month of PECAL's administrative expenses in 2001 compared to 2000, increased corporate costs related to the retention of an investor relations firm starting in the fall of 2000 and the increased costs of administering a larger company. In the first half of 2001, SunRich Food Group's administration costs were $4,568,000 (2000 - $2,754,000); Environmental Industrial Group's operations accounted for $1,430,000 of the administration costs (2000 - $899,000) and steam explosion marketing and demonstration and corporate administration expenses were $992,000 (2000 - $703,000). Amortization of patents, trademarks, licences, pre-operating costs and goodwill increased to $554,000 in the first half of 2001, compared to $167,000 in the comparable period in 2000 due principally to the additional amortization of the goodwill from the acquisitions completed over the past year. In addition, the Company deferred $768,000 of pre-operating costs at December 31, 2000 related to Nordic, which is comprised of the portion of the operating losses from April to December 31, 2000 that were related to the start up phase of the plant. This amount will be written off equally over 36 months and $128,000 of these deferred costs was - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 22 June 30, 2001 10-Q
amortized in the first half of 2001. US readers should note that the $768,000 of pre-operating costs was expensed under US GAAP in 2000 and the $128,000 in amortization expensed under Canadian GAAP in the first half of 2001 would not be recorded under US GAAP. Operating earnings outpaced sales growth of 51% and increased by 53% in the first six months of 2001 compared to 2000. For the six months ended June 30, 2001 operating earnings were $2,547,000 compared to $1,667,000 in the same period in 2000, even after absorbing $1,208,000 (2000 - $nil) of operating losses resulting from start up losses of Nordic. Interest on long-term debt and other interest increased to $1,606,000 in the first half of 2001 from $274,000 in the same period of 2000, due principally to the acquisition of Northern and Nordic and their existing debt instruments into the SunRich Food Group in August and September 2000. Interest and other income increased to $401,000 in the first half of 2001 from $79,000 in the same period in 2000 due to imputed interest earned on the discounted note receivable balance and interest earned on cash received from the two private placements. The share of losses of equity accounted investees of $25,000 in the first half of 2001 (2000 - $24,000) and dilution gain of $nil (2000 - $140,000) is related to the Company's 32% equity investment in Easton Minerals Ltd. Income before taxes decreased by $319,000 to $1,285,000 for the first six months after absorbing the pre - tax startup costs of Nordic of $1,452,000 compared to pre-tax earnings of $1,604,000 in the first six months of 2000. In contrast, the Company's income before taxes for the second quarter increased to $1,429,000 for the period of April 1- June 30, 2001 compared to $1,137,000 in the comparable period of 2000, largely due to Nordic's pre-tax loss before taxes in the second quarter being $512,000, compared to $940,000 in the first quarter of 2001. Nordic's losses continue to decrease each month as production levels increase. During the year the Company received a $135,000 tax refund related to a reassessment of an acquired company's 1998 income taxes. Effective January 2, 2001, the Company restructured the US operations which allows the US companies to file consolidated tax returns and therefore the SunRich Food Group, Inc. has recognized the benefits of the Nordic start-up losses incurred in the period ended June 30, 2001. Net earnings of $871,000 result from the first six months of 2001 compared to $1,518,000 in the first six months of 2000. Start up costs expensed by Nordic negatively impacted earnings by $872,000 or $0.03 per common share after tax. A large part of this decrease is also due to the Company's taxes on earning is the six months of 2001 being $414,000 or 32% compared to $86,000 or 5% in 2000, due to the 2000 tax provision including the recognition of the benefit of the Canadian tax loss carryforward. Net earnings of $836,000 result from the second quarter compared to $1,110,000 in 2000. This decrease is directly connected to the fact that $593,000 or 41% of tax was provided against 2001 income compared to $27,000 or 2% being taxed against 2000 income due to the 2000 tax provision including the recognition of the benefit of the Canadian tax loss carryforward. Segmented Operations Information The SunRich Food Group The SunRich Food Group contributed 77% or $52,631,000 of the $68,661,000 in consolidated revenues in the first six months. (2000 - $31,198,000 or 69% of consolidated sales). For the six months ended June 30, 2001, SunRich, which now includes First Light Foods sales were $33,750,000 (2000 - $31,198,000); Northern sales were $16,726,000 (2000 - N/A), and Nordic's were $2,155,000 (2000 - N/A). - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 23 June 30, 2001 10-Q
The SunRich Food Group's cost of sales in the first six months of 2001 was $45,200,000 (2000 - $27,106,000). The SunRich Food Group's margin in the second quarter of 2001 was 14.1% (2000 - 13.1%). The increased margin is due to the addition of higher margin businesses by acquisition during the year after accounting for Nordic's negative margin in the quarter of $508,000. (2000 - $4,000). In the first half of 2001, the SunRich Food Group's administration costs were $4,568,000 (2000 - $2,754,000). The increase in administrative costs is due to additional administration costs of the newly acquired companies in the Group: Northern, Nordic and First Light Foods. Pre-tax earnings of the SunRich Food Group were $1,276,000 (2000 - $1,067,000). While the net earnings of the Group have increased due to the addition of Northern and First Light Foods in 2001 compared to 2000, the net earnings of the SunRich Food Group were significantly impacted by the pre-tax tax loss from the start-up of the Nordic Tetra-Pak operations, which totaled $1,452,000 (2000- $120,000) in the period. The Company expects Nordic to be profitable by the fourth quarter. As a result of a corporate restructuring in the US companies, the benefit of tax losses on the Nordic in the first six months have been offset against the tax provisions of the profitable companies in the Sunrich Food Group; Northern, SunRich and First Light Foods. As a result, a tax provision of $434,000 was recorded on consolidated US earnings in the period. Environmental Industrial Group The Environmental Industrial Group contributed 23% or $15,580,000 of the first six months of 2001 consolidated revenues (2000 - $14,205,000). The 9.7% increase in revenues is due to one more month of PECAL operations being included in 2001 compared to 2000, as well as the sales of Temisca that was acquired into this Group in November 2000. There has been some slowdown in the industries that this Group sells to as well as a decision to exit a long term low margin supply arrangement that have lead the existing B.E.I. sales levels prior to these acquisitions being only slightly improved in total in 2001 compared to 2000. Cost of sales in the second quarter of 2001 for the Environmental Industrial Group was $13,079,000 (2000 - $11,848,000). The Environmental Industrial Group's margin decreased to 16.1% in the first six months of 2001 (2000 - 16.6%). The decrease in margins in 2001 compared to 2000 is due to fewer higher margin products being sold in 2001 compared to 2000 due to supply difficulties as well as general resistance to sales price increases from customers due to the general economic uncertainty while certain other costs continue to increase. The Environmental Industrial Group's operations accounted for $1,430,000 of consolidated administration costs (2000 - $899,000). The 59% increase in these costs is due to the addition of three salesmen, the addition of the Temisca administrative staff, the retention of certain 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. The lower margins and increased administration costs of running a larger Group has resulted in pre-tax earnings from operations of the Environmental Industrial Group being $793,000 in the first half (2000 - $1,335,000). Steam Explosion Technology Group and Corporate Activities Revenue of $450,000 was derived from the Steam Explosion Technology Group and corporate sales in the first half of 2001 (2000 - $38,000) and are related mainly to license fees and private industry projects. Steam Explosion Technology Group's cost of sales in the first half was $71,000 (2000 - $48,000), which primarily relates to standard amortization charges. Steam Explosion Technology Group and corporate margins fluctuate significantly due to the nature of the revenues in this Group. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 24 June 30, 2001 10-Q
Steam Explosion Technology Group's marketing and demonstration and corporate administration expenses in the first half of 2001 were $992,000 (2000 - $703,000). The increase in these costs was due to more aggressive investor relations' activities, the increased costs of insurance, salaries and other costs of operating a larger public company. The loss from operations pre - tax of $784,000 (2000 - $798,000) is similar due to higher revenues in the six months offset by the these additional corporate costs. Liquidity and Capital Resources at June 30, 2001 Cash and cash equivalents of $2,775,000 results from the cash balances of $4,636,000 at corporate office remaining from the private placement of common shares offset by amounts drawn on the Canadian line of credit of $2,368,000 with the ability of offset and cash of $507,000 in the Sunrich Food Group. From the proceeds of the two private placements, the Company has repaid a US $1,000,000 corporate loan that was drawn in 2000 to provide working capital to Northern Food and Dairy, Inc. The Company also transferred US $745,000 up to June 30, 2001 to the SunRich Food Group, Inc. to fund the Wyoming soy plant expansion; to replace funds used in the start up of Nordic, Inc., the Company's aseptic packaging company and improve its working capital. The remaining proceeds will be used for working capital as needed and for future business acquisitions. Restricted cash of $2,216,000 (December 31, 2000 - nil) results primarily from one quarter of the gross proceeds of the May 18, 2001 private placement which amounted to US $1,200,000 is held in escrow and will be released to the Company on the earlier of (i) the second business day following receipt by the Agent and the Escrow Agent of an opinion of the Company's US counsel that the Form S-3 Registration Statement filed by the Company registering the common shares issued or issuable in this private placement has been declared effective by the SEC, or (ii) June 8, 2002, the first anniversary of the closing of this private placement. The remaining restricted cash balance is US $264,000 in cash that his held on deposit with Nordic's lender as part of security provided under terms of the lending agreement. Trade accounts receivable increased to $17,969,000 at June 30, 2001 from $13,111,000 at December 31, 2000 due the increase in sales, especially in the second quarter compared to the fourth quarter of 2000. Trade receivables at June 30, 2001 related to the Environmental Industrial Group's operations were $5,600,000 (December 31, 2000 - $4,836,000); SunRich Food Group's operations receivables were $11,782,000 at June 30, 2001 (December 31, 2000 - $8,250,000) and general corporate activities and steam explosion $587,000 (December 31, 2000 - $25,000). The note receivable totalling $4,366,000 at June 30, 2001 (December 31, 2000 - $5,186,000) and the other long-term payable of $1,688,000 (December 31, 2000 - $1,651,000) are related to an agreement with a major European based company. In the first half of 2001, Northern received payments of $1,100,000 on the note receivable from this agreement. Inventories were $13,987,000 at June 30, 2001 (December 31, 2000 - $15,290,000) due to lower inventories at SunRich due principally to the large shipment of grain inventories in the second quarter. First Light Foods and the steam explosion business do not carry an inventory balance. Future income tax assets of $971,000 at June 30, 2001 ($954,000 - December 31, 2000) consist principally of the benefit of Canadian tax losses and scientific research expenditures recorded by the Canadian entity. In the first six months of 2001, $2,444,000 was spent on capital additions throughout the Company for scheduled and budgeted machinery and equipment improvements and the construction of the Star Valley facility in Wyoming, which is expected to start up in September 2001. The Company has no significant unbudgeted capital commitments at June 30, 2001. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 25 June 30, 2001 10-Q
Investments decreased to $362,000 at June 30, 2001 from $382,000 at December 31, 2000 due primarily to the equity loss on Easton of $25,000 (2000 - $24,000) offset by cash advances of $5,000 (Q2 - 2000 - $nil). The Company deferred $768,000 of pre-operating costs in 2000 related to Nordic and as previously discussed expensed $128,000 of these costs in the first half of 2001, which results in the net balance of $640,000 at June 30, 2001. Goodwill decreased to $10,982,000 at June 30, 2001 from $11,231,000 at December 31, 2000 due to currency fluctuations, offset by amortization of goodwill on the acquisitions of Northern, SunRich, PECAL, Nordic and BEI. Patents, trademarks, licences and other assets has increased to $4,223,000 at June 30, 2001 from $432,000 at December 31, 2000 due to the addition of trademarks acquired in the First Light Foods acquisition of approximately $4,000,000 (which is being amortized over 20 years on a straight line basis), offset by the amortization of existing patents and other assets. Accounts payable and accrued liabilities decreased to $18,802,000 in 2001 from $19,359,000 in December 31, 2000. The decrease in this balance is due to the seasonal nature of SunRich's business, which results in the decrease in this balance and a compensating increase in the bank indebtedness balance. Customer deposits decreased to $227,000 at June 30, 2001 ($1,262,000 - December 31, 2000) because SunRich's products where shipped during 2001. This balance is related to cash deposits made by SunRich customers in 2000 and early year 2001 for year 2001 purchases. Revenue is booked on these transactions when the goods are shipped. Lines of Credit The Company has total available lines of credit of $10,356,000, comprised of $4,300,000 in two Canadian facilities and two US lines comprising US $4,000,000 in facilities. The increase in the use of lines of credit from $3,405,000 at December 31, 2000 to $6,207,000 at June 30, 2001 is principally due to the nature of the SunRich business. SunRich has increased their line of credit to US $3,000,000 at June 30, 2001 compared to US $900,000 at December 31, 2000. This increase in the bank indebtedness of SunRich occurs each year and is quickly repaid in the third quarter once the Company has collected the cash from the large barge shipments of inventory shipped during the second quarter. The Environmental Industrial Group's line of credit use also increased at June 30, 2001 from December 31, 2000 due the building of inventories to meet the large demands of summer business in this Group. As part of the Company's strategy to consolidate its US banking, the SunRich Food Group is negotiating a line of credit of up to US $4,000,000 to replace US $3,000,000 of the US $4,000,000 in line of credit. The US $4,000,000 line of credit is subject to completion of the lender's due diligence on the security being provided. The Company expects this to be completed during the third quarter. In addition to the above cash draws against the lines of credit, at June 30, 2001 - $952,000 (December 31, 2000 - $900,000) was drawn against the $4,000,000 Canadian facility for a letter of credit to the Ontario Ministry of the Environment and Energy for the Certificate of Approval; to three key suppliers and for security on the Louisiana lease. There are no amounts drawn against the US lines of credit at June 30, 2001 for letters of credit. Long Term Debt Long-term debt, current and long-term portions combined total $28,347,000 at June 30, 2001 compared to $31,555,000 at December 31, 2000. The decrease in the long term debt is due to scheduled repayments, repayment of the corporate loan of $1,500,000, offset by a new loan issued as part of the consideration paid for First Light Foods. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 26 June 30, 2001 10-Q
The new loan is for US $700,000 and is to be repaid quarterly in principal payment of US $87,500 plus interest at US Prime. Substantially all of the Company's assets are pledged as collateral under various lending agreements, with the exception of the real property at Stake's corporate offices in Norval and physical assets in Louisiana. The Company considers its relationship with its principal Canadian bankers and the various SunRich Food Group bankers in the US to be satisfactory. The Company believes that the cash to be generated from operations in 2001, its available lines of credit and its ability to secure additional working capital financing through an increased US line of credit and the additional cash resulting from the private placement of common shares are sufficient for the Company's operations during 2001. Other long-term liabilities The long-term future tax liability of $2,713,000 (December 31, 2000 - $1,508,000) has increased principally due to the recording of a future tax liability related to the trademarks acquired in the First Light Food acquisition. The short-term portion of the preference shares in subsidiary companies decreased to $247,000 at June 30, 2001 compared to $387,000 at December 31, 2000 due to $140,000 in preference shares being redeemed in the year to date. The remaining balance is due when Temisca achieves certain profit and balance sheet stability tests which management anticipates may be achieved during fiscal 2001 as well as the scheduled yearly payments for the preference shares related to the purchase of land in the BEI acquisition. Cash Flow Cash flow provided by operations before working capital changes for the six months ended June 30, 2001 increased by $1,183,000 to $3,518,000 (2000 - $2,335,000) due to the increase in amortization in the period due to larger capital base the Company has now due to the acquisitions over the past year. Cash flow used by operations after working capital changes was lower by $936,000 resulting in cash used of $1,888,000 compared to $2,824,000 in the first half of 2000. Cash used in investment activities decreased to $4,068,000 for the six months ended June 30, 2001 (2000 - $4,574,000). In 2001 the investment activities were related to a larger acquisition of property plant and equipment of $2,444,000 (2000 - $332,000) due to the increased size of the Company and $2,216,000 (2000 - nil) from the addition of restricted cash resulting from a deposit placed with a lender and certain funds held in escrow from the private placement of shares in the second quarter. In 2000, the cash used was principally connected to the acquisition of PECAL, which is now part of the Environmental Industrial Group. Cash provided by financing activities was $7,707,000 in the first half of 2001 (2000 - $4,814,000). The increase is largely due to the issuance of common shares from two private placements completed during the second quarter offset by the repayments of long-term debt exceeding the borrowings under lines of credit. In 2000 the financing activities were substantially connected to the issuance of new debt connected to the acquisition of PECAL in the first quarter of 2000, which is now part of the Environmental Industrial Group. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 27 June 30, 2001 10-Q
Item 3 - Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents, short-term and long-term investments in a variety of securities, including both government and corporate obligations and money market funds. These securities are generally classified as available for sale and consequently are recorded on the balance sheet at fair value with unrealised gains or losses reported as a separate component of accumulated other comprehensive income, net of tax. Debt in both fixed rate and floating rate interest carry varying degrees of interest rate risk. Fixed rate debt may have their fair market value adversely impacted due to a rise in interest rates. In general, longer date debts are subject to greater interest rate risk than shorter dated securities. Floating rate securities generally are subject to less interest rate risk than fixed rate securities. As of June 30, 2001, the weighted average interest rate of the fixed rate debt was 9%. If interest rates were to instantaneously increase (decrease) by 100 basis points, the fair market value of the total fixed rate debt could decrease (increase) by approximately $241,000. Foreign Currency Risk International sales are made mostly from our foreign sales in the US and other countries by our US subsidiaries that also incur most of their expenses in the local currency. Accordingly, all US subsidiaries use the local currency as their functional currency. Our international business is subject to risks typical of international business, 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, our future results could be materially adversely impacted by changes in these or other factors. These intercompany accounts are typically denominated in US $, the functional currency of the US subsidiaries order to centralize foreign exchange risk with the parent Company in Canada. We are also exposed to foreign exchange rate fluctuations as the financial results of US subsidiaries are translated into Canadian $ on consolidation. As exchange rates vary, these results when translated may vary from expectations and adversely impact overall expected profitability. A 10% movement in the levels of foreign currency exchange rates against the Canadian dollar with all other variables held constant would result in a decrease in the fair value of the Company's financial instruments by $2,033,000. A 10% movement in favour of the Canadian dollar with all other variables held constant would result in an increase in the fair value of the Company's financial instructions by $2,033,000. 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 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 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. - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 28 June 30, 2001 10-Q
PART II - OTHER INFORMATION. Item 1. Legal proceedings The Company has filed a claim against a former director relating to certain actions taken when he was the President of its operating division, BEI. The former director has counter-claimed against the Company and its subsidiaries, the Chairman of the Company and Easton, the Company's 32% equity investment. In addition, this former director has claimed that the Montreal distribution facility that the Environmental Industrial Group leases from the former director needs significant repairs. The Company and its legal counsel believe in the first matter their claim has merit and that the counter-claim is without merit. In the second matter, the Company has determined that it is connected to the first matter, and the Company and its legal counsel believe the claim is without merit as to the full extent of the claim. It cannot be determined if there will be any recovery by the Company at this time or if there will be an additional loss to the Company, and no provision has been made in the Company's financial statements in respect of these matters. During 2001, the SunRich Food Group has commenced a suit against a supplier for failure to adhere to the terms of a contract. The Company and its legal counsel believe that this claim has merit. It cannot however be 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 Group has not been and is not currently a party to any material litigation. The Environmental Industrial Group has not been and is not currently a party to any material litigation. The Steam Explosion Technology Group has not been and is not currently a party to any material litigation. Item 2. Changes in securities and use of proceeds In February 2001, the Company issued to the shareholders of Jenkins and Gournoe, Inc., which operate 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 and 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 a five-year period ending February 2006. Up to an additional 140,000 warrants to acquire common shares of the Company may be issued prior to February 2006 if First Light 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. See note 3 to the Financial Statements for further information. 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 705,749 whole warrants which are exercisable at US $1.75 to purchase 705,749 common shares until April 30, 2004. The net proceeds of this transaction were US $1,728,000 after associated commission, legal and other related costs. 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. In addition to commission, the agent was granted a compensation warrant, exercisable until June 8, 2003, to purchase 144,000 option units at the US $2.00 per unit sale price. Each option unit is comprised of one common share plus a warrant to purchase one-half a common share. As a result, the Company issued 144,000 common shares and 72,000 whole warrants which are exercisable at US $2.40 to purchase 72,000 common shares until - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 29 June 30, 2001 10-Q
March 31, 2004. The net proceeds of this transaction were US $4,375,000 after associated commission, legal and other related costs. One quarter of the gross proceeds of this private placement which amounted to US $1,200,000 is held in escrow at June 30, 2001 and will be released to the Company on the earlier of (i) the second business day following receipt by the Agent and the Escrow Agent of an opinion of the Company's US counsel that the Form S-3 Registration Statement filed by the Company registering the common shares issued or issuable in this private placement has been declared effective by the SEC, or (ii) June 8, 2002, the first anniversary of the closing of this private placement. The escrowed amount is included in restricted cash on the balance sheet at June 30, 2001. To date, from the proceeds of the two private placements, the Company has repaid a US $1,000,000 corporate loan that was drawn in 2000 to provide working capital to Northern Food and Dairy, Inc. as was agreed in the purchase agreement with Northern. The Company transferred US $745,000 up to June 30, 2001 and a further US $1,250,000 subsequent to June 30, 2001 for a total of US $1,995,000 to the SunRich Food Group, Inc. to fund the Wyoming soy plant expansion; to replace funds used in the start up of Nordic, Inc., the Company's aseptic packaging company and improve its working capital. The remaining proceeds will be used for working capital as needed and for future business acquisitions. As of the date of this document Stake has 32,923,203 Common Shares outstanding, and 4,571,975 additional common shares are reserved for issuance and are detailed as follows: 1) Warrants to purchase 500,000 shares exercisable at US$1.50 expiring September 15, 2005 from the acquisition of Northern; 2) Warrants to purchase 35,000 shares exercisable at US$1.70 expiring February 28, 2006 from the acquisition of Jenkins & Gournoe Inc.; 3) Warrants to purchase 705,750 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 shares exercisable at $US2.40 expiring March 31, 2004 from the private placement completed on June 8, 2001; 5) Option to acquire 144,000 shares which may be acquired by the agent under the terms of the May 18, 2001 private placement agreement at US$2.00; 6) Warrants to purchase 72,000 shares, which may be acquired by the agent under the terms of the May 18, 2001 private placement agreement if the 144,000 options (noted above in 5) are exercised. The warrants to purchase 72,000 shares are exercisable at US$2.40 expiring March 31, 2004; and 7) Options to acquire 1,915,225 shares previously granted to employees, directors and consultants under various company stock option plans. Item 3. Defaults on Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Not applicable Item 6. Exhibits and reports on Form 8-K (a) Exhibits - Not applicable (b) Reports on Form 8-K - No current report on Form 8-K was filed by the Company during the six month period ended June 30, 2001 - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 30 June 30, 2001 10-Q
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. STAKE TECHNOLOGY LTD. /s/ Leslie N. Markow Date August 10, 2001 --------------- Stake Technology Ltd. by Leslie N. Markow Vice President - Finance & Chief Financial Officer - -------------------------------------------------------------------------------- STAKE TECHNOLOGY LTD. 31 June 30, 2001 10-Q