Stake Technology Ltd. and Northern Food & Dairy, Inc. Pro Forma Financial Statements Related to Acquisition

Contract Categories: Mergers & Acquisitions › Plan of Reorganization Agreements
Summary

Stake Technology Ltd. has prepared unaudited pro forma consolidated financial statements to show the financial impact of its acquisition of all shares of Northern Food & Dairy, Inc. The statements reflect how the combined companies’ finances would look if the acquisition had occurred earlier, using both Canadian and U.S. accounting standards. The document outlines key financial figures, adjustments, and assumptions, but notes that these are estimates and may change. The statements are for informational purposes only and do not guarantee future results or performance.

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EX-10.5 4 0004.txt CONSOLIDATED FINANCIAL STATEMENTS 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 = $0.6757 U.S. Management of Stake and Northern do not anticipate any significant administrative savings or costs as a result of this acquisition. These unaudited pro forma financial statements therefore do not give effect to savings or costs, which might result from the acquisition of Northern. The pro forma adjustments are based on preliminary estimates, available information and certain assumptions and may be revised, as additional information becomes available. These pro forma financial statements do not purport to represent what the Company's financial position or results of operations would actually have been if the combination of these businesses in fact had occurred on those dates or project the Company's financial position or results of operations for any future period. Since Stake and Northern were not under common control or management for all periods, historical combined results may not be comparable to, or indicative of, future performance. STAKE TECHNOLOGY LTD. Unaudited Pro Forma Consolidated Balance Sheet As at September 30, 2000 (expressed in Canadian dollars)
Unaudited Unaudited Unaudited Northern at Northern at Stake at 9/30/2000 09/30/2000 09/30/2000 Pro Forma Adjustments US$ CDN@ $1.5035 CDN $ CDN$ CDN$ --- ------------ ----- ---- ---- 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 =========== =========== =========== =========== =========== At 9/30/2000 Pro forma CDN $ ----- 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 ===========
(see accompanying introduction and notes to pro forma consolidated financial statements) STAKE TECHNOLOGY LTD. Unaudited Pro Forma Consolidated Statement of Operations For the year ended December 31, 1999 (expressed in Canada dollars)
Translated at average rate - 1.48 Audited Audited Northern Northern Stake Adjustments Reallocations US$ CDN$ CDN$ CDN $ CDN$ ---------- ---------- ---------- ---- ---- 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 Pro Forma 12/31/99 Consolidated CDN$ ---------- 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
(see accompanying introduction and notes to pro forma consolidated financial statements) STAKE TECHNOLOGY LTD. Unaudited Pro Forma Consolidated Statement of Operations For the nine months ended September 30, 2000 (expressed in Canadian dollars)
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$ ---- ---- ----- ---- ---- 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 Pro Forma 9/30/00 Consolidated CDN$ ---- 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
(see accompanying introduction and notes to pro forma consolidated financial statements) 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. 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. 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:
Nine months ended Year ended September 30, 2000 December 31, 1999 ------------------ ----------------- 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 =========== ===========