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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 October 2, 2010

OR

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

For the transition period from _______ to _______.

Commission file number: 001–34198

SUNOPTA INC.
(Exact name of registrant as specified in its charter)

CANADA	Not Applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2838 Bovaird Drive West
Brampton, Ontario L7A 0H2, Canada	(905) 455–1990
(Address of principal executive offices)	(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 [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S–T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [   ]         No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b–2 of the Exchange Act. (Check one):

Large accelerated filer [   ]	Accelerated filer [X]
Non–accelerated filer [   ]	Smaller reporting company [   ]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).

Yes [   ]         No [X]

The number of shares of the registrant’s common stock outstanding as of November 1, 2010 was 65,299,048.

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SUNOPTA INC.

FORM 10–Q

For the quarterly period ended October 2, 2010

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Operations for the quarter and three quarters ended October 2, 2010 and September 30, 2009	4
	Consolidated Statements of Comprehensive Earnings (Loss) for the quarter and three quarters ended October 2, 2010 and September 30, 2009	6
	Consolidated Balance Sheets as at October 2, 2010 and December 31, 2009	8
	Consolidated Statements of Shareholders’ Equity as at and for the three quarters ended October 2, 2010 and September 30, 2009	9
	Consolidated Statements of Cash Flows for the quarter and three quarters ended October 2, 2010 and September 30, 2009	10
	Notes to Consolidated Financial Statements	12
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3	Quantitative and Qualitative Disclosures about Market Risk	71
Item 4	Controls and Procedures	73
PART II – OTHER INFORMATION
Item 1	Legal Proceedings	75
Item 1A	Risk Factors	75
Item 6	Exhibits	75

All financial information is expressed in United States Dollars. The closing rate of exchange on November 1, 2010 was CDN $1 = U.S. $0.9842.

Forward–Looking Statements

This quarterly report of SunOpta Inc. (the “Company”) for the quarterly period ended October 2, 2010 contains forward–looking statements which are based on our current expectations and assumptions and involve a number of risks and uncertainties. Generally, forward–looking statements do not relate strictly to historical or current facts and are typically accompanied by words such as “anticipate,” “estimate,” “intend,” “project,” “potential,” “continue,” “believe,” “expect,” “could,” “would,” “should,” “might,” “plan,” “will,” “may,” the negatives of such terms, and words and phrases of similar impact and include, but are not limited to references to possible operational consolidation, reduction of non–core assets and operations, business strategies, plant and production capacities, revenue generation potential and anticipated construction costs, competitive strengths, goals, capital expenditure plans, business and operational growth and expansion plans, anticipated operating margins and operating income increases, gains or losses associated with business transactions, cost reductions, rationalization and improved efficiency initiatives, proposed new product offerings, and references to the future growth of the business and global markets for the Company’s products. These forward–looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward–looking statements are based on certain assumptions and analyses we make in light of our experience and our interpretation of current conditions, historical trends and expected future developments as well as other factors that we believe are appropriate in the circumstance.

SUNOPTA INC.

1

October 2, 2010 10–Q

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Whether actual results and developments will agree with our expectations and predictions is subject to many risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from our expectations and predictions. We believe these factors include, but are not limited to, the following:

• disruption in the overall economy and financial markets;
• restrictions in our credit agreement about how we may operate our business;
• our ability or inability to refinance our term debt when it becomes due;
• we may require additional capital to maintain current operations, which may not be available on favourable terms or at all;
• consumer preferences for natural and organic food products are difficult to predict and may change;
• we operate in a highly competitive industry;
• an interruption at one of our manufacturing facilities;
• the loss of service of our key management;
• the management of our supply chain;
• volatility in the prices of raw materials and energy;
• climate change legislation;
• impairment charges in goodwill or other long–lived assets;
• technological innovation by our competitors;
• our ability to protect our intellectual property and proprietary rights;
• substantial environmental regulation and policies to which we are subject;
• significant food and health regulations to which SunOpta Foods is subject;
• agricultural policies that influence our operations;
• product liability suits that may be brought against our Company;
• loss of a key customer;
• fluctuations in exchange rates, interest rates and certain commodities;
• our ability to effectively manage our growth and integrate acquired companies;
• adverse weather conditions;
• the volatility of our operating results and share price;
• the achievement of business forecasts;
• construction or installation delays of new equipment;
• labour issues; and
• we have continuing indemnification obligations relating to our recent depositions.

Consequently all forward–looking statements made herein are qualified by these cautionary statements and there can be no assurance that our actual results or the developments we anticipate will be realized. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our Annual Report on Form 10–K for the fiscal year ended December 31, 2009. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A, Risk Factors, in our Annual Report on Form 10–K for the fiscal year ended December 31, 2009.

SUNOPTA INC.

2

October 2, 2010 10–Q

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PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

Consolidated Financial Statements

SunOpta Inc.

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

(Unaudited)

SUNOPTA INC.

3

October 2, 2010 10–Q

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SunOpta Inc.

Consolidated Statements of Operations

For the quarter ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

		Quarter ended			Quarter ended
		October 2, 2010			September 30, 2009
Revenues	$	217,905		$	212,488
Cost of goods sold		184,698			183,949
Gross profit		33,207			28,539
Warehousing and distribution expenses		702			1,036
Selling, general and administrative expenses		21,412			21,747
Intangible asset amortization		1,155			1,300
Other expense (income), net (note 12)		7,453			(270	)
Goodwill impairment (note 4)		1,654			8,341
Foreign exchange gain		(58	)		(639	)
Earnings (loss) from continuing operations before the following		889			(2,976	)
Interest expense, net		2,036			3,883
Loss from continuing operations before income taxes		(1,147	)		(6,859	)
Recovery of income taxes		(1,258	)		(145	)
Earnings (loss) from continuing operations		111			(6,714	)
Discontinued operations (note 2)
Loss from discontinued operations, net of taxes		(15,415	)		(150	)
Gain on sale of discontinued operations, net of taxes		49,867			–
Earnings (loss) from discontinued operations, net of taxes		34,452			(150	)
Earnings (loss)		34,563			(6,864	)
Earnings (loss) attributable to non–controlling interests		496			(2,192	)
Earnings (loss) attributable to SunOpta Inc.	$	34,067		$	(4,672	)
(Loss) earnings per share – basic (note 6)
–from continuing operations	$	(0.01	)	$	(0.07	)
–from discontinued operations		0.53			–
	$	0.52		$	(0.07	)
(Loss) earnings per share – diluted (note 6)
–from continuing operations	$	–		$	(0.07	)
–from discontinued operations		0.52			–
	$	0.52		$	(0.07	)

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

4

October 2, 2010 10–Q

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SunOpta Inc.

Consolidated Statements of Operations

For the three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

		Three quarters ended			Three quarters ended
		October 2, 2010			September 30, 2009
Revenues	$	668,539		$	619,772
Cost of goods sold		560,721			538,859
Gross profit		107,818			80,913
Warehousing and distribution expenses		2,894			3,034
Selling, general and administrative expenses		71,432			64,833
Intangible asset amortization		3,474			3,577
Other expense (income), net (note 12)		8,812			(342	)
Goodwill impairment (note 4)		1,654			8,341
Foreign exchange gain		(1,494	)		(156	)
Earnings from continuing operations before the following		21,046			1,626
Interest expense, net		7,625			10,159
Earnings (loss) from continuing operations before income taxes		13,421			(8,533	)
Provision for (recovery of) income taxes		2,672			(1,207	)
Earnings (loss) from continuing operations		10,749			(7,326	)
Discontinued operations (note 2)
(Loss) earnings from discontinued operations, net of taxes		(14,569	)		29
Gain on sale of discontinued operations, net of taxes		63,676			–
Earnings from discontinued operations, net of taxes		49,107			29
Earnings (loss)		59,856			(7,297	)
Earnings (loss) attributable to non–controlling interests		710			(2,748	)
Earnings (loss) attributable to SunOpta Inc.	$	59,146		$	(4,549	)
Earnings (loss) per share – basic (note 6)
–from continuing operations	$	0.16		$	(0.07	)
–from discontinued operations		0.75			–
	$	0.91		$	(0.07	)
Earnings (loss) per share – diluted (note 6)
–from continuing operations	$	0.15		$	(0.07	)
–from discontinued operations		0.75			–
	$	0.90		$	(0.07	)

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

5

October 2, 2010 10–Q

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SunOpta Inc.

Consolidated Statements of Comprehensive Earnings (Loss)

For the quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

		Quarter ended			Quarter ended
		October 2, 2010			September 30, 2009
Earnings (loss) from continuing operations	$	111		$	(6,714	)
Earnings (loss) from discontinued operations, net of taxes		34,452			(150	)
		34,563			(6,864	)
Currency translation adjustment		3,313			7,090
Change in fair value of interest rate swap, net of taxes		63			14
Other comprehensive earnings, net of taxes		3,376			7,104
Comprehensive earnings		37,939			240
Comprehensive earnings (loss) attributable to non–controlling interests		724			(2,120	)
Comprehensive earnings attributable to SunOpta Inc.	$	37,215		$	2,360

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

6

October 2, 2010 10–Q

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SunOpta Inc.

Consolidated Statements of Comprehensive Earnings (Loss)

For the three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

		Three quarters ended			Three quarters ended
		October 2, 2010			September 30, 2009
Earnings (loss) from continuing operations	$	10,749		$	(7,326	)
Earnings from discontinued operations, net of taxes		49,107			29
		59,856			(7,297	)
Currency translation adjustment		(852	)		9,500
Change in fair value of interest rate swap, net of taxes		203			334
Other comprehensive (loss) earnings, net of taxes		(649	)		9,834
Comprehensive earnings		59,207			2,537
Comprehensive earnings (loss) attributable to non–controlling interests		267			(2,690	)
Comprehensive earnings attributable to SunOpta Inc.	$	58,940		$	5,227

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

7

October 2, 2010 10–Q

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SunOpta Inc.

Consolidated Balance Sheets

As at October 2, 2010 and December 31, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

		October 2, 2010			December 31, 2009
Assets					(see note 2	)
Current assets
Cash and cash equivalents (note 13)	$	21,067		$	1,752
Accounts receivable		94,618			78,483
Inventories (note 3)		158,049			157,541
Prepaid expenses and other current assets		13,573			10,001
Current income taxes recoverable		–			442
Deferred income taxes		5,173			5,457
Current assets held for sale (note 2)		–			56,140
		292,480			309,816
Investments (note 2)		33,345			–
Property, plant and equipment		100,266			103,561
Goodwill (note 4)		30,134			31,431
Intangible assets		48,424			55,229
Deferred income taxes		10,680			15,257
Other assets		2,037			2,876
Non–current assets held for sale (note 2)		–			33,120
	$	517,366		$	551,290
Liabilities
Current liabilities
Bank indebtedness (note 7)	$	23,690		$	63,481
Accounts payable and accrued liabilities		100,167			87,519
Customer and other deposits		963			1,064
Income taxes payable		1,612			–
Other current liabilities		1,187			1,566
Current portion of long–term debt (note 8)		53,842			52,455
Current portion of long–term liabilities		373			683
Current liabilities held for sale (note 2)		–			19,135
		181,834			225,903
Long–term debt (note 8)		17,183			34,734
Long–term liabilities		2,595			2,760
Deferred income taxes		13,126			12,708
Non–current liabilities held for sale (note 2)		–			487
		214,738			276,592
Preferred shares of a subsidiary company held for sale (note 2)		–			28,187
Equity
SunOpta Inc. shareholders’ equity
Capital Stock (note 5)		179,587			178,694
65,299,048 common shares (December 31, 2009 – 64,982,968)
Additional paid in capital (note 5)		11,480			7,934
Retained earnings		93,292			34,146
Accumulated other comprehensive income		4,101			12,079
		288,460			232,853
Non–controlling interest		14,168			13,658
Total equity		302,628			246,511
	$	517,366		$	551,290
Commitments and contingencies (note 10)
Subsequent events (note 15)

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

8

October 2, 2010 10–Q

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SunOpta Inc.

Consolidated Statements of Shareholders’ Equity

As at and for the three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

9

October 2, 2010 10–Q

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SunOpta Inc.

Consolidated Statements of Cash Flows

For the quarter ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

		Quarter ended			Quarter ended
		October 2, 2010			September 30, 2009
Cash provided by (used in)
Operating activities
Earnings (loss)	$	34,563		$	(6,864	)
Earnings (loss) from discontinued operations		34,452			(150	)
Earnings (loss) from continuing operations		111			(6,714	)
Items not affecting cash
Amortization		4,110			4,187
Unrealized loss (gain) on foreign exchange		829			(169	)
Deferred income taxes		(1,909	)		(1,459	)
Goodwill impairment (note 4)		1,654			8,341
Impairment of long–lived assets (note 12)		7,505			–
Other		21			2,254
Changes in non–cash working capital (note 9)		8,371			13,683
Net cash flows from operations – continuing operations		20,692			20,123
Net cash flows from operations – discontinued operations		(5,362	)		(857	)
		15,330			19,266
Investing activities
Purchases of property, plant and equipment, net		(4,714	)		(1,871	)
Purchases of patents, trademarks and other intangible assets		(37	)		(77	)
Other		116			2,041
Cash from investing activities – continuing operations		(4,635	)		93
Cash from investing activities – discontinued operations		(12,485	)		1,120
		(17,120	)		1,213
Financing activities
Decrease in line of credit facilities		(4,359	)		(18,996	)
Proceeds from the issuance of common shares		338			215
Repayment of long–term debt		(12,158	)		(3,141	)
Other		(44	)		(1	)
Cash flows from financing activities – continuing operations		(16,223	)		(21,923	)
Cash flows from financing activities – discontinued operations		–			–
		(16,223	)		(21,923	)
Foreign exchange gain on cash held in a foreign currency		725			573
Decrease in cash and cash equivalents during the period		(17,288	)		(871	)
Discontinued operations cash activity included above:
Add: Balance included at beginning of period		17,974			19,136
Less: Balance included at end of period		–			(19,400	)
Cash and cash equivalents – beginning of the period		20,381			2,456
Cash and cash equivalents – end of the period		21,067			1,321
Supplemental cash flow information (notes 9 and 13)

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

10

October 2, 2010 10–Q

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SunOpta Inc.

Consolidated Statements of Cash Flows

For the three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

		Three quarters ended			Three quarters ended
		October 2, 2010			September 30, 2009
Cash provided by (used in)
Operating activities
Earnings (loss)	$	59,856		$	(7,297	)
Earnings from discontinued operations		49,107			29
Earnings (loss) from continuing operations		10,749			(7,326	)
Items not affecting cash
Amortization		12,350			12,806
Unrealized gain on foreign exchange		(589	)		(403	)
Deferred income taxes		(784	)		(354	)
Goodwill impairment (note 4)		1,654			8,341
Impairment of long–lived assets (note 12)		7,895			–
Other		1,603			337
Changes in non–cash working capital (note 9)		(10,434	)		14,628
Net cash flows from operations – continuing operations		22,444			28,029
Net cash flows from operations – discontinued operations		(5,439	)		(1,808	)
		17,005			26,221
Investing activities
Purchases of property, plant and equipment, net		(13,545	)		(9,490	)
Payment of deferred purchase consideration		(721	)		(1,500	)
Purchases of patents, trademarks and other intangible assets		(400	)		(214	)
Other		281			(191	)
Cash from investing activities – continuing operations		(14,385	)		(11,395	)
Cash from investing activities – discontinued operations		52,298			(1,669	)
		37,913			(13,064	)
Financing activities
Decrease in line of credit facilities		(39,155	)		(9,750	)
Borrowings under long–term debt		247			716
Proceeds from the issuance of common shares		850			627
Repayment of long–term debt		(16,327	)		(9,670	)
Other		(287	)		60
Cash flows from financing activities – continuing operations		(54,672	)		(18,017	)
Cash flows from financing activities – discontinued operations		–			–
		(54,672	)		(18,017	)
Foreign exchange gain on cash held in a foreign currency		98			826
Increase (decrease) in cash and cash equivalents during the period		344			(4,034	)
Discontinued operations cash activity included above:
Add: Balance included at beginning of period		18,971			22,877
Less: Balance included at end of period		–			(19,400	)
Cash and cash equivalents – beginning of the period		1,752			1,878
Cash and cash equivalents – end of the period	$	21,067		$	1,321
Supplemental cash flow information (notes 9 and 13)

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

1.     Basis of presentation, fiscal year–end and new accounting pronouncements

Basis of presentation

The interim 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 promulgated under the Securities Exchange Act of 1934, as amended, and in accordance with accounting principles generally accepted in the United States of America. Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included and all such adjustments are of a normal, recurring nature. Operating results for the quarter and three quarters ended October 2, 2010 are not necessarily indicative of the results that may be expected for the full year ending January 1, 2011 or for any other period. For further information, see the Company’s consolidated financial statements, and notes thereto, included in the Annual Report on Form 10–K for the year ended December 31, 2009.

The interim consolidated financial statements include the accounts of the Company and its subsidiaries, and have been prepared on a basis consistent with the financial statements for the year ended December 31, 2009, except for the effects of the sales of the Canadian Food Distribution business and SunOpta BioProcess Inc., as outlined in note 2. Intercompany accounts and transactions have been eliminated on consolidation.

Fiscal year–end

On March 9, 2010, the Board of Directors of the Company approved a change to the Company’s fiscal year period from a fiscal year ending on December 31 to a floating year–end on the Saturday closest to December 31, based on a 52 week calendar, wherein every fiscal quarter (except for the first quarter which included two additional days) is comprised of 13 weeks or 91 days. This change is effective for fiscal 2010, resulting in a year–end of January 1, 2011 and the quarterly periods for fiscal 2010 ending on April 3, July 3 and October 2. The fiscal year of Opta Minerals Inc. (“Opta Minerals”), which is 66.4% owned by the Company, ends on December 31, 2010, and its quarterly periods for fiscal 2010 end on March 31, June 30 and September 30. The consolidated statements of operations, cash flows and balance sheets for the Company in the current quarter include the results of Opta Minerals through September 30, 2010.

New accounting pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Topic 810 (formerly Statement of Financial Accounting Standard (“SFAS”) No. 167, “Amendments to FASB Interpretation No. 46(R)”). This accounting standard is a revision to a previous FASB Interpretation and changes how a reporting entity evaluates whether an entity is a variable interest entity (“VIE”) and which entity is considered the primary beneficiary of a VIE and is therefore required to consolidate the VIE. This accounting standard will also require continuous reassessments of which party within the VIE is considered the primary beneficiary. ASC 810 became effective January 1, 2010. As a result of adopting this standard, the Company reassessed its investments and did not change its position as the primary beneficiary of its VIEs.

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010–06, “Improving Disclosures about Fair Value Measurements,” which amends ASC Topic 820, “Fair Value Measures and Disclosures.” ASU No. 2010–06 amends the ASC to require disclosure of transfers into and out of Level 1 and Level 2 fair value measurements, and also requires more detailed disclosure about the activity within Level 3 fair value measurements. The Company adopted the guidance in ASU No. 2010–06 on January 1, 2010, except for the requirements related to Level 3 disclosures, which will be effective for annual and interim reporting periods beginning after December 15, 2010 (January 1, 2011 for the Company). This guidance requires expanded disclosures only, and did not have any impact on the Company’s consolidated financial statements.

SUNOPTA INC.

12

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

2.     Discontinued operations

(a)     Divestiture of Canadian Food Distribution Business

On May 10, 2010, the Company entered into an agreement to sell its Canadian Food Distribution assets (“CFD” or the “CFD Transaction”) to UNFI Canada Inc., a wholly–owned subsidiary of United Natural Foods Inc. The CFD Transaction closed on June 11, 2010 for cash consideration of Cdn $68,000 (U.S. – $65,809). The net proceeds are subject to post closing adjustments, in accordance with the asset purchase agreement, which are expected to be finalized by June 2011.

The following is a summary of the CFD Transaction:

Cash consideration	$	65,809
Transaction and related costs		(4,937	)
Net proceeds		60,872
Net assets sold		(51,655	)
Accumulated other comprehensive income related to assets sold		7,772
Pre–tax gain on sale		16,989
Provision for income taxes		(3,180	)
Gain on sale of discontinued operations	$	13,809

The gain on sale of discontinued operations has been recorded in discontinued operations on the consolidated statements of operations.

The operating results of the CFD business are included within (loss) earnings from discontinued operations, net of income tax, on the consolidated statement of operations. The operating results for the three quarters ended October 2, 2010 reflect the operating results from January 1, 2010 through to the date of the sale, June 11, 2010. The summary comparative financial results of discontinued operations related to the CFD business were as follows:

	Quarter ended						Three quarters ended
		October 2,			September 30,			October 2,			September 30,
		2010			2009			2010			2009
Revenues	$	–		$	41,324		$	82,859		$	123,707
Earnings before taxes from discontinued operations up to the date of sale		–			1,076			2,168			3,681
Costs allocated to discontinued operations as a result of sale		–			–			(1,289	)		–
Earnings from discontinued operations before taxes		–			1,076			879			3,681
Provision for income taxes		–			342			265			1,171
	$	–		$	734		$	614		$	2,510

The assets sold in the CFD Transaction were part of the former Distribution Group segment.

SUNOPTA INC.

13

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

2.     Discontinued operations, continued

(b)     Divestiture of SunOpta BioProcess Inc.

On August 31, 2010, the Company completed a transaction to sell its 100% ownership in SunOpta BioProcess Inc. (“SBI” or the “SBI Transaction”) to Mascoma Canada Inc., a wholly–owned subsidiary of Mascoma Corporation (“Mascoma”). As consideration for selling all the outstanding common shares of SBI, the Company received non–cash consideration equal to a 19.55% ownership interest in Mascoma, through a combination of preferred and common shares, valued at $50,925. The non–cash consideration includes 11,268,868 series D preferred shares, 3,756,290 common shares and 1,000,000 warrants to purchase common shares of Mascoma. In conjunction with the sale, the Company settled the preferred share liability with the former SBI preferred shareholders, through the transfer of 4,688,000 of the series D preferred shares received. In addition, as a result of the change in control of SBI, the vesting of previously issued SBI stock options were accelerated, and the 800,000 restricted stock units (“RSU”) were settled in cash at a value of $4.49 per RSU. The fair value of consideration received, net of the settlement to the former SBI preferred shareholders, resulted in a $33,345 investment in Mascoma, which is presented as a non–current asset on the Company’s balance sheet. The investment in Mascoma will be accounted for under the cost method of accounting, based on the 19.65% ownership interest taken back, and the inability of the Company to exert significant influence over the operations of Mascoma. This transaction is subject to post closing adjustments, in accordance with the share purchase agreement, which are expected to be finalized within the next 12 months.

The following is a summary of the SBI Transaction:

Net fair value assigned to non–cash consideration applicable to SunOpta Inc.	$	33,345
Transaction and related costs		(3,478	)
Net liabilities sold		11,128
Release of additional paid in capital recorded from accelerated vesting of stock options related to SBI		11,025
Pre–tax gain on sale		52,020
Provision for income taxes		(2,153	)
Gain on sale of discontinued operations	$	49,867

The gain on sale of discontinued operations has been recorded in discontinued operations on the consolidated statements of operations.

SUNOPTA INC.

14

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

2.     Discontinued operations, continued

The operating results of SunOpta BioProcess Inc. are included within (loss) earnings from discontinued operations, net of income tax, on the consolidated statement of operations. The operating results for the quarter ended October 2, 2010 and the three quarters ended October 2, 2010, reflect the operating results through to the date of sale, August 31, 2010. The summary comparative financial results of discontinued operations related to SunOpta BioProcess Inc. were as follows:

		Quarter ended						Three quarters ended
		October 2,			September 30,			October 2,			September 30,
		2010			2009			2010			2009
Revenues	$	1,329		$	–		$	4,005		$	132
Loss before taxes from discontinued operations up to the date of sale		(15,348	)		(884	)		(14,916	)		(2,481	)
Costs allocated to discontinued operations as a result of sale		(67	)		–			(267	)		–
Loss from discontinued operations before taxes		(15,415	)		(884	)		(15,183	)		(2,481	)
Provision for income taxes		–			–			–			–
	$	(15,415	)	$	(884	)	$	(15,183	)	$	(2,481	)

Included in loss before income taxes from discontinued operations up to the date of sale is $15,280 of stock–based and other compensation rewards that were triggered upon the change in control of SBI.

The business sold was part of the former SunOpta BioProcess segment.

Included in current assets held for sale (as at December 31, 2009) are cash and cash equivalents related to SBI of $18,954 that could not be used by the Company for general corporate purposes, and was maintained in separate bank accounts of SBI.

SUNOPTA INC.

15

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

2.     Discontinued operations, continued

The assets and liabilities related to the CFD Transaction and SBI Transaction have been reclassified as assets and liabilities held for sale on the Company's balance sheet at December 31, 2009, as follows:

		CFD Transaction			SBI Transaction			Held for Sale
Cash and cash equivalents	$	17		$	18,954		$	18,971
Accounts receivable		15,451			307			15,758
Inventories		20,593			6			20,599
Prepaid expenses and other current assets		713			99			812
Current assets held for sale		36,774			19,366			56,140
Property, plant and equipment	$	7,196		$	1,872		$	9,068
Goodwill		18,286			–			18,286
Intangible assets		5,344			422			5,766
Non–current assets held for sale		30,826			2,294			33,120
Accounts payable and accrued liabilities	$	17,852		$	882		$	18,734
Customer and other deposits		23			349			372
Current portion of long–term liabilities		29			–			29
Current liabilities held for sale		17,904			1,231			19,135
Long–term liabilities	$	487		$	–		$	487
Non–current liabilities held for sale		487			–			487
Preferred shares of a subsidiary company held for sale	$	–		$	28,187		$	28,187
Preferred shares of a subsidiary company held for sale		–			28,187			28,187

3.     Inventories

		October 2, 2010			December 31, 2009
Raw materials and work–in–process	$	69,328		$	66,052
Finished goods		83,130			87,497
Company–owned grain		10,407			13,791
Inventory reserve		(4,816	)		(9,799	)
	$	158,049		$	157,541

4.     Goodwill impairment

During the quarter ended October 2, 2010, the Company determined that there were external market conditions and other circumstances that suggested the carrying value of the natural health products reporting unit, which is part of the International Foods segment, may exceed its fair value. These external market conditions and other circumstances included reduced sales levels, increased competition leading to price concessions and decreased market share, shift in product mix causing lower gross margins, and product de–listing at certain retailers. As a result of completing the test for goodwill impairment, the Company determined that the carrying value of goodwill in its natural health reporting unit exceeded its fair value, and recorded a non–cash goodwill impairment charge of $1,654. The fair value of the natural health products reporting unit was estimated using the expected present value of future cash flows. The Company’s other reporting units will be tested for impairment in the fourth quarter as part of the annual impairment test.

SUNOPTA INC.

16

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

4.     Goodwill impairment, continued

During the quarter ended September 30, 2009, Opta Minerals determined that there were external market conditions and other circumstances that suggested the carrying value of certain reporting units in Opta Minerals may exceed their fair value. These external market conditions and other circumstances included continued operating losses and extended periods of facility under–utilization due to continued weakness in the steel, abrasives and foundry markets. As a result of completing a test for goodwill impairment, Opta Minerals determined that the carrying value of goodwill in certain of its mill and foundry and abrasive products reporting units exceeded their fair value, and recorded a non–cash impairment charge of $8,341. The Company has recorded this charge in its Opta Minerals operating segment.

5.     Capital stock

(a)     Capital stock

Transactions involving capital stock for the quarter ended October 2, 2010 and September 30, 2009 and for the three quarters ended October 2, 2010 and September 30, 2009, were as follows:

		Quarter ended						Quarter ended
		October 2, 2010						September 30, 2009
		Number			Amount			Number			Amount
					$						$
Balance, beginning of period		65,170,331			179,218			64,846,560			178,270
Common shares issued on exercise of options by employees and directors		90,940			201			–			–
Common shares issued as part of the Company's employee stock purchase plan		37,777			168			68,883			215
Balance, end of period		65,299,048			179,587			64,915,443			178,485

		Three quarters ended						Three quarters ended
		October 2, 2010						September 30, 2009
		Number			Amount			Number			Amount
Balance, beginning of period		64,982,968			178,694			64,493,320			177,858
Common shares issued on exercise of options by employees and directors		140,420			297			–			–
Common shares issued as part of the Company's employee stock purchase plan		173,160			596			419,623			627
Common shares issued to the Company's Chief Executive Officer as part of an award granted February 8, 2007		2,500			–			2,500			–
Balance, end of period		65,299,048			179,587			64,915,443			178,485

SUNOPTA INC.

17

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

5.     Capital stock, continued

(b)     Warrants

On February 5, 2010 (the “First Tranche”), and June 11, 2010 (the “Second Tranche”), the Company issued warrants pursuant to an Advisory Services Agreement. A fair value of $441 and $1,722, respectively, was assigned to these warrants, using the Black–Scholes option pricing model, and were expensed in full during the quarter of issuance with the offset recorded as an increase to additional paid in capital. The Second Tranche of warrants were issued following the consummation of the sale of the Canadian Food Distribution business (see note 2(a)) and the cost was included as part of the gain on sale of discontinued operations. Inputs used in the Black–Scholes option pricing model for the warrants were as follows:

		First Tranche			Second Tranche
		February 5, 2010			June 11, 2010
Number of warrants issued		250,000			600,000
Exercise price		3.25			5.11
Expected volatility		72.0%			72.1%
Risk–free interest rate		2.5%			2.1%
Dividend yield		0%			0%
Expected life (in years)		5			5

The fair value of the warrants is based on estimates of the number of warrants that management expects to vest, which was estimated to be 100% of the granted amounts.

(c)     Options

There were 681,000 options granted to employees and directors in the three quarters ended October 2, 2010 (September 30, 2009 – 1,078,000). The inputs used in the Black–Scholes model to determine the fair value of the options granted were as follows:

		Three quarters ended			Three quarters ended
		October 2, 2010			September 30, 2009
Number of options issued		681,000			1,078,000
Exercise price		$4.45 – $5.62			$0.91 – $1.92
Weighted average expected volatility		68.2%			70.6%
Weighted average risk–free interest rate		2.3%			2.0%
Dividend yield		0%			0%
Expected life (in years)		6			6

The weighted average fair value of the options granted for the three quarters ended October 2, 2010 amounted to $2.79 (September 30, 2009 – $1.05). The fair value of the options is based on estimates of the number of options that management expects to vest, which is estimated to be 85% of the granted amounts.

SUNOPTA INC.

18

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

6.     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:

		Quarter ended						Three quarters ended
		October 2,			September 30,			October 2,			September 30,
		2010			2009			2010			2009
(Loss) earnings from continuing operations attributable to SunOpta Inc.	$	(385	)	$	(4,522	)	$	10,039		$	(4,578	)
Earnings (loss) from discontinued operations, net of taxes		34,452			(150	)		49,107			29
Earnings (loss) attributable to SunOpta Inc.	$	34,067		$	(4,672	)	$	59,146		$	(4,549	)
Weighted average number of shares used in basic earnings per share		65,120,570			64,866,777			65,112,908			64,714,881
Dilutive potential of the following:
Employee/director stock options		736,460			503,332			561,136			286,753
Warrants		129,004			–			90,821			–
Diluted weighted average number of shares outstanding		65,986,034			65,370,109			65,764,865			65,001,634
(Loss) earnings per share – basic:
From continuing operations	$	(0.01	)	$	(0.07	)	$	0.16			(0.07	)
From discontinued operations		0.53			–			0.75			–
	$	0.52		$	(0.07	)	$	0.91			(0.07	)
(Loss) earnings per share – diluted:
From continuing operations	$	–		$	(0.07	)	$	0.15			(0.07	)
From discontinued operations		0.52			–			0.75			–
	$	0.52		$	(0.07	)	$	0.90			(0.07	)

For the quarter ended October 2, 2010, options to purchase 875,300 (September 30, 2009 – 1,815,375) common shares have been excluded from the calculations of diluted earnings per share due to their anti–dilutive effect. For the three quarters ended October 2, 2010, options to purchase 1,010,000 (September 30, 2009 – 1,815,375) common shares have been excluded from the calculations of diluted earnings per share due to their anti–dilutive effect.

SUNOPTA INC.

19

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

7.     Bank indebtedness

		October 2, 2010			December 31, 2009
Canadian line of credit facility (a)	$	–		$	–
U.S. line of credit facility (b)		–			44,130
Opta Minerals Canadian line of credit facility (c)		2,980			3,355
TOC line of credit facilities (d)		20,710			15,996
	$	23,690		$	63,481

(a)     Canadian line of credit facility:

The Company has a Canadian line of credit of Cdn $20,000 (U.S. – $19,598). As at October 2, 2010, nil (December 31, 2009 – nil) of this facility was utilized, and there were no amounts committed through letters of credit. 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. At October 2, 2010, the interest rate on this facility was 5.00% (December 31, 2009 – 7.50%), calculated as Canadian prime plus a premium of 2.00%. The maximum availability of this line is based on a borrowing base which includes certain accounts receivables and inventories of the Company’s Canadian business as defined in the Credit Agreement. At October 2, 2010, the borrowing base supported draws to $8,861. At October 2, 2010, 0.75% of undrawn balances on this facility are charged to the Company as standby fees, based on the Credit Agreement.

(b)     U.S. line of credit facility:

The Company has a U.S. line of credit of $80,000. As at October 2, 2010, $2,524 (December 31, 2009 – $45,754) of this facility was utilized, representing $2,524 (December 31, 2009 – $1,624) committed through letters of credit. During the second quarter, cash proceeds from the sale of the Canadian Food Distribution Assets (see note 2), were used to repay the outstanding balance. Interest on borrowings under this facility accrues at the borrower’s option based on various reference rates including U.S. bank prime, or U.S. LIBOR, plus a margin based on certain financial ratios. At October 2, 2010, the weighted average interest rate on this facility was 3.26% (December 31, 2009 – 3.73%), based on LIBOR plus a premium of 3.00%. The maximum availability of this line is based on the borrowing base which includes certain accounts receivables and inventories of the Company’s U.S. business as defined in the Credit Agreement. At October 2, 2010, the borrowing base supported draws to $62,318. At October 2, 2010, 0.75% of undrawn balances on this facility are charged to the Company as standby fees, based on the Credit Agreement.

The above line of credit facilities as well as certain long–term debt balances (see note 8) are collateralized by a first priority security against substantially all of the Company’s assets in Canada, the United States and Mexico, excluding the assets of Opta Minerals and The Organic Corporation.

The Company has certain financial covenants that it is measured against on a quarterly basis. See note 8 for a discussion of the Company’s compliance with respect to these covenants.

(c)     Opta Minerals Canadian line of credit facility:

Opta Minerals has a line of credit facility of Cdn $15,000 (U.S. – $14,699). At September 30, 2010, Cdn $4,203 (U.S. – $4,119) ((December 31, 2009 – Cdn $4,686 (U.S. – $4,459)) of this facility has been utilized, including letters of credit in the amount of Cdn $1,162 (U.S. – $1,139) (December 31, 2009 – Cdn $1,160 (U.S. – $1,104)). Interest on borrowings under this facility accrues at the borrower’s option based on various reference rates including prime, U.S. dollar base rate, bankers’ acceptances or LIBOR plus a margin based on certain financial ratios of the Company. At September 30, 2010, the weighted average interest rate on this facility was 7.69% (December 31, 2009 – 7.50%).

SUNOPTA INC.

20

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

7.     Bank indebtedness, continued

Opta Minerals’ line of credit facility, along with its unused portion of the revolving acquisition facility (note 8(c)), is subject to annual extensions, and were extended on July 15, 2010 to August 16, 2011.

(d)     TOC line of credit facilities:

The Organic Corporation (“TOC”) has a line of credit facility of € 30,000 (U.S. – $41,340). At October 2, 2010, € 16,547 (U.S. – $22,801) (December 31, 2009 – € 12,746 (U.S. – $18,247) of this facility had been utilized, including letters of credit in the amount of € 2,322 (U.S. – $3,200) (December 31, 2009 – € 2,119 (U.S. – $3,034)). Interest on borrowings under this facility accrues at the borrower’s option based on various reference rates including U.S. LIBOR and Euro LIBOR plus a premium of 1.85%. At October 2, 2010, the weighted average interest rate on this facility was 2.55%. The maximum availability of this line is based on a borrowing base which includes certain accounts receivables and inventories of TOC and its subsidiaries. At October 2, 2010, the borrowing base securing this facility supported draws to € 21,043 (U.S. – $28,997) (December 31, 2009 – € 17,019 (U.S. – $24,364)).

A less–than–wholly owned subsidiary of TOC has line of credit facilities with availability of $1,302 (December 31, 2009 – $1,394) which are fully guaranteed by TOC. As at October 2, 2010, $1,109 (December 31, 2009 – $783) of these facilities had been used. Interest on borrowings under these facilities accrues at either a base rate of 0.4% plus a premium of 6.00%, or a fixed rate of 9.75%. At October 2, 2010, the weighted average interest rate on these facilities was 8.9% (December 31, 2009 –8.6%) and TOC is in compliance with all material requirements under this facility.

8.     Long–term debt

		October 2, 2010			December 31, 2009
Syndicated Lending Agreement:
Term loan facility (a)	$	33,716		$	45,000
Other Long–Term Debt:
Opta Minerals term loan facility (b)		7,850			8,830
Opta Minerals revolving acquisition facility (c)		11,448			12,362
Subordinated debt to former shareholders of TOC (d)		4,758			4,944
Promissory notes (e)		12,847			15,504
Other long–term debt (f)		268			380
Term loans payable (g)		43			52
Capital lease obligations (h)		95			117
		71,025			87,189
Less: current portion		53,842			52,455
	$	17,183		$	34,734

SUNOPTA INC.

21

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

8.     Long–term debt, continued

Details of the Company’s long–term debt are as follows:

(a)     Term loan facility:

The term loan facility balance at October 2, 2010 was $33,716 (December 31, 2009 – $45,000). The entire loan principal is due December 20, 2012 and, at that time, is renewable at the option of the lender and the Company. Interest on the term loan facility is payable at a fixed rate of 6.44% plus a margin of up to 360 basis points based on certain financial ratios of the Company. As at October 2, 2010, the interest rate was 8.04% (December 31, 2009 – 9.74%). As a result of the sale of the Canadian Food Distribution assets (see note 2), $11,284 was repaid on July 16, 2010 in accordance with the terms of the loan agreement.

The term loan facility, and the U.S. line of credit facility (see note 6), are collateralized by a first priority security against substantially all of the Company’s assets in Canada, the United States and Mexico, excluding the assets of Opta Minerals and TOC.

(b)     Opta Minerals term loan facility:

The term loan facility has a maximum available borrowing amount of Cdn $8,011 (U.S. – $7,850). This facility matures on August 30, 2012, is renewable at the option of the lender and Opta Minerals, and has quarterly principal repayments of Cdn $312 (U.S. – $306). At September 30, 2010, the term loan facility was fully drawn (2009 – $9,280 (U.S. – $8,830)). At September 30, 2010, the weighted average interest rate on this facility was 7.66% (December 31, 2009 – 7.50%).

(c)     Opta Minerals revolving acquisition facility:

The revolving acquisition facility has a maximum available borrowing amount of Cdn $14,043 (U.S. – $13,761) to finance future acquisitions and capital expenditures. Principal is payable quarterly equal to 1/40 of the drawdown amount. Any remaining outstanding principal under this facility is due upon maturity. The facility is revolving for one year, with a five year term out option. The outstanding balance on the revolving acquisition facility at September 30, 2010 was Cdn $11,683 (U.S. – $11,448) (2009 – Cdn $12,992 (U.S. – $12,362)). At September 30, 2010, the weighted average interest rate on this facility was 7.24% (2009 – 6.99%).

The Opta Minerals’ credit facilities described above are collateralized by a first priority security against substantially all of the Opta Minerals assets in both Canada and the United States.

Opta Minerals entered into a cash flow hedge in 2007. The cash flow hedge entered into exchanged a notional amount of Cdn $17,200 (U.S. – $16,854) from a floating rate to a fixed rate of 5.25% from August 2008 to August 2012. The estimated fair value of the interest rate swap at September 30, 2010 was a loss of $1,095 (December 31, 2009 – loss of $1,387). The incremental gain in fair value of $292 (net of income taxes of $89) has been recorded in other comprehensive loss for the period. The fair value liability is included in long–term liabilities on the consolidated balance sheets.

(d)     Subordinated debt to former shareholders of TOC:

In conjunction with the acquisition of TOC on April 2, 2008, its former shareholders provided a subordinated loan to TOC in the amount of €3,000 (U.S. – $4,134). The loan bears interest at 7% payable to the former shareholders on a semi–annual basis. The subordinated loan, as well as €453 (U.S. – $624) previously loaned to TOC, is repayable in full on March 31, 2011.

SUNOPTA INC.

22

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

8.     Long–term debt, continued

(e)     Promissory Notes:

Promissory notes consist of notes issued to former shareholders as a result of business acquisitions. As consideration in the acquisition of TOC, the Company issued a total of €9,000 (U.S. – $12,402) in promissory notes which are secured by a pledge of the common shares of TOC. Of the €9,000 (U.S. – $12,402) issued, €1,000 (U.S. – $1,436) was paid in cash on April 5, 2010, with the remaining €8,000 (U.S. – $11,024) due March 31, 2011. Due to TOC’s opening balance sheet not meeting pre–determined working capital targets, and an undisclosed liability that existed prior to the Company’s April 2, 2008 acquisition, € 528 (U.S. – $728) of the promissory notes due March 31, 2011 will not be paid. Accordingly, the balance of the promissory notes at October 2, 2010 is €7,472 (U.S. – $10,296).

In addition, $2,551 remains owing to various former shareholders at a weighted average interest of 5.38%. Of the $12,847 in total promissory notes, $12,535 are due in the next 12 months, with the remaining balances due in varying installments through 2012.

(f)     Other long–term debt:

A less–than–wholly owned subsidiary of TOC has a maximum borrowing amount of 6,500 Ethiopia Birr (“ETB”) (U.S. – $453). The outstanding balance at October 2, 2010, was $268 (December 31, 2009 – $380). At October 2, 2010, the weighted average interest rate on borrowed funds was 10.3% (December 31, 2009 – 10.1%).

(g)     Term loans payable:

Term loans payable bear a weighted average interest rate of 5.3% (December 31, 2009 – 4.9%) due in varying installments through 2013 with principal payments of $13 due in the next 12 months.

(h)     Capital lease obligations:

Capital lease obligations are due in monthly payments, with a weighted average interest rate of 6.8% (December 31, 2009 – 6.9%).

The long–term debt and capital leases described above have required repayment terms in the next five years ending October 2, as follows:

2011	$	53,842
2012		3,419
2013		2,801
2014		2,784
2015		2,780
Thereafter		5,399
	$	71,025

At October 2, 2010, the Company was in compliance with its covenants, which relate to the Canadian line of credit facility, the U.S. line of credit facility (see notes 7(a) and (b)), as well as the term loan facilities. In addition, Opta Minerals was in compliance with its financial covenants which relate to the Canadian Line of Credit Facility (see note 7(c)), as well as the term loan facility and revolving acquisition facility.

SUNOPTA INC.

23

October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

9.     Supplemental cash flow information

		Quarter ended						Three quarters ended
		October 2,			September 30,			October 2,			September 30,
		2010			2009			2010			2009
Changes in non–cash working capital:
Accounts receivable	$	5,955		$	3,003		$	(16,161	)	$	(4,955	)
Inventories		(9,840	)		20,988			(441	)		27,074
Income tax recoverable		534			580			2,054			(118	)
Prepaid expenses and other current assets		(4,710	)		(96	)		(4,271	)		(1,970	)
Accounts payable and accrued liabilities		16,685			(10,549	)		8,836			(4,667	)
Customer and other deposits		(253	)		(243	)		(451	)		(736	)
	$	8,371		$	13,683		$	(10,434	)	$	14,628
Cash paid for:
Interest	$	2,136		$	2,580		$	6,774		$	8,429
Income taxes		41			373			1,070			658

10.     Commitments and contingencies

(a)     Securities class action lawsuits

The Company and certain officers (one of whom is a director) and a former director were named as defendants in proposed class action lawsuits in the United States District Court for the Southern District of New York and Ontario Superior Court of Justice (collectively, the “courts”) on behalf of shareholders who acquired securities of the Company from February 23, 2007 to January 27, 2008, inclusive. Cleugh’s Frozen Foods, Inc. and Pacific Fruit Processors, Inc. (each of which are now part of the merged subsidiary, SunOpta Fruit Group, Inc.) and Organic Ingredients, Inc. (which is now known as SunOpta Global Organic Ingredients, Inc.), were also named as defendant in the U.S. action.

On September 24, 2009 the Company announced that it entered into a tentative agreement to settle all claims raised in these class action proceedings. In return for the dismissal of the class actions and releases from proposed class members of settled claims against the Company and other named defendants, the settlement agreement provided for a total cash contribution of $11,250 to a settlement fund, the adoption of certain governance enhancements to the Company’s Audit Committee charter and Internal Audit Charter and the adoption of an enhanced information technology conversion policy. The settlement was entirely funded by the Company’s insurers.

The settlements were approved by the United States District Court for the Southern District of New York and Ontario Superior Court of Justice in May 2010 and as a result the terms of the settlement have become effective, including the dismissal of the U.S. and Ontario class actions and releases of settled claims against the Company and other named defendants.

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

10.     Commitments and contingencies, continued

(b)     Formal investigation by the SEC

In 2008 the Company received letters from the SEC requesting additional information in connection with the restatement of the Company’s filings for each of the quarterly periods ended March 31, 2007, June 30, 2007, and September 30, 2007. The SEC concluded their investigation in the quarter ended October 2, 2010 and came to a settlement with the Company, Mr. Bromley, President and CEO and Mr. Dietrich the former CFO of the Company. Under the settlement, the Company has agreed to an administrative order (“Order”) directing that the Company cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 12b–20, 13a–11 and 13a–13 thereunder. The Order does not require the Company to make any payment. Mr. Bromley and Mr. Dietrich also have agreed to the Order, which directs that they cease and desist from committing and causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b–20, 13a–11, 13a–13 and 13a–14 thereunder and pay disgorgement of $46 and $7, respectively. Those amounts represent a portion of the proceeds that each of them received in connection with properly approved option exercises and sales of the Company’s common stock that occurred before the Company’s quarterly financial statements for 2007 were restated. The Company, Mr. Bromley and Mr. Dietrich each consented to the issuance of the Order without admitting or denying the Commission’s findings. The settlement concludes the Commission’s inquiry.

(c)     Vargas Class Action

In September 2008, a single plaintiff and a former employee filed a wage and hour dispute, against SunOpta Fruit Group, Inc., as a class action alleging various violations of California’s labour laws (the “Vargas Class Action”). A tentative settlement of all claims was reached at mediation on January 15, 2010 and the parties executed a settlement agreement resolving all claims of the class. The terms of the proposed settlement are still to be finalized by the court. As a result of the tentative settlement, the Company accrued a liability of $1,200 as at December 31, 2009.

(d)     Colorado Sun Oil Processors, LLC dispute

Colorado Mills LLC (“Colorado Mills”) and Sunrich LLC, a wholly–owned subsidiary of the Company, organized a joint venture in 2008 to construct and operate a vegetable oil refinery next to Colorado Mills’ sunflower seed crush plant located in Lamar, Colorado. During the relationship, disputes have arisen between the parties concerning management of the joint venture, record–keeping practices, certain unauthorized expenses incurred on behalf of the joint venture by Colorado Mills, procurement of crude oil by Sunrich from Colorado Mills for processing at the joint venture refinery, and the contract price of crude oil offered for sale under the joint venture agreement.

The parties initiated a dispute resolution process as set forth in the joint venture agreement, which Colorado Mills aborted prematurely through the initiation of suit in Colorado State Court. Subsequent to the filing of that suit, Colorado Mills acted with an outside creditor of the joint venture to put the joint venture into involuntary bankruptcy. The involuntary bankruptcy has been opposed by Sunrich. After a preliminary hearing on Sunrich’s motion to dismiss the involuntary bankruptcy, the bankruptcy court appointed a trustee to act on behalf of the joint venture and, pursuant to a stipulation of the parties, postponed an evidentiary hearing on the motion to dismiss pending organization of the debtor’s affairs by the trustee. A separate arbitration proceeding was recently initiated between Sunrich and Colorado Mills to resolve direct claims each party has asserted against the other. Management cannot conclude whether the prospect of an unfavourable outcome in this matter is probable, or estimate the loss, if any, that might arise from an unfavourable outcome. Accordingly, no accrual has been made at this time for this contingency.

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

10.     Commitments and contingencies, continued

(e)     Other claims

In addition, various claims and potential claims arising in the normal course of business are pending against the Company. It is the opinion of management that these claims or potential claims are without merit and the amount of potential liability, if any, to the Company is not determinable. Management believes the final determination of these claims or potential claims will not materially affect the financial position or results of the Company.

11.     Segmented information

The Company operates in two industries divided into six operating segments:

(a)     SunOpta Foods sources, processes, packages, markets and distributes a wide range of natural, organic and specialty food products and ingredients with a focus on soy, corn, sunflower, fruit, fiber and other natural and organic food and natural health products. There are four operating segments within SunOpta Foods:

	i)	Grains and Foods Group is focused on vertically integrated sourcing, processing, packaging and marketing of grains, grain–based ingredients and packaged products;
	ii)	Ingredients Group is focused primarily on insoluble oat and soy fiber products and works closely with its customers to identify product formulation, cost and productivity opportunities aimed at transforming raw materials into value–added food ingredient solutions;
	iii)	Fruit Group consists of berry processing and fruit ingredient operations that process natural and organic frozen fruits and vegetables into bulk, ingredients and packaged formats for the food service, private label retail and industrial ingredient markets. The group also includes the healthy fruit snacks operations which produce natural and organic fruit snacks; and
	iv)	International Foods Group comprises non–U.S. based operations which source raw material ingredients, trade organic commodities and provide natural and organic food solutions to major global food manufacturers, distributors and supermarket chains with a variety of industrial and private label retail products. In addition, this group manufactures, packages and distributes retail natural health products, primarily in the Canadian marketplace.

(b)     Opta Minerals processes, distributes and recycles silica–free loose abrasives, roofing granules, industrial minerals and specialty sands for the foundry, steel, roofing shingles and bridge and ship–cleaning industries.

(c)     Corporate Services provide a variety of management, financial, information technology, treasury and administration services to the operating segments from the head office in Ontario, Canada, and information and shared services offices in Minnesota, U.S.A.

Effective July 3, 2010, the former Distribution Group was eliminated as an operating segment due to the sale of the Canadian Food Distribution assets (see note 2(a)). In addition, the Company merged its natural health products division with the former International Sourcing and Trading Group to create a new operating segment called the International Foods Group. This realignment of operating segments effectively merges our international operations into one reporting group. The segmented information for the quarter and three quarters ended September 30, 2009 have been updated to reflect the current year’s segment presentation.

Effective August 31, 2010, the former SunOpta BioProcess operating segment was eliminated due to the sale of SunOpta BioProcess Inc. (see note 2(b)). Because this was a stand–alone operating segment, no re–alignment was required for segmented information purposes.

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

11.     Segmented information, continued

The Company’s assets, operations and employees are principally located in the United States, Canada, Europe, Mexico, China and Africa. Revenues are allocated to the United States, Canada and Europe and other external markets based on the location of the customer. Other expense (income) net, interest expense, net, and provision for (recovery of) income taxes are not allocated to the segments.

The following segmented information relates to each of the Company’s segments for the quarter ended October 2, 2010:

		Quarter ended
		October 2, 2010
		SunOpta			Opta			Corporate
		Foods			Minerals			Services			Consolidated
External revenues by market:
United States		135,069			13,410			–			148,479
Canada		25,844			4,358			–			30,202
Europe and other		36,571			2,653			–			39,224
Total revenues from external customers		197,484			20,421			–			217,905
Segment earnings (loss) from continuing operations before the following:		9,710			2,792			(2,506	)		9,996
Other expense, net											7,453
Goodwill impairment											1,654
Interest expense, net											2,036
Recovery of income taxes											(1,258	)
Earnings from continuing operations											111

Other expense for the quarter ended October 2, 2010 includes $7,033 related to the impairment of long–lived assets in the Fruit Group (see note 12). The goodwill impairment charge of $1,654 for the quarter ended October 2, 2010 is related to the International Foods Group (see note 4).

SunOpta Foods has the following segmented reporting for the quarter ended October 2, 2010:

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

11.     Segmented information, continued

The following segmented information relates to each of the Company’s segments for the quarter ended September 30, 2009:

		Quarter ended
		September 30, 2009
		SunOpta			Opta			Corporate
		Foods			Minerals			Services			Consolidated
External revenues by market:
United States		137,158			10,321			–			147,479
Canada		21,471			3,797			–			25,268
Europe and other		37,114			2,627			–			39,741
Total revenues from external customers		195,743			16,745			–			212,488
Segment earnings (loss) from continuing operations before the following:		5,292			1,290			(1,487	)		5,095
Other income, net											(270	)
Goodwill impairment											8,341
Interest expense, net											3,883
Recovery of income taxes											(145	)
Loss from continuing operations											(6,714	)

The goodwill impairment charge of $8,341 for the quarter ended September 30, 2009 is related to the Opta Minerals segment.

SunOpta Foods has the following segmented reporting for the quarter ended September 30, 2009:

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

11.     Segmented information, continued

The following segmented information relates to each of the Company’s segments for the three quarters ended October 2, 2010:

		Three quarters ended
		October 2, 2010
		SunOpta			Opta			Corporate
		Foods			Minerals			Services			Consolidated
External revenues by market:
United States		418,145			39,210			–			457,355
Canada		76,182			11,880			–			88,062
Europe and other		114,719			8,403			–			123,122
Total revenues from external customers		609,046			59,493			–			668,539
Segment earnings (loss) from continuing operations before the following:		33,919			6,224			(8,631	)		31,512
Other expense, net											8,812
Goodwill impairment											1,654
Interest expense, net											7,625
Provision for income taxes											2,672
Earnings from continuing operations											10,749

Other expense for the three quarters ended October 2, 2010 includes $7,033 related to the impairment of long–lived assets in the Fruit Group (see note 12). The goodwill impairment charge of $1,654 for the three quarters ended October 2, 2010 is related to the International Foods Group (see note 4).

SunOpta Foods has the following segmented reporting for the three quarters ended October 2, 2010:

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

11.     Segmented information, continued

The following segmented information relates to each of the Company’s segments for the three quarters ended September 30, 2009:

		Three quarters ended
		September 30, 2009
		SunOpta			Opta			Corporate
		Foods			Minerals			Services			Consolidated
External revenues by market:
United States		360,448			29,143			–			389,591
Canada		67,844			9,965			–			77,809
Europe and other		145,670			6,702			–			152,372
Total revenues from external customers		573,962			45,810			–			619,772
Segment earnings (loss) from continuing operations before the following:		14,051			429			(4,855	)		9,625
Other income, net											(342	)
Goodwill impairment											8,341
Interest expense, net											10,159
Recovery of income taxes											(1,207	)
Loss from continuing operations											(7,326	)

The goodwill impairment charge of $8,341 for the three quarters ended September 30, 2009 is related to the Opta Minerals segment.

SunOpta Foods has the following segmented reporting for the three quarters ended September 30, 2009:

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

12.     Other expense (income), net

	Quarter ended						Three quarters ended
		October 2,			September 30,			October 2,			September 30,
		2010			2009			2010			2009
(a) Asset impairment in the Mexican Fruit operation	$	3,524		$	–		$	3,524		$	–
(b) Asset impairment in the California Fruit operation		1,154			–			1,154			–
(c) Intangible asset impairment in the Brokerage operation		2,355			–			2,355			–
(d) Rationalizations		18			–			1,214			–
Other		402			(270	)		565			(342	)
	$	7,453		$	(270	)	$	8,812		$	(342	)

The Company's long−lived assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If such events or changes in circumstances are present, the Company assesses the recoverability of the long−lived assets by determining whether the carrying value of such assets can be recovered through projected undiscounted cash flows. If the sum of expected future cash flows, undiscounted, is less than net book value, the excess of the net book value over the estimated fair value, based on discounted future cash flows and appraisals, is charged to operations in the period in which such impairment is determined by management. The long−lived assets consist of property, plant and equipment and intangible assets.

(a)     Asset impairment in the Mexican Fruit Operations

The Company operates two fruit processing facilities in Mexico that process fresh fruit for the food service and industrial fruit markets. In response to the needs of the Fruit Group operations, lack of profitability in the food service and industrial channels of the Fruit Group, and upon completion of the preliminary 2011 business plan for the Fruit Group, management has decided to rationalize operations at both of these facilities. Accordingly, a non−cash impairment charge of $3,524 was required to write the carrying value of property, plant and equipment used at these facilities down to its fair value. Management has estimated the fair value of these properties based on their future cash flows and estimated salvage value.

(b)     Asset impairment in the California Fruit Operation

The Company tested equipment used to process fresh fruit located at our facility located in Buena Park, California upon completion of the preliminary 2011 business plan. Previously, the Company expected that use of the equipment would be suspended for one year, and then re–deployed to a Mexican fruit processing facility. Based on the preliminary 2011 business plan, management no longer expects that this equipment will be put back to productive use and accordingly, a non−cash impairment charge of $700 was required to write the carrying value of the equipment down to its estimated fair value. The fair value of the equipment represents its expected salvage value. Following the same circumstances, a non−cash impairment charge of $454 was also required to write the carrying value of a supplier relationship intangible asset down to its fair value, as these relationships no longer have value without fresh processing capabilities. As there is no future operating stream of cash flows associated with these long–lived assets, and management believes there is no market for these assets to be sold, their estimated fair value is zero.

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

12.     Other expense (income), net, continued

(c)     Intangible asset impairment in the Brokerage Operation

The Company tested the long–lived assets, which consisted principally of the customer relationship intangible asset, in the brokerage operation upon completion of its preliminary 2011 business plan. Expectations of customer retention and revenue growth have not materialized, and the expected sales volumes for the operation cannot cover its back–office sales costs. Based on the preliminary 2011 business plan of the brokerage operation, its estimated undiscounted cash flows were not sufficient to recover the carrying value of the long−lived assets. Accordingly, a non−cash impairment charge of $2,355 was required to write the carrying value of the customer relationship asset down to zero. The Brokerage Operation is included in the Fruit Group segment.

(d)     Rationalizations

During the fourth quarter of 2009, the Company approved the decision to permanently close a distribution center in Toronto, Canada, consolidate manufacturing facilities from British Columbia, Canada to Omak, Washington, and cease processing of fresh fruit at a leased facility in Buena Park, California. In the second quarter of 2010, the Company approved a rationalization plan at a distribution facility in Acton, Ontario, Canada to reduce selling and administrative costs in response to market conditions, and the sale of the Canadian Food Distribution assets.

The Company closed the distribution center in Toronto, Canada in the first quarter of 2010. In addition, the consolidation of the British Columbia manufacturing facility was substantially completed in the third quarter, with minimal dismantling and other period costs expected to be incurred in the fourth quarter of 2010. Future costs will be recorded as incurred. The Company also ceased production of fresh fruit processing at a leased facility in Buena Park, California, during the fourth quarter of 2009 and incurred costs to move assets to another facility during the first quarter of 2010.

A summary of the expected total costs, and costs incurred to date included in other expense with respect to each of the rationalizations, is included in the table below.

					Costs
					recognized in
					the three			Further costs
		Costs			quarters ended			expected to be			Total expected
		recognized in			October 2,			recognized in			rationalization
		2009			2010			2010			costs
Toronto, Canada closure	$	348		$	–		$	–		$	348
British Columbia, Canada consolidation		287			514			114			915
California, cease fresh processing		1,016			64			–			1,080
Acton, Canada rationalization		–			636			–			636
	$	1,651		$	1,214		$	114		$	2,979

Rationalization costs recognized in other expense for the three quarters ended October 2, 2010 include $865 for severance and $64 of period costs to transfer property, plant and equipment to another location, and $285 of other closure costs recorded as incurred. Of the costs incurred, $578 related to the Fruit Group and $636 related to the International Foods Group.

As at October 2, 2010, there were $450 in accrued severances related to rationalization activities.

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

13.     Cash and cash equivalents

Included in cash and cash equivalents is $909 (December 31, 2009 – $781) that is specific to Opta Minerals that cannot be utilized by the Company for general corporate purposes, and is maintained in separate bank accounts of Opta Minerals.

14.     Derivative financial instruments and fair value measurement

Effective January 1, 2008, the Company adopted the provisions of ASC 820–10–55 (formerly FASB FSP 157–2/SFAS 157, “Effective Date of FASB Statement No. 157”) applicable to financial assets and liabilities and to certain non–financial assets and liabilities that are measured at fair value on a recurring basis. Additionally, the Company applies the provisions of this standard to financial and non–financial assets and liabilities. This standard defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. In addition, this standard requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

This standard also provides a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions with respect to how market participants would price an asset or liability. These two inputs used to measure fair value fall into the following three different levels of the fair value hierarchy:

• Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that are observable
• Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are non–active; inputs other than quoted prices that are observable and derived from or are corroborated by observable market data
• Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable due to little or no market activity

This hierarchy requires the use of observable market data when available.

The following table presents for each of the fair value hierarchies, the assets and liabilities that are measured at fair value on a recurring basis as of October 2, 2010:

		Fair Value
		Asset
		(Liability)			Level 1			Level 2
(a) Commodity futures and forward contracts (1)
Unrealized short–term derivative gain	$	931		$	(2,080	)	$	3,011
Unrealized long–term derivative gain		194			–			194
Unrealized short–term derivative loss		(1,187	)		–			(1,187	)
Unrealized long–term derivative loss		(15	)		–			(15	)
(b) Inventories carried at market (2)		7,488			–			7,488
(c) Interest rate swap (3)		(1,095	)		–			(1,095	)
(d) Forward foreign currency contracts (4)		447			–			447

	(1)	On the consolidated balance sheet, unrealized short–term derivative gain is included in prepaid expenses and other current assets, unrealized long–term derivative gain is included in other assets, unrealized short–term derivative loss is included in other current liabilities and unrealized long–term derivative loss is included in long–term liabilities.
	(2)	Inventories carried at market are included in inventories on the consolidated balance sheet.
	(3)	The interest rate swap is included in long–term liabilities on the consolidated balance sheet.
	(4)	The forward foreign currency contracts are included in accounts receivable on the consolidated balance sheet.

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

14.     Derivative financial instruments and fair value measurement, continued

(a)     Commodity futures and forward contracts

The Company’s derivative contracts that are measured at fair value include exchange–traded commodity futures and forward commodity purchase and sale contracts. Exchange–traded futures are valued based on unadjusted quotes for identical assets priced in active markets and are classified as level 1. Fair value for forward commodity purchase and sale contracts is estimated based on exchange–quoted prices adjusted for differences in local markets. Based on historical experience with the Company’s suppliers and customers, the Company’s own credit risk, and the Company’s knowledge of current market conditions, the Company does not view non–performance risk to be a significant input to fair value for the majority of its forward commodity purchase and sale contracts. Local market adjustments use observable inputs or market transactions for similar assets or liabilities, and, as a result, are classified as level 2.

These exchange–traded commodity futures and forward commodity purchase and sale contracts are used as part of the Company’s risk management strategy, and represent economic hedges to limit risk related to fluctuations in the price of certain commodity grains. These derivative instruments are not designated as hedging instruments. For the quarter and three quarters ended October 2, 2010, a $680 gain and $329 loss, respectively, is recorded in cost of goods sold on the consolidated statements of operations related to changes in the fair value of these derivatives.

At October 2, 2010, the notional amounts of open commodity futures and forward purchase and sale contracts were as follows:

		Number of bushels
		Purchase (sale)
		Corn			Soybeans
Forward commodity purchase contracts		2,092			1,654
Forward commodity sale contracts		(1,168	)		(476	)
Commodity futures contracts		(510	)		(1,603	)

(b)     Inventories carried at market

Grains inventory carried at fair value is determined using quoted market prices from the Chicago Board of Trade (“CBoT”). Estimated fair market values for grains inventory quantities at period end are valued using the quoted price on the CBoT adjusted for differences in local markets, and broker or dealer quotes. These assets are placed in level 2 of the fair value hierarchy, as there are observable quoted prices for similar assets in active markets. Gains and losses on commodity grains inventory are included in cost of sales on the consolidated statements of operations. At October 2, 2010, the Company had 239 bushels of commodity corn and 520 bushels of commodity soybeans, in inventories carried at market.

(c)     Interest rate swap

Opta Minerals entered into an interest rate swap to minimize its exposure to interest rate risk. A notional amount of Cdn $17,200 (U.S. – $16,854) of floating rate debt was effectively converted to fixed rate debt at a rate of 5.25% for the period August 2008 to August 2012. At each period end, management calculates the mark–to–market fair value using a valuation technique using quoted observable prices for similar instruments as the primary input. Based on this valuation, the previously recorded fair value is adjusted to the current mark–to–market position. The mark–to–market gain or loss is placed in level 2 of the fair value hierarchy. The interest rate swap is designated as a cash flow hedge for accounting purposes and accordingly, gains and losses on changes in the fair value of the interest rate swap are included in other comprehensive income on the consolidated statements of operations. For the quarter and three quarters ended October 2, 2010, a $92 gain and $292 gain (net of income taxes of $29 and $89, respectively) has been recorded in other comprehensive earnings due to the change in fair value for this derivative.

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October 2, 2010 10–Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarter and three quarters ended October 2, 2010 and September 30, 2009

Unaudited

(Expressed in thousands of U.S. dollars, except per share amounts)

14.     Derivative financial instruments and fair value measurement, continued

(d)     Foreign forward currency contracts

As part of its risk management strategy, the Company enters into forward foreign exchange contracts to reduce its exposure to fluctuations in foreign currency exchange rates. For any open forward foreign exchange contracts at period end, the contract rate is compared to the forward rate, and a gain or loss is recorded. These contracts are placed in level 2 of the fair value hierarchy, as the inputs used in making the fair value determination are derived from and are corroborated by observable market data. These forward foreign exchange contracts represent economic hedges and are not designated as hedging instruments. At October 2, 2010 the Company had open forward foreign exchange contracts with a notional value of €3,113, Cdn $527 and U.S. $7,431 that resulted in an unrealized gain of $447 which is included in foreign exchange gain (loss) on the consolidated statements of operations.

15.     Subsequent events

On November 8, 2010 the Company completed the acquisition of 100% of the outstanding shares of Dahlgren & Company, Inc. (“Dahlgren”). At closing, the Company paid cash consideration of $44,000. Additional consideration may become payable based on Dahlgren’s achieving pre–determined earnings targets over a two–year period, as defined in the Stock Purchase Agreement. The acquisition was financed with cash and the U.S. line of credit facility (see note 8(b)). This acquisition is subject to normal post closing adjustments, which are expected to be completed within 12 months.

Dahlgren is an integrated processor and global supplier of confection sunflower seed products including in–shell and kernel products, roasted sunflower and soy nuts, bird food, hybrid seed and other products. Dahlgren serves customers in the United States and Canada, as well as Europe, Asia, Australia and South America.

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October 2, 2010 10–Q

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

All financial numbers presented in this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” are expressed in thousands of U.S. dollars

Significant Developments During the Quarter Ended October 2, 2010

On November 8, 2010 we announced the acquisition of 100% of the outstanding shares of Dahlgren & Company Inc. (“Dahlgren”) for cash consideration of $44,000, plus an earnout based on pre–determined earnings targets over a two–year period, as defined in the Stock Purchase Agreement. Dahlgren is an integrated processor and global supplier of confection sunflower seed products including in–shell and kernel products, roasted sunflower and soy nuts, bird food, hybrid seed and other products. Dahlgren serves customers in the United States and Canada, as well as Europe, Asia, Australia and South America. The combination of the Dahlgren business with the Company’s existing confection sunflower business is expected to be synergistic and create one of the largest confection sunflower businesses in the world.

On September 1, 2010 we announced the sale of SunOpta BioProcess Inc. ("SBI") to Mascoma Corporation ("Mascoma"). The combination of the two companies brings together SBI's fiber preparation and pretreatment technology with Mascoma's consolidated bioprocessing ("CBP") technology, to create a company with comprehensive capabilities for converting non–food cellulose (wood chips, energy crops and organic solid waste) into ethanol and high value co–products. As consideration for selling all of the outstanding common shares of SBI, we received a 19.55% ownership interest in Mascoma, which included a combination of preferred and common shares valued at $33,455, after settling the preferred share liability with the former SBI preferred shareholders. Before settling with the preferred shareholders, the transaction valued SBI at $50,925. Following the transaction, we will account for our ownership position in Mascoma on a cost basis and as a result will not include the ongoing financial results of Mascoma in operational results.

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Operations for the quarter ended October 2, 2010 compared to the quarter ended September 30, 2009

Consolidated

		October 2,			September 30,
		2010			2009			Change			% Change
Revenue
SunOpta Foods		197,484			195,743			1,741			0.9%
Opta Minerals		20,421			16,745			3,676			22.0%
Total Revenue		217,905			212,488			5,417			2.5%
Gross Profit
SunOpta Foods		28,016			24,360			3,656			15.0%
Opta Minerals		5,191			4,179			1,012			24.2%
Total Gross Profit		33,207			28,539			4,668			16.4%
Operating Income
SunOpta Foods		9,710			5,292			4,418			83.5%
Opta Minerals		2,792			1,290			1,502			116.4%
Corporate Services		(2,506	)		(1,487	)		(1,019	)		–68.5%
Total Operating Income		9,996			5,095			4,901			96.2%
Other expense (income), net		7,453			(270	)		7,723			2860.4%
Goodwill impairment		1,654			8,341			(6,687	)		–80.2%
Interest expense, net		2,036			3,883			(1,847	)		–47.6%
Recovery of income taxes		(1,258	)		(145	)		(1,113	)		–767.6%
Earnings from continuing operations		111			(6,714	)		6,825			101.7%
Earnings (loss) attributable to non–controlling interests		496			(2,192	)		2,688			122.6%
(Loss) earnings from discontinued operations, net of taxes		(15,415	)		(150	)		(15,265	)		n/m
Gain on sale of discontinued operations, net of taxes		49,867			–			49,867			n/m
Earnings attributable to SunOpta Inc.		34,067			(4,672	)		38,739			829.2%

(Operating Income is defined as “Earnings before the following” excluding the impact of “Other expense (income), net”, and "Goodwill impairment")

Revenues for the quarter ended October 2, 2010 increased by 2.5% to $217,905 from $212,488 for the quarter ended September 30, 2009. Revenues in SunOpta Foods increased by 0.9% to $197,484 and revenues in Opta Minerals increased by 22.0% to $20,421. The increased revenue is due entirely to internal growth as there have been no acquisitions to contribute to the increased revenue. Internal growth includes the impact of foreign exchange movements and its effect on translation of foreign denominated revenue to U.S. dollars and the impact of changes in commodity related pricing. Excluding the impact of changes in foreign exchange and commodity related pricing, revenues increased approximately 7.6% over the prior year. The increase in revenue was due primarily to the changes in sales volume and pricing described below in “Segmented Operations Information”.

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Gross profit increased $4,668, or 16.4% for the quarter ended October 2, 2010 to $33,207 from $28,539 for the quarter ended September 30, 2009. As a percentage of revenues, gross profit for the quarter ended October 2, 2010 was 15.2% compared to 13.4% for the quarter ended September 30, 2009, an increase of 1.8%. Gross profit was affected by increases in gross profit from SunOpta Foods driven by the Fruit Group, International Foods Group and Ingredients Group, offset slightly by decreases in gross profit from the Grains and Foods Group. Also contributing to the increase in gross profit was a rebound in the steel and abrasive markets for Opta Minerals. The improvement in gross profit from SunOpta Foods was due primarily to a lower overall cost of goods sold, as a percentage of revenues, as a result of the variances described below under “Segmented Operations Information”.

Warehouse and Distribution (“W&D”) costs for the quarter ended October 2, 2010 were $702, a $334 decrease compared to $1,036 for the quarter ended September 30, 2009. These costs are solely related to the International Foods Group and specifically the Group’s Canadian–based natural health product distribution operation as warehousing and distribution costs for all other operations are considered part of cost of goods sold.

Selling, General and Administrative costs (“SG&A”), including intangible asset amortization, decreased $480 to $22,567 for the quarter ended October 2, 2010 compared to $23,047 for the quarter ended September 30, 2009. The combination of a stronger Canadian dollar and a weaker Euro in the third quarter of 2010 led to a $340 increase in SG&A on foreign denominated costs. The remaining decrease in SG&A of $820 relates to lower professional fees and a decrease of marketing spend in support of the 2009 re–launch of certain branded health products, offset by increased compensation and general overhead expenses. As a percentage of revenues, SG&A and intangible asset amortization costs were 10.4% for the quarter ended October 2, 2010 compared to 10.8% for the quarter ended September 30, 2009.

Foreign exchange gains were $58 for the quarter ended October 2, 2010 as compared to gains of $639 for the quarter ended September 30, 2009. The decrease is primarily due to less favourable exchange rate movements for the Canadian dollar and the Euro relative to the U.S. dollar.

Operating income for the quarter ended October 2, 2010 increased by $4,901 or 96.2% to $9,996 compared to operating income of $5,095 for the quarter ended September 30, 2009 due to the factors noted above. As a percentage of revenue, operating income was 4.6% for the quarter ended October 2, 2010, compared to 2.4% for the quarter ended September 30, 2009. Further details on revenue, gross margins and operating income variances are provided below under “Segmented Operations Information”.

Other expense for the quarter ended October 2, 2010 of $7,453 reflects non–cash long–lived asset impairment charges recorded in the Fruit Group of $7,034 and $419 in other costs associated with rationalization efforts that began in fiscal 2009 and continued into 2010, primarily at our healthy fruit snacks operation.

Goodwill impairment of $1,654 reflects a non–cash impairment charge recorded as the Company determined that the carrying value of goodwill in its natural health reporting unit exceeded its fair value.

Interest expense for the quarter ended October 2, 2010 was $2,036 compared to $3,883 for the quarter ended September 30, 2009, a $1,847 decrease. Borrowing costs were lower for the quarter ended October 2, 2010 due to lower debt levels and LIBOR based interest charges, improved interest costs on our pricing grid due to improved results, and $675 of non–cash interest charges incurred for the quarter ended September 30, 2009 related to the waiver and amendment of our credit facilities, which occurred on April 30, 2009.

Income tax recovery for the quarter ended October 2, 2010 was $1,258 compared to $145 for the quarter ended September 30, 2009, due to the lower consolidated earnings before tax in the current period, excluding the impact of the goodwill impairment. The expected annual effective income tax rate for 2010 is between 23% and 25%.

Earnings from continuing operations for the quarter ended October 2, 2010 were $111 as compared to a loss of $6,714 for the quarter ended September 30, 2009, a $6,825 decrease in losses. Basic and diluted loss per share from continuing operations was $0.01 and $0.00 respectively for the quarter ended October 2, 2010 compared to $0.07 and $0.07 respectively for the quarter ended September 30, 2009.

Earnings attributable to non–controlling interest for the quarter ended October 2, 2010 were $496 compared to losses of $2,192 for the quarter ended September 30, 2009. The $2,688 increase is due to higher net earnings in our less than wholly–owned subsidiaries, due primarily to a goodwill write–off in the third quarter of 2009.

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Losses from discontinued operations, net of income taxes, were $15,415 for the quarter ended October 2, 2010 compared to losses of $150 for the quarter ended September 30, 2009. The $15,265 increase is primarily due to costs of $15,280 relating to stock–based and other compensation costs that were realized upon the sale of SunOpta BioProcess Inc.

Gain on the sale of discontinued operations of $49,867 represents the after tax gain realized on the disposition of SunOpta BioProcess Inc.

On a consolidated basis, earnings and basic and diluted earnings per share were $34,067, $0.52 and $0.52 respectively, for the quarter ended October 2, 2010, compared to losses of $4,672, $0.07 and $0.07, respectively, for the quarter ended September 30, 2009.

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Adjusted Earnings from Operations

Following is a calculation of our adjusted earnings from operations and adjusted net earnings per share for the third quarter of 2010.

					Diluted
					Earnings per
					Share(2)
Earnings attributable to SunOpta Inc.		34,067			0.52
Adjusted for:
Gain on sale of discontinued operations, net of taxes		(49,867	)		(0.76	)
Costs included in discontinued operations incurred as a result of the sale of SunOpta BioProcess Inc.		15,281			0.23
Impairment of long–lived assets and goodwill, net of taxes of $2,321		6,367			0.10
Reversal of tax valuation allowance		(549	)		(0.01	)
Adjusted earnings from operations(1)		5,299			0.08

Adjusted net earnings per share ⁽¹⁾ for the third quarter of 2010 were $0.08 per diluted common share. During the third quarter of 2010, we recognized certain gains and recorded specific expenses against income that we do not believe are reflective of normal business operations. As a result, we believe it is useful to eliminate these gains and expenses to compute an adjusted net earnings per share ⁽¹⁾ amount for the quarter ended October 2, 2010 which we believe is more reflective of normal business operations.

During the third quarter of 2010, we recorded a gain on the sale of SunOpta BioProcess Inc. Losses from discontinued operations, net of income taxes, include costs incurred as a result of the sale including stock–based and other compensation rewards that were triggered upon the change in control of SBI. We also recorded asset write–downs relating to property, plant and equipment and intangible assets within the Fruit Group, recognized a goodwill impairment charge relating to our natural health products division, and reversed a tax valuation allowance relating to a tax position that is no longer uncertain. We believe that earnings for the period attributable to SunOpta Inc. is the performance measure calculated and presented in accordance with GAAP that is most directly comparable to Adjusted earnings from operations ⁽¹⁾, and that earnings per share is the performance measure calculated and presented in accordance with GAAP that is most directly comparable to Adjusted net earnings per share ⁽¹⁾.

The table above reconciles earnings attributable to SunOpta Inc. to Adjusted earnings from operations ⁽¹⁾ and reconciles earnings per share to Adjusted net earnings per share ⁽¹⁾, in each case for the quarter ended October 2, 2010.

(1) Adjusted net earnings per share and Adjusted earnings from operations are non–GAAP financial measures. We believe these non–GAAP measures, which have been adjusted for the impact of the items listed in the table above, assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Adjusted net earnings per share and Adjusted earnings from operations should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

(2) The Diluted weighted average number of shares outstanding for the quarter ended October 2, 2010 is 65,986,034 (see Note 6).

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Segmented Operations Information

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

SunOpta Foods
For the quarter ended		October 2, 2010			September 30, 2009			Change			% Change
Revenue		197,484			195,743			1,741			0.9%
Gross Margin		28,016			24,360			3,656			15.0%
Gross Margin %		14.2%			12.4%						1.8%
Operating Income		9,710			5,292			4,418			83.5%
Operating Income %		4.9%			2.7%						2.2%

(Operating Income is defined as “Earnings before the following” excluding the impact of “Other expense (income), net”, and "Goodwill impairment")

SunOpta Foods contributed $197,484 or 90.6% of consolidated revenue for the quarter ended October 2, 2010 compared to $195,743 or 92.1% of consolidated revenues for the quarter ended September 30, 2009, an increase of $1,741. The increased revenue is due entirely to internal growth as there have been no acquisitions to contribute to the increased revenue. Excluding the impact of changes in foreign exchange and commodity relating pricing, revenue in SunOpta Foods increased 6.4%. The table below explains the increase in revenue by group for SunOpta Foods:

Gross margin in SunOpta Foods increased by $3,656 for the quarter ended October 2, 2010 to $28,016, or 14.2% of revenues, compared to $24,360, or 12.4% of revenues for the quarter ended September 30, 2009. The table below explains the increase in gross margin by group:

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Operating income in SunOpta Foods increased by $4,418 for the quarter ended October 2, 2010 to $9,710 or 4.9% of revenues, compared to $5,292 or 2.7% of revenues for the quarter ended September 30, 2009. The table below explains the increase in operating income:

Further details on revenue, gross margin and operating income variances within SunOpta Foods are provided in the segmented operations information that follows.

Grains and Foods Group
For the quarter ended		October 2, 2010			September 30, 2009			Change			% Change
Revenue		86,952			86,290			662			0.8%
Gross Margin		9,865			9,890			(25	)		–0.3%
Gross Margin %		11.3%			11.5%						–0.2%
Operating Income		5,353			5,257			96			1.8%
Operating Income %		6.2%			6.1%						0.1%

(Operating Income is defined as “Earnings before the following” excluding the impact of “Other expense (income), net”, and "Goodwill impairment")

The Grains and Foods Group contributed $86,952 in revenues for the quarter ended October 2, 2010, compared to $86,290 for the quarter ended September 30, 2009, a $662 or 0.8% increase. The table below explains the increase in revenue:

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Gross margin in the Grains and Foods Group decreased by $25 to $9,865 for the quarter ended October 2, 2010 compared to $9,890 for the quarter ended September 30, 2009, and the gross margin percentage decreased by 0.2% to 11.3%. The table below explains the decrease in gross margin:

Operating income in the Grains and Foods Group increased by $96 or 1.8% to $5,353 for the quarter ended October 2, 2010, compared to $5,257 for the quarter ended September 30, 2009. The table below explains the increase in operating income:

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Looking forward, we expect our aseptic packaging expansion on the West Coast to continue to enhance our capacity to manufacture aseptic soy and alternate beverages. We also intend to focus our efforts on growing our sunflower and IP grains business, expanding revenues from organic ingredients and continuing to focus on value–added ingredient and packaged product offerings. Additionally, the international expansion of our soy base sales via strategic relationships for procurement of product is expected to drive incremental sales volume. Our long–term expectation for this group is to achieve a segment operating margin of 6% to 8% which assumes we are able to secure consistent quantity and quality grains and sunflower stocks, improve product mix, and control costs. The statements in this paragraph are forward–looking statements. See “Forward–Looking Statements” above. Increased supply pressure in the commodity–based markets in which we operate, volume decreases or loss of customers, or our inability to secure quality inputs or achieve our product mix or cost reduction goals, along with the other factors described above under “Forward–Looking Statements,” could adversely impact our ability to meet these forward–looking expectations.

 

Ingredients Group
For the quarter ended		October 2, 2010			September 30, 2009			Change			% Change
Revenue		17,134			17,385			(251	)		–1.4%
Gross Margin		5,148			4,689			459			9.8%
Gross Margin %		30.0%			27.0%						3.0%
Operating Income		3,104			2,859			245			8.6%
Operating Income %		18.1%			16.4%						1.7%

(Operating Income is defined as “Earnings before the following” excluding the impact of “Other expense (income), net”, and "Goodwill impairment")

The Ingredients Group contributed $17,134 in revenues for the quarter ended October 2, 2010, compared to $17,385 for the quarter ended September 30, 2009, a $251 or 1.4% decrease. The table below explains the decrease in revenue:

Gross margin in the Ingredients Group increased by $459 to $5,148 for the quarter ended October 2, 2010 compared to $4,689 for the quarter ended September 30, 2009, and the gross margin percentage increased by 3.0% to 30.0%. The increase in gross margin as a percentage of revenue is due to continued process improvements implemented in our manufacturing facilities and lower raw material costs. The table below explains the increase in gross margin:

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Operating income in the Ingredients Group increased by $245, or 8.6%, to $3,104 for the quarter ended October 2, 2010, compared to $2,859 for the quarter ended September 30, 2009. The table below explains the increase in operating income:

Looking forward, we will continue to concentrate on growing the Ingredients Group’s fiber portfolio and customer base through product innovation and diversification of both soluble and insoluble fiber applications. We will also focus on maintaining the continuous improvement culture of this group to further increase capacity utilization, reduce costs, and sustain margins. Our long–term expectation for the Ingredients Group is to maintain segment operating margins of 12% to 15%. The statements in this paragraph are forward–looking statements. See “Forward–Looking Statements” above. An unexpected increase in input costs or our inability to introduce new products to the market, or implement our strategies and goals relating to pricing, capacity utilization or cost reductions, along with the other factors described above under “Forward–Looking Statements,” could adversely impact our ability to meet these forward - looking expectations.

 

Fruit Group
For the quarter ended		October 2, 2010			September 30, 2009			Change			% Change
Revenue		34,824			35,870			(1,046	)		–2.9%
Gross Margin		4,403			1,716			2,687			156.6%
Gross Margin %		12.6%			4.8%						7.8%
Operating Income		707			(1,745	)		2,452			140.5%
Operating Income %		2.0%			–4.9%						6.9%

(Operating Income is defined as “Earnings before the following” excluding the impact of “Other expense (income), net”, and "Goodwill impairment")

The Fruit Group contributed $34,824 in revenues for the quarter ended October 2, 2010, compared to $35,870 for the quarter ended September 30, 2009, a $1,046 or 2.9% decrease. The table below explains the decrease in revenue:

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Gross margins in the Fruit Group increased by $2,687 to $4,403 for the quarter ended October 2, 2010 compared to $1,716 for the quarter ended September 30, 2009, and the gross margin percentage increased by 7.8% to 12.6%. The increase in gross margin as a percentage of revenue is due to liquidation and rationalization costs incurred in the third quarter of 2009 that did not reoccur in the third quarter of 2010, as well as production efficiencies at our fruit ingredient and frozen foods operations, and cost benefits realized from process improvement initiatives implemented in our healthy fruit snacks and fruit ingredients operations. The table below explains the increase in gross margin:

Fruit Group Gross Margin Changes
Gross Margin for the quarter ended September 30, 2009	$1,716
Costs incurred in the third quarter of 2009 to liquidate inventories and rationalize product offerings in the frozen foods operation	2,021
Positive impact of the elimination of fresh fruit processing at our Buena Park facility via reduced storage and less costly Mexican fruit, coupled with increased retail volumes and lower brokerage costs, offset by decreased volumes of industrial and food service products	1,112
Decline in volume at our brokerage operations and fruit ingredient operations, offset by improved efficiencies realized at our healthy fruit snacks and fruit ingredients operations as a result of process improvement initiatives	(446)
Gross Margin for the quarter ended October 2, 2010	$4,403