INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS OF STAKE TECHNOLOGY LTD.
The following unaudited pro forma consolidated financial statements give effect
to the acquisition by Stake of 100% of the common shares of Northern Food &
Dairy, Inc. (Northern) to be accounted for by the purchase method, as follows:
(1) the unaudited pro forma consolidated balance sheet as at September 30,
2000 gives effect to the acquisition as if it had occurred on that date;
(2) the unaudited pro forma consolidated statements of operations for the nine
months ended September 30, 2000 and the year ended December 31, 1999 gives
effect to the acquisition as if it had occurred on January 1, 1999.
The unaudited pro forma consolidated statement of operations for the nine months
ended September 30, 2000 is based on the unaudited interim results of operations
of Stake and Northern for the same period. The unaudited pro forma consolidated
statements of operations for the year ended December 31, 1999 is based on the
audited statements of operations of Stake and audited statements of operations
of Northern.
As the acquisition of Northern took place September 15, 2000, it was impractical
to report the balance sheet of the Stake Technology Ltd. as of this date.
Accordingly, as the balances on Northern's balance sheet did not materially
change in the 15-day period, the proforma balance sheet has been presented at
September 30, 2000.
These unaudited pro forma financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") in Canada. Differences
between Canadian and U.S. GAAP in the preparation of these unaudited pro forma
financial statements are described in note 5. The consolidated historic
financial statements of Northern which are prepared in accordance with U.S. GAAP
and in U.S. dollars have been adjusted to conform with Canadian GAAP and
translated into Canadian dollars using the following exchange rates: information
as at September 30, 2000 - $1.00 Cdn = $0.6651 U.S., information for the nine
months ended September 30, 2000 - $1.00 Cdn = $0.6757 U.S. and information for
the year ended December 31, 1999 - $1.00 Cdn = $0.6757 U.S.
Management of Stake and Northern do not anticipate any significant
administrative savings or costs as a result of this acquisition. These unaudited
pro forma financial statements therefore do not give effect to savings or costs,
which might result from the acquisition of Northern.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised, as additional
information becomes available. These pro forma financial statements do not
purport to represent what the Company's financial position or results of
operations would actually have been if the combination of these businesses in
fact had occurred on those dates or project the Company's financial position or
results of operations for any future period. Since Stake and Northern were not
under common control or management for all periods, historical combined results
may not be comparable to, or indicative of, future performance.
<PAGE>
STAKE TECHNOLOGY LTD.
Unaudited Pro Forma Consolidated Balance Sheet
As at September 30, 2000 (expressed in Canadian dollars)
<TABLE>
<CAPTION>
Unaudited Unaudited Unaudited
Northern at Northern at Stake at
9/30/2000 09/30/2000 09/30/2000 Pro Forma Adjustments
US$ CDN@ $1.5035 CDN $ CDN$ CDN$
--- ------------ ----- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents 297,000 446,000 211,000 -- --
Accounts receivable - trade 3,338,000 5,019,000 13,377,000 -- 1,050,000(2c)
Note receivable -- -- -- 1,127,000(2b) --
Inventories 2,223,000 3,343,000 9,994,000 -- --
Miscellaneous receivables and other assets 382,000 574,000 748,000 -- --
Future income taxes -- -- 1,020,000 -- --
----------------------------------------------------------------------------------
6,240,000 9,382,000 25,350,000 1,127,000 (1,050,000)
Property, plant and equipment 14,162,000 21,292,000 16,722,000 -- --
Investments -- -- 1,164,000 -- (773,000)(2b)
-- -- -- 10,582,000(2a) (10,582,000)(2b)
Long term receivable -- -- -- 4,479,000(2b) --
Future income taxes -- -- 670,000 -- --
Goodwill -- 5,132,000 3,446,000(2b) -- 8,578,000
Patents, trademarks, licenses and other assets 136,000 204,000 410,000 -- --
----------------------------------------------------------------------------------
20,538,000 30,878,000 49,448,000 19,634,000 (12,405,000)
=========== =========== =========== =========== ===========
Bank indebtedness 950,000 1,428,000 4,044,000 -- --
Accounts payable and accrued liabilities 5,716,000 8,592,000 12,345,000 1,050,000(2c) --
Note payable 219,000 330,000 625,000 -- --
Current portion of long term debt 1,886,000 2,836,000 1,676,000 -- --
Current portion of preference shares -- -- 140,000 -- --
----------------------------------------------------------------------------------
8,770,000 13,186,000 18,830,000 (1,050,000) --
Long term debt 9,166,000 13,781,000 6,906,000 -- 1,608,000(2b)
Future income taxes -- -- 1,109,000 -- --
Preference shares of subsidiary company -- -- 577,000 -- --
----------------------------------------------------------------------------------
17,936,000 26,967,000 27,422,000 (1,050,000) 1,608,000
Common stock 10,000 15,000 11,645,000 15,000(2b) 10,552,000(2a)
Warrants -- -- -- -- 30,000
Contributed surplus 2,084,000 3,134,000 4,635,000 (3,134,000)(2b) -(2a)
Retained earnings 507,000 762,000 5,741,000 762,000(2b) --
Currency translation adjustment -- -- 5,000 -- --
----------------------------------------------------------------------------------
2,601,000 3,911,000 21,026,000 (3,911,000) 10,582,000
----------------------------------------------------------------------------------
20,538,000 30,878,000 49,448,000 (4,961,000) 12,190,000
=========== =========== =========== =========== ===========
<CAPTION>
At 9/30/2000
Pro forma
CDN $
-----
<S> <C>
Cash and cash equivalents 657,000
Accounts receivable - trade 17,346,000
Note receivable 1,127,000
Inventories 13,337,000
Miscellaneous receivables and other assets 1,322,000
Future income taxes 1,020,000
-----------
34,809,000
Property, plant and equipment 38,014,000
Investments 391,000
--
Long term receivable 4,479,000
Future income taxes 670,000
Goodwill
Patents, trademarks, licenses and other assets 614,000
-----------
87,555,000
===========
Bank indebtedness 5,472,000
Accounts payable and accrued liabilities 19,887,000
Note payable 955,000
Current portion of long term debt 4,512,000
Current portion of preference shares 140,000
-----------
30,966,000
Long term debt 22,295,000
Future income taxes 1,109,000
Preference shares of subsidiary company 577,000
-----------
54,947,000
Common stock 22,197,000
Warrants 30,000
Contributed surplus 4,635,000
Retained earnings 5,741,000
Currency translation adjustment 5,000
-----------
32,608,000
-----------
87,555,000
===========
</TABLE>
(see accompanying introduction and notes to pro forma
consolidated financial statements)
<PAGE>
STAKE TECHNOLOGY LTD.
Unaudited Pro Forma Consolidated Statement of Operations For the year ended
December 31, 1999 (expressed in Canada dollars)
<TABLE>
<CAPTION>
Translated
at average
rate - 1.48
Audited Audited
Northern Northern Stake Adjustments Reallocations
US$ CDN$ CDN$ CDN $ CDN$
---------- ---------- ---------- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues 21,249,000 31,449,000 47,304,000 -- --
Cost of goods sold 18,520,000 27,410,000 40,145,000 -- --
----------------------------------------------------------------------------
Gross Profit 2,729,000 4,039,000 7,159,000 -- --
----------------------------------------------------------------------------
Expenses
Research and development -- -- 367,000 -- --
Administration, market development and demonstration 2,047,000 3,030,000 4,965,000 -- --
Amortization of patents, trademarks, licenses and
goodwill -- -- 158,000 173,000(3a) --
Gain on sale of property, plant and equipment (6,000) (9,000) (5,000) -- --
----------------------------------------------------------------------------
2,041,000 3,021,000 5,485,000 173,000 --
----------------------------------------------------------------------------
Earnings from operations 688,000 1,018,000 1,674,000 (173,000) --
Interest on long-term debt (239,000) (354,000) (308,000) -- --
Other interest (29,000) (43,000) (22,000) -- --
Interest and other income 70,000 104,000 181,000 -- --
Foreign exchange loss -- -- (76,000) -- --
Share of losses of equity accounted investees -- -- (321,000) -- --
Dividend on preference shares of subsidiary company -- -- (25,000) -- --
Imputed interest on preference shares of
subsidiary company -- -- (31,000) -- --
----------------------------------------------------------------------------
Earnings before income taxes 490,000 725,000 1,072,000 (173,000) 1,624,000
Recovery of income taxes - Future income tax 452,000 452,000
Provision for income taxes (5,000) (7,000) -- (287,000)(3c) --
----------------------------------------------------------------------------
Net earnings for the year 485,000 718,000 1,524,000 (460,000) --
=========== =========== =========== =========== ===========
Earnings per share N/A N/A $ 0.09
===========
Average weighted number of shares outstanding 17,385,000 7,000,000
<CAPTION>
Pro Forma
12/31/99
Consolidated
CDN$
----------
<S> <C>
Revenues 78,753,000
Cost of goods sold 67,555,000
-----------
Gross Profit 11,198,000
-----------
Expenses
Research and development 367,000
Administration, market development and demonstration 7,995,000
Amortization of patents, trademarks, licenses and
goodwill 331,000
Gain on sale of property, plant and equipment (14,000)
-----------
8,679,000
-----------
Earnings from operations 2,519,000
Interest on long-term debt (662,000)
Other interest (65,000)
Interest and other income 285,000
Foreign exchange loss (76,000)
Share of losses of equity accounted investees (321,000)
Dividend on preference shares of subsidiary company (25,000)
Imputed interest on preference shares of
subsidiary company (31,000)
-----------
Earnings before income taxes
Recovery of income taxes - Future income tax
Provision for income taxes (294,000)
-----------
Net earnings for the year 1,782,000
===========
Earnings per share $ 0.07
===========
Average weighted number of shares outstanding 24,385,000
</TABLE>
(see accompanying introduction and notes to pro forma
consolidated financial statements)
<PAGE>
STAKE TECHNOLOGY LTD.
Unaudited Pro Forma Consolidated Statement of Operations For the nine months
ended September 30, 2000 (expressed in Canadian dollars)
<TABLE>
<CAPTION>
Northern Translated
For the at average
Period of rate - 1.48
1/1/00 to Unaudited Unaudited
9/30/00 Northern th Stake Adjustments Reallocations
US $ CDN$ CDN $ CDN $ CDN$
---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues 17,561,000 25,990,000 69,197,000 376,000(3b) --
Cost of goods sold 15,219,000 22,524,000 58,660,000 -- --
-------------------------------------------------------------------------------
Gross Profit 2,342,000 3,466,000 10,537,000 376,000 13,627,000
-------------------------------------------------------------------------------
Expenses
Research and development -- -- 362,000 -- --
Administration, market development and
demonstration 1,933,000 2,861,000 6,757,000 -- (376,000)(3b)
Amortization of patents, trademarks, licenses and
goodwill -- -- 239,000 130,000(3a) --
Gain on sale of property, plant and equipment -- -- (41,000) -- --
-------------------------------------------------------------------------------
1,933,000 2,861,000 7,317,000 130,000 (376,000)
-------------------------------------------------------------------------------
Earnings from operations 409,000 605,000 3,220,000 (506,000) 376,000
Interest on long-term debt (217,000) (321,000) (391,000) -- --
Other interest expense -- -- (22,000) -- --
Interest and other income 15,000 22,000 78,000 -- --
Foreign exchange gain -- -- 68,000 -- --
Gain on investment 161,000 238,000 -- 238,000(3d) --
Gain on dilution of investment interests in equity
accounted investee 140,000 140,000
Share of losses of equity accounted investees -- -- (36,000) -- --
Dividend on preference shares of subsidiary company -- -- (22,000) -- --
Imputed interest on preference shares of subsidiary
company -- (23,000) -- -- (23,000)
-------------------------------------------------------------------------------
Earnings before income taxes 368,000 544,000 3,012,000 (744,000) 376,000
Recovery of income taxes -- -- 652,000 -- --
Provision for income taxes -- -- (425,000) (123,000)(3c) --
-------------------------------------------------------------------------------
Net earnings for the year 368,000 544,000 3,239,000 (867,000) 376,000
========== =========== =========== =========== ===========
Earnings per share N/A N/A $ 0.16
========== =========== ===========
Average weighted number of shares outstanding 20,859,000 7,000,000
<CAPTION>
Pro Forma
9/30/00
Consolidated
CDN$
----
<S> <C>
Revenues 94,811,000
Cost of goods sold 81,184,000
-----------
Gross Profit
-----------
Expenses
Research and development 362,000
Administration, market development and
demonstration 9,242,000
Amortization of patents, trademarks, licenses and
goodwill 369,000
Gain on sale of property, plant and equipment (41,000)
-----------
9,932,000
-----------
Earnings from operations 3,695,000
Interest on long-term debt (712,000)
Other interest expense (22,000)
Interest and other income 100,000
Foreign exchange gain 68,000
Gain on investment --
Gain on dilution of investment interests in equity
accounted investee
Share of losses of equity accounted investees (36,000)
Dividend on preference shares of subsidiary company (22,000)
Imputed interest on preference shares of subsidiary
company
-----------
Earnings before income taxes 3,188,000
Recovery of income taxes 652,000
Provision for income taxes (548,000)
-----------
Net earnings for the year 3,292,000
===========
Earnings per share $ 0.12
===========
Average weighted number of shares outstanding 27,859,000
</TABLE>
(see accompanying introduction and notes to pro forma
consolidated financial statements)
<PAGE>
STAKE TECHNOLOGY LTD.
Notes to Unaudited Pro Forma Consolidated Financial
Statements (Canadian dollars - except share and per share data)
1. Basis of Presentation
These unaudited pro forma consolidated financial statements give effect to the
acquisition by Stake of 100% of the outstanding common shares of Northern.
These unaudited pro forma financial statements have been prepared by management
in accordance with generally accepted accounting principles in Canada and the
pro forma assumptions described below. In management's opinion, these pro forma
financial statements reflect all adjustments necessary to present fairly the pro
forma financial position and results of operations for such periods. Details of
significant differences between Canadian and U.S. GAAP in the preparation of
these pro forma financial statements are described in note 5.
The acquisition of the common shares of Northern by Stake has been accounted for
by the purchase method, which requires that the cost of the investment in
Northern be allocated to the underlying assets and liabilities of Northern based
on their fair values at the date of acquisition. The allocation of the purchase
cost to the assets and liabilities of Northern reflected in these pro forma
financial statements is based on preliminary estimates, available information
and management judgement and may be revised as additional information becomes
available.
2. Unaudited Pro Forma Consolidated Balance Sheet as at September 30, 2000
The unaudited pro forma consolidated balance sheet has been adjusted to reflect
the following:
a) To record the issue by Stake of 7,000,000 common shares at US
$1.015625 to acquire 100% of the outstanding common shares of
Northern. This price has been arrived at based on the market price
at the date of the transaction agreement and close being US $1.5625
being reduced 35% to account for the restrictive legend on the
shares. In addition to record the 500,000 common share warrants
valued at $30,000. Estimated costs of the acquisition of $773,000
are included in the aggregate purchase price.
b) To record the elimination of the investment in Northern. The
allocation of the purchase costs is preliminary and is based on
independent valuation that the historical book values of Northern's
physical assets approximate their fair values.
c) To eliminate inter-company balances between Northern and companies
owned by Stake.
<PAGE>
Notes to Unaudited Pro Forma Consolidated Financial (continued)
Statements (Canadian dollars - except share and per share data)
2. Unaudited Proforma Consolidated Balance Sheet as at September 30, 2000
(continued)
The preliminary allocation of the purchase price is as follows:
Assets acquired at estimated fair values
Current assets $10,509,000
Property, plant and equipment 21,292,000
Other long-term assets 4,683,000
-----------
36,484,000
Less:
Current liabilities 13,187,000
Other liabilities 15,388,000
-----------
28,575,000
Purchase cost 11,355,000
-----------
Excess of purchase cost over the estimated fair value
of net assets, allocated to Goodwill $ 3,446,000
-----------
The Purchase cost consists of:
Common shares $10,552,000
Warrants 30,000
Costs of acquisition 773,000
-----------
$11,355,000
3. Unaudited Pro Forma Consolidated Income Statements
The unaudited pro forma consolidated statements of operations for the
period ended September 30, 2000 and December 31, 1999 give effect to the
following:
(a) Amortization of goodwill. The goodwill will be amortized on a
straight-line basis over 20 years.
(b) Elimination of inter-company transactions.
(c) To record a corporate tax provision, as Northern was a S corporation
before Stake's acquisition.
(d) Elimination of a non-recurring gain on the sale of Stake shares held
by Northern prior to the acquisition.
<PAGE>
Notes to Unaudited Pro Forma Consolidated Financial (continued)
Statements (Canadian dollars - except share and per share data)
4. Earnings per Share
The pro forma earnings per share for the nine months ended September 30,
2000 is based on the historic weighted average number of common shares of
20,859,000 for the nine months ended September 30, 2000, adjusted to give
effect for the 7,000,000 common shares at the beginning of the period. The
pro forma earnings for the year ended December 31, 1999 is based upon the
historic weighted number of common shares of 17,385,000 during the year
ended December 31, 1999 adjusted to give effect to the issue of an
additional 7,000,0000 common shares at the beginning of the periods
presented. Neither period's pro forma earnings per share include up to
500,000 common share warrants that will be issued as part of this
transaction.
Fully diluted earnings (loss) per share have not been shown, as the effect
of outstanding options, warrants and other convertible securities is not
materially dilutive.
5. United States Generally Accepted Accounting Principles
These unaudited pro forma consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
Canada ("Canadian GAAP") which conform in all material respects applicable
to the Company with those in the United States ("U.S. GAAP") during the
periods presented except with respect to the following:
Under U.S. GAAP, the gain on dilution in the amount of $140,000 for the
nine months ended September 30, 2000 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 costs of $ 222,000 for the nine months
ended September 30, 2000 and $75,000 in 1999 deferred in these financial
statements would be expensed.
Under U.S. GAAP, investments in joint ventures would be accounted for
under the equity method whereas under Canadians GAAP, proportionate
consolidation is used. There is no effect to income or shareholders'
equity related to this GAAP difference.
The impact on these differences on the unaudited pro forma result of
operations is as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Pro forma earnings for the period - Canadian
GAAP $ 3,293,000 $ 1,782,000
Pro forma impact of requirement to expense
development costs (222,000) (75,000)
Dilution gain (140,000) --
----------- -----------
Pro forma earnings - U.S. GAAP $ 2,931,000 $ 1,707,000
=========== ===========
Pro forma earnings per share-U.S. GAAP $ 0.11 $ 0.07
=========== ===========
</TABLE>
