Document:

Northern Food and Dairy, Inc.
Financial Statements at September 15, 2000 and for
the Period from January 1, 2000 through September 15, 2000
<PAGE>

Northern Food and Dairy, Inc.
Balance Sheet
At September 15, 2000
--------------------------------------------------------------------------------

                                     ASSETS

Current assets:
   Cash and cash equivalents                                         $   693,856
   Accounts receivable, net                                            3,290,518
   Inventories                                                         1,680,759
   Prepaid expenses and other                                            155,917
                                                                     -----------

     Total current assets                                              5,821,050

Property, plant and equipment, net                                    11,755,909
Investments in and advances to unconsolidated affiliates                 427,418
Debt issuance costs                                                       32,398
                                                                     -----------
     Total assets                                                    $18,036,775
                                                                     -----------

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Borrowings under line of credit                                   $   950,000
   Current portion of long-term debt                                   1,827,251
   Accounts payable                                                    4,459,863
   Accrued expenses                                                      538,336
   Dividends payable                                                     191,067
   Due to Sunrich, Inc.                                                  331,707
   Due to Nordic Aseptic, Inc.                                           200,000
                                                                     -----------

     Total current liabilities                                         8,498,224

   Long-term debt, less current portion                                7,039,544
   Advance from Stake Technology, Ltd.                                   250,000
                                                                     -----------
     Total liabilities                                                15,787,768
                                                                     -----------

Commitments

Stockholders' equity:
   Common stock, $10 par value; 2,500 shares authorized,
      1,000 shares issued and outstanding                                 10,000
   Additional paid-in capital                                          1,747,991
   Retained earnings                                                     491,016
                                                                     -----------

     Total stockholders' equity                                        2,249,007
                                                                     -----------
     Total liabilities and stockholders' equity                      $18,036,775
                                                                     ===========

    The accompanying notes are an integral part of the financial statements.

                                        2
<PAGE>

Northern Food and Dairy, Inc.
Statement of Operations
For the period from January 1, 2000 through September 15, 2000
--------------------------------------------------------------------------------

Net sales                                                          $ 16,718,578

Cost of sales                                                        14,554,548
                                                                   ------------

     Gross profit                                                     2,164,030

Selling, general and administrative expenses                          1,830,098
                                                                   ------------

     Operating income                                                   333,932

Other income (expense):
   Gain on investment (Note 2)                                          160,597
   Interest expense                                                    (195,837)
   Other income                                                          14,004
                                                                   ------------

     Net income before equity in loss of investee                       312,696

Equity in loss of investee                                             (280,009)
                                                                   ------------

     Net income                                                    $     32,687
                                                                   ============

    The accompanying notes are an integral part of the financial statements.

                                        3

<PAGE>

Northern Food and Dairy, Inc.
Statement of Changes in Stockholders' Equity
For the period from January 1, 2000 through September 15, 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                Accumulated
                                                   Additional                      Other
                                       Common        Paid-in      Retained     Comprehensive
                                        Stock        Capital      Earnings         Income         Total
<S>                                  <C>           <C>           <C>             <C>           <C>
Balance, January 1, 2000             $    10,000   $ 1,747,991   $ 1,398,525     $    80,842   $ 3,237,358

Dividends to stockholders:
    Cash paid and payable                                           (570,874)                     (570,874)
    Stake Technology, Ltd.
        common stock                                                (194,957)                     (194,957)
    Real property                                                   (174,365)                     (174,365)

Increase in fair value of
      investment                                                                      79,755        79,755

Decrease in unrealized gain on
      distribution of investment                                                    (160,597)     (160,597)

Net income                                                            32,687                        32,687
                                     -----------   -----------   -----------     -----------   -----------
Balance, September 15, 2000          $    10,000   $ 1,747,991   $   491,016     $        --   $ 2,249,007
                                     ===========   ===========   ===========     ===========   ===========
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                        4
<PAGE>

Northern Food and Dairy, Inc.
Statement of Cash Flows
For the period from January 1, 2000 through September 15, 2000
--------------------------------------------------------------------------------

<TABLE>
<S>                                                                                             <C>
Cash flows from operating activities:
    Net income                                                                                  $     32,687
    Adjustments to reconcile net income to net cash provided by operating activities:
      Depreciation and amortization                                                                  546,903
      Gain on investment                                                                            (160,597)
      Equity in net loss of investee                                                                 280,009
      Provision for doubtful accounts                                                                 15,000
      Loss on disposal of equipment                                                                    1,299
      Changes in operating assets and liabilities:
        Accounts receivable                                                                         (138,591)
        Inventories                                                                                 (376,052)
        Prepaid expenses and other                                                                  (119,845)
        Accounts payable                                                                           1,035,395
        Accrued expenses                                                                              64,237
        Due to Nordic Aseptic, Inc.                                                                  200,000
                                                                                                ------------

      Net cash provided by operating activities                                                    1,380,445
                                                                                                ------------

Cash flows from investing activities:
    Purchases of plant, property and equipment                                                    (5,672,496)
    Increase in investment in and advances to unconsolidated affiliates                             (707,427)
                                                                                                ------------

      Net cash used in investing activities                                                       (6,379,923)
                                                                                                ------------

Cash flows from financing activities:
    Borrowings under line of credit                                                                  950,000
    Proceeds from issuance of long-term debt                                                      12,035,619
    Advance from Stake Technology, Ltd.                                                              250,000
    Advance from Sunrich, Inc.                                                                       331,707
    Principal payments on long-term debt                                                          (6,896,750)
    Change in cash overdraft                                                                        (577,863)
    Dividends paid to stockholders                                                                  (379,807)
    Payment of debt issuance costs                                                                   (32,534)
                                                                                                ------------

      Net cash provided by financing activities                                                    5,680,372
                                                                                                ------------

Net increase in cash and cash equivalents                                                            680,894

Cash and cash equivalents, January 1, 2000                                                            12,962
                                                                                                ------------

Cash and cash equivalents, September 15, 2000                                                   $    693,856
                                                                                                ============

Supplemental cash flow information:
    Cash payments for interest, including capitalized interest of approximately $230,000        $    418,713

Supplemental disclosure of significant noncash financing and investing activities:
    Distribution of Stake Technology, Ltd. common stock as dividend in kind to stockholders     $    194,957
    Dividends payable to stockholders                                                                191,067
    Distribution of certain real property as a dividend in kind to stockholder                       174,365
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                        5
<PAGE>

Northern Food and Dairy, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------

1.    Summary of Significant Accounting Policies

      Nature of Business

      Northern Food and Dairy, Inc. (the Company) processes liquid dairy and
      non-dairy products into products suitable for human or animal consumption
      and provides custom drying services for certain grains. The Company has
      sales to customers located throughout the United States of America and
      Japan.

      On September 15, 2000, stockholders of the Company agreed to exchange
      their shares of common stock for common stock of Stake Technology, Ltd.
      Under terms of the agreement, Stake Technology, Ltd. issued 7,000,000
      common shares and warrants to purchase 500,000 additional common shares in
      exchange for all outstanding shares of the Company.

      The transaction above was immediately followed by Stake Technology, Ltd.'s
      contribution to Stake Minnesota II, Inc. of the outstanding shares of the
      Company obtained in the exchange described above. Stake Minnesota II, Inc.
      was then merged into the Company. The corporate existence of Stake
      Minnesota II, Inc. ceased and Northern Food and Dairy, Inc. continued as
      the surviving corporation.

      These financial statements represent the financial position of Northern
      Food and Dairy, Inc. at September 15, 2000, and the results of its
      operations and cash flows for the period ended September 15, 2000, all
      immediately prior to the transaction described above.

      Revenue Recognition

      Sales are recorded for products produced for human and animal consumption
      upon shipment to the customer. Revenues for custom drying services are
      recorded upon completion of quality testing.

      Use of Estimates

      The preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and the reported
      amounts of revenues and expenses during the reported period. Actual
      results could differ from those estimates.

      Inventories

      Inventories are valued at the lower of cost or market, with cost
      determined in the first-in, first-out (FIFO) method.

      Cash and Cash Equivalents

      The Company considers all highly liquid debt instruments with original
      maturities of three months or less to be cash equivalents.

      Property, Plant and Equipment

      Property, plant and equipment are stated at cost less accumulated
      depreciation and amortization. Depreciation is recorded using the
      straight-line method over the estimated useful lives of the assets.
      Amortization is recorded over the shorter of the asset life or lease term
      on the straight-line method.

      Interest is capitalized in connection with the construction of major
      facilities. The capitalized interest is recorded as part of the asset to
      which it relates and is amortized over the asset's estimated useful life.
      For the period from January 1, 2000, through September 15, 2000,
      approximately $230,000 of interest was capitalized.

                                       6
<PAGE>

Northern Food and Dairy, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------

      Maintenance, repairs and minor renewals are charged to expense while major
      renewals and betterments are capitalized. Upon sale or retirement, the
      cost and related accumulated depreciation and amortization are removed
      from the accounts and the resulting gain or loss is included in
      operations.

      Income Taxes

      The Company has elected S corporation status. As a result, no provision
      for federal and state income taxes is reflected in the financial
      statements because the stockholders will be allocated 100% of the
      Company's income in their individual income tax returns. A State of
      Minnesota minimum fee of $3,750 is included in selling, general and
      administrative expenses.

2.    Investments

      The Company owns a 50% interest in Norsun, LLC, with the remaining 50%
      interest owned by Sunrich, Inc., a wholly owned subsidiary of Stake
      Technology, Ltd. Norsun, LLC owns 100% of the common stock of Nordic
      Aseptic, Inc. (Nordic) and 100% of the member interests of Star Valley LLC
      (Star Valley).

      Nordic was formed to purchase the assets of Hoffman Aseptic Packaging,
      Inc. during August 2000 for approximately $4,300,000. The purchase was
      paid for with the assumption of approximately $3,700,000 of debt and
      payment of approximately $500,000 in cash. Star Valley was formed to
      purchase the real estate and equipment from Custom Dried Foods, Inc.
      during March 2000 for $185,000. During the period ended September 15,
      2000, the Company invested in and advanced to Nordic and Star Valley
      $375,720. In addition, the Company owes Sunrich, Inc. $331,707 for
      investments and advances to Norsun, LLC made on behalf of the Company.
      Subsequent to September 15, 2000, the Company has advanced an additional
      $285,000 to Nordic.

      For the period from January 1, 2000 through September 15, 2000, the
      Company's equity in the losses of Norsun, LLC was $280,009. Norsun, LLC
      reported a loss of $560,018 on its investment in Nordic for the period
      ended September 15, 2000. At September 15, 2000, Star Valley was not yet
      operational. At September 30, 2000, Nordic had total assets and
      liabilities of approximately $5,400,000 each, and Star Valley had total
      assets and liabilities of approximately $397,000 each.

      The Company had an investment in the common stock of Stake Technology
      Ltd., a publicly traded company (see Note 8). The Company's investment was
      classified as an available-for-sale security and was stated at fair value,
      with unrealized holding gains reported as a separate component of
      stockholders' equity. During the period ended September 15, 2000, the
      stock was distributed to the Company's stockholders as a dividend in kind
      and a gain recognized on the disposition of the stock. The common stock
      had a cost of $34,360, and the Company recorded a gain of $160,597 during
      the period ended September 15, 2000.

3.    Selected Financial Information

      Accounts Receivable, Net

      Accounts receivable                                     $ 3,315,518
      Less allowance for doubtful accounts                        (25,000)
                                                              -----------
                                                              $ 3,290,518
                                                              ===========

                                       7
<PAGE>

Northern Food and Dairy, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------

      Inventories

      Raw materials                                           $    864,387
      Work in process                                              115,170
      Finished goods                                               701,202
                                                              ------------
                                                              $  1,680,759
                                                              ============

      Property, Plant and Equipment, Net

      Land                                                    $    209,713
      Buildings and leasehold improvements                       7,665,101
      Machinery, equipment and vehicles                          8,629,294
      Equipment under capital leases                               303,067
      Construction in progress                                   1,383,365
                                                              ------------

                                                                18,190,540

      Less accumulated depreciation                             (6,311,335)
      Less accumulated amortization for equipment
        under capital leases                                      (123,296)
                                                              ------------
                                                              $ 11,755,909
                                                              ============

4.    Financing Arrangements

      The Company maintains a line of credit with a bank, which provides for
      maximum borrowings of up to $1,000,000 based on eligible accounts
      receivable, with interest at the bank's reference rate plus 1.5% (9.5% at
      September 15, 2000). Borrowings under the line of credit are due December
      31, 2000, and are collateralized by accounts receivable, inventories,
      certain equipment and a personal guarantee of two stockholders of the
      Company. Borrowings under the line of credit totaled $950,000 at September
      15, 2000. The lender may subjectively accelerate payment of the
      outstanding amounts upon the occurrence of a material adverse change.

      At September 15, 2000, long-term debt consists of the following:

<TABLE>
      <S>                                                                                     <C>
      Note payable to financial institution, interest at 9.45%, due in monthly
         payments of $144,043 through September 2003, collateralized by machinery,
         furniture, fixtures, and equipment. The note includes a cross
         default provision.                                                                   $4,495,475

      Note payable to financial institution, interest at the 30-day commercial paper
         rate plus 3% (8.875% at September 15, 2000), due in monthly payments of
         $53,918 through September 2007. The note is collateralized by all
         machinery, furniture, fixtures, and equipment. The note includes a cross
         default provision.                                                                    3,300,000

      Uncollateralized note payable to related party in connection with the
         acquisition of property, interest at 8%, due in monthly payments of $2,543
         through August 2005 (see Note 7).                                                       125,409
</TABLE>

                                       8
<PAGE>

Northern Food and Dairy, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------

<TABLE>
<S>                                                                                           <C>
      Contract for deed assumed in conjunction with the acquisition of property from a
         related party, interest at 10%, due in monthly payments of $6,000 through
         August 2008, collateralized by the contract for deed property (see Note 7).           $ 399,591

      Mortgage payable to bank, interest at 9.375%, due in monthly payments of $3,260
         through August 2005, collateralized by property. The lender may
         subjectively accelerate payment of the outstanding amounts upon the
         occurrence of a material adverse change.                                                310,202

      Contract for deed payable in quarterly installments of $7,033, through
         January 2002; collateralized by the contract for deed property.                          39,201

      Capital lease obligations due in monthly payments through 2004, with
         interest ranging from 7.0% to 9.4%.                                                     114,757

      Note payable to a customer, discounted at 9.5%, payments of $11,111
         commence on May 31, 2001 through April 30, 2002.                                         65,338

      Other                                                                                       16,822
                                                                                              ----------
                                                                                               8,866,795
      Less current portion                                                                    (1,827,251)
                                                                                              ----------
                                                                                              $7,039,544
                                                                                              ==========
</TABLE>

      Scheduled maturities of long-term debt and payments due on capital leases
      are as follows:

<TABLE>
<CAPTION>
                                                Capital
      Year Ending September 15                   Leases        Other          Total
      <S>                                      <C>         <C>            <C>
           2001                                $ 68,493    $1,765,784     $1,834,277
           2002                                  36,835     1,995,107      2,031,942
           2003                                  17,041     2,213,580      2,230,621
           2004                                   2,653       551,792        554,445
           2005                                               854,388        854,388
           Thereafter                                       1,371,387      1,371,387
                                               --------    ----------     ----------
                                                125,022     8,752,038      8,877,060
           Less interest on capital leases      (10,265)                     (10,265)
                                               --------    ----------     ----------
                                              $ 114,757    $8,752,038     $8,866,795
                                              =========    ==========     ==========
</TABLE>

5.    Manufacturing Agreement with Rhodia, Inc.

      The Company has entered into an agreement with Rhodia, Inc. to serve as
      the primary manufacturer and processor of certain products for Rhodia,
      Inc. The agreement includes two periods with period one from September
      2000 through August 2003 and period two from September 2004 through August
      2007. Rhodia, Inc. can terminate the agreement after the end of period one
      upon providing twelve months notice to the Company.

                                       9
<PAGE>

Northern Food and Dairy, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------

      The Company incurred approximately $4,300,000 for plant expansion and
      equipment in order to meet the expected needs of Rhodia, Inc. During
      period one of the agreement, Rhodia, Inc. has agreed to repay the Company
      $4,300,000 through 36 monthly payments of $119,444 beginning in October
      2000. Subsequently, during period two of the agreement, the Company will
      repay Rhodia, Inc. up to $1,720,000 (40% of $4,300,000) through sales
      price reductions to Rhodia, Inc. during that period.

      Under the agreement, the Company is required to obtain certain regulatory
      approvals, the last of which management represents was received September
      27, 2000, thereby becoming the effective beginning date for the agreement.

6.    Significant Customer Information

      At September 15, 2000, the Company had three customers who accounted for
      16%, 14% and 11% of accounts receivable, respectively. During the period
      from January 1, 2000, through September 15, 2000, the Company had three
      customers that accounted for 16%, 15% and 11% of net sales, respectively.

7.    Related Party Transactions

      The Company leases certain real estate from a stockholder under operating
      leases that expire through August 2010. Annual rental on each of the
      leases is $1. Prior to the purchase described below, the Company leased
      facilities from a limited liability company in which a stockholder is a
      member. The Company also leases from third parties certain equipment on
      month-to-month leases. Total rent expense was $102,408, including $81,987
      paid to a limited liability company in which a stockholder is a member,
      for the period ended September 15, 2000.

      On August 24, 2000, the Company purchased land and building (previously
      leased by the Company) for $525,000 from a limited liability company in
      which a stockholder of the Company is a member. As part of the purchase,
      the Company assumed a contract for deed liability for approximately
      $400,000 and entered into a note payable to the stockholder (see Note 4)
      for approximately $125,000.

      On August 14, 2000, the Company purchased for cash a building from the
      majority stockholder for $117,000.

      At September 15, 2000, the Company had advances payable to Stake
      Technology, Ltd. and Sunrich, Inc. totaling $250,000 (see Note 2) and
      $331,707, respectively. The advances bear interest at 8.0%.

      During the period ended September 15, 2000, the Company paid Stake
      Technology, Ltd. $250,000 for consulting services provided to the Company.
      In addition, during the period the Company incurred $200,000 of expense
      with Nordic Aseptic, Inc.

                                       10
<PAGE>

Northern Food and Dairy, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------

8.    Other Commitments

      The Company is a co-guarantor along with Sunrich, Inc. on a $3,700,000
      installment loan for Nordic Aseptic, Inc. (see Note 2). The loan is
      payable in monthly installments of $44,048 through September 2007, with
      interest at the prime rate plus 1.0%. The loan is collateralized by land,
      buildings and equipment owned by Nordic Aseptic, Inc. The installment loan
      contains restrictive financial covenants for the Company, including
      maintaining tangible net worth of $2,500,000, debt to tangible net worth
      of less than 5.5 to 1.0 and adjusted EBITDA, as defined, to current
      maturities of long-term debt and interest greater than or equal to 1.0%,
      both measured quarterly beginning September 30, 2000.

      The Company has a consulting agreement with a former officer. The
      agreement provides for monthly payments of $5,428 through January 2014.
      Consulting expense was $46,140 for the period ended September 15, 2000.

9.    Defined Contribution Plan

      The Company has an employee profit sharing plan with a 401(k) feature
      which allows an annual contribution not to exceed the maximum amount
      allowed as a deduction under the Internal Revenue Code (the Code). The
      amount contributed by the Company is determined annually by the Company's
      Board of Directors. The Company contributed $37,822 as a 401(k) matching
      contribution for the period from January 1, 2000 through September 15,
      2000. There was no profit sharing contribution during the period.

                                       11INTRODUCTION 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>

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