SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 Commission File No. 0-9989 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SUNOPTA INC. (Exact name of registrant as specified in its charter) CANADA (Jurisdiction of Incorporation) Not Applicable (I.R.S. Employer Identification No.) 2838 Bovaird Drive West Norval, Ontario L0P 1K0, Canada (Address of Principal Executive Offices) (905) 455-1990 (Registrant's telephone number, including area code)

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedMarch 31, 2005
Commission File No. 0-9989

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

SUNOPTA INC.

(Exact name of registrant as specified in its charter)

CANADA
(Jurisdiction of Incorporation)

Not Applicable
(I.R.S. Employer Identification No.)

2838 Bovaird Drive West
Norval, Ontario L0P 1K0, Canada
(Address of Principal Executive Offices)

(905) 455-1990
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes - x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes - x No o

At April 29, 2005 registrant had 56,271,430 common shares outstanding, the only class of registrant’s common stock outstanding. There were no other classes of stock outstanding and the aggregate market value of voting stock held by non-affiliates at such date was $293,327,353. The Company’s common shares are traded on the Nasdaq SmallCap Market tier of the Nasdaq Stock Market under the symbol STKL and on the Toronto Stock Exchange under the symbol SOY.

There are 27 pages in the March 31, 2005 10-Q and the index follows the cover page.



SUNOPTA INC.	1	March 31, 2005 10-Q

SUNOPTA INC.

FORM 10-Q
March 31, 2005

PART I - FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Earnings for the three months ended March 31, 2005 and 2004.

Accumulated Capital Contributed Retained Other Stock Surplus Earnings Comprehensive Total Income $ $ $ $ $ ~~Balance at~~ December 31, 2003 96,636 3,384 15,779 4,142 119,941 Options exercised 472 -- -- -- 472 Employee Stock Purchase Plan 281 -- -- -- 281 Warrants exercised 7,095 -- -- -- 7,095 Net earnings2004.

	Condensed Consolidated Statements of Shareholders’ Equity for the period -- -- 10,663 -- 10,663 Currency translation adjustment -- -- -- 1,664 1,664 ------------------------------------------------------------------ Balance at September 30, 2004 104,484 3,384 26,442 5,806 140,116 ==================================================================

Condensed Consolidated Statements of Cash Flow ~~For the three months ended September 30, 2004 and 2003 Unaudited (expressed in thousands of U.S. dollars) - --------------------------------------------------------------------------------~~

September 30, September 30, 2004 2003 $ $ - ---------------------------------------------------------------------------------------------------- ~~Cash provided by (used in) Operating activities Net earnings~~ for the ~~period 2,767 2,195 Items~~three months ended March 31, 2005 and 2004.

	Notes to Condensed Consolidated Financial Statements for the three months ended March 31, 2005 and 2004.

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosure about Market Risk

Item 4.	Disclosure Controls and Procedures

PART II - OTHER INFORMATION

		All financial information is expressed in United States Dollars
		The closing rate of exchange on April 29, 2005 was CDN $1 = U.S. $0.7946



SUNOPTA INC.	2	March 31, 2005 10-Q

PART I - FINANCIAL INFORMATION

Item 1 -

Condensed Consolidated Financial Statements

SunOpta Inc.

For the Three Months Ended March 31, 2005

(Unaudited)



SUNOPTA INC.	3	March 31, 2005 10-Q

SunOpta Inc.
Condensed Consolidated Statements of Earnings
For the three months ended March 31, 2005 and 2004
Unaudited
(Expressed in thousands of U.S. dollars, except per share amounts)

	March 31, 2005 $		March 31, 2004 $


Revenues	86,223		62,502

Cost of goods sold	70,587		50,231


Gross profit	15,636		12,271

Warehousing and distribution expenses	2,604		1,156
Selling, general and administrative expenses	9,787		7,979


Earnings before the following	3,245		3,136

Interest expense, net	(302	)	(208	)
Other income (expense) (note 7)	4,035		(115	)
Foreign exchange	35		(141	)


	3,768		(464	)


Earnings before income taxes	7,013		2,672

Provision for income taxes	235		802


Net earnings before minority interest	6,778		1,870


Minority interest	173		—


Net earnings for the period	6,605		1,870


Change in foreign currency translation adjustment	(165	)	(197	)


Comprehensive income	6,440		1,673


Net earnings per share for the period (note 6)

– Basic	0.12		0.04


– Diluted	0.12		0.03

(See accompanying notes to condensed consolidated financial statements)



SUNOPTA INC.	4	March 31, 2005 10-Q

SunOpta Inc.
Condensed Consolidated Balance Sheets
As at March 31, 2005 and December 31, 2004
Unaudited
(Expressed in thousands of U.S. dollars, except per share amounts)

	March 31, 2005 $	December 31, 2004 $


Assets

Current assets

Cash and cash equivalents	10,643	8,081
Accounts receivable	41,871	38,446
Inventories	57,757	49,537
Prepaid expenses and other current assets	4,010	4,472
Current income taxes recoverable	—	2,000
Deferred income taxes	421	421


	114,702	102,957

Property, plant and equipment	65,516	62,619
Goodwill and intangibles	43,718	43,934
Deferred income taxes	7,310	6,831
Other assets (note 9(a))	3,372	3,831


	234,618	220,172

Liabilities

Current liabilities
Bank indebtedness	6,815	—
Accounts payable and accrued liabilities	28,511	35,668
Customer and other deposits	2,027	431
Current portion of long-term debt (note 4 (b))	4,947	4,819
Current portion of long-term payables	474	1,548


	42,774	42,466

Long-term debt (note 4(b))	29,768	31,003
Long-term payables	1,131	1,232


	73,673	74,701


Minority interest (note 4(a))	10,203	1,378


Shareholders’ Equity

Capital stock (note 5)	106,003	105,794
Contributed surplus	3,330	3,330
Retained earnings	33,426	26,821
Cumulative other comprehensive income	7,983	8,148


	150,742	144,093


	234,618	220,172


Commitments and contingencies (note 9)

(See accompanying notes to condensed consolidated financial statements)



SUNOPTA INC.	5	March 31, 2005 10-Q

SunOpta Inc.
Condensed Consolidated Statements of Shareholders’ Equity
As at March 31, 2005 and December 31, 2004
Unaudited
(Expressed in thousands of U.S. dollars, except per share amounts)

	Capital stock	Contributed surplus	Retained earnings	Cumulative other comprehensive income		Total
	$	$	$	$		$

Balance at December 31, 2004	105,794	3,330	26,821	8,148		144,093

Options exercised	48	—	—	—		48
Employee stock purchase plan	161	—	—	—		161
Net earnings for the period	—	—	6,605	—		6,605
Currency translation adjustment	—	—	—	(165	)	(165	)


Balance at March 31, 2005	106,003	3,330	33,426	7,983		150,742

	Capital stock	Contributed surplus	Retained earnings	Cumulative other comprehensive income		Total
	$	$	$	$		$

Balance at December 31, 2003	96,636	3,384	15,779	4,142		119,941

Options exercised	225	—	—	—		225
Employee stock purchase plan	1,425	—	—	—		1,425
Net earnings for the period	—	—	1,870	—		1,870
Currency translation adjustment	—	—	—	(197	)	(197	)


Balance at March 31, 2004	98,286	3,384	17,649	3,945		123,264

(See accompanying notes to condensed consolidated financial statements)



SUNOPTA INC.	6	March 31, 2005 10-Q

SunOpta Inc.
Condensed Consolidated Statements of Cash Flow
For the three months ended March 31, 2005 and 2004
Unaudited
(Expressed in thousands of U.S. dollars, except per share amounts)

	March 31, 2005 $		March 31, 2004 $

Cash provided by (used in)

Operating activities
Net earnings for the period	6,605		1,870
Items not affecting cash
Amortization	1,751		1,618
Deferred income taxes	153		447
Dilution gain (note 4(a))	(6,516	)	—
Common shares granted to Opta Minerals employees	234		—
Minority interest	173		—
Other	886		111
Changes in non-cash working capital (note 8)	(14,916	)	(7,073	)


	(11,630	)	(3,027	)

Investing activities
Purchase of property, plant and equipment	(4,769	)	(3,849	)
Acquisition of companies, net of cash acquired	(1,234	)	(911	)
Proceeds from sale of property, property and equipment	19		1,014
Other	—		(17	)


	(5,984	)	(3,763	)

Financing activities
Proceeds from Opta Minerals Inc. share issuance (note 4)	14,290		—
Increase in bank indebtedness	6,815		3,227
Repayment of term debt	(1,107	)	(663	)
Proceeds from the issuance of common shares, net of issuance costs	209		1,650
Other	(8	)	(37	)


	20,199		4,177

Foreign exchange gain (loss) on cash held in a foreign currency	(23	)	126


Increase (decrease) in cash and cash equivalents during the period	2,562		(2,487	)

Cash and cash equivalents – Beginning of the period	8,081		21,990


Cash and cash equivalents – End of the period	10,643		19,503


See note 8 for supplemental cash flow information

(See accompanying notes to condensed consolidated financial statements)



SUNOPTA INC.	7	March 31, 2005 10-Q

SunOpta Inc.
Notes to Condensed Consolidated Financial Statements
For the three months ended March 31, 2005 and 2004
Unaudited
(Expressed in thousands of U.S. dollars, except per share amounts)

1.	Basis of presentation

	The interim condensed consolidated financial statements of SunOpta Inc. (the Company) have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and in accordance with accounting principles generally accepted in the United States. Accordingly, these financial statements do not ~~affecting cash~~include all of the disclosures required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included and all such adjustments are of a normal, recurring nature. Operating results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2005. For further information, see the Company’s consolidated financial statements, and notes thereto, included in the Annual Report on Form 10K for the year ended December 31, 2004.

	The interim condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated on consolidation.

2.	Description of business and significant accounting policies

	The Company was incorporated under the laws of Canada on November 13, 1973. The Company conducts business in three main areas, the SunOpta Food Group (Food Group) processes, packages and distributes a wide range of natural and organic food products via its vertically integrated operations with a focus on soy, oat fiber and other natural and organic food products. Opta Minerals processes, distributes and recycles silia free abrasives and industrial minerals. The StakeTech Steam Explosion Group markets proprietary steam explosion technology systems for the pulp, bio-fuel and food processing industries. The Company’s assets, operations and employees at March 31, 2005 are located in the United States and Canada.

	Changes to significant accounting policies since December 31, 2004 are outlined below. For a complete list of significant accounting policies refer to the Company’s consolidated financial statements and notes included in the Annual Report on Form 10K for the year ended December 31, 2004. These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. Differences arising from the application of accounting principles generally accepted in Canada are described in Note 11.

	Investments

	All subsidiaries, except Organic Ingredients, Inc. which is owned 50.1% (refer to note 12) and Opta Minerals which is owned 70.4% (refer to note 4), are 100% owned at March 31, 2005. The remaining 49.9% of minority interest in Organic Ingredients, Inc. was acquired by SunOpta Inc. subsequent to March 31, 2005. Investments in these subsidiaries represent control and are recorded using the consolidation method, whereby revenues and expenses are consolidated with the results of the Company. The minority interest balance on the Condensed Consolidated Balance Sheet represents the non-controlling shareholders’ interest in Organic Ingredients, Inc. and Opta Minerals Inc. This balance includes the non-controlling equity component as at the date of acquisition and income attributable since that date.

	Property, plant and equipment

	Property, plant and equipment are stated at cost, less accumulated amortization and accumulated losses. Amortization 1,658 1,233 Future income taxes 421 (867) Other (223) 299 Changes in non-cash working capital (note 13) 2,453 (3,935) ----------------------------- 7,076 (1,075) ----------------------------- Investing activities Acquisition of companies, net of cash acquired (5,345) (150) Acquisition ofis provided on property, plant and equipment (5,585) (1,298) Proceeds from note receivable 1,250 358 Other (94) 220 ----------------------------- (9,774) (870) ----------------------------- Financing activities Increase (decrease)using the straight-line basis at rates reflecting the estimated useful lives of the assets. Effective January 1, 2005, the estimated useful lives of all asset categories were revised to standardize and better reflect the estimated useful life for all wholly owned subsidiaries in ~~bank indebtedness (3,515) (10,004) Borrowings under term debt facilities 16,400 -- Repayment~~the following ranges:

	Buildings	20 - 40 years
	Machinery & equipment	10 - 20 years
	Office furniture & equipment	3 - 7 years
	Vehicles	5 years



SUNOPTA INC.	8	March 31, 2005 10-Q

SunOpta Inc.
Notes to Condensed Consolidated Financial Statements
For the three months ended March 31, 2005 and 2004
Unaudited
(Expressed in thousands of ~~term debt (3,564) (5,674) Repayment~~U.S. dollars, except per share amounts)

2.	Description of ~~deferred purchase consideration -- (243) Proceeds~~business and significant accounting policies continued

	Amortization is calculated from the issuance of common shares, net of issuance costs 5,895 54,098 Financing costs (198) (93) Purchase and redemption of Preference Shares of subsidiary companies -- (8) ----------------------------- 15,018 38,076 Foreign exchange gain (loss) on cash held in a foreign currency (505) 112 ----------------------------- Increase in cash and cash equivalents duringtime the period 11,815 36,243 Cash and cash equivalents - Beginning of the period 1,608 2,649 ----------------------------- Cash and cash equivalents - End of the period 13,423 38,892 =============================

~~September 30, September 30, 2004 2003~~asset is put into use. Amortization expense would have been approximately $2,051 (actual amortization was $ ~~$ - -----------------------------------------------------------------------------------------------------~~ ~~Cash provided by (used in) Operating activities Net earnings~~1,751) for the ~~period 10,663 5,770 Items~~three months ended March 31, 2005 if the change to estimated useful lives had not affecting cash Amortization 5,100 3,499 Future income taxes 1,886 (543) Other (183) 193 Changestake place.

3.	Stock Option Plan

	The Company maintains several stock option plans under which incentive stock options may be granted to employees and non-employee directors. SunOpta accounts for stock-based compensation using the intrinsic value method prescribed in non-cash working capital (note 13) (9,501) (8,462) ----------------------------- 7,965 457 ----------------------------- Investing activities Decrease in short term investments -- 2,038 AcquisitionAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, because the grant price equals the market price on the date of ~~companies, net~~grant, no compensation expense is recognized by the Company for stock options issued to employees.

	Had compensation cost for the Company’s stock options been recognized based upon the estimated fair value on the grant date under the fair value methodology allowed by Statement of ~~cash acquired (27,448) (2,894) Acquisition of property, plant~~Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation,” as amended by SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and equipment (14,833) (3,778) Proceeds from sale of property 5,864 -- Proceeds from note receivable 1,250 1,074 Other (107) 199 ----------------------------- (35,274) (3,361) ----------------------------- Financing activities Increase in bank indebtedness -- (4,285) Borrowings under term debt facilities 17,007 7,800 Repayment of term debt and tender facilities (5,310) (24,009) Repayment of deferred purchase consideration (65) (490) Proceeds fromDisclosure,” the issuance of common shares, net of issuance costs 7,848 56,028 Financing costs (198) (343) Purchase and redemption of Preference Shares of subsidiary companies (216) (139) ----------------------------- 19,066 34,562 Foreign exchange gain (loss) on cash held in a foreign currency (324) 222 ----------------------------- Increased (decease) in cash and cash equivalents during the period (8,567) 31,880 Cash and cash equivalents - Beginning of the period 21,990 7,012 ----------------------------- Cash and cash equivalents - End of the period 13,423 38,892 =============================

	Three months ended

	March 31, 2005		March 31, 2004

Number of options granted		159,000		—

	$		$

Total fair value of options granted		520		—

Net earnings for the period as reported		6,605		1,870
Stock compensation expense:
Options expense from current period grants		104		—
Options expense from prior period grants		329		154

		433		154


Pro-forma net earnings for the period		6,172		1,716


Weighted average number of shares outstanding		56,238,585		52,838,493

Diluted weighted average number of shares outstanding		56,928,173		55,856,723


Pro-forma net earnings per common share
- Basic		0.11		0.03

- Diluted		0.11		0.03

~~Three months Nine~~

	The fair value of the options granted during the current and prior periods were estimated using the Black-Scholes option-pricing model with the assumptions of a dividend yield of 0% (2004 – 0%), an expected volatility of 54% (March 31, 2004 – 55%), a risk-free interest rate of 3% (March 31, 2004 –3%), and an expected life of four to six years. These options vest at various dates ranging from the date of the grants to March 9, 2010 and expire four to five years subsequent to the grant date.



SUNOPTA INC.	9	March 31, 2005 10-Q

SunOpta Inc.
Notes to Condensed Consolidated Financial Statements
For the three months ended March 31, 2005 and 2004
Unaudited
(Expressed in thousands of U.S. dollars, except per share amounts)

4.	Opta Minerals Inc. Initial Public Offering

(a)	On February 17, 2005, the Company’s subsidiary Opta Minerals Inc. completed its previously announced initial public offering and raised $14,294 (Cdn $17,496) in net proceeds, (gross proceeds Cdn $19,800) including an over-allotment option granted to the underwriters and exercised on March 16, 2005. The offer was for shares of the Company which consisted of the businesses and net assets that form the Opta Minerals Group segment (note 10). Immediately prior to this transaction the net assets and business of this segment were transferred into this wholly owned subsidiary Opta Minerals Inc.. The Company’s ownership was reduced to 70.4% of the outstanding common shares as a result of this transaction including the effect of gifting shares to certain employees of Opta Minerals Inc. in recognition of their contribution in building the Company. The Company recorded a dilution gain of $6,516 as a result of the sale of the approximate 29.6% minority interest in Opta Minerals Inc.

	The initial public offering consisted of 4,500,000 units at an initial offering price of Cdn $4.00 per unit. Each unit consisted of one common share and one-half of a common share purchase warrant of Opta Minerals Inc.. The shares and warrants are listed on the Toronto Stock Exchange under the symbols “OPM” and “OPM.WT”, respectively. Opta Minerals Inc. intends to use the proceeds for strategic acquisitions of, or investments in new products, technologies, and businesses that expand or complement Opta Minerals Inc.’s business and for general corporate purposes. During the quarter ended ---------------------------------------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2004 2003 2004 2003 ~~Number~~March 31, 2005, Opta Minerals Inc. repaid $4,098 (Cdn $5,000) to SunOpta relating to intercompany loans and repaid an additional $385 (Cdn $500) during the second quarter of options granted 215,000 152,400 427,500 731,850 ==================================================== $ $ $ $ Total fair value 654 715 1,494 2,049 ==================================================== Net earnings2005.

(b)	In February 2005, the Company amended its credit agreement for the period as reported 2,767 2,195 10,663 5,770 Stock compensation expense: Options vested in current period from current period grants 75 179 117 306 Options vested in current period from prior period grants 148 60 443 181 ---------------------------------------------------- 223 239 560 487 ---------------------------------------------------- Pro-forma net earnings for the period 2,544 1,956 10,103 5,283 ==================================================== Pro-forma net earnings per common share - Basic 0.05 0.04 0.19 0.12 ==================================================== - Diluted 0.05 0.04 0.19 0.11 ====================================================

The fair value of the options granted during the prior year were estimated using the Black-Scholes option-pricing model with the assumptions of a dividend yield of 0% (2003 - 0%), an expected volatility of 47% (September 30, 2003 - 60%), a risk-free interest rate of 2.5% (September 30, 2003 - 3%), and an expected life of four to six years. These options vest at various dates ranging from the date of the grants to August 6, 2008 and expire four to six years subsequent to the grant date. - -------------------------------------------------------------------------------- SUNOPTA INC. 14 September 30, 2004 10-Q SunOpta Inc. Notes to Condensed Consolidated Financial Statements For the three and nine months ended September 30, 2004 and 2003 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 4. Business acquisitions In the first nine months of 2004, the Company acquired seven businesses. All of these acquisitions have been accounted for using the purchase method and the consolidated financial statements include the results of operations for these businesses from the date of acquisition, less minority interest on acquisition when the Company owns less than 100% of the acquired company. The purchase price has been allocated to the assets acquired and the liabilities assumed based on managements best estimate of fair values. The preliminary purchase price allocation of the net assets acquired and consideration given is as follows:

(a) Kofman-Barenholtz On September 2, 2004, SunOpta acquired 100% of the outstanding shares of Kofman-Barenholtz Foods Limited (Kofman-Barenholtz) for cash consideration of $3,214 (Cdn $4,200). An additional Cdn $900 of consideration is payable upon Kofman-Barenholtz's ability to maintain certain product line distribution requirements under the agreement. Upon satisfaction of those terms, any amount paid will become additional goodwill. Kofman-Barenholtz is an established market leader in the distribution of kosher and specialty grocery products across Canada, with over 50 years of experience. Kofman-Barenholtz, headquartered in Toronto, maintains a number of exclusive sourcing arrangements with kosher foods suppliers from around the world, including Israel and the United States. Kofman-Barenholtz's focus and strength in the kosher and specialty grocery products market further strengthens SunOpta's Canadian natural, organic, kosher and specialty foods distribution network. This transaction positions SunOpta as the dominant kosher foods distributor. Kofman-Barenholtz has been grouped under the Distribution Group within the SunOpta Food Group segment. - -------------------------------------------------------------------------------- SUNOPTA INC. 15 September 30, 2004 10-Q SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 4. Business acquisitions continued (b) Organic Ingredients On September 10, 2004, SunOpta acquired 50.1% of the outstanding shares of Organic Ingredients, Inc. (Organic Ingredients), headquartered in Aptos, California for consideration of $2,258 including acquisition costs. As part of the transaction, SunOpta has also obtained an option to acquire the remaining 49.9% minority position exercisable between March 31, 2005 and July 1, 2005. Organic Ingredients is a leading trader and provider of a wide range of certified organic industrial ingredients including processed fruit and vegetable based ingredients, sweeteners, vinegars and others. The company sources and contract manufactures through exclusive arrangements with suppliers located around the world, including North America, South America, Europe and Asia. These exclusive supply arrangements enable the company to maintain a strategic advantage in the organic food ingredient market, in terms of cost and availability of supply. Organic Ingredients has been grouped under the Ingredients Group within the SunOpta Food Group segment. The company's strategic cost and supply advantage is expected to generate significant synergies with SunOpta's existing vertically integrated organic food operations as SunOpta continues to expand its organic ingredients and finished product offerings. (c) Acquisitions completed during the six months ended June 30, 2004 Snapdragon On June 1, 2004, SunOpta acquired the inventory and business of Snapdragon Natural Foods Inc. (Snapdragon) for $878. Additional consideration may be payable equal to 5% of net sales greater than a predetermined target during the period September 1, 2004 to August 31, 2005. Snapdragon distributes organic groceries and frozen products to both mass market and natural food retailers throughout Canada from warehousing facilities located in Montreal, Quebec, Toronto, Ontario and Calgary, Alberta. The Snapdragon operation will further contribute to the Company's stated objective of building Canada's first national natural and organics food distribution network. Supreme Foods On May 1, 2004, SunOpta acquired the outstanding shares of Supreme Foods Limited (Supreme) for $8,282 including acquisition costs and assumption of a note payable to shareholders of $590. Supreme is a leading distributor of certified organic, natural, kosher and specialty grocery products across Canada, with headquarters in Toronto, Ontario. Supreme has a number of exclusive sourcing agreements as well as products marketed under its own trade names. Supreme's focus and strength in grocery products will become the base of SunOpta's growing natural, organic and specialty foods distribution business. The combination of Supreme's business in eastern Canada with Wild West Organic Harvest in western Canada creates a national grocery platform for SunOpta and allows for considerable expansion of product lines. - -------------------------------------------------------------------------------- SUNOPTA INC. 16 September 30, 2004 10-Q SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 4. Business acquisitions continued General Mills Oat Fiber Facility On April 16, 2004, SunOpta acquired the assets of General Mills Bakeries and Food Service oat fiber processing facility for $11,651 including acquisition costs. The assets included land, building, equipment and inventory. With the addition of this facility, the Company continued to increase its total annual oat fiber processing capacity. The Company's growth in oat fiber has been driven by the significant increase in consumer demand for healthier food offerings, and the general trend to improve the nutritional content of foods via the addition of fiber. SunOpta's purchase of this facility is expected to generate efficiencies in the Company's oat fiber processing operations enabling the Company to streamline oat fiber production across three facilities, lengthening run times, improving operating efficiencies and meeting our current backlog of orders. Distribution A & L On April 1, 2004, SunOpta acquired the outstanding shares of Distribution A&L for $381 including acquisition costs. An additional $381 of contingent consideration may be payable if certain predetermined profit targets are achieved by the acquired business during the period April 1, 2004 to June 30, 2009 and will be recorded as goodwill when the amount and outcome of the consideration becomes determinable. Distribution A&L specializes in the distribution of specialty abrasive and related products. Distribution A&L focuses on smaller markets currently not serviced by Opta Minerals via its network of selling professionals specializing in the industrial, automotive and pool filtration industries. The skills contained within this operation are key as the Opta Minerals group continues to strategically expand products and sales capabilities. Distribue-Vie On March 1, 2004, SunOpta acquired the outstanding shares of Distribue-Vie Fruits & Legumes Biologiques Inc. (Distribue-Vie) for $911 including acquisition costs. Distribue-Vie specializes in the distribution of organic fresh foods with an emphasis on produce. Distribue-Vie is the dominant player in the distribution of organic produce in Quebec and operates from a warehousing facility located in Montreal, servicing the key Quebec market along with geographic reach to Eastern Ontario and the Maritime provinces. An additional $229 of contingent consideration may be payable if certain predetermined profit targets are achieved by the acquired business during the period April 1, 2004 to March 31, 2006 and will be recorded as goodwill when the amount and outcome of this contingency becomes determinable. The addition of Distribue-Vie to SunOpta's Canadian natural and organic distribution system is expected to bring significant benefits to the customer base in the form of broader product lines and greater support for consumer education of organic foods through marketing and retail merchandising initiatives. - -------------------------------------------------------------------------------- SUNOPTA INC. 17 September 30, 2004 10-Q SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 5. Comprehensive Income The following are components of comprehensive income, net of tax, for the following periods:

6. Accounts Receivable September 30, December 31, 2004 2003 $ $ Trade receivables 38,701 27,417 Allowance for doubtful accounts (1,280) (1,176) ------------------------------ 37,421 26,241 ============================== 7. Inventories September 30, December 31, 2004 2003 $ $ Raw materials 15,751 11,599 Finished goods 23,172 21,363 Grain 1,753 1,816 ------------------------------ 40,676 34,778 ============================== Grain inventories consist of the following: September 30, December 31, 2004 2003 $ $ Company owned grain 1,823 1,491 Unrealized gain (loss) on Sales and purchase contracts (677) 153 Futures contracts 607 172 ------------------------------ 1,753 1,816 ============================== - -------------------------------------------------------------------------------- SUNOPTA INC. 18 September 30, 2004 10-Q SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 8. Prepaid Expenses and Other Current Assets Included within prepaid expenses and other current assets is a receivable of $3,343 representing a judgment awarded and recovery of legal fees and interestreleasing all secured collateral relating to a suit the Company filed against a supplier for failure to adhere to the terms of a contract. The judgment was awarded on June 29, 2004 by a federal court jury in the United States District Court for the District of Oregon in favour of Sunrich Inc. (Sunrich) a subsidiary of the Company. The supplier counter-sued the Company for breach of contract however, as part of this judgment these counter-claims were dismissed. The supplier has since filed post trial motions. The Company and its legal counsel believe these motions and counter-claims are without merit and the Company believes the collectibility of this receivable is reasonably assured. Included within other income and expense for the nine months ended September 30, 2004 is a recorded pre-tax gain of $2,646. The gain has been recorded within the Packaged Products Group. 9. Long-term debt and banking facilities September 30, December 31, 2004 2003 $ $ Long-Term Debt Term loan (a)(i) 34,200 19,800 Other long-term debt (b) 2,538 5,236 ------------------------------- 36,738 25,036 Less: current portion (4,776) (3,840) ------------------------------- 31,962 21,196 =============================== (a) On July 7, 2004, the Company amended and restated its credit agreement with its banking syndicate as follows: i) Term loan facility The term loan facility was increased to $35,000 ($34,200 as at September 30, 2004) from a June 30, 2004 balance of $18,700 (2003 - $19,800). Principal is payable quarterly based on a seven year amortization. The term loan matures June 30, 2008 and is renewable at the option of the lender and the Company. Interest on the term loan is payable at the borrower's option at U.S. dollar base rate or U.S. LIBOR plus a margin based on certain financial ratios of the Company (2.7% as at September 30, 2004 and 2.2% as at December 31, 2003). ii) $11,890 (CDN $15,000), (CDN $7,500 at September 30, 2004) line of credit facility Interest on borrowings under this facility accrues at the borrower's option based on various reference rates including Canadian or U.S. bank prime, or Canadian bankers' acceptances, plus a margin based on certain financial ratios. As at September 30, 2004, $nil (2003 - $nil) of this facility has been utilized and $829 has been committed through letters of credit as itemized in note 13(d). iii) $17,500 ($9,000 at September 30, 2004) line of credit facility Interest on borrowings under this facility accrues at the borrower's option based on various reference rates including U.S. bank prime, or LIBOR, plus a margin based on certain financial ratios. As at September 30, 2004, $nil (2003 - $nil) of this facility has been utilized. - -------------------------------------------------------------------------------- SUNOPTA INC. 19 September 30, 2004 10-Q SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 9. Long-term debt and banking facilities continued iv) $10,000 revolving acquisition facility As part of the amendment, the Company obtained an acquisition facility to finance future acquisitions and capital expenditures. This facility is subject to certain draw restrictions. Principal is payable quarterly equal to the greater of (a) 1/20 of the initial drawdown amount of the facility, or (b) 1/20 of the outstanding principal amount as of the date of the last draw. All remaining outstanding principal under this facility is due on June 30, 2008. Interest on borrowing under this facility is consistent with the term loan described in i) above. This facility was not utilized as at September 30, 2004. The Canadian and U.S. line of credit facilities along with the unused portion of the acquisition facility are subject to annual extensions. All of the credit facilities described above are collateralized by a first priority security against substantially all of the Company's assets in both Canada and the United States. (b) Other long-term debt consists of the following:

~~2004 2003 $ $~~ ~~Note payable of Cdn $1,088 (September 30, 2004 - Cdn $956) issued~~ to the ~~former shareholders of Kettle Valley Dried Fruit Ltd.~~Opta Minerals Group, as part of the ~~acquisition in 2003,~~group’s initial public offering. As part of the initial public offering Opta Minerals Inc. received a term sheet with a Canadian chartered bank that has committed to provide them with an operating facility of up to Cdn $5,000 and a term facility for up to Cdn $7,000. These facilities will be collaterized by a first priority security interest ~~at 5%, interest~~against substantially all of Opta Minerals Inc.’s assets.

5.	Capital stock

	March 31, 2005 $	December 31, 2004 $
Issued and fully paid -
56,270,630 common shares (December 31, 2004 – 56,220,212)	105,994	105,785
35,000 warrants (December 31, 2004 –35,000)	9	9


	106,003	105,794


	(a)	In the first three months of 2005, employees and ~~principle payable in ten semi-annual instalments, uncollateralized. 758 816 Note payable~~directors exercised 20,740 (March 31, 2004 – 107,657) common share options and an equal number of ~~Cdn $809 (September 30,~~common shares were issued for net proceeds of $48 (March 31, 2004 - ~~Cdn $824)~~$225).

	(b)	In the first three months of 2005, nil (March 31, 2004 – 593,850) warrants were exercised and nil common shares were issued ~~to the former shareholders~~for net proceeds of Supreme Foods Inc., discounted at 5%, principal payable in three equal annual instalments, uncollateralized. 653 -- Term loan assumed on the acquisition of Sigco Sun Products in 2003. Interest payable monthly at LIBOR + 1.95% (September 30,$nil (March 31, 2004 - ~~3.04%)~~$1,425). ~~This balance was paid in full during~~

	(c)	In the ~~quarter. -- 2,440 Term loan issued to Oracle Credit Corp. on the purchase~~first three months of a software license agreement. Interest at 2.0% payable in eight quarterly instalments. 695 1,107 Other term debt with a weighted average interest rate of 4.0%, due in varying instalments through July 2009. 316 802 Capital lease obligations due in monthly payments through 2006, with a weighted average interest rate of 6.8%. 116 71 ------------------- 2,538 5,236 -------------------

~~- -------------------------------------------------------------------------------- SUNOPTA INC. 20 September 30, 2004 10-Q~~ SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars, except per share amounts) - -------------------------------------------------------------------------------- 10. Long-term payables

~~11. Capital stock~~

September 30, December 31, 2004 2003 $ $ ~~~~Issued and fully paid~~ - ~~55,913,025~~$nil) common shares ~~(December~~were issued for net proceeds of $161 as part of the Company’s employee stock purchase plan.~~

	(d)	In the first three months of 2005, 125,000 options were granted to employees at a price of $6.54 and 34,000 options were granted to employees at a price of $6.81.



SUNOPTA INC.	10	March 31, ~~2003 - 52,705,096) 104,213 94,338 285,000 warrants (December~~2005 10-Q

SunOpta Inc.
Condensed Notes to Consolidated Financial Statements
For the three months ended March 31, 2003 - 3,241,350) 271 2,298 ----------------------------- 104,484 96,636 =============================

(a) In the first nine months of 2004, employees and directors exercised 205,637 (September 30, 2003 - 1,008,215) common share options and an equal number of common shares were issued for net proceeds of $472 (September 30, 2003 - $1,882). (b) In the first nine months of 2004, 2,956,350 (September 30, 2003 - 1,134,425) warrants were exercised and an equal number of common shares were issued for net proceeds of $7,095 (September 30, 2003 - $1,963). (c) In the first nine months of 2004, 45,942 (September 30, 2003 - $nil) common shares were issued for net proceeds of $281 as part of the Company's employee stock purchase plan. (d) In the first nine months of 2004, 427,500 options were granted to employees at a price of $6.93 and $7.69. (e) As at September 30, 2004, there were options vested to employees and directors to acquire 904,560 common shares at exercise prices of $1.06 to $9.90. In addition, at September 30, 2004, options to acquire an additional 1,300,880 common shares at $1.06 to $9.90 have been granted to employees and directors but have not yet vested. - -------------------------------------------------------------------------------- SUNOPTA INC. 21 September 30, 2004 10-Q SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 12. Earnings2005
Unaudited
(Expressed in thousands of U.S. dollars, except per share amounts)

Earnings per share

The calculation of basic earnings per share is based on the weighted average number of shares outstanding. Diluted earnings per share reflect the dilutive effect of the exercise of warrants and options. The number of shares for the diluted earnings per share was calculated as follows:

Three months ended Nine Months ended --------------------------------------------------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2004 2003 2004 2003 $ $ $ $ Net earnings for the period 2,767 2,195 10,663 5,770 =============================================================== Weighted average number of shares outstanding 53,544,930 46,394,941 53,285,668 43,903,794 Dilutive Warrants 163,382 2,342,159 182,291 1,904,963 Dilutive Options 750,437 1,184,910 906,674 947,313 --------------------------------------------------------------- Diluted weighted average number of shares outstanding 54,458,749 49,922,010 54,374,633 46,756,070 =============================================================== Earningsoutstanding. Diluted earnings per share: - Basic 0.05 0.05 0.20 0.13 =============================================================== - Diluted 0.05 0.04 0.20 0.12 =============================================================== share reflect the dilutive effect of the exercise of warrants and options. The number of shares for the diluted earnings per share was calculated as follows:

~~13. Supplemental cash flow information~~

	Three months ended

	March 31, 2005 $	March 31, 2004 $

Net earnings for the period	6,605	1,870


Weighted average number of shares used in basic earnings per share	56,238,585	52,838,493

Dilutive potential of the following:
Employee/director stock options	663,827	1,035,219
Dilutive Warrants	25,761	1,983,011


Diluted weighted average number of shares outstanding	56,928,173	55,856,723

Net earnings per share:
Basic	0.12	0.04

Diluted	0.12	0.03

~~Three~~

	Options to purchase 1,209,415 (March 31, 2004 – 242,900) common shares have been excluded from the calculations of diluted earnings per share due to their anti-dilutive effect.

7.	Other income (expense)

	March 31, 2005		March 31, 2004

Dilution gain, net of related costs of $976 (a)	5,540		—
Reduction of assets (b)	(708	)	(186	)
Other (c)	(797	)	71

	4,035		(115	)


	(a)	The transaction costs of $976 incurred during the Opta Minerals Inc. initial public offering (refer note 4(a)) includes professional fees of $742 and compensation costs of $234 related to the share gifting to certain Opta Minerals Group employees.

	(b)	Reduction of assets include the write-down of a business and facilities held for sale to net realizable value.

	(c)	Other expenses of $797 relate primarily to certain unrecoverable legal fees (refer note 9(a)), litigation related costs and one time moving costs to a new facility within the Canadian Food Distribution Group segment.



SUNOPTA INC.	11	March 31, 2005 10-Q

SunOpta Inc.
Condensed Notes to Consolidated Financial Statements
For the three months ended ~~Nine~~March 31, 2005
Unaudited
(Expressed in thousands of U.S. dollars, except per share amounts)

8.	Supplemental cash flow information

	Three months ended

	March 31, 2005 $		March 31, 2004 $
Changes in non-cash working capital:
Accounts receivable	(3,468	)	(2,040	)
Inventories	(8,336	)	(3,241	)
Recoveries of income taxes	2,000		—
Prepaid expenses and other current assets	465		(791	)
Accounts payable and accrued liabilities	(7,173	)	(2,194	)
Customer and other deposits	1,596		1,193


	(14,916	)	(7,073	)

Cash paid for:
Interest	319		200

Income taxes	—		—


9.	Commitments and contingencies

(a)	Included in Other assets is a receivable of $2,903 (December 31, 2004 - $3,343) representing a judgment awarded and recovery of certain legal fees and interest with respect to a suit the Company filed against a supplier for failure to adhere to the terms of a contract. The judgment was awarded on June 29, 2004 by a federal court jury in the United States District Court for the District of Oregon in favour of SunRich LLC, a subsidiary of the Company. On February 8, 2005 the supplier filed an appeal against this judgement. The Company and legal counsel believe this appeal is without merit and the Company believes the collectibility of this receivable is reasonably assured. During the quarter, certain legal fees were disallowed by the court and an amount of $440 has been charged to other expense during the period representing unrecoverable legal fees.

(b)	In the normal course of business, the SunOpta Food Group holds grain for the benefit of others. The Company is liable for any deficiencies of grade or shortage of quantity that may arise in connection with such grain.

(c)	Letters of credit:

	i)	An irrevocable letter of credit for $620 (Cdn $750) has been placed with the Ontario Ministry of Environment and Energy as a security deposit for the Certificate of Approval granted to the Company for certain recycling activities. This letter of credit must remain in place indefinitely as a condition of the Certificate of Approval.

	ii)	An irrevocable letter of credit for $205 has been placed with the Commonwealth of Virginia Department of Environmental Qualities as a security deposit for the Certificate of Approval granted to the Company for certain recycling activities. This letter of credit must remain in place indefinitely as a condition of the Certificate of Approval.

	iii)	Additional letters of credit totalling $31 have been placed with third parties as security on transactions occurring in the ordinary course of operations.

	iv)	Standby letters of credit in the amount of $850 have been placed with a Hungarian bank in accordance with an agreement with a related party whereby both parties operate a Hungarian based sunflower business. These letters of credit expire on various dates between April 30, 2005 and August 30, 2005.



SUNOPTA INC.	12	March 31, 2005 10-Q

SunOpta Inc.
Condensed Notes to Consolidated Financial Statements
For the three months ended --------------------------------------------------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2004 2003 2004 2003 $ $ $ $ ~~~~Changes~~March 31, 2005~~
Unaudited
(Expressed in non-cash working capital: Accounts receivable - trade 3,676 (2,621) (6,788) (5,526) Inventories 3,178 71 1,660 (408) Income tax recoverable -- -- 1,686 -- Prepaid expensesthousands of U.S. dollars, except per share amounts)

10. Segmented information

	Industry segments

	The Company operates in three industry segments: (a) the SunOpta Food Group (Food Group), processes, packages and ~~other current assets (484) 105 (3,693) (893) Accounts payable~~distributes a wide range of natural, organic and ~~accrued liabilities (3,917) (1,980) (589) (1,822) Customer~~specialty food products via its vertically integrated operations with a focus on soy, natural and other deposits -- 490 (1,777) 187 --------------------------------------------------------------- 2,453 (3,935) (9,501) (8,462) =============================================================== Cash paid for: Interest 572 611 915 1,329 =============================================================== Income taxes 860 1,041 1,918 2,099 ===============================================================

~~- -------------------------------------------------------------------------------- SUNOPTA INC. 22 September 30, 2004 10-Q~~ SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars, except per share amounts) - -------------------------------------------------------------------------------- 14. Commitments and contingencies (a) The Company is subject to a variety of claims and suits that arise from time to time in the ordinary course of business. While management currently believes that resolving all of these matters, individually or in aggregate, will not have a material adverse impact on the Company's financial position or the results of operations, litigation and claims are subject to inherent uncertainties and management's view of these matters may change in the future. Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on the Company's financial position and the results of operations for the period in which the effect becomes reasonably estimable. (b) The Company believes, with respect to both its operations and real property that it is in material compliance with current environmental laws. Based on known existing conditions and the Company's experience in complying with emerging environmental issues, the Company is of the view that future costs relating to environmental compliance will not have a material adverse effect on its financial position, but there can be no assurance that unforeseen changes in the laws or enforcement policies of relevant governmental bodies, the discovery of changed conditions on the Company's real property or in its operations, or changes in use of such properties and any related site restoration requirements, will not result in the incurrence of significant costs. No provision has been made in these consolidated financial statements for these future costs since such costs, if any, are not determinable at this time. (c) In the normal course of business, the SunOpta Food Group holds grain for the benefit of others. The Company is liable for any deficiencies of grade or shortage of quantity that may arise in connection with such grain. (d) Letters of credit: i) An irrevocable letter of credit for $593 has been placed with the Ontario Ministry of Environment and Energy as a security deposit for the Certificate of Approval granted to the Company for certain recycling activities. This letter of credit must remain in place indefinitely as a condition of the Certificate of Approval. ii) An irrevocable letter of credit for $205 has been placed with the Commonwealth of Virginia Department of Environmental Qualities as a security deposit for the Certificate of Approval granted to the Company for certain recycling activities. This letter of credit must remain in place indefinitely as a condition of the Certificate of Approval. iii) Additional letters of credit totalling $31 have been placed with third parties as security on transactions occurring in the ordinary course of operations. - -------------------------------------------------------------------------------- SUNOPTA INC. 23 September 30, 2004 10-Q SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- (e) Real property lease commitments: The Company has entered into various leasing arrangements which have fixed monthly rents that are adjusted annually each year for inflation. Commitments under operating leases, principally for distribution centres, warehouse and equipment, are as follows: 2004 576 2005 2,850 2006 2,583 2007 2,052 2008 2,031 Thereafter 1,756 ----------- $11,848 =========== 15. Segmented information Industry segments The Company operates in three industry segments: (a) the SunOpta Food Group, processes, packages and distributes a wide range of natural and organic food products via its vertically integrated operations with a focus on soy, oat fiber, natural and organic food products. During 2003 the Company expanded its reporting structure and has further defined its segments into Grains and Soy Products Group, Ingredients Group, Distribution Group and Packaged Products Group (which combined form the SunOpta Food Group). The addition of these segments reflects how management views and manages the business and is aligned with the Company's vertically integrated model; (b) Opta Minerals, processes, distributes, and recycles industrial minerals;organic food products; (b) the Opta Minerals Group, processes, distributes, and recycles silica free loose abrasives, industrial minerals, specialty sands and related products; and (c) the StakeTech Steam Explosion Group, markets proprietary steam explosion technology systems for the pulp, biofuel and food processing industries. The Company's assets, operations and employees are located in Canada and the United States. The Company has revised its reporting of segmented net earnings (loss) to net earnings (loss) before interest expense and provision for income taxes but inclusive of allocated corporate management fees, as this is better aligned with how management views its operations. The SunRich Food Group Inc., the holding company of U.S. operations, has also been reclassified from the Food Group segment to Corporate.

Three months ended September 30, 2004 ------------------------------------------------------------- StakeTech Steam Explosion ~~Technology~~Group, markets proprietary non-wood processing technology with significant licensing and application potential in the pulp, food processing and bio-fuel industries. During 2004, the Company expanded its reporting segment of the Food Group and has further defined this segment into Grains and Soy Products Group, SunOpta Ingredients Group, Packaged Products Group and Canadian Food Distribution Group (which combined form the SunOpta Food Group). The addition of these segments better reflects how management views and manages the business and is aligned with the Company’s vertically integrated model. The Company’s assets, operations and employees are located in Canada and the United States.

	Three months ended March 31, 2005

	SunOpta Food Group $	Opta Minerals Group $	StakeTech Steam Explosion Group and Corporate $		Consolidated $
External revenues by market
U.S	44,670	3,160	280		48,110
Canada	27,638	4,568	—		32,206
Other	5,897	10	—		5,907


Total revenues to external customers	78,205	7,738	280		86,223


Segment earnings before other income (expense), interest expense (net), income taxes and minority interest	3,343	837	(900	)	3,280


Other income (expense)			4,035		4,035


Segment earnings before interest expense (net), income taxes and minority interest	3,343	837	3,135		7,315


Interest expense, net	—	—	302		302


Provision for income taxes	—	—	235		235


Minority interest	—	—	173		173


Net earnings	3,343	837	2,425		6,605



SUNOPTA INC.	13	March 31, 2005 10-Q

SunOpta Inc.
Condensed Notes to Consolidated Financial Statements
For the three months ended March 31, 2005
Unaudited
(Expressed in thousands of U.S. dollars, except per share amounts)

10. Segmented information continued

The SunOpta Food Group has the following segmented reporting:

	Three months ended March 31, 2005

	Grains & Soy Products Group $	SunOpta Ingredients Group $	Packaged Products Group $	Canadian Food Distribution Group $	SunOpta Food Group $
External revenues by market
U.S	15,509	17,851	11,247	63	44,670
Canada	249	385	1,585	25,419	27,638
Other	4,523	1,335	39	—	5,897


Total revenues from external customers	20,281	19,571	12,871	25,482	78,205


Segment earnings before other income (expense), interest expense (net), income taxes and minority interest	1,113	1,106	434	690	3,343

	Three months ended March 31, 2004

	SunOpta Food Group $	Opta Minerals Group $	StakeTech Steam Explosion Group and Corporate $		Consolidated $
External revenues by market
U.S	35,236	4,135	147		39,518
Canada	15,567	2,704	—		18,271
Other	4,713	—	—		4,713


Total revenues to external customers	55,516	6,839	147		62,502


Segment earnings before other income (expense), interest expense (net) and income taxes	3,191	677	(873	)	2,995


Other income (expense)	—	—	(115	)	(115	)


Segment earnings before interest expense (net) and income taxes	3,191	677	(988	)	2,880


Interest expense, net	—	—	208		208


Provision for income taxes	—	—	802		802


Net earnings (loss)	3,191	677	(1,998	)	1,870



SUNOPTA INC.	14	March 31, 2005 10-Q

SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three months ended March 31, 2005 Unaudited (Expressed in thousands of U.S. dollars, except per share amounts)



	The SunOpta Food Group has the following segmented reporting:

	Three months ended March 31, 2004

	Grains & Soy Products Group $	SunOpta Ingredients Group $	Packaged Products Group $		Canadian Food Distribution Group $	SunOpta Food Group $
External revenues by market
U.S	14,381	13,277	7,578		—	35,236
Canada	159	493	914		14,001	15,567
Other	3,143	1,515	55		—	4,713


Total revenues from external customers	17,683	15,285	8,547		14,001	55,516


Segment earnings before other income, interest expense (net) and income taxes	467	1,812	(246	)	1,158	3,191

11. Canadian generally accepted accounting principle differences

	These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) which conform in all material respects applicable to the Company with those in Canada (Canadian GAAP) during the periods presented, except with respect to the following items:

	Three months ended

	March 31, 2005 $		March 31, 2004 $

Net earnings for the period - as reported	6,605		1,870

Stock option compensation expense (i)	(525	)	(134	)

Net earnings for the period – Canadian GAAP	6,080		1,736


Net earnings per share – Canadian GAAP – Basic	0.11		0.03

Net earnings per share – Canadian GAAP – Diluted	0.11		0.03



Retained earnings as reported	33,426		17,649

Cumulative stock option compensation expense (i)	(2,572	)	(895	)
Accretion convertible debenture	(54	)	(54	)

Retained earnings – Canadian GAAP	30,800		16,700


Shareholders’ equity – as reported	150,742		123,264

Retained earnings change	(2,626	)	(949	)

Shareholders’ equity – Canadian GAAP	148,116		122,315



SUNOPTA INC.	15	March 31, 2005 10-Q

SunOpta Inc.
Condensed Notes to Consolidated Financial Statements
For the three months ended March 31, 2005
Unaudited
(Expressed in thousands of U.S. dollars, except per share amounts)

11. Canadian generally accepted accounting principle differences continued

	(i)	Under Canadian GAAP, the Company is required to record stock compensation expense on options granted to employees.

	In conjunction with the standard, under Canadian GAAP, the Company would have recorded $530 in stock compensation expense for the three months ended March 31, 2005 (2004 - $134). The cumulative impact of this difference is $2,988 as at March 31, 2005 and $1,311 as at March 31, 2004.

	Partially offsetting the balance above, are stock option expenses recognized under US GAAP, not recognized under Canadian GAAP, related to a delay between when options were granted to employees and when they were approved by shareholders. An amount of $416 was recorded as an expense prior to 2004, is a permanent difference between Canadian and US GAAP.

12. Subsequent events

	On April 5, 2005, SunOpta exercised its option to acquire the remaining 49.9% of the outstanding shares of Organic Ingredients, Inc. (Organic Ingredients), headquartered in Aptos, California for consideration of $2,416. Additional consideration may be payable based on Organic Ingredients achieving pre-determined earnings targets during the period January 1, 2005 to December 31, 2007. Any additional consideration will be recorded as goodwill when the outcome of the contingency becomes determinable.

	Organic Ingredients is an established provider of a wide range of certified organic industrial ingredients including processed fruit and vegetable based ingredients, sweeteners, vinegars and others. The company sources and contract manufactures through exclusive arrangements with suppliers located around the world, including North America, South America, Europe and Asia. These exclusive supply arrangements enable the company to maintain a strategic advantage in the organic food ingredient market, in terms of cost and availability of supply, and positions the company to provide value added private label products to key customers. Organic Ingredients has been included within the SunOpta Ingredients Group segment within the SunOpta Food Group.

13. Comparative figures

Certain 2004 quarterly comparative figures have been reclassified to conform to the 2005 financial statement presentation.



SUNOPTA INC.	16	March 31, 2005 10-Q

PART I - FINANCIAL INFORMATION

Item 2–Management’s Discussion and Analysis of Financial Condition and Results of Operations

Significant Developments

Initial Public Offering of Common Shares in Canada by a wholly-owned subsidiary of SunOpta, Opta Minerals Inc.

On February 17, 2005, the Company’s subsidiary Opta Minerals Inc. completed its previously announced initial public offering and raised $14,294 (Cdn $17,496) in net proceeds, (gross proceeds Cdn 19,800) including an over-allotment option granted to the underwriters and exercised on March 16, 2005. The offer was for shares of the Company which consisted of the businesses and net assets that form the Opta Minerals Group segment (note 10). Immediately prior to this transaction the net assets and business of this segment were transferred into this wholly owned subsidiary Opta Minerals Inc.. The Company’s ownership was reduced to 70.4% of the outstanding common shares as a result of this transaction including the effect of gifting shares to certain employees of Opta Minerals Inc. in recognition of their contribution in building the Company. The Company recorded a dilution gain of $6,516 as a result of the sale of the approximate 29.6% minority interest in Opta Minerals Inc.

The initial public offering consisted of 4,500,000 units at an initial offering price of Cdn $4.00 per unit. Each unit consisted of one common share and one-half of a common share purchase warrant of Opta Minerals Inc.. The shares and warrants are listed on the Toronto Stock Exchange under the symbols “OPM” and “OPM.WT”, respectively. Opta Minerals Inc. intends to use the proceeds for strategic acquisitions of, or investments in new products, technologies, and businesses that expand or complement Opta Minerals Inc.’s business and for general corporate purposes. During the quarter ended March 31, 2005, Opta Minerals Inc. repaid $4,098 (Cdn $5,000) to SunOpta relating to intercompany loans and repaid an additional $413 (Cdn $500) during the second quarter of 2005.

Amendment to Credit Agreement

In February 2005, the Company amended its credit agreement for the primary purpose of releasing all secured collateral relating to the Opta Minerals Group, as part of the group’s initial public offering. As part of the initial public offering Opta Minerals Inc. received a term sheet with a Canadian chartered bank that has committed to provide them with an operating facility of up to Cdn $5,000 and a term facility for up to Cdn $7,000. These facilities will be collaterized by a first priority security interest against substantially all of Opta Minerals Inc.’s assets

Subsequent Event – Option exercised to acquire the remaining 49.9% of the outstanding shares of Organic Ingredients Inc.

On April 5, 2005, SunOpta exercised its option to acquire the remaining 49.9% of the outstanding shares of Organic Ingredients, Inc. (Organic Ingredients), headquartered in Aptos, California for consideration of $2,416. Additional consideration may be payable based on Organic Ingredients achieving pre-determined earnings targets during the period January 1, 2005 to December 31, 2007.

Operations for the Three Months ended March 31, 2005 Compared With the Three Months Ended March 31, 2004

Consolidated

Revenues in the first three months of 2005 increased by 38% to $86,223,000 versus $62,502,000 in the first three months of 2004. The Company’s net earnings for the first three months of 2005 were $6,605,000 or $0.12 per basic common share (diluted - $0.12) compared to $1,870,000 or $0.04 per basic common share (diluted - $0.03) for the first three months of 2004, representing a 253% increase.

The increase in the Company’s revenues is due to a $22,689,000 increase in revenue from the SunOpta Food Group, an increase of $899,000 from the Opta Minerals Group and ~~Food Group Group Corporate Consolidated $ $ $ $~~ ~~External~~an increase of $133,000 in revenues by market U.S 45,357 3,213 495 49,065 Canada 21,078 5,111 -- 26,189 Other 4,882 6 -- 4,888 ------------------------------------------------------------- Total revenuesfrom the StakeTech Steam Explosion Group. These increases are due to external customers 71,317 8,330 495 80,142 ============================================================= Segmentcontinued internal growth in certain product lines and the impact of acquisitions completed to date. Details are provided in the segmented analysis below.

Net earnings ~~(loss)~~ before interest expense (net) and income taxes ~~3,865 909 (144) 4,630 -------------------------------------------------------------~~ increased to $7,315,000 compared to $2,880,000 for the same period in the prior year, a 153.9% increase. This increase included a $5,540,000 dilution gain, net of transaction costs of $976, resulting from the sale of approximately 29.6% minority interest in the Initial Public Offering of Opta Minerals Inc, a subsidiary of the company. Excluding other income (expense), net earnings before other income (expense), interest expense $2,995,000 for the same period in the prior year, an 9.5% increase.



SUNOPTA INC.	17	March 31, 2005 10-Q

Acquisitions completed in the prior year, internal sales growth, synergies and cost reductions realized throughout the organization are attributable to this increase. Further details are included in the segmented analysis detailed below.

Interest expense ~~-- -- 675 675 ------------------------------------------------------------- Provision~~(net) increased slightly to $302,000 in the three months ended March 31, 2005 from $208,000 in the three months ended March 31, 2004. The increase reflects the higher level of debt outstanding during the first quarter of 2005 from the amended credit agreement effective July 2004.

Other income (expense) increased to $4,035,000 in the three months ended March 31, 2005 from $(115,000) in the three months ended March 31, 2004, primarily due to a net dilution gain from the Initial Public Offering of Opta Minerals Inc., as noted above of $5,540,000 a reduction of assets due to the write-down of a business and facilities held for sale to their net realizable value of ($708,000) and other expenses primarily related to certain unrecoverable legal fees, litigation related costs and one time moving costs to a new facility within the Canadian Food Distribution Group segment of ($797,000). Refer to note 7 in the Condensed Consolidated Financial Statements.

Foreign exchange of $35,000 compared to ($141,000) in the same period in 2004 is due to the depreciation of the United States dollar in the three months ended March 31, 2005.

The provision for income taxes -- -- 1,188 1,188 ------------------------------------------------------------- Segment net earnings (loss) 3,865 909 (2,007) 2,767 -------------------------------------------------------------

~~- -------------------------------------------------------------------------------- SUNOPTA INC. 24 September 30, 2004 10-Q~~ ~~SunOpta Inc. Condensed Notes to Consolidated Financial Statements For~~in the first three months of 2005 is 3.4% due to the majority of the dilution gain realized upon the Initial Public Offering of Opta Minerals Inc, being non-taxable while a portion of the costs netted against the dilution gain are taxable. Ignoring the effect of the dilution gain, the Company’s effective tax rate is estimated to be in the range of 26% - 31% for the year.

Segmented Operations Information

(Note: Certain prior year figures have been adjusted to conform with current year presentation and segmented reporting.)

SunOpta Food Group

The SunOpta Food Group contributed $78,205,000 or 90.7% of total Company consolidated revenues in the first three months of 2005 versus $55,516,000 or 88.8% in the same period in 2004. The increase of $22,689,000 or 40.9% in SunOpta Food Group revenues was primarily due to increased sunflower seed and Identity Preserved (IP) corn sales generated from the Grains & Soy Group, strong increases in sales from the Aseptic Packaging plant in the Packaging Products Group due to the recent expansion and process improvements implemented over the past year and acquisitions completed in 2004 within the SunOpta Ingredient and Canadian Food Distribution Groups. The above increases were somewhat offset by a decrease in fiber sales from the SunOpta Ingredients Group due to a decline in the low-carb market.

The gross margin as a percentage of sales decrease in the quarter from 19.7% to 17.7% was largely due to the fiber sales resulting from increased competition and reduced demand and the shortage of fresh produce supply within the Canadian Food Distribution Group due to unfavourable weather conditions in California for produce growth.

Selling, general and administrative expenses increased to $7,932,000 or 10.1% of revenues in the first three months of 2005 from $6,491,000 or 11.6% of revenues in the same period of 2004. The increase of $1,441,000 is due to the Supreme Foods, Snapdragon, Distribue-Vie and Kofman-Barenholtz acquisitions completed in the second and third quarters of 2004, partially offset by synergies and cost reduction programs implemented throughout the Group. Warehouse and distribution costs increased by $1,448,000 or 125% in the three months of 2005 to $2,604,000, compared to $1,156,000 in the same period in the prior year, again is due to acquisitions completed within the Canadian Food Distribution Group in 2004. A foreign exchange gain of $27,000 was recognized in the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 15. Segmented information continued The SunOpta Food Group has the following segmented reporting:
~~Three~~ months ended September 30, 2004 ----------------------------------------------------------------------------- Grains and Packaged Soy Products Ingredients Distribution Products SunOpta Group Group Group Group Food Group $ $ $ $ $ External revenues by market U.S 19,937 16,188 -- 9,232 45,357 Canada 287 481 19,374 936 21,078 Other 2,983 1,679 -- 220 4,882 ----------------------------------------------------------------------------- Total revenues from external customers 23,207 18,348 19,374 10,388 71,317 ----------------------------------------------------------------------------- SegmentMarch 31, 2005 compared to ($81,000) in the same period for the prior year.
Net earnings before interest expense and income taxes ~~369 2,482 590 424 3,865 -----------------------------------------------------------------------------~~
~~Nine~~in the SunOpta Food Group increased 2.2% to $3,343,000 in the three months ended September 30, 2004 ------------------------------------------------------------- StakeTech Steam Explosion Technology SunOpta Opta Minerals Group andMarch 31, 2005 compared to $3,191,000 in the three months ended March 31, 2004. Readers should be advised that internal product transfers between the groups are accounted for at cost. See the individual segments within the Food Group below for commentary related to Food Group ~~Corporate Consolidated $ $ $ $~~ ~~~~External~~activities and the 2005 outlook.~~
Effective January 1, 2005, the estimated useful lives of all asset categories for wholly owned subsidiaries were revised to better reflect the company’s previous experience in the useful life of plant and equipment and to standardize depreciation rates across divisions. Without this change in accounting estimate, additional amortization expense of approximately $310,000 would be been booked for the three months ended March 31, 2005, increasing amortization in the Grain & Soy Group by $65,000, SunOpta Ingredients Group by $190,000, Packaged Products Group by $120,000 and decreasing the Canadian Food Distribution Group by $65,000.
SUNOPTA INC. 18 March 31, 2005 10-Q

Grains & Soy Products Group

The Grains and Soy Products Group contributed $20,281,000 in revenues in the first three months of 2005 versus $17,683,000 in 2004, a 14.7% internal growth increase. Revenues were favourably impacted in the quarter by market U.S 125,417 10,918 933 137,268 Canada 57,766 13,085 -- 70,851 Other 15,311 158 -- 15,469 ------------------------------------------------------------- Totalincreased demand for High Oleic Kernel & Inshell sunflower seeds of $3,518,000, partially offset by weaker IP soybean sales due to the late opening of the river shipping season for the IP soybean crop.

Gross margin in the Grains and Soy Products Group increased by $172,000 in the three months ended March 31, 2005 to $2,478,000 or 12.2% of revenues compared to external customers 198,494 24,161 933 223,588 ------------------------------------------------------------- Segment$2,306,000 or 13.0%, in the same period in 2004. The decrease in gross profit margins is primarily due to reduced margins on corn crop due to favourable pricing available in 2004, not available in 2005, partially offset by the increase in the higher margin sunflower seed sales.

Selling, general and administrative expenses decreased to $1,417,000 in the three months ended March 31, 2005 versus $1,839,000 in the three months ended March 31, 2004. The decrease is due to cost rationalization initiatives and an allocation of certain administrative costs performed within Grains & Soy Products Group on behalf of the Packaged Products Segment. A foreign exchange gain of $52,000 was recognized in the three months ended March 31, 2005.

Net earnings ~~(loss)~~ before other income (expense), interest expense and income taxes 15,056 3,162 (1,969) 16,249 ------------------------------------------------------------- Interest expense -- -- 1,035 1,035 ------------------------------------------------------------- Provision for income taxes -- -- 4,551 4,551 ------------------------------------------------------------- Segment net earnings (loss) 15,056 3,162 (7,555) 10,663 -------------------------------------------------------------

~~The SunOpta Food Group has the following segmented reporting:~~

~~- -------------------------------------------------------------------------------- SUNOPTA INC. 25 September 30, 2004 10-Q~~ ~~SunOpta Inc. Condensed Notes to Consolidated Financial Statements For~~in the SunOpta Ingredients Group were $1,106,000 in the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 15. Segmented information continued



SUNOPTA INC.	19	March 31, 2005 10-Q

Net earnings (loss) before other income (expense), interest expense (net) and income taxes in the Packaged Products Group were $434,000 in the three months ended March 31, 2005 compared to ($246,000) in the same period of 2004, due to the factors noted above.

Canadian Food Distribution Group

The Canadian Food Distribution Group contributed $25,482,000 of revenue in the first three months of 2005 versus $14,001,000 in the same period of 2004, an increase of $11,480,000 or 82.0%. Revenues were favourably impacted by increased produce and grocery revenues of $1,181,000 and revenues of $10,300,000 resulting from the acquisitions completed in 2004 in the Canadian Distribution Group.

Gross margin in the Canadian Food Distribution Group increased by $2,610,000 in the three months ended March 31, 2005 to $6,711,000 or 26.3% compared to $4,100,000 or 29.3%, in the same period in 2004. The decrease in gross margin percentage was attributable to the lack of fresh produce supply from California due to unfavourable growing weather and increased competition in the fresh produce markets.

Warehousing and distribution costs increased to $2,604,000 in the three months ended March 31, 2005 versus $1,156,000 in the three months ended March 31, 2004, which is attributable to the 2004 acquisitions of Supreme Foods, Distribue-Vie, Snapdragon and Kofman-Barenholtz within the Canadian Food Distribution Group. Selling, general and administrative expenses increased to $3,385,000 in the three months ended March 31, 2005 versus $1,765,000 in the three months ended March 31, 2004. The increases noted are due primarily to the acquisitions noted above. A foreign exchange loss of $32,000 was recognized in the three months ended March 31, 2005 compared to $21,000 in the same period in the prior year.

Net earnings before other income (expense), interest expense (net) and income taxes in the Canadian Food Distribution Group were $690,000 in the three months ended March 31, 2005 compared to $1,158,000 in the three months ended March 31, 2004 due to the factors noted above.

Opta Minerals Group

Opta Minerals contributed $7,738,000 or 8.9% of the total Company consolidated revenues in the first three months of 2005, versus $6,839,000 or 10.9% in 2004. Opta Minerals revenues were favourably impacted by the Distribution A&L acquisition completed in 2004, increased sales of products sold to the bridge cleaning and foundry markets at the Waterdown and Lachine locations, revenues from the abrasive facility in Hardeeville, South Carolina acquired in the second quarter of 2004 and from the completion of an additional abrasives facility constructed in the third quarter of 2004.

Gross margins in Opta Minerals were $1,691,000 in the three months ended March 31, 2005 versus $1,305,000 in the three months ended March 31, 2004. As a percentage of revenues, gross margin increased to 21.9% in the first three months of 2005 from 19.1% in the first three months of 2004. The increase in margin is due primarily increased selling prices and volumes.

Selling, general and administrative expenses increased to $917,000 in the three months ended March 31, 2005 versus $694,000 in the three months ended March 31, 2004. The increase was a result of increased costs associated with a new public company and costs associated with the Distribution A&L acquisition in 2004. A foreign exchange gain of $63,000 was recognized in the three months ended March 31, 2005 and $66,000 in the three months ended March 31, 2004.

Net earnings before other income (expense), interest expense (net) and income taxes were $837,000 in the three months ended March 31, 2005 versus $677,000 in the three months ended March 31, 2004.

StakeTech Steam Explosion ~~Technology SunOpta~~Group and Corporate

Revenues of $280,000 for the three months ended March 31, 2005, versus $147,000 in same period in 2004, were derived from pre-engineering and research and development work with Abengoa Bio Energy on processes to be utilized in the production of ethanol fuel. The group continues to work with both external and internal groups on a number of food based and fuel applications.

Gross margin in the StakeTech Steam Explosion Group was $93,000 in the three months ended March 31, 2005 versus $54,000 in the three months ended March 31, 2004. As a percentage of revenues, gross margin decreased to 33.2% in the first three months of 2005 from 36.7% in the first three months of 2004.



SUNOPTA INC.	20	March 31, 2005 10-Q

Selling, general and administrative expenses were $938,000 for the first three months of 2005 compared to $801,000 for the same period in 2004. The increase was a result of increased costs associated with a growing public company including the addition of in-house counsel and internal audit functions, partially offset by increased management fees to the operating groups.

A foreign exchange loss of $55,000 was recognized in the three months ended March 31, 2005 compared to a loss of $126,000 in the same period of the previous year.

Net loss before other income (expense), interest expense (net) and income taxes was ($900,000) in the three months ended March 31, 2005 versus ($873,000) in the three months ended March 31, 2004.

Liquidity and Capital Resources at March 31, 2005

Sources of Liquidity

The Company obtains its short term financing through a combination of cash generated from operating activities, cash and cash equivalents, and available operating lines of credit. At March 31, 2005, the Company had availability under certain lines of credit of approximately $29,000,000. A revolving acquisition line is also available with maximum draws up to $10,000,000.

The Company obtains its long term financing through its credit agreement with a syndicate of lenders. The Company may expand this credit agreement, and/or obtain additional long term financing for internal expansion uses, acquisitions or other strategic purposes as required.

The Company has the following sources from which it can fund its operating 2005 cash requirements:

	•	Cash and cash equivalents.

	•	Available operating lines of credit.

	•	Cash flows generated from operating activities.

	•	Cash flows generated from the sale of assets held for sale.

	•	Cash flows generated from receipts of warrants and options currently in-the-money.

	•	Additional long term financing based on securitization of existing assets.

In order to finance significant acquisitions, the Company may need additional sources of cash which could be obtained through a combination of additional bank or subordinated financing, a private or public offering, or the issuance of shares in relation to an acquisition or a divestiture. The Company intends to maintain a maximum term debt to equity ratio of 0.60 to 1.00 versus the current position of 0.25 to 1.00.

Cash Flows from Operating Activities

Net cash and cash equivalents increased $2,562,000 during first three months of 2005 (2004 – ($2,487,000)) to $10,643,000 as at March 31, 2004 (2003 - $19,503,000).

Cash flows provided by operations for the first three months of 2005 before working capital changes was $3,286,000 (2004 – $4,046,000), a decrease of $760,000 or 18.7%. The decrease was due primarily to charges of $742,000 incurred during the Initial Public Offering of Opta Minerals Inc..

Cash provided (used) by operations after working capital changes was ($11,630,000) for the three months ended March 31, 2005 (2004 – ($3,027,000)), reflecting the use of funds for non-cash working capital of ($14,916,000) (2003 – ($7,073,000)). This utilization consists principally of an increase in inventories ($8,336,000), a decrease in accounts payable and accrued liabilities of ($7,173,000) and an increase in accounts receivable ($3,468,000), partially offset by a decrease in recoveries of income taxes of $2,000,000, a decrease in customer deposits of $1,596,000 and a decrease in prepaid expenses and other current assets of $465,000. The usage of cash flows to fund working capital in 2005 reflects the increase in working capital requirements to fund seasonal usage of cash for the purchase of grains within the Grains and Soy Products Group and the seasonal increase in kosher products within the Canadian Food Distribution Group for the Passover season.



SUNOPTA INC.	21	March 31, 2005 10-Q

Cash Flows from Investing Activities

Cash provided (used) by investment activities of ($5,984,000) in the first three months of 2005 (2004 – ($3,763,000)), reflects cash used to purchase of property, plant and equipment of ($4,769,000) (2004 – ($3,849,000)), earnout paid on previous acquisitions of companies of ($1,234,000) (2004 – ($911,000)) and other of $nil (2004 – ($17,000)) and offset by proceeds from the sale of property, plant and equipment of $19,000 (2004 - $1,014,000).

Cash Flows from Financing Activities

Cash provided (used) by financing activities was $20,199,000 in the first three months of 2005 (2004 – ($4,177,000)), consisting primarily of net proceeds from the Opta Minerals Inc. share issuance of $14,290,000 (2004 - $nil), increase in bank indebtedness of $6,815,000 (2004 - $3,227,000), from the issuance of common shares of $209,000 (2003 - $1,650,000), partially offset by net repayment on long-term debt facilities of ($1,107,000) (2004 – ($663,000)) and other of ($8,000) (2004 – (37,000)).

Item 3 -Quantitative and Qualitative Disclosures about Market Risk

Interest rate risk

The primary objective of our investment activities is to preserve principal and limit risk. To achieve this objective, the company maintains its portfolio in a variety of securities, including both government and corporate obligations and money market funds. These securities are generally classified as cash and cash equivalents or short-term investments and are recorded on the balance sheet at fair value with unrealized gains or losses reported through profit and loss. As at March 31, 2005 all of SunOpta’s excess funds were held in cash and cash equivalents with a maturity less than 90 days.

Debt in both fixed rate and floating rate interest carry different types of interest rate risk. Fixed rate debt may have their fair market value adversely affected by a decline in interest rates. In general, longer date debts are subject to greater interest rate risk than shorter dated securities. Floating rate term debt gives less predictability to cash flows as interest rates change. As at March 31, 2005, the weighted average interest rate of the fixed rate term debt was 4.7% (2004 – 4.5%) and $2,215,000 (2004 - $2,422,000) of the Company’s outstanding term debt is at fixed interest rates. Variable rate term debt of $32,450,000 (2004 - $33,400,000) at an interest rate of 3.7% (2004 – 3.7%) is partially hedged by variable rate cash equivalent investments. The Company looks at varying factors to determine the percentage of debt to hold at fixed rates including, the interest rate spread between variable and fixed (swap rates), the Company’s view on interest rate trends, the percent of offset to variable rate debt through holding variable rate investments and the Company’s ability to manage interest rate volatility and uncertainty. For every 1% increase (decrease) in interest rates the Company’s after tax earnings would (decrease) increase by approximately $240,000 (2004 - - $200,000). Given the short duration of fixed rate debt, changes in interest rates would have a negligible affect on fixed rate debt valuations.

Foreign currency risk

All U.S. subsidiaries use the U.S. dollar as their functional currency and the U.S. dollar is also the Company’s reporting currency. The Company is exposed to foreign exchange rate fluctuations as the financial results of the Company and its Canadian subsidiaries are translated into U.S. dollars on consolidation. Since 2003, the Canadian dollar has appreciated significantly against the U.S. dollar with closing rates moving from Cdn $1.5776 at January 1, 2003 to Cdn $1.2020 at December 31, 2004 and Cdn 1.2096 at March 31, 2005. The net effect of this three month depreciation has been a $35,000 (2004 - ($141,000)) net exchange gain (loss) and a ($130,000) (2004 – (4,571,000)) decrease in net assets. A 10% movement in the levels of foreign currency exchange rates in favour of (against) the Canadian dollar with all other variables held constant would result in an increase (decrease) in the fair value of the Company’s net assets by $5,673,0000 (2004 - $4,808,000).

The functional currency of all operations located in Canada is the Canadian dollar. For these operations all transaction gains or losses in relation to the U.S. dollar are recorded as foreign exchange gain (loss) in the Consolidated Statement of Earnings while gains (losses) on translation of net assets to U.S. dollars on consolidation are recorded in cumulative other comprehensive income account within Shareholders’ Equity. The functional currency of the corporate head office is the U.S. dollar. Transaction gains or losses as well as translation gains and losses on monetary assets and liabilities are recorded within foreign exchange gains (losses) on the Condensed Consolidated Statement of Earnings. U.S. based SunOpta Food Group ~~Group Corporate Consolidated $ $ $ $~~ External revenues by market U.S 36,885 3,798 82 40,765 Canada 5,507 2,609 -- 8,116 Other 1,434 69 -- 1,503 ------------------------------------------------------------- Total revenuesoperations have no exposure to external customers 43,826 6,476 82 50,384 ------------------------------------------------------------- Segment earnings (loss) before interest expenseother currencies since almost all sales and income taxes 3,257 834 (815) 3,276 ------------------------------------------------------------- Interest expense -- -- 680 680 ------------------------------------------------------------- Provision for income taxes -- -- 401 401 ------------------------------------------------------------- Segment net earnings (loss) 3,257 834 (1,896) 2,195 ------------------------------------------------------------- purchases are made in U.S. dollars. It is the Company’s intention to hold excess funds in the currency in which the funds are likely to be used, which will, from time to time, potentially expose the Company to exchange rate fluctuations when converted into U.S. dollars.



SUNOPTA INC.	22	March 31, 2005 10-Q

Commodity risk

The ~~SunOpta Food Group has the following segmented reporting:~~
Three months ended September 30, 2003 ----------------------------------------------------------------------------- Grains and Packaged Soy Products Ingredients Distribution Products SunOpta Group Group Group Group Food Group ~~$ $ $ $ $ External revenues~~enters into exchange-traded commodity futures and options contracts to hedge its exposure to price fluctuations on grain transactions to the extent considered practicable for minimizing risk from market price fluctuations. Futures contracts used for hedging purposes are purchased and sold through regulated commodity exchanges. Inventories, however, may not be completely hedged, due in part to the Company’s assessment of its exposure from expected price fluctuations. Exchange purchase and sales contracts may expose the Company to risk in the event that a counter-party to a transaction is unable to fulfill its contractual obligation. The Company manages its risk by market U.S 15,576 11,410 -- 9,899 36,885 Canada 126 289 4,599 493 5,507 Other 203 1,231 -- -- 1,434 ----------------------------------------------------------------------------- Total revenuesentering into purchase contracts with pre-approved producers. The Company has a risk of loss from external customers 15,905 12,930 4,599 10,392 43,826 ----------------------------------------------------------------------------- Segment earnings before interest expensehedge activity if a grower does not deliver the grain as scheduled. Sales contracts are entered into with organizations of acceptable creditworthiness, as internally evaluated. All futures transactions are marked to market. Gains and income taxes 794 1,646 52 765 3,257 ----------------------------------------------------------------------------- Nine months ended September 30, 2003 ----------------------------------------------------------------losses on futures transactions related to grain inventories are included in cost of goods sold. At March 31, 2005 the Company owned 528,053 (2004 – 595,294) bushels of corn with a weighted average price of $1.83 (2004 - $1.64) and 182,642 (2004 – 61,682) bushels of soy beans with a weighted average price of $6.87 (2004 - $11.47). The Company has at March 31, 2005 net long positions on corn and soy beans of 8,758 (2004 – 7,009) and 36,393 (2004 –27,484) bushels respectively. An increase/decrease in commodity prices of 10% would not be material. There are no futures contracts in the other SunOpta Food Group segments, Opta Minerals, the StakeTech Steam Explosion ~~Technology SunOpta Opta Minerals~~ Group or related to Corporate office activities.
Item 4. Controls and ~~Food Group Group Corporate Consolidated $ $ $ $~~ ~~~~External revenues~~Procedures~~
Under the supervision and with the participation of management, the Chief Executive Officer and Chief Financial Officer of the Company have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2005, and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed by market U.S 104,567 8,335 383 113,285 Canada 16,538 10,060 -- 26,598the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
~~Internal Control over Financial Reporting~~
There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s quarter ended March 31, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
SUNOPTA INC. 23 March 31, 2005 10-Q

PART II - OTHER INFORMATION.

Item 1. Legal proceedings

Included in Other 4,406 144 3 4,553 ---------------------------------------------------------------- Total revenuesassets is a receivable of $2,903,000 (December 31, 2004 - $3,343,000) representing a judgment awarded and recovery of certain legal fees and interest with respect to external customers 125,511 18,539 386 144,436 ---------------------------------------------------------------- Segment earnings (loss) before interest expense and income taxes 8,237 2,269 (1,401) 9,105 ---------------------------------------------------------------- Interest expense -- -- 1,664 1,664 ---------------------------------------------------------------- Provisiona suit the Company filed against a supplier for income taxes -- -- 1,671 1,671 ---------------------------------------------------------------- Segment net earnings (loss) 8,237 2,269 (4,736) 5,770 ----------------------------------------------------------------

~~- -------------------------------------------------------------------------------- SUNOPTA INC. 26 September 30,~~failure to adhere to the terms of a contract. The judgment was awarded on June 29, 2004 ~~10-Q~~ SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 15. Segmented information continued The SunOpta Food Group has the following segmented reporting:

Customer concentration The Company had one customer in the Food Group whose purchases were greater than 10% of the Company's revenue for the period ending September 30, 2003. No customer was greater than 10% for the period ending September 30, 2004. 16. Canadian generally accepted accounting principle differences These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) which conform in all material respects applicable to the Company with those in Canada (Canadian GAAP) during the periods presented, except with respect to the following items:

Three months ended Nine months ended ------------------ ----------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2004 2003 2004 2003 $ $ $ $ ~~Net earnings~~a federal court jury in the United States District Court for the period - as reported 2,767 2,195 10,663 5,770 Pre-operating costs expenses (i) -- (98) -- (258) Stock option compensationDistrict of Oregon in favour of SunRich LLC, a subsidiary of the Company. On February 8, 2005 the supplier filed an appeal against this judgement. The Company and legal counsel believe this appeal is without merit and the Company believes the collectibility of this receivable is reasonably assured. During the quarter, certain legal fees were disallowed by the court and an amount of $440,000 has been charged to other expense (ii) (194) -- (500) -- Convertible debenture -- (54) -- (54) Tax effect of above items -- 58 -- 103 ---------------------------------------------------- Net earnings forduring the period representing unrecoverable legal fees.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities–Not applicable

Item 3. Defaults upon Senior Securities -Not applicable

Item 4. Submission of Matters to a Vote of Security Holders– Not applicable

Item 5. Other Information

(a) Not applicable

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits- Canadian GAAP 2,573 2,101 10,163 5,561 ==================================================== Net earnings per share - Canadian GAAP - Basic 0.05 0.05 0.19 0.13 ==================================================== Net earnings per share - Canadian GAAP - Diluted 0.05 0.04 0.18 0.12 ==================================================== Shareholders' equity - as reported 140,116 57,701 Cumulative pre-operating costs, net

	31.1	Certification by Jeremy Kendall, Chief Executive Officer pursuant to Rule 13(a) – 14(a) under the Exchange Act.

	31.2	Certification by John Dietrich, Chief Financial Officer pursuant to Rule 13(a) – 14(a) under the Exchange Act.

	32	Certifications by Jeremy Kendall, Chairman and Chief Executive Officer and John Dietrich, Vice President and Chief Financial Officer pursuant to Section 18 U.S.C Section 1350.

** Filed herewith

(b) Reports on Form 8-K – None

SIGNATURES

Pursuant to the requirements of ~~amortization, net~~the Securities Exchange Act of tax -- 98 ------------------------ Shareholders' equity - Canadian GAAP 140,116 57,799 ======================== Retained earnings as reported 26,442 10,415 Cumulative pre-operating costs, net of amortization, net of tax (i) -- 98 Stock option compensation expense, net of tax (ii) (744) 417 ------------------------ Retained earnings - Canadian GAAP 25,698 10,930 ======================== 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

~~- -------------------------------------------------------------------------------- SUNOPTA INC. 27 September 30, 2004 10-Q~~ SunOpta Inc. Condensed Notes to Consolidated Financial Statements For the three and nine months ended September 30, 2004 Unaudited (expressed in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 16. Canadian generally accepted accounting principles differences, continued (i) Under Canadian GAAP, certain costs expensed in prior years under U.S. GAAP would have been deferred and amortized. Net costs incurred in the pre-operating stage of a start-up business can be deferred until the business reaches commercial operation or the passage of a certain period of time as predetermined by management. The Company has not deferred any costs under Canadian GAAP in 2004. Under Canadian GAAP, the Company would have deferred pre-operating expenses of $308 in 2002 relating to the start up of an organic dairy business in Canada. Amortization of these costs on a straight line basis would have commenced in July 2002 and as at December 31, 2003 these costs would have been fully amortized. In 2000, the Company acquired Nordic Aseptic, Inc., (renamed to SunOpta Aseptic Inc.) which under Canadian GAAP would have been considered a start-up business from the date of acquisition to December 31, 2000. Certain operating costs, net of income earned during the pre-operating period totaling $482 would have been deferred. Amortization of these costs would have commenced January 1, 2001 and as of December 31, 2003 these deferred costs would have been fully amortized. Amortization of $nil in the nine months ended September 30, 2004 (September 30, 2003 - $258) relating to these pre-operating costs would have been expensed under Canadian GAAP. (ii) Effective January 1, 2004, Canadian GAAP requires the Company to record stock compensation expense on options granted to employees. Under the transitional provisions of this new standard, the Company would record a charge through retained earnings representing the cumulative impact of stock options granted since January 2002 and would record an expense for existing and any new options over the remaining vesting period. In conjunction with the standard, under Canadian GAAP, the Company would have recorded $500 in stock compensation expense for the nine months ended September 30, 2004 (2003 - $nil) and a charge to retained earnings of $661 for prior year expenses. Partially offsetting the balance above, are stock option expenses recognized under US GAAP, not recognized under Canadian GAAP, related to a delay between when options were granted to employees and when they were approved by shareholders. An amount of $417 was recorded as an expense prior to 2003, is a permanent difference between Canadian and US GAAP. 17. Proforma data (unaudited) Condensed proforma income statement, as if the acquisitions of Kofman-Barenholtz, Organic Ingredients, Supreme, Distribution A & L, Snap Dragon, Distribue-Vie, Kettle Valley, Pro Organics, Sigco Sun Products and Sonne Labs Inc. had occurred at the beginning of 2003, is as follows: Three months ended Nine Months ended ----------------------------------------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2004 2003 2004 2003 $ $ $ $ Revenues 83,733 75,323 250,285 219,161 Net earnings 2,827 2,521 11,450 6,778 Earnings per share - Basic 0.05 0.06 0.22 0.15 ----------------------------------------------------- -Diluted 0.05 0.05 0.21 0.15 ----------------------------------------------------- - -------------------------------------------------------------------------------- SUNOPTA INC. 28 September 30, 2004 10-Q PART I - FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Significant Developments Change to U.S. GAAP As of January 1, 2004, SunOpta changed the basis of financial statement preparation from generally accepted accounting principles in Canada to those generally accepted in the United States. This change was made as a majority of the Company's operations and shareholders are located in the U.S. As a result of this change comparative financial statement balances and related notes have been amended to reflect the change to U.S. GAAP. Note 16 to the condensed consolidated financial statements reconciles differences between U.S. and Canadian GAAP. Initial Public Offering of Common Shares in Canada by a wholly-owned subsidiary of SunOpta, Opta Minerals Inc. On October 21, 2004, the Company announced that Opta Minerals Inc., a wholly-owned subsidiary of SunOpta, filed a preliminary prospectus with the securities regulatory authorities in each of the provinces of Canada, in connection with an initial public offering of its common shares. Prior to completion of the proposed initial public offering, SunOpta intends to complete an internal reorganization of its corporate and capital structure pursuant to which all of its interest in the assets and subsidiaries comprising the Opta Minerals Group, a reporting segment of the Company, will be transferred to Opta Minerals Inc. Amended and Restated Financing Agreement On July 7, 2004, the Company amended and restated its credit agreement. The amended and restated agreement increased the term loan by $16,300,000 to $35,000,000, increased the Canadian line of credit facility from CDN $7,500,000 to CDN $15,000,000 and increased the U.S. line of credit facility from $9,000,000 to $17,500,000. In addition the agreement added a revolving acquisition facility with maximum borrowings up to $10,000,000, which can be used to finance future acquisitions and significant internal growth opportunities. The term loan has quarterly payments with a seven year amortization. Draws from the revolving acquisition line will pay down the principal on a quarterly basis equal to the greater of (a) 1/20 of the initial drawdown amount of the facility, or (b) 1/20 of the outstanding principal amount as of the date of the last draw. Both the term loan and borrowings under the revolving acquisition facility have a maturity of June 30, 2008. The Canadian and U.S. line of credit facilities and unused portion of the revolving acquisition facility are subject to annual extensions. Acquisitions during 2004 In the first nine months of 2004, the Company acquired seven businesses. All of these acquisitions have been accounted for using the purchase method and the consolidated financial statements include the results of operations for these businesses from the date of acquisition, less minority interest on acquisitions when the Company owns less than 100%. The purchase price has been allocated to the assets acquired and the liabilities assumed based on management's best estimate of fair values. (a) Organic Ingredients On September 10, 2004, SunOpta acquired 50.1% of the outstanding shares of Organic Ingredients, Inc. ("Organic Ingredients"), headquartered in Aptos, California, for cash consideration of $2,258,000 inclusive of acquisition costs. As part of this transaction, SunOpta has also obtained an option to acquire the remaining 49.9% minority position in 2005. Organic Ingredients is a leading trader and provider of a wide range of certified organic industrial ingredients including processed fruit and vegetable based ingredients, sweeteners, vinegars and others. The company sources and contract manufactures through exclusive arrangements with suppliers located around the world, including North America, South America, Europe and Asia. These exclusive supply arrangements enable the company to maintain a strategic advantage in the organic food ingredient market, in terms of cost and availability of supply. - -------------------------------------------------------------------------------- SUNOPTA INC. 29 September 30, 2004 10-Q (b) Kofman-Barenholtz On September 2, 2004, SunOpta acquired 100% of the outstanding shares of Kofman-Barenholtz Foods Limited (Kofman-Barenholtz) for cash consideration of $3,214,000 (Cdn $4,200,000). An additional Cdn $900,000 of consideration is contingent upon the Company's ability to satisfy certain product line distribution maintenance requirements under the agreement. Upon satisfaction of those terms, any amount paid will be allocated to goodwill. Kofman-Barenholtz is an established market leader in the distribution of kosher and specialty grocery products across Canada, with over 50 years of experience. Kofman-Barenholtz, headquartered in Toronto, maintains a number of exclusive sourcing arrangements with kosher foods suppliers from around the world, including Israel and the United States. Kofman-Barenholtz's focus and strength in the kosher and specialty grocery products market further strengthens SunOpta's Canadian natural, organic, kosher and specialty foods distribution network. This transaction positions SunOpta as the dominant kosher foods distributor in Canada. (c) Snapdragon On June 1, 2004 SunOpta acquired the inventory and business of Snapdragon Natural Foods Inc. (Snapdragon) for $878,000. Additional consideration may be payable equal to 5% of net sales greater than a predetermined target during the period September 1, 2004 to August 31, 2005. Snapdragon distributes organic groceries and frozen products to both mass market and natural food retailers throughout Canada from warehousing facilities located in Montreal, Quebec, Toronto, Ontario and Calgary, Alberta. The Snapdragon operation will further contribute to the Company's stated objective of building Canada's first national natural and organics food distribution network. (d) Supreme Foods On May 1, 2004, SunOpta acquired the outstanding shares of Supreme Foods Limited ("Supreme") for $8,282,000 including acquisition costs and the assumption of a note payable to shareholders of $590,000. Supreme is a leading distributor of certified organic, natural, kosher and specialty grocery products across Canada, with headquarters in Toronto, Ontario. Supreme has a number of exclusive sourcing agreements as well as products marketed under its own trade names. Supreme's focus and strength in grocery products will become the base of SunOpta's growing natural organic and specialty foods distribution business. The combination of Supreme's business in eastern Canada with Wild West Organic Harvest in western Canada creates a national grocery platform for SunOpta and allows for considerable expansion of product lines. (e) General Mills Bakeries and Food Service Oat Fiber Facility On April 16, 2004 SunOpta acquired the assets of General Mills Bakeries and Food Service oat fiber processing facility for $11,651,000 including acquisition costs. With the addition of this facility, the Company continued to increase its total annual oat fiber processing capacity. The Company's growth in oat fiber has been driven by the significant increase in consumer demand for healthier food offerings, and the general trend to improve the nutritional content of foods via the addition of fiber. SunOpta's purchase of this facility is expected to generate efficiencies in the Company's oat fiber processing operations enabling the Company to streamline oat fiber production across the three facilities, lengthening run times and improving operating efficiencies. - -------------------------------------------------------------------------------- SUNOPTA INC. 30 September 30, 2004 10-Q (f) Distribution A & L On April 1, 2004 SunOpta acquired the outstanding shares of Distribution A&L for $381,000 including acquisition costs. An additional $381,000 of contingent consideration may be payable if certain predetermined profit targets are achieved by the acquired business during the period between April 1, 2004 to June 30, 2009, and will be recorded as goodwill when the amount and outcome of the consideration becomes determinable. Distribution A&L specializes in the distribution of specialty abrasive and related products. Distribution A&L focuses on smaller markets currently not serviced by the Opta Minerals via its network of selling professionals specializing in the industrial, automotive and pool filtration industries. The skills contained within this operation are key as the Opta Minerals group continues to strategically expand products and sales capabilities. (g) Distribue-Vie On March 1, 2004 SunOpta acquired the outstanding shares of Distribue-Vie Fruits & Legumes Biologiques Inc. ("Distribue-Vie") for $911,000 including acquisition costs. Distribue-Vie specializes in the distribution of organic fresh foods with an emphasis on produce. Distribue-Vie is the dominant player in the distribution of organic produce in Quebec and operates from a warehousing facility located in Montreal, servicing the key Quebec market along with geographic reach to Eastern Ontario and the Maritime provinces. An additional $229,000 of contingent consideration may be payable if certain predetermined profit targets are achieved by the acquired business during the period April 1, 2004 to March 31, 2006 and will be recorded as goodwill when the amount and outcome of this contingency becomes determinable. The addition of Distribue-Vie to SunOpta's Canadian natural and organic distribution network is expected to bring significant benefits to the customer base in the form of broader product lines and greater support for consumer education of organics through marketing and retail merchandising initiatives. Operations For the Three Months Ended September 30, 2004 Compared With the Three Months Ended September 30, 2003 Consolidated Revenues in the three months ended September 30, 2004 increased by 59.1% to $80,142,000 versus $50,384,000 in the comparable three months of 2003. The Company's net earnings for the three months of 2004 were $2,767,000 or $0.05 per basic common share (diluted - $0.05) compared to $2,195,000 or $0.05 per basic common share (diluted - $0.04) for the three months ended September 30, 2003, representing a 26.1% increase. The increase of $29,750,000 in the Company's revenues is due to a $27,491,000 increase in revenue from the SunOpta Food Group, an increase of $1,854,000 from Opta Minerals, and an increase of $413,000 in revenue attributable to the StakeTech Steam Explosion Group. These increases are due to continued internal growth in certain product lines and the impact of acquisitions completed throughout 2003 and in 2004 to date. Details are provided in the segmented analysis below. Earnings before interest expense, interest and other income (expense), foreign exchange gains (losses) and income taxes increased to $4,572,000 compared to $3,192,000 for the same period in the prior year, a 43.2% increase. The increase is due to the acquisitions completed in the prior year and the first nine months of this year, pricing on certain product lines, internal sales growth, synergies and cost reductions realized throughout the organization, offset by expenses related to, addressing the requirements of the Sarbanes-Oxley Act, totalling approximately $300,000. In addition, the Company incurred certain integration costs related to its Toronto and Montreal-based distribution operations during the third quarter which had a negative impact of approximately $600,000. Further details are included in segmented analysis detailed below. Interest expense decreased slightly to $675,000 in the three months ended September 30, 2004 from $680,000 in the three months ended September 30, 2003. Borrowing costs reflect the increase in debt outstanding compared to the three months ended September 30, 2003 and banking fees incurred on the amended facility. Three months ended September 30, 2003 included costs on extinguishing the convertible debenture of $183,000. Interest and other income (expense) was ($169,000) in the three months ended September 30, 2004 versus income of $255,000 in the three months ended September 30, 2003. The 2004 expense is primarily due to costs incurred in the - -------------------------------------------------------------------------------- SUNOPTA INC. 31 September 30, 2004 10-Q pending 'Initial Public Offering' of common shares of Opta Minerals announced October 27, 2004. The 2003 other income is primarily due to a gain recognized on a discharged liability and gains realized on the sale of excess assets. Foreign exchange gain in the quarter increased to $227,000 compared to a foreign exchange loss of $171,000 in the same period in 2003. The gain is due to the favourable movement in the value of the Canadian dollar on the Company's Canadian dollar denominated balances. The provision for income taxes in the three months ended September 30, 2004 reflects the Company's estimated effective tax rate in 2004 of 30.0%. In 2003 the tax rate of 15.4% reflects the recognition of certain tax loss carry-forwards in the quarter. Readers should note that due to differences between Canadian and U.S. GAAP, the earnings for the three months ended September 30, 2003 was revised from $2,100,000 as previously reported under Canadian GAAP to $2,195,000 under U.S. GAAP. Note 16 to the consolidated financial statements itemizes differences between U.S. and Canadian GAAP. Segmented Operations Information (Note: Certain prior year figures have been adjusted to conform with the current year presentation and segmented reporting.) SunOpta Food Group The SunOpta Food Group contributed $71,317,000 or 89.0% of total Company consolidated revenues in the three months ended September 30, 2004 versus $43,826,000 or 87.0% in the same period in 2003. The increase of $27,491,000 or 62.7% in SunOpta Food Group revenues was primarily due the acquisitions completed in 2003 and 2004 and internal growth, partially offset by a decline in revenues due to a short supply of soybean and non-GMO corn as discussed below. Gross margins as a percentage of sales increased in the quarter from 16.9% to 19.0% reflecting the impact of improved product mix, pricing, higher margins within the Distribution Group which has become a more significant segment and cost rationalization within the Food Group, offset by lower margins within the Grain & Soy Products Group due to reduced yields and the short grains crop in 2003. Earnings before interest expense and income taxes in the SunOpta Food Group increased 18.7% to $3,865,000 in the three months ended September 30, 2004 compared to $3,257,000 in the three months ended September 30, 2003. Grains & Soy Products Group The Grains and Soy Products Group contributed $23,207,000 in revenues in the third quarter of 2004 versus $15,905,000 in the same quarter of 2003, a 45.9% increase. Revenues were favourably impacted in the quarter by the acquisition of Sigco Sun Products (Sigco) in late 2003, totalling $7,817,000, and increased waxy corn sales. These increases were offset by revenue decreases of $2,340,000 mainly attributable to reduced yields and the short soybean and non-GMO corn crops in 2003 which resulted in lost revenue. Expectations are for an improved soy and corn crop in 2004 which should see revenues, and margins returning to 2003 levels in 2005. Gross margin in the Grains and Soy Products Group decreased by $28,000 in the quarter to $1,988,000 or 8.6% of revenues compared to $2,016,000 or 12.7%, in the same period in 2003. The decrease in gross profit margins is primarily attributable to mix, lower volumes of high margin specialty grains and margin pressures on soy beans due to requirements to source soy beans at higher prices to meet sales commitments. Selling, general and administrative expenses increased to $1,647,000 in the three months ended September 30, 2004 versus $1,222,000 in the three months ended September 30, 2003. The increase is due primarily to the Sigco acquisition completed in 2003. Other income in the three months ended September 30, 2004 was $28,000. Earnings before interest expense and income taxes in the Grains and Soy Products Group was $369,000 in the three months ended September 30, 2004 compared to $794,000 in the three months ended September 30, 2003, due to the factors noted above. Ingredients Group The Ingredients Group contributed revenues of $18,348,000 in the three months of 2004 versus $12,930,000 in 2003, a 41.9% increase. The Organic Ingredients acquisition completed in the third quarter of 2004 increased revenue by $995,000. Oat fiber increases of $2,921,000 resulted from the demand generated by low carb diets (such as Atkins, South - -------------------------------------------------------------------------------- SUNOPTA INC. 32 September 30, 2004 10-Q Beach and Hampton diets) and fiber enriched foods and were supported by increased capacity with expansion projects at our Cambridge facility and the procurement of an additional facility in the second quarter of 2004 (see significant developments). Increased revenues in dairy blending of $591,000 were due to increased pricing and volumes. The remainder of the revenue increase relates to increases in specialty food ingredients attributable to increased technical processing and custom blending. Gross margin in the Ingredients Group increased by $1,425,000 in the three months ended September 30, 2004 to $4,563,000 or 24.9% of revenue, compared to $3,138,000 or 24.3% of revenue in the same period in 2003. The increase in gross margin reflects increased percentage of oat fiber revenues on a comparative basis, improved plant utilization and cost rationalization initiatives. Selling, general and administrative expenses increased to $2,035,000 in the three months ended September 30, 2004 versus $1,605,000 in the three months ended September 30, 2003. The increase is primarily due to an increased reserve for bad debts related to certain customers, recruiting costs, increased marketing expenditures and the acquisition of Organic Ingredients. Other income (expenses) net of foreign exchange in the three months ended September 30, 2004 increased to ($46,000) compared to $113,000 in the same period in 2003. Last year's other income is primarily due to the discharge of a long-term liability. Earnings before interest expense and income taxes in the Ingredients Group were $2,482,000 in the three months ended September 30, 2004 compared to $1,646,000 in the three months ended September 30, 2003, due primarily to the factors noted above. Packaged Products Group The Packaged Products Group contributed revenues of $10,388,000 in the three months of 2004 versus $10,392,000 in 2003, a slight decrease of $4,000. Revenues were unfavourably impacted by decreased aseptic & consumer product sales of $1,447,000 but offset by an increase of $1,443,000 resulting from the acquisitions and internal growth within Kettle Valley and Dakota Gourmet which were acquired in 2003. The decline in the aseptic and consumer product sales is due to timing of sales to a significant customer. The agreement with Vitasoy USA, announced on July 6, 2004, had a minimal impact on third quarter revenues, however is expected to contribute fully in the fourth quarter. Gross margin in the Packaged Products Group increased by $138,000 in the three months ended September 30, 2004 to $1,546,000 or 14.9% of revenues compared to $1,408,000 or 13.5% of revenues in the same period in 2003. The increase in gross margin was attributable to the acquired businesses which have inherently higher margin rates, offset by a reduction in contribution due to the decline in sales of aseptic and consumer products. Selling, general and administrative expenses increased to $1,097,000 in the three months ended September 30, 2004 versus $585,000 in the three months ended September 30, 2003. The increases are due to the acquisitions noted above. Other income (expenses) including foreign exchange for the three months ended September 30, 2004 is ($25,000) compared to ($58,000) in same period in 2003. Earnings before interest expense and income taxes in the Packaged Products Group were $424,000 in the three months ended September 30, 2004 compared to $765,000 in the three months ended September 30, 2003, due to the factors noted above. Distribution Group The Distribution Group contributed revenues of $19,374,000 in the three months ended September 30, 2004 versus $4,599,000 in 2003, an increase of $14,775,000 or 321.3%. Revenues were favourably impacted by increased grocery revenues of $1,024,000 in our existing divisions and an increase in revenues of $13,751,000 resulting from the acquisitions completed in late 2003 and the first nine months of 2004, offset by certain business attrition due to integration issues within central Canada. Gross margin in the Distribution Group increased by $4,645,000 in the three months ended September 30, 2004 to $5,487,000 or 28.3% of revenue compared to $842,000 or 18.3% of revenue, in the same period in 2003. The increase in gross profit is attributable to the acquired businesses and synergies recognized in both the acquisition and existing operations within the Distribution Group. - -------------------------------------------------------------------------------- SUNOPTA INC. 33 September 30, 2004 10-Q Warehousing and distribution costs increased to $1,547,000 in the three months ended September 30, 2004 versus $221,000 in the three months ended September 30, 2003. Selling, general and administrative expenses increased to $3,415,000 in the three months ended September 30, 2004 versus $580,000 in the three months ended September 30, 2003. The increases noted are due primarily to the acquisitions noted above. Other expenses net of foreign exchange gain in the three months ended September 30, 2004 resulted in a $65,000 gain compared to other income of $11,000 in same period in 2003. Earnings before interest expense and income taxes in the Distribution Group were $590,000 in the three months ended September 30, 2004 compared to $52,000 in the three months ended September 30, 2003, due to the factors noted above. Opta Minerals Group Opta Minerals contributed $8,330,000 or 10.4% of the total Company consolidated revenues in the three months ended September 30, 2004, versus $6,476,000 or 12.9% in 2003 for the same period. Revenues were favourably impacted by the acquisition of Distribution A&L in the amount of $480,000, an increase in demand for silica free abrasives and general increases in sales activities within Canadian based operations. Gross margin was $1,707,000 in the three months ended September 30, 2004 versus $1,495,000 in the three months ended September 30, 2003. As a percentage of revenues, gross margin decreased to 20.5% in the three months of 2004 from 23.1% in the three months of 2003. The decrease in margin is due primarily to product mix and an increased percentage of sales from Canadian based businesses which have inherently lower margins. Selling, general and administrative expenses remained stable at $664,000 in the three months ended September 30, 2004 compared to the three months ended September 30, 2003. Additional costs incurred due to the acquisition of Distribution A&L was offset by cost savings in other areas of the business. Other income (expense) increased to ($183,000) in the three months ended September 30, 2004 versus $14,000 in the comparable three months of 2003. Other expense recognized in 2004 relates to incremental audit costs incurred with respect to the Initial Public Offering of common shares for this group which was announced October 21, 2004. Foreign exchange gain (loss) for the three months ended September 30, 2004 was $49,000 compared to an exchange loss of ($11,000) for the comparable period in 2003. Earnings before interest expense and income taxes were $909,000 in the three months ended September 30, 2004 versus $834,000 in the three months ended September 30, 2003. StakeTech Steam Explosion Group and Corporate Revenues of $495,000 for the three months ended September 30, 2004, versus $82,000 in same period in 2003, were derived from engineering and research and development work undertaken during the quarter for the investigation of converting certain bio-mass for the production of ethanol. The 2003 revenue was primarily driven from licence fees. There have been no licence fee revenues recognized in 2004. Gross margin in the StakeTech Steam Explosion Group was $178,000 in the three months ended September 30, 2004 versus $81,000 in the three months ended September 30, 2003. As a percentage of revenues, gross margin was 36.0% in the three months ended September 30, 2004 compared to 62.1% in the comparable three months of 2003. Gross margin recognized in 2003 was attributed to license fees which have no associated service costs offset by depreciation expenses. Selling, general and administrative expenses were $492,000 for the three months ended September 30, 2004 compared to $911,000 for the same period in 2003. The decrease was a result of reclassification of certain costs to interest expense and cost of goods sold and reduced professional fees. Other income including a foreign exchange gain was $170,000 in the three months ended September 30, 2004 versus $15,000 in the three months ended September 30, 2003. The gain in 2004 is mainly due to foreign exchange gains recognized in the quarter. Loss before interest expense and income taxes was $144,000 in the three months ended September 30, 2004 versus $815,000 in the three months ended September 30, 2003 which was attributable to the factors listed above. - -------------------------------------------------------------------------------- SUNOPTA INC. 34 September 30, 2004 10-Q Operations For the Nine Months Ended September 30, 2004 Compared With the Nine Months Ended September 30, 2003 Consolidated Revenues in the first nine months of 2004 increased by 54.8% to $223,588,000 versus $144,436,000 in the first nine months of 2003. The Company's net earnings for the first nine months of 2004 were $10,663,000 or $0.20 per basic common share (diluted - $0.20) compared to $5,770,000 or $0.13 per basic common share (diluted - $0.12) for the first nine months of 2003, representing an 84.8% increase. The increase in the Company's revenues is due to a $72,983,000 increase in revenue from the SunOpta Food Group, an increase of $5,622,000 from Opta Minerals and an increase of $547,000 in revenue attributable to the StakeTech Steam Explosion Group. These increases are due to continued internal growth in certain product lines and the impact of acquisitions completed to date. Details are provided in the segmented analysis below. Earnings before interest expense, interest and other income (expense), foreign exchange gains (losses) and income taxes increased to $13,569,000 compared to $8,215,000 for the same period in the prior year, a 65.2% increase. The increases are due to the acquisitions completed in the prior year, internal sales growth, synergies and cost reductions realized throughout the organization. In addition, net earnings for the nine months ended September 30, 2004 included a gain recognized on the judgment received in a lawsuit against a supplier for breach of contract as described in Note 8 (Other Income) of the condensed consolidated financial statements. Further details are included in segmented analysis detailed below. Interest expense decreased to $1,035,000 in the nine months ended September 30, 2004 from $1,664,000 in the nine months ended September 30, 2003. The decrease in borrowing costs reflects a lower average debt balance outstanding during the year compared to the prior period ended September 30, 2003 and lower borrowing costs as a result of improved premiums and lower LIBOR rates in general. Interest and other income increased to $2,238,000 in the nine months ended September 30, 2004 versus $465,000 in the nine months ended September 30, 2003. This increase is due to a favourable judgment received in a lawsuit against a supplier for breach of contract for $2,646,000 (see Note 8 - Prepaid Expenses and Other Current Assets). Foreign exchange gains of $442,000 compared to $425,000 in the same period in 2003 are due to the realization of gains due to movements in the Canadian dollar during the first nine months of 2004. The provision for income taxes in the first nine months of 2004 reflects the Company's estimated effective tax rate in 2004 of 30%. The provision for income tax in 2003 of 22.5% included the realization of loss carryforwards available to the Company. Readers should note that due to differences between Canadian and U.S. GAAP, the earnings for the nine months ended September 30, 2003 was revised from $5,560,000 as previously reported under Canadian GAAP to $5,770,000 under U.S. GAAP. Note 16 to the consolidated financial statements itemizes differences between U.S. and Canadian GAAP. Segmented Operations Information (Note: Certain prior year figures have been adjusted to conform with the current year presentation and segmented reporting.) SunOpta Food Group The SunOpta Food Group contributed $198,494,000 or 88.8% of total Company consolidated revenues in the first nine months of 2004 versus $125,511,000 or 86.9% in the same period in 2003. The increase of $72,983,000 or 58.1% is attributable to the acquisitions completed over the past year and internal growth from the Company's existing business, which was partially offset by a decline in revenues in 2004 due to the short soybean and corn crop in 2003. For detailed explanations see segments analysis below. Gross margins as a percentage of sales increased for the first nine months from 16.6% to 19.2% reflecting the impact of improved product mix and pricing, cost rationalization and higher margins within the Distribution Group which has become a more significant segment within the Food Group. Earnings before interest expense and income taxes in the SunOpta Food Group increased 82.8% to $15,056,000 in the nine months ended September 30, 2004 as compared to $8,237,000 in the nine months ended September 30, 2003. - -------------------------------------------------------------------------------- SUNOPTA INC. 35 September 30, 2004 10-Q Grains & Soy Products Group The Grains and Soy Products Group contributed $65,520,000 in revenues in the first nine months of 2004 versus $47,788,000 in 2003, a 37.1% increase. Revenues were favourably impacted by the acquisition of Sigco Sun Products in late 2003, totalling $21,255,000 and increases in certain grain revenues. These increases were offset by revenue decreases in 2004 attributable to the short soybean and corn crop in 2003. Gross margin in the Grains and Soy Products Group increased by $292,000 in the nine months ended September 30, 2004 to $6,691,000 or 10.2% of revenues as compared to $6,399,000 or 13.4%, in the same period in 2003. The decrease in gross profit margins is related to reduced margins on soybean crop sales, especially in the third quarter, fixed sales contracts of organic feed which had a significant impact in the second quarter and the lower volumes noted above. The decrease was offset by the sunflower product lines acquired which have historically higher gross margins than other grain products. Selling, general and administrative expenses increased to $4,877,000 in the nine months ended September 30, 2004 versus $3,962,000 in the nine months ended September 30, 2003. The increase is due primarily to the Sigco acquisition completed in 2003. Other income in the nine months ended September 30, 2004 of $219,000, compared to $3,000 in the prior year is primarily related to the sale of non-core assets during the year. Earnings before interest expense and income taxes in the Grains and Soy Products Group was $2,033,000 in the nine months ended September 30, 2004 compared to $2,440,000 in the nine months ended September 30, 2003, due to the factors noted above. Ingredients Group The Ingredients Group contributed revenues of $50,321,000 in the first nine months of 2004 as compared to $36,734,000 in 2003, a 37.0% increase. The increase in revenues is attributable to increased sales of oat fiber, dairy blends, soluble fiber and technical processing. Oat fiber increases of $7,899,000 resulted from the demand generated by low carb diets and fiber enriched foods and were supported by increased capacity at our Cambridge facility and our newly acquired facility in Cedar Rapids, Iowa. An increase of $2,303,000 in dairy blends was realized due to increased volumes and pricing compared to the prior year. Gross margin in the Ingredients Group increased by $4,117,000 in the nine months ended September 30, 2004 to $12,044,000 or 23.9% of revenue compared to $7,927,000 or 21.6% of revenue, in the same period in 2003. The increase in gross margin reflects increased percentage of oat fiber revenues on a comparative basis, improved pricing, plant utilization and cost rationalization initiatives. Selling, general and administrative expenses increased to $5,534,000 in the nine months ended September 30, 2004 versus $4,883,000 in the nine months ended September 30, 2003. The increase is due to the acquisition of Organic Ingredients in the third quarter of 2004 and increased compensation costs as a result of previously vacant positions with the group. Other income (expenses) in the first nine months ended September 30, 2004 was ($283,000) compared to $198,000 in the first nine months of 2003. The expenses in 2004 are related to the closure of the St. Thomas Facility and costs incurred to prepare the Bedford facility for sale, partially offset by a small gain recognized on the sale of the Bedford Facility. The 2003 gain is a result of a gain recognized on a discharged liability. In 2004, the Ingredients group had an exchange gain of $84,000 compared to a loss of ($141,000) in 2003. As the Canadian based St. Thomas facility is now closed, future exchange gains and losses within this group will be minimal. Earnings before interest expense and income taxes in the Ingredients Group were $6,311,000 in the nine months ended September 30, 2004 as compared to $3,101,000 in the nine months ended September 30, 2003, due primarily to the factors noted above. Packaged Products Group The Packaged Products Group contributed $29,877,000 revenues in the first nine months of 2004 versus $27,121,000 in 2003, an increase of $2,756,000 or 10.2%. Revenues were favourably impacted by internal growth within the acquisitions completed in 2003 of Kettle Valley and Dakota Gourmet of $4,353,000, increased Canadian packaged revenues of $769,000 offset by a year to date decline of $2,171,000 in aseptic packaged and consumer products. The aseptic packaged and consumer products revenues have been affected by our largest customer who has changed its ordering patterns. - -------------------------------------------------------------------------------- SUNOPTA INC. 36 September 30, 2004 10-Q Gross margin in the Group increased by $407,000 in the first nine months ended September 30, 2004 to $4,310,000 or 14.4% compared to $3,903,000 or 14.4%, in the same period in 2003. The gross margin percentage in the year included a reduction in contribution due to a decline in sales of aseptic products including the effects of fixed overhead absorption, offset by higher margins in the acquired businesses. Selling, general and administrative expenses increased to $3,285,000 in the nine months ended September 30, 2004 versus $1,466,000 in the nine months ended September 30, 2003. The increases noted are due primarily to the acquisitions made in the healthy convenience food sector. Other income (expenses) including foreign exchange effects in the first nine months ended September 30, 2004 were $2,549,000 as compared to ($49,000) in same period in 2003. A gain of $2,646,000 was recognized on the judgment received in a lawsuit against a supplier for breach of contract as described in Note 8 (Prepaid Expenses and Other Current Assets) in the second quarter. Earnings before interest expense and income taxes in the Packaged Products Group were $3,574,000 in the nine months ended September 30, 2004 compared to $2,388,000 in the nine months ended September 30, 2003 due to the factors noted above. Distribution Group The Distribution Group contributed revenues of $52,776,000 in the nine months of 2004 versus $13,868,000 in 2003, an increase of $38,908,000 or 280.6%. Revenues were favourably impacted by increased produce and grocery revenues of $37,765,000 resulting from the acquisitions completed in 2003 (Pro Organics) and 2004 (Supreme Foods, Snapdragon, Kofman-Barenholtz), however hampered by certain integration issues related to the Toronto and Montreal-based operations. Gross margin increased by $12,312,000 in the nine months ended September 30, 2004 to $14,972,000 as compared to $2,660,000 in the same period in 2003. The increase in gross profit was attributable to acquisitions and the synergies recognized in our previously existing and acquired businesses. Warehousing and distribution costs increased to $4,144,000 in the nine months ended September 30, 2004 versus $628,000 in the nine months ended September 30, 2003, which reflects the impact of acquisitions and cost of certain integration issues experienced in the third quarter of 2004. Selling, general and administrative expenses increased to $7,694,000 in the nine months ended September 30, 2004 versus $1,782,000 in the nine months ended September 30, 2003. The increases noted are due primarily to the acquisitions noted above. Other income (expenses) in the nine months ended September 30, 2004 including exchange gains (losses) were $4,000 compared to other income of $58,000 in same period in 2003. Earnings before interest expense and income taxes in the Distribution Group were $3,138,000 in the nine months ended September 30, 2004 as compared to $308,000 in the nine months ended September 30, 2003, due to the factors noted above. Opta Minerals Opta Minerals contributed $24,161,000 or 10.8% of the total Company consolidated revenues in the first nine months of 2004, versus $18,539,000 or 12.8% in 2003. Revenues were favourably impacted by an increase in revenues due to the acquisition of Distribution A&L and internal growth via an increase in demand for abrasives products. Gross margins in Opta Minerals were $5,572,000 in the nine months ended September 30, 2004 versus $3,930,000 in the nine months ended September 30, 2003. As a percentage of revenues, gross margin increased to 23.1% in the first nine months of 2004 from 21.2% in the first nine months of 2003. The increase in margin is due primarily to increased demand for abrasive sales, primarily in U.S. based operations. Selling, general and administrative expenses increased to $2,144,000 in the nine months ended September 30, 2004 versus $1,741,000 in the nine months ended September 30, 2003. The increase in costs is attributable to the acquisition noted above. Other income (expense) increased to ($324,000) in the first nine months of 2004 versus a gain of $134,000 in the first nine months of 2003. The increase was due to costs incurred in the first quarter due to the rationalization of the Hamilton facility and costs incurred in the third quarter relating to the pending 'Initial Public Offering' of common shares of Opta - -------------------------------------------------------------------------------- SUNOPTA INC. 37 September 30, 2004 10-Q Minerals. The Group also has foreign exchange gains/(losses) of $58,000 for the nine months ended September 30, 2004 and ($54,000) in the comparable period of the previous year. Earnings before interest expense and income taxes were $3,162,000 in the nine months ended September 30, 2004 versus $2,269,000 in the nine months ended September 30, 2003. StakeTech Steam Explosion Group and Corporate Revenues of $933,000 for the nine months ended September 30, 2004, versus $386,000 in same period in 2003, were derived from pre-engineering work and research and development undertaken during the period. Majority of the 2003 revenue relates to licence fees that were recognized. There have been no license fees recognized in 2004. Gross margin in the StakeTech Steam Explosion Group was $378,000 in the nine months ended September 30, 2004 versus $384,000 in the nine months ended September 30, 2003. As a percentage of revenues, gross margin decreased to 39.7% in the first nine months of 2004 from 87.0% in the first nine months of 2003. Gross margin recognized in 2003 was attributed to license fees which had no associated service costs. Selling, general and administrative expenses were $2,720,000 for the nine months of 2004 compared to $2,526,000 for the same period in 2003. The increase was a result of payroll expenses and increased costs associated with a growing public company including the addition of in-house legal counsel, internal audit functions and compliance costs related to Sarbanes Oxley. In addition, the Company incurred increased personnel and associated costs within the StakeTech Steam Explosion Group in anticipation of additional bio-fuel contracts and work related to the use of steam technology in food applications. These increases have been partially offset by reduced professional fees. Other income was $373,000 in the first nine months of 2004 versus $741,000 in the first nine months of 2003. The gains are primarily related to foreign exchange due to significant fluctuations in the Canadian Dollar. Loss before interest expense and income taxes was $1,969,000 in the nine months ended September 30, 2004 versus $1,401,000 in the nine months ended September 30, 2003. Liquidity and Capital Resources at September 30, 2004 Sources of Liquidity The Company obtains its short term financing through a combination of cash generated from operating activities, cash and cash equivalents, and available operating lines of credit. At September 30, 2004, the Company has availability under certain lines of credit of approximately $29,000,000. A revolving acquisition line is also available with maximum draws up to $10,000,000. The Company obtains its long term financing through its credit agreement with a syndicate of lenders. The Company may expand this credit agreement, and/or obtain additional long term financing for internal expansion uses, acquisitions or other strategic purposes as required. On July 7, 2004, the Company increased its term loan to $35,000,000 and its operating lines of credit. The Company has the following sources from which it can fund its operating 2004 cash requirements: o Cash and cash equivalents. o Available operating lines of credit. o Cash flows generated from operating activities. o Cash flows generated from the sale of assets held for sale. o Cash flows generated from receipts of warrants and options currently in-the-money. o Additional long term financing based on securitization of existing assets. In order to finance significant acquisitions, the Company may need additional sources of cash which could be obtained through a combination of additional bank or subordinated financing, a private or public offering, or the issuance of shares in relation to an acquisition or a divestiture. The Company intends to maintain a target term debt to equity ratio of 0.60 to 1.00 versus the current position of 0.26 to 1.00. The Company anticipates having no issues in obtaining additional long term financing in view of its current financial position and past experience in the capital markets. - -------------------------------------------------------------------------------- SUNOPTA INC. 38 September 30, 2004 10-Q Cash Flows from Operating Activities Cash provided by operations for the first nine months of 2004 before changes in working capital was $17,466,000 (2003 - $8,919,000), an increase of $8,547,000 or 95.8%. The increase was due primarily to an increase in net earnings. Cash provided by operations after working capital changes was $7,965,000 for the nine months ended September 30, 2004 (2003 -$457,000), reflecting the use of funds for non-cash working capital of ($9,501,000) (2003 - ($8,462,000)). This utilization consists principally of an increase in accounts receivable ($6,788,000), an increase in prepaid expenses and other assets of ($3,693,000), a decrease in accounts payable and accrued liabilities of ($509,000) and a decrease in customer deposits of ($1,777,000), partially offset by a decrease in inventories $1,660,000 and the recovery of income taxes of $1,686,000. The usage of cash flows to fund working capital in 2004 reflects the increase in working capital requirements required to fund the rapid growth in operations. Cash Flows from Investing Activities Cash used in investment activities of $35,274,000 in the first nine months of 2004 (2003 -$3,361,000), reflects cash used to complete acquisitions, net of cash acquired, of ($27,448,000) (2003 - ($2,894,000)) and acquisitions of property, plant and equipment of ($14,833,000) (2003 - ($3,778,000)), offset by proceeds from the sale of property of $5,864,000 (2003 - $nil), a decrease in short term investments for proceeds of $nil (2003 - $2,038,000) and payments received on a note receivable of $1,250,000 (2003 - $1,074,000). Cash Flows from Financing Activities Cash provided by financing activities was $19,066,000 in 2004 (2003 - $34,562,000), consisting primarily of increased borrowings under term debt facilities $17,007,000 (2003 - $7,800,000), net proceeds from the issuance of common shares of $7,848,000 (2003 - $56,028,000), partially offset by decrease in bank indebtedness $nil (2003 - ($4,285,000)), repayment on long-term debt facilities of ($5,310,000) (2003 - ($24,009,000)), payment of deferred purchase consideration of ($65,000) (2003 - ($490,000)), financing costs of ($198,000) (2003 - ($343,000)) and the purchase and redemption of preference shares of subsidiary companies of ($216,000) (2003 - ($139,000)). Item 3 -Quantitative and Qualitative Disclosures about Market Risk Interest rate risk The primary objective of our investment activities is to preserve principal and limit risk. To achieve this objective, the company restricts its portfolio to a variety of securities, including government and corporate obligations and money market funds. These securities are generally classified as cash and cash equivalents or short-term investments and are recorded on the balance sheet at fair value with unrealized gains or losses reported through profit and loss. As at September 30, 2004 all of SunOpta's excess funds were held in cash and cash equivalents with a maturity of less than 90 days. Debt in both fixed rate and floating rate interest carry different types of interest rate risk. Fixed rate debt may have its fair market value adversely affected by a decline in interest rates. In general, longer date debts are subject to greater interest rate risk than shorter dated securities. Floating rate term debt gives less predictability to cash flows as interest rates change. As at September 30, 2004, the weighted average interest rate of the fixed rate term debt was 3.5% (2003 - 5.3%) and $2,538,000 (2003 - $1,339,000) of the Company's outstanding term debt is at fixed interest rates. Variable rate term debt of $34,200,000 (2003 - $20,525,000) at an interest rate of 2.7% (2003 - 3.67%) is partially hedged by variable rate cash equivalent investments. The Company looks at varying factors to determine the percentage of debt to hold at fixed rates including, the interest rate spread between variable and fixed (swap rates), the Company's view on interest rate trends, the percent of offset to variable rate debt through holding variable rate investments and the Company's ability to manage interest rate volatility and uncertainty. For every 1% increase (decrease) in interest rates the Company's after tax earnings would (decrease) increase by approximately $240,000. Given the short duration of fixed rate debt, changes in interest rates would have a negligible effect on fixed rate debt valuations. Foreign currency risk All U.S. subsidiaries use the U.S. dollar as their functional currency. The Company is exposed to foreign exchange rate fluctuations as the financial results of the Company and its Canadian subsidiaries are translated into U.S. dollars on consolidation. During the first nine months of 2004, the Canadian dollar has depreciated slightly against the U.S. dollar with closing rates moving from CDN $1.2965 at December 31, 2003 to CDN $1.2616 at September 30, 2004 for each U.S. dollar. The net effect of this depreciation has been a $442,000 net exchange gain and a $1,307,000 increase in net assets. A 10% movement in the levels of foreign currency exchange rates in favour of (against) the Canadian dollar with all other variables - -------------------------------------------------------------------------------- SUNOPTA INC. 39 September 30, 2004 10-Q held constant would result in an increase (decrease) in the fair value of the Company's net assets by $4,855,000 (2003 - $2,327,000). The functional currency of all operations located in Canada is the Canadian dollar. For these operations all transaction gains or losses in relation to the U.S. dollar are recorded as foreign exchange gain (loss) in the Consolidated Statements of Earnings while gains (losses) on translation of net assets to U.S. dollars on consolidation are recorded in Accumulated other comprehensive income account within Shareholders' Equity. The functional currency of the corporate head office is the U.S. dollar. Transaction gains or losses as well as translation gains and losses on monetary assets and liabilities are recorded within foreign exchange gains (losses) on the Consolidated Statement of Earnings. U.S. based Food Group operations have no exposure to other currencies since almost all sales and purchases are made in U.S. dollars. It is the Company's intention to hold excess funds in the currency in which the funds are likely to be used, which will, from time to time, potentially expose the Company to exchange rate fluctuations when converted into U.S. dollars. Commodity risk The Food Group enters into exchange-traded commodity futures and options contracts to hedge its exposure to price fluctuations on grain transactions to the extent considered practicable for minimizing risk from market price fluctuations. Futures contracts used for hedging purposes are purchased and sold through regulated commodity exchanges. Inventories, however, may not be completely hedged, due in part to the Company's assessment of its exposure from expected price fluctuations. Exchange purchase and sales contracts may expose the Company to risk in the event that a counter-party to a transaction is unable to fulfill its contractual obligation. The Company manages its risk by entering into purchase contracts with pre-approved producers. The Company has a risk of loss from hedge activity if a grower does not deliver the grain as scheduled. Sales contracts are entered into with organizations of acceptable creditworthiness, as internally evaluated. All futures transactions are marked to market. Gains and losses on futures transactions related to grain inventories are included in cost of goods sold. At September 30, 2004 the Company owned 111,885 (2003 - 150,780) bushels of corn with a weighted average price of $2.48 (2003 - $1.86) and 38,361 (2003 - 173,945) bushels of soy beans with a weighted average price of $11.69 (2003 - $7.46). The Company has at September 30, 2004 net long/(short) positions on corn and soy beans of (153,983) (2003 - 75,415) and (52,954) (2003 -197,060) bushels respectively. An increase/decrease in commodity prices of 10% would result in a gain (loss) of $130,794 (2003 - $14,000) in corn and $9,514 (2003 - $147,000) in soy beans, respectively. There are no futures contracts in the other Food Group segments, Opta Minerals, the StakeTech Steam Explosion Group or related to Corporate office activities. Item 4. Controls and Procedures Under Section 404 of the Sarbanes-Oxley Act of 2002 ("404"), we are required to include, for the first time in our Annual Report on Form 10-K for 2004 (the "10-K"), management's assessment of the effectiveness of our internal controls over financial reporting (the "Assessment"), and our independent auditor's attestation of that assessment (the "Attestation"). We are working diligently to complete our work required for the Assessment and Attestation. To date, however, we have experienced an increased workload versus initial expectations and have realized some delays in executing against our internal 404 project plan. In the third quarter of 2004 we re-evaluated that plan, adding both significant internal staffing resources and external consultants to our 404 project team. The revised 404 project plan contains many time-critical milestones. Our efforts during November and December 2004 will be critical to our success. Under the supervision and with the participation of management, the Chief Executive Officer and Chief Financial Officer of the Company have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of September 30, 2004, and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Internal Control over Financial Reporting There has been no change in the Company's internal control over financial reporting that occurred during the Company's quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. - -------------------------------------------------------------------------------- SUNOPTA INC. 40 September 30, 2004 10-Q PART II - OTHER INFORMATION. Item 1. Legal proceedings Included within prepaid expenses and other current assets is a receivable of $3,343,000 representing a judgment awarded and recovery of legal fees and interest relating to a suit the Company filed against a supplier for failure to adhere to the terms of a contract. The judgment was awarded on June 29, 2004 by a federal court jury in the United States District Court for the District of Oregon in favour of Sunrich Inc. (Sunrich) a subsidiary of the Company. The supplier counter-sued the Company for breach of contract however, as part of this judgment these counter-claims were dismissed. The supplier has since filed post trial motions. The Company and it's legal counsel believe these motions and counter-claims are without merit and the Company believes the collectibility of this receivable is reasonably assured. Included within other income and expense for the nine months ended September 30, 2004 is a recorded pre-tax gain of $2,646,000. Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities - Not applicable Item 3. Defaults upon Senior Securities - Not applicable Item 4. Submission of Matters to a Vote of Security Holders - Not applicable Item 5. Other Information (a) Not applicable - -------------------------------------------------------------------------------- SUNOPTA INC. 41 September 30, 2004 10-Q Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - 31.1 Certification by Jeremy Kendall, Chief Executive Officer pursuant to Rule 13(a) - 14(a) under the Exchange Act. 31.2 Certification by John Dietrich, Chief Financial Officer pursuant to Rule 13(a) - 14(a) under the Exchange Act. 32 Certifications by Jeremy Kendall, Chairman and Chief Executive Officer and John Dietrich, Vice President and Chief Financial Officer pursuant to Section 18 U.S.C Section 1350. ** Filed herewith (b) Reports on Form 8-K - None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SUNOPTA INC. /s/ John Dietrich Date November 5 2004 SunOpta Inc. by John Dietrich Vice President and Chief Financial Officer - -------------------------------------------------------------------------------- SUNOPTA INC. 42 September 30, 2004 10-Q

	SUNOPTA INC.



	/s/ John Dietrich
Date May 9, 2005
	SunOpta Inc. by John Dietrich Vice President and Chief Financial Officer



SUNOPTA INC.	24	March 31, 2005 10-Q