UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended July 2,October 1, 2022

OR

☐

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

For the transition period from _________to ____________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.)

7078 Shady Oak Road


Eden Prairie, Minnesota, 55344

(952) 820-2518

(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  ☒ No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☒Accelerated filer  ☐
Non-accelerated filer  ☐Smaller reporting company  ☐
(Do not check if a smaller reporting company)Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.             ☐

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

Yes  ☐No  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares

STKL

The Nasdaq Stock Market

Common Shares

SOY

The Toronto Stock Exchange

The number of the registrant's common shares outstanding as of August 5,November 4, 2022 was 107,725,647.107,866,566.

SUNOPTA INC.

FORM 10-Q

For the Quarterly Period Ended July 2,October 1, 2022

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

 

Item 1.Financial Statements (unaudited) 
 Consolidated Statements of Operations for the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 20216
 Consolidated Balance Sheets as at July 2,October 1, 2022 and January 1, 20227
 Consolidated Statements of Shareholders' Equity as at and for the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 20218
 Consolidated Statements of Cash Flows for the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 202110
 Notes to Consolidated Financial Statements11
   
Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations2122
Item 3Quantitative and Qualitative Disclosures about Market Risk3940
Item 4Controls and Procedures3940

  
PART IIOTHER INFORMATION 
Item 1Legal Proceedings41
Item 1ARisk Factors41
Item 6Exhibits41

Basis of Presentation

Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q ("Form 10-Q") to the "Company," "SunOpta," "we," "us," "our" or similar words and phrases are to SunOpta Inc. and its subsidiaries, taken together.

In this report, all currency amounts presented are expressed in thousands of United States ("U.S.") dollars ("$"), except per share amounts, unless otherwise stated. Other amounts may be presented in thousands of Canadian dollars ("C$") and Mexican pesos ("M$").

Forward-Looking Statements

This Form 10-Q contains forward-looking statements that are based on management's 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," "target," "intend," "project," "potential," "predict," "continue," "believe," "expect," "can," "could," "would," "should," "may," "might," "plan," "will," "budget," "forecast," the negatives of such terms, and words and phrases of similar impact. Forward-looking statements include, but are not limited to, references to future financial and operating results, plans, objectives, expectations, and intentions; the direct and indirect effects of the current global macroeconomic environment, including supply chain and labor challenges, inflation,inflationary pressures and rising interest rates, as well as potential impacts of the COVID-19 pandemic and the Russia-Ukraine war, and the extent of the effect of these events on our operational and financial performance in future periods; fluctuations in foreign currency exchange rates and commodity pricing, and general economic and political conditions globally and in the markets in which we do business; our plans and expectations regarding capital expansion projects, including our expectation that our Midlothian, Texas, facility will be operational in late 2022; our expectations regarding the future profitability of our plant-based and fruit-based businesses, including anticipated results of operations, revenue trends, and profit margin profiles; our expectations regarding customer demand, consumer preferences, competition, sales pricing, availability and pricing of raw material inputs, and timing and costs to complete capital expansion projects; our intentions related to the potential sale of selected businesses, operations, or assets; our expectations regarding the sale of our Oxnard, California, frozen fruit processing facility, including timing to close and proceeds on sale; adequacy of existing sources of funds to meet financing needs, and availability of alternative financing sources; the outcome of litigation to which we may be a party; and other statements that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on certain assumptions, expectations 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 circumstances.

SUNOPTA INC.3July 2,October 1, 2022 Form 10-Q

Whether actual results and developments will be consistent with and meet our expectations and predictions is subject to many risks and uncertainties. Accordingly, there are 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:

  • the impact of global macroeconomic conditions on our business and financial results;
  • product liability suits, recalls and threatened market withdrawals that may arise or be brought against us;
  • food safety concerns and instances of food-borne illnesses that could harm our business;
  • litigation and regulatory enforcement concerning marketing and labeling of food products;
  • significant food and health regulations to which we are subject;
  • ability to realize some or all of the anticipated benefits of our capital investment plans;
  • ability to successfully consummate and achieve the anticipated benefits from acquisitions and divestitures;
  • ability to obtain additional capital as required to achieve expected growth rates;
  • the potential for impairment charges for goodwill or other intangible assets;
  • the highly competitive industry in which we operate;
  • that our customers may choose not to buy products from us;
  • the potential loss of one or more key customers;
  • changes and difficulty in predicting consumer preferences;
  • our ability to effectively manage our supply chain;
  • volatility in the prices of raw materials, packaging, freight, fuel, and energy;
  • the availability of organic and non-genetically modified ingredients;
  • unfavorable growing and operating conditions due to adverse weather conditions;
  • an interruption at one or more of our manufacturing facilities;
  • technology failures that could disrupt our operations and negatively impact our business;
  • the potential for data breaches and the need to comply with data privacy and protection laws and regulations;
  • the loss of service of our key executives;
  • labor shortages or increased labor costs;
  • technological innovation by our competitors;
  • ability to protect our intellectual property and proprietary rights;
  • changes in laws or regulations governing foreign trade or taxation;
SUNOPTA INC.4July 2, 2022 Form 10-Q
  • agricultural policies that influence our operations;
  • substantial environmental regulation and policies to which we are subject;
SUNOPTA INC.4October 1, 2022 Form 10-Q
  • new laws or regulations or changes in laws or regulations governing climate change;
  • fluctuations in exchange rates, interest rates and the prices of certain commodities; and
  • exposure to our foreign operations and suppliers.

All forward-looking statements made herein are qualified by these cautionary statements, and our actual results or the developments we anticipate may not be realized. Our forward-looking statements are based only on information currently available to us and speak only as of the date on which they are made. We do not undertake any obligation to publicly update our forward-looking statements, whether written or oral, after the date of this report for any reason, even if new information becomes available or other events occur in the future, except as may be required under applicable securities laws. 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. For aA 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, included elsewhere in this report and our Annual Report on Form 10-K for the fiscal year ended January 1, 2022. Additionaladditional information about these factors and about the material factors or assumptions underlying suchour forward-looking statements may be found under Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, under Item 1A. "Risk Factors" of this report, and in our other filings with the U.S. Securities and Exchange Commission and the Canadian Securities Administrators.

SUNOPTA INC.5July 2,October 1, 2022 Form 10-Q

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SunOpta Inc.

Consolidated Statements of Operations

For the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021

(Unaudited)

(All dollar amounts expressed in thousands of U.S. dollars, except per share amounts)

   Quarter ended  Two quarters ended 
 July 2, 2022 July 3, 2021  July 2, 2022  July 3, 2021 
 $ $  $  $ 
Revenues (note 12)243,531 202,273  483,704  409,913 
Cost of goods sold208,633 175,937  420,815  353,588 
Gross profit34,898 26,336  62,889  56,325 
Selling, general and administrative expenses24,304 22,720  46,239  43,594 
Intangible asset amortization2,612 2,532  5,224  4,726 
Other expense, net (note 8)1,540 4,661  1,827  6,276 
Foreign exchange loss (gain)(127) (639)  (599)  197 
Earnings (loss) from continuing operations before the following6,569 (2,938) 10,198  1,532 
Interest expense, net3,132 1,631  5,662  3,291 
Earnings (loss) from continuing operations before income taxes3,437 (4,569) 4,536  (1,759)
Income tax expense (benefit)939 (3,651) 1,384  (2,513)
Earnings (loss) from continuing operations2,498 (918) 3,152  754 
Earnings (loss) from discontinued operations (note 11)(814) -  2,752  - 
Net earnings (loss)1,684 (918) 5,904  754 
Dividends and accretion on preferred stock (note 6)(760) (744) (1,515) (2,697)
Earnings (loss) attributable to common shareholders924 (1,662) 4,389  (1,943)
           
Basic and diluted earnings (loss) per share (note 9)          
From continuing operations0.02 (0.02) 0.02  (0.02)
From discontinued operations(0.01) -  0.03  - 
Basic and diluted earnings (loss) per share0.01 (0.02) 0.04  (0.02)
           
Weighted-average common shares outstanding (000s) (note 9)          
Basic107,622 105,676  107,510  100,898 
Diluted108,667 105,676  108,495  100,898 
 
  Quarter ended  Three quarters ended 
  October 1,
2022		  October 2,
2021		  October 1,
2022		  October 2,
2021		 
  $  $  $  $ 
             
Revenues (note 12) 229,665  198,479  713,369  608,392 
Cost of goods sold 198,282  175,123  619,097  528,711 
             
Gross profit 31,383  23,356  94,272  79,681 
Selling, general and administrative expenses 20,654  16,487  66,893  60,081 
Intangible asset amortization 2,612  2,612  7,836  7,338 
Other expense, net (note 8) 20,200  1,172  22,027  7,448 
Foreign exchange loss (gain) 473  336  (126) 533 
             
Earnings (loss) from continuing operations before the following (12,556) 2,749  (2,358) 4,281 
Interest expense, net 4,342  2,854  10,004  6,145 
             
Loss from continuing operations before income taxes (16,898) (105) (12,362) (1,864)
Income tax expense (benefit) (4,259) 2,929  (2,875) 416 
             
Loss from continuing operations (12,639) (3,034) (9,487) (2,280)
Earnings from discontinued operations (note 11) -  -  2,752  - 
             
Net loss (12,639) (3,034) (6,735) (2,280)
Dividends and accretion on preferred stock (note 6) (764) (748) (2,279) (3,445)
             
Loss attributable to common shareholders (13,403) (3,782) (9,014) (5,725)
             
Basic and diluted earnings (loss) per share (note 9)            
Loss from continuing operations (0.12) (0.04) (0.11) (0.06)
Earnings from discontinued operations -  -  0.03  - 
Loss attributable to common shareholders (0.12) (0.04) (0.08) (0.06)
             
Weighted-average common shares outstanding (000s) (note 9)            
Basic 107,752  107,255  107,566  103,017 
Diluted 107,752  107,255  107,566  103,017 

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

6

July 2,October 1, 2022 Form 10-Q

SunOpta Inc.

Consolidated Balance Sheets

As at July 2,October 1, 2022 and January 1, 2022

(Unaudited)

(All dollar amounts expressed in thousands of U.S. dollars)

  July 2, 2022  January 1, 2022 
  $  $ 
ASSETS      
Current assets      
Cash and cash equivalents 553  227 
Accounts receivable, net of allowance for credit losses of $902 and $889, respectively 83,804  84,702 
Inventories (note 2) 261,899  220,143 
Prepaid expenses and other current assets 17,493  16,638 
Income taxes recoverable 9,861  8,259 
Assets held for sale (note 3) 11,591  - 
Total current assets 385,201  329,969 
       
Property, plant and equipment, net 264,690  219,537 
Operating lease right-of-use assets (note 4) 40,990  47,245 
Intangible assets, net 143,216  148,440 
Goodwill 3,998  3,998 
Other assets 5,827  5,930 
Total assets 843,922  755,119 
       
LIABILITIES      
Current liabilities      
Accounts payable and accrued liabilities 143,102  121,430 
Income taxes payable 711  - 
Current portion of long-term debt (note 5) 23,055  9,760 
Current portion of operating lease liabilities (note 4) 9,933  12,203 
Total current liabilities 176,801  143,393 
       
Long-term debt (note 5) 273,493  214,843 
Operating lease liabilities (note 4) 37,084  39,028 
Long-term liabilities -  2,241 
Deferred income taxes 13,510  22,485 
Total liabilities 500,888  421,990 
       
Series B-1 preferred stock (note 6) 28,442  28,145 
       
SHAREHOLDERS' EQUITY      
Common shares, 0 par value, unlimited shares authorized,      
107,686,953 shares issued (January 1, 2022 - 107,359,826) 438,668  436,463 
Additional paid-in capital 26,254  23,240 
Accumulated deficit (151,693) (156,082)
Accumulated other comprehensive income 1,363  1,363 
Total shareholders' equity 314,592  304,984 
Total liabilities and shareholders' equity 843,922  755,119 
 
  October 1, 2022  January 1, 2022 
  $  $ 
       
ASSETS      
Current assets      
Cash and cash equivalents 459  227 
Accounts receivable, net of allowance for credit losses of $579 and $889, respectively 75,460  84,702 
Inventories (note 2) 225,059  220,143 
Prepaid expenses and other current assets 16,413  16,638 
Income taxes recoverable 7,258  8,259 
Assets held for sale (note 3) 16,151  - 
Total current assets 340,800  329,969 
       
Property, plant and equipment, net 292,407  219,537 
Operating lease right-of-use assets (note 4) 78,167  47,245 
Intangible assets, net 138,092  148,440 
Goodwill 3,998  3,998 
Other assets 5,486  5,930 
Total assets 858,950  755,119 
       
LIABILITIES      
Current liabilities      
Accounts payable and accrued liabilities 117,578  121,430 
Income taxes payable 44  - 
Current portion of long-term debt (note 5) 31,374  9,760 
Current portion of operating lease liabilities (note 4) 12,601  12,203 
Liabilities held for sale (note 3) 7,005  - 
Total current liabilities 168,602  143,393 
       
Long-term debt (note 5) 274,888  214,843 
Operating lease liabilities (note 4) 71,016  39,028 
Long-term liabilities -  2,241 
Deferred income taxes 10,585  22,485 
Total liabilities 525,091  421,990 
       
Series B-1 preferred stock (note 6) 28,597  28,145 
       
SHAREHOLDERS' EQUITY      
Common shares, no par value, unlimited shares authorized, 107,827,577 shares issued (January 1, 2022 - 107,359,826) 439,670  436,463 
Additional paid-in capital 29,325  23,240 
Accumulated deficit (165,096) (156,082)
Accumulated other comprehensive income 1,363  1,363 
Total shareholders' equity 305,262  304,984 
Total liabilities and shareholders' equity 858,950  755,119 

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

7

July 2,October 1, 2022 Form 10-Q

SunOpta Inc.

Consolidated Statements of Shareholders' Equity

As at and for the quarters ended July 2,October 1, 2022 and July 3,October 2, 2021

(Unaudited)

(All dollar amounts expressed in thousands of U.S. dollars)

              Accumulated    
              other    
        Additional  Accumulated  comprehensive    
  Common shares  paid-in capital  deficit  income  Total 
  000s  $  $  $  $  $ 
Balance at April 2, 2022 107,579  437,451  24,042  (152,617) 1,363  310,239 
Employee stock purchase plan 22  145  -  -  -  145 
Stock incentive plans 86  1,072  (876) -  -  196 
Withholding taxes on stock-based awards -  -  (882) -  -  (882)
Stock-based compensation -  -  3,970  -  -  3,970 
Net earnings -  -  -  1,684  -  1,684 
Dividends on preferred stock -  -  -  (609) -  (609)
Accretion on preferred stock -  -  -  (151) -  (151)
Balance at July 2, 2022 107,687  438,668  26,254  (151,693) 1,363  314,592 
                   
              Accumulated    
              other    
        Additional  Accumulated  comprehensive    
  Common shares  paid-in capital  deficit  income  Total 
  000s $  $  $  $  $  
Balance at April 3, 2021 103,612  418,822  33,340  (148,022) 1,363  305,503 
Share issuance costs -  (25) -  -  -  (25)
Employee stock purchase plan 18  207  -  -  -  207 
Stock incentive plans 3,496  16,421  (12,078) -  -  4,343 
Withholding taxes on stock-based awards -  -  (666) -  -  (666)
Stock-based compensation -  -  4,370  -  -  4,370 
Net loss -  -  -  (918) -  (918)
Dividends on preferred stock -  -  -  (609) -  (609)
Accretion on preferred stock -  -  -  (135) -  (135)
Balance at July 3, 2021 107,126  435,425  24,966  (149,684) 1,363  312,070 
 
  Common shares  Additional
paid-in capital		  Accumulated
deficit		  Accumulated
other
comprehensive
income		  Total 
  000s  $  $  $  $  $ 
                   
Balance at July 2, 2022 107,687  438,668  26,254  (151,693) 1,363  314,592 
Employee stock purchase plan 17  152  -  -  -  152 
Stock incentive plans 124  850  (390) -  -  460 
Withholding taxes on stock-based awards -  -  (631) -  -  (631)
Stock-based compensation -  -  4,092  -  -  4,092 
Net loss -  -  -  (12,639) -  (12,639)
Dividends on preferred stock -  -  -  (609) -  (609)
Accretion on preferred stock -  -  -  (155) -  (155)
Balance at October 1, 2022 107,828  439,670  29,325  (165,096) 1,363  305,262 
                   
  Common shares  Additional
paid-in capital		  Accumulated
deficit		  Accumulated
other
comprehensive
income		  Total 
  000s  $  $  $  $  $ 
                   
Balance at July 3, 2021 107,126  435,425  24,966  (149,684) 1,363  312,070 
Employee stock purchase plan 18  140  -  -  -  140 
Stock incentive plans 179  654  (490) -  -  164 
Withholding taxes on stock-based awards -  -  (1,576) -  -  (1,576)
Stock-based compensation -  -  1,250  -  -  1,250 
Net loss -  -  -  (3,034) -  (3,034)
Dividends on preferred stock -  -  -  (609) -  (609)
Accretion on preferred stock -  -  -  (139) -  (139)
Balance at October 2, 2021 107,323  436,219  24,150  (153,466) 1,363  308,266 
 
SUNOPTA INC.

8

July 2,October 1, 2022 Form 10-Q

SunOpta Inc.

Consolidated Statements of Shareholders' Equity (continued)

As at and for the twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021
(Unaudited)

(Unaudited)

(All dollar amounts expressed in thousands of U.S. dollars)

     Accumulated 
     other 
   AdditionalAccumulatedcomprehensive 
 Common sharespaid-in capitaldeficitincomeTotal
 000s$$$$$
Balance at January 1, 2022107,360436,46323,240(156,082)1,363304,984
Employee stock purchase plan53279---279
Stock incentive plans2741,926(1,614)--312
Withholding taxes on stock-based awards--(971)--(971)
Stock-based compensation--5,599--5,599
Net earnings---5,904-5,904
Dividends on preferred stock---(1,218)-(1,218)
Accretion on preferred stock---(297)-(297)
Balance at July 2, 2022107,687438,66826,254(151,693)1,363314,592
       
     Accumulated 
     other 
   AdditionalAccumulatedcomprehensive 
 Common sharespaid-in capitaldeficitincomeTotal
 000s$$$$$
Balance at January 2, 202190,194326,54537,862(147,741)1,363218,029
Exchange of Series A preferred stock, net of share issuance costs of $28712,63387,188---87,188
Employee stock purchase plan28333---333
Stock incentive plans4,27121,359(14,502)--6,857
Withholding taxes on stock-based awards--(6,737)--(6,737)
Stock-based compensation--8,343--8,343
Net earnings---754-754
Dividends on preferred stock---(2,260)-(2,260)
Accretion on preferred stock---(437)-(437)
Balance at July 3, 2021107,126435,42524,966(149,684)1,363312,070
 
  Common shares  Additional
paid-in capital		  Accumulated
deficit		  Accumulated
other
comprehensive
income		  Total 
  000s  $  $  $  $  $ 
                   
Balance at January 1, 2022 107,360  436,463  23,240  (156,082) 1,363  304,984 
Employee stock purchase plan 70  431  -  -  -  431 
Stock incentive plans 398  2,776  (2,004) -  -  772 
Withholding taxes on stock-based awards -  -  (1,602) -  -  (1,602)
Stock-based compensation -  -  9,691  -  -  9,691 
Net loss -  -  -  (6,735) -  (6,735)
Dividends on preferred stock -  -  -  (1,827) -  (1,827)
Accretion on preferred stock -  -  -  (452) -  (452)
Balance at October 1, 2022 107,828  439,670  29,325  (165,096) 1,363  305,262 
                   
  Common shares  Additional
paid-in capital		  Accumulated
deficit		  Accumulated
other
comprehensive
income		  Total 
  000s  $  $  $  $  $ 
                   
Balance at January 2, 2021 90,194  326,545  37,862  (147,741) 1,363  218,029 
Exchange of Series A preferred stock, net of                  
share issuance costs of $287 12,633  87,188  -  -  -  87,188 
Employee stock purchase plan 46  473  -  -  -  473 
Stock incentive plans 4,450  22,013  (14,992) -  -  7,021 
Withholding taxes on stock-based awards -  -  (8,313) -  -  (8,313)
Stock-based compensation -  -  9,593  -  -  9,593 
Net loss -  -  -  (2,280) -  (2,280)
Dividends on preferred stock -  -  -  (2,869) -  (2,869)
Accretion on preferred stock -  -  -  (576) -  (576)
Balance at October 2, 2021 107,323  436,219  24,150  (153,466) 1,363  308,266 

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

9

July 2,October 1, 2022 Form 10-Q
SunOpta Inc.

Consolidated Statements of Cash Flows

For the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021

(Unaudited)

(Expressed in thousands of U.S. dollars)

 Quarter endedTwo quarters ended
 July 2, 2022July 3, 2021July 2, 2022July 3, 2021
 $$$$
CASH PROVIDED BY (USED IN)    
Operating activities    
Net earnings (loss)1,684(918)5,904754
Earnings (loss) from discontinued operations(814)-2,752-
Earnings (loss) from continuing operations2,498(918)3,152754
Items not affecting cash:    
Depreciation and amortization9,3728,91018,78516,953
Amortization of debt issuance costs396349771634
Deferred income taxes2,128(4,331)2,208(3,494)
Stock-based compensation3,9704,3705,5998,343
Impairment of long-lived assets (note 8)-2,962-2,962
Other1,634(167)1,745(336)
Changes in operating assets and liabilities (note 10)(22,452)(50,322)(19,171)(71,978)
Net cash provided by (used in) operating activities of continuing operations(2,454)(39,147)13,089(46,162)
Investing activities    
Additions to property, plant and equipment(37,038)(7,306)(62,760)(16,603)
Proceeds from sale of assets2,978-4,1821,350
Additions to intangible assets-(25,073)-(25,073)
Net cash used in investing activities of continuing operations(34,060)(32,379)(58,578)(40,326)
Net cash used in investing activities of discontinued operations(6,324)-(6,324)(13,380)
Net cash used in investing activities(40,384)(32,379)(64,902)(53,706)
Financing activities    
Increase in borrowings under revolving credit facilities (note 5)31,06770,24420,762111,829
Borrowings of long-term debt (note 4)18,2064,15541,1034,641
Repayment of long-term debt (note 4)(5,174)(5,855)(7,569)(9,940)
Payment of debt issuance costs(53)(543)(559)(2,371)
Proceeds from the exercise of stock options and employee share purchases3414,5505917,190
Payment of withholding taxes on stock-based awards(882)(666)(971)(6,737)
Payment of cash dividends on preferred stock (note 6)(609)(609)(1,218)(4,029)
Payment of share issuance costs-(25)-(287)
Net cash provided by financing activities of continuing operations42,89671,25152,139100,296
Net cash used in financing activities of discontinued operations---(200)
Net cash provided by financing activities42,89671,25152,139100,096
Increase (decrease) in cash and cash equivalents in the period58(275)326228
Cash and cash equivalent, beginning of the period495754227251
Cash and cash equivalents, end of the period553479553479
 
  Quarter ended  Three quarters ended 
  October 1,
2022		  October 2,
2021		  October 1,
2022		  October 2,
2021		 
  $  $  $  $ 
CASH PROVIDED BY (USED IN)            
Operating activities            
Net loss (12,639) (3,034) (6,735) (2,280)
Earnings from discontinued operations -  -  2,752  - 
Loss from continuing operations (12,639) (3,034) (9,487) (2,280)
Items not affecting cash:            
Depreciation and amortization 9,730  8,837  28,515  25,790 
Amortization of debt issuance costs 413  359  1,184  993 
Deferred income taxes (2,925) 3,315  (717) (179)
Stock-based compensation 4,092  1,250  9,691  9,593 
Loss on classification of sunflower business as held for sale (note 3) 23,227  -  23,227  - 
Gain on sale of frozen fruit processing facility (note 8) (3,779) -  (3,779) - 
Impairment of long-lived assets (note 8) -  -  -  2,962 
Other (149) (168) 1,596  (504)
Changes in operating assets and liabilities (note 10) 2,003  (5,494) (17,168) (77,472)
Net cash provided by (used in) operating activities of continuing operations 19,973  5,065  33,062  (41,097)
Investing activities            
Additions to property, plant and equipment (38,019) (18,386) (100,779) (34,989)
Proceeds from sale of property, plant and equipment 16,111  950  20,293  2,300 
Additions to intangible assets -  -  -  (25,073)
Net cash used in investing activities of continuing operations (21,908) (17,436) (80,486) (57,762)
Net cash used in investing activities of discontinued operations -  -  (6,324) (13,380)
Net cash used in investing activities (21,908) (17,436) (86,810) (71,142)
Financing activities            
Increase (decrease) in borrowings under revolving credit facilities (note 5) (24,247) 11,348  (3,485) 123,177 
Borrowings of long-term debt (notes 4 and 5) 33,094  4,739  74,197  9,380 
Repayment of long-term debt (note 4) (6,265) (1,849) (13,834) (11,789)
Payment of debt issuance costs (113) (181) (672) (2,552)
Proceeds from the exercise of stock options and employee share purchases 612  304  1,203  7,494 
Payment of withholding taxes on stock-based awards (631) (1,576) (1,602) (8,313)
Payment of cash dividends on preferred stock (note 6) (609) (609) (1,827) (4,638)
Payment of share issuance costs -  -  -  (287)
Net cash provided by financing activities of continuing operations 1,841  12,176  53,980  112,472 
Net cash used in financing activities of discontinued operations -  -  -  (200)
Net cash provided by financing activities 1,841  12,176  53,980  112,272 
Increase (decrease) in cash and cash equivalents in the period (94) (195) 232  33 
Cash and cash equivalent, beginning of the period 553  479  227  251 
Cash and cash equivalents, end of the period 459  284  459  284 

Non-cash investing and financing activities (notes 4 and 10)

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.10July 2,October 1, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021
(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

1. Significant Accounting Policies

Basis of Presentation

These interim consolidated financial statements of SunOpta Inc. (the "Company" or "SunOpta") 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 United States ("U.S.") generally accepted accounting principles ("U.S. GAAP") for interim financial information. Accordingly, these condensed interim consolidated financial statements do not include all of the disclosures required by U.S. GAAP 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 twothree quarters ended July 2,October 1, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, 2022 or for any other period. The interim consolidated financial statements include the accounts of the Company and its subsidiaries and have been prepared on a basis consistent with the annual consolidated financial statements for the year ended January 1, 2022. For further information, refer to the consolidated financial statements, and notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2022.

Fiscal Year

The fiscal year of the Company consists of a 52- or 53-week period ending on the Saturday closest to December 31. Fiscal year 2022 is a 52-week period ending on December 31, 2022, with quarterly periods ending on April 2, 2022, July 2, 2022, and October 1, 2022. Fiscal year 2021 was a 52-week period ending on January 1, 2022, with quarterly periods ending on April 3, 2021, July 3, 2021, and October 2, 2021.

2. Inventories

 July 2, 2022 January 1, 2022  October 1, 2022 January 1, 2022 
 $ $  $ $ 
Raw materials and work-in-process 162,331  143,381  126,530  143,381 
Finished goods 107,791  81,546  106,523  81,546 
Inventory reserves (8,223) (4,784) (7,994) (4,784)
 261,899  220,143  225,059  220,143 

3. Assets and Liabilities Held for Sale

Sunflower Business

On July 6,October 11, 2022, the Company finalized an agreementcompleted the sale of 100% of the assets and liabilities of its sunflower business and related roasted snacks operations, for cash consideration of $16.0 million, subject to sell its frozen fruitclosing debt and working capital adjustments. The sunflower business operates from three processing facilityfacilities located in Oxnard, California, for gross proceedsMinnesota and North Dakota and is reported in the Company's Plant-Based Foods and Beverages operating segment.

As at October 1, 2022, the Company recognized a pre-tax loss of $16.5$23.2 million payable in cash on the closingclassification of the transaction, which is expectedsunflower business as held for sale, including $22.3 million to occur in the third quarter of 2022. As at July 2, 2022,write down the carrying value of the related property, plantnet assets sold to the fair value of the net proceeds received, and equipment$0.9 million for accrued costs to sell. The loss on classification as held for sale is recorded in other expense, net, on the consolidated statements of operations for the quarter and three quarters ended October 1, 2022. The assets and liabilities of $11.6 million hasthe sunflower business have been reclassified and reported as held for sale on the consolidated balance sheet. Insheet as at October 1, 2022, as follows:

SUNOPTA INC.

11

October 1, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

October 1, 2022
$
Accounts receivable9,377
Inventories14,247
Other current assets109
Property, plant and equipment, net10,328
Operating lease right-of-use assets1,834
Intangible assets, net2,512
Write-down on classification as held for sale(22,256)
Total assets held for sale16,151
Accounts payable and accrued liabilities4,591
Operating lease liabilities2,414
Total liabilities held for sale7,005

The disposal of the third quarter of 2022, the Company expects to recognizesunflower business does not have a pre-tax gainmajor effect on the saleCompany’s operations or financial results and, therefore, does not qualify for presentation as discontinued operations on a standalone basis. Revenues and earnings (loss) before income taxes of the facilitysunflower business for the periods ended October 1, 2022 and October 2, 2021 were as follows:

  Quarter ended  Three quarters ended 
  October 1,
2022		  October 2,
2021		  October 1,
2022		  October 2,
2021		 
  $  $  $  $ 
Revenues 17,309  16,102  55,774  48,510 
Earnings (loss) before income taxes(1) (514) (20) 1,025  1,230 

(1)For the quarter and three quarters ended October 1, 2022, excludes the loss on classification as held for sale. In addition, for all periods presented, excludes the allocation of approximately $4 million, net of estimated costs to sell.corporate costs.

4. Leases

The Company leases certain manufacturing plants, warehouses, offices, machinery and equipment, and vehicles. At the lease commencement date, the Company classifies a lease as a finance lease if it has the right to obtain substantially all of the economic benefits from the right-of-use assets, otherwise the lease is classified as an operating lease.

The following tables present supplemental information related to leases:

  Quarter ended  Three quarters ended 
  October 1,
2022		  October 2,
2021		  October 1,
2022		  October 2,
2021		 
  $  $  $  $ 
Lease Costs            
Operating lease cost 3,912  3,496  10,216  10,248 
Finance lease cost:            
Depreciation of right-of-use assets 2,527  1,555  7,092  4,366 
Interest on lease liabilities 1,678  773  3,503  2,013 
Sublease income -  -  -  (281)
Net lease cost 8,117  5,824  20,811  16,346 
SUNOPTA INC.

1112

July 2,October 1, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

The following tables present supplemental information related to leases:

  Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
  $  $  $  $ 
Lease Costs            
Operating lease cost 3,093  3,180  6,304  6,752 
Finance lease cost:            
Depreciation of right-of-use assets 2,677  1,556  4,565  2,811 
Interest on lease liabilities 1,052  806  1,825  1,240 
Sublease income -  (153) -  (281)
Net lease cost 6,822  5,389  12,694  10,522 
  July 2, 2022  January 1, 2022 
  $  $ 
Balance Sheet Classification      
Operating leases:      
Operating lease right-of-use assets 40,990  47,245 
Current portion of operating lease liabilities 9,933  12,203 
Operating lease liabilities 37,084  39,028 
Total operating lease liabilities 47,017  51,231 
       
Finance leases:      
Property, plant and equipment, gross 116,764  66,060 
Accumulated depreciation (14,912) (10,348)
Property, plant and equipment, net 101,852  55,712 
Current portion of long-term debt 22,114  9,760 
Long-term debt 73,815  43,034 
Total finance lease liabilities 95,929  52,794 
  October 1, 2022  January 1, 2022 
  $  $ 
Balance Sheet Classification      
Operating leases:      
Operating lease right-of-use assets 78,167  47,245 
       
Current portion of operating lease liabilities 12,601  12,203 
Operating lease liabilities 71,016  39,028 
Total operating lease liabilities 83,617  51,231 
       
Finance leases:      
Property, plant and equipment, gross 139,081  66,060 
Accumulated depreciation (17,440) (10,348)
Property, plant and equipment, net 121,641  55,712 
       
Current portion of long-term debt 28,255  9,760 
Long-term debt 83,728  43,034 
Total finance lease liabilities 111,983  52,794 
 
  Quarter ended  Three quarters ended 
  October 1, 2022  October 2, 2021  October 1, 2022  October 2, 2021 
  $  $  $  $ 
Cash Flow Information            
Cash paid (received) for amounts included in measurement of lease liabilities:            
Operating cash flows from operating leases 3,909  3,127  9,954  10,079 
Operating cash flows from finance leases 1,678  588  3,503  2,013 
Financing cash flows from finance leases:            
Cash paid under finance leases(1) 6,265  1,663  13,834  6,916 
Cash received under finance leases(2) (15,101) -  (48,378) - 
             
Right-of-use assets obtained in exchange for lease liabilities:            
Operating leases(3) 42,669  8,522  43,385  25,811 
Finance leases 7,217  -  24,643  29,906 
             
Right-of-use assets and liabilities reduced through lease terminations or modifications:            
Operating leases (277) -  (2,226) - 
Finance leases -  -  -  (686)
     Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
  $  $  $  $ 
Cash Flow Information            
Cash paid (received) for amounts included in measurement of lease liabilities:            
Operating cash flows from operating leases 2,963  3,207  6,045  6,952 
Operating cash flows from finance leases 1,052  898  1,825  1,425 
Financing cash flows from finance leases:            
Cash paid under finance leases(1) 5,175  1,907  7,569  5,253 
Cash received under finance leases(2) (14,554) -  (33,277) - 
             
Right-of-use assets obtained in exchange for lease liabilities:            
Operating leases 317  16,275  716  17,289 
Finance leases 2,746  -  17,426  29,906 
             
Right-of-use assets and liabilities reduced through lease            
terminations or modifications:            
Operating leases -  -  (1,949) - 
Finance leases -  -  -  (686)
SUNOPTA INC.

12

July 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and two quarters ended July 2, 2022 and July 3, 2021

(Unaudited)
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

(1) Represents repayments under finance leases recorded as a reduction of the lease liability and reported in repayment of long-term debt on the consolidated statements of cash flows.

(2) Represents cash advances received by the Company under finance leases related tofor the construction of right-of-use assets controlled by the Company, which related to the buildouts of the Company's plant-based beverage facility under construction in Midlothian, Texas, and the Company's executive office and innovation center located in Eden Prairie, Minnesota, as well as cash proceeds under sale and leaseback transactions accounted for as financings, which arefinancings. Cash received under finance leases is reported in borrowings of long-term debt on the consolidated statements of cash flows.

(3)For the quarter and three quarters ended October, 1, 2022, includes the addition of a $39.9 million operating lease right-of-use asset and corresponding operating lease liability related to the premises lease for the Midlothian, Texas, facility, which commenced on October 1, 2022, following substantial completion of construction by the landlord. The noncancellable lease term is 15 years from the lease commencement date, together with three five-year extension options that the Company is reasonably certain to exercise. At the lease commencement date, the estimated lease payments, net of leasehold incentives, were discounted at the Company's estimated incremental borrowing rate applicable to the 30-year lease term of 10.3%.

SUNOPTA INC.

13

October 1, 2022 Form 10-Q

  July 2, 2022  January 1, 2022 
Other Information      
Weighted-average remaining lease term (years):      
Operating leases 7.6  7.4 
Finance leases 3.4  4.3 
       
Weighted-average discount rate:      
Operating leases 5.0%  5.0% 
Finance leases 7.5%  6.6% 

  Operating leases  Finance leases 
  $  $ 
Maturities of Lease Liabilities      
Remainder of 2022 5,054  12,628 
2023 10,185  29,173 
2024 8,312  29,109 
2025 6,290  26,881 
2026 5,247  13,539 
Thereafter 21,643  492 
Total lease payments 56,731  111,822 
Less: imputed interest (9,714) (15,893)
Total lease liabilities 47,017  95,929 

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

  October 1, 2022  January 1, 2022 
Other Information      
Weighted-average remaining lease term (years):      
Operating leases 13.0  7.4 
Finance leases 2.7  4.3 
       
Weighted-average discount rate:      
Operating leases 8.6%  5.0% 
Finance leases 7.5%  6.6% 
  Operating leases  Finance leases 
  $  $ 
Maturities of Lease Liabilities      
Remainder of 2022 2,035  5,242 
2023 11,460  37,487 
2024 11,572  36,165 
2025 10,313  31,385 
2026 9,355  19,088 
Thereafter 156,480  185 
Total lease payments 201,215  129,552 
Less: imputed interest (117,598) (17,569)
Total lease liabilities 83,617  111,983 
5. Long-Term Debt
5. Long-Term Debt
  July 2, 2022  January 1, 2022 
  $  $ 
Asset-based credit facilities:      
Revolving credit facilities 176,715  153,293 
Term loan facility 19,432  11,606 
Total asset-based credit facilities 196,147  164,899 
Finance lease liabilities (see note 4) 95,929  52,794 
Other 4,472  6,910 
Total debt 296,548  224,603 
Less: current portion 23,055  9,760 
Total long-term debt 273,493  214,843 
  October 1, 2022  January 1, 2022 
  $  $ 
Asset-based credit facilities:      
Revolving credit facilities 154,032  153,293 
Term loan facility 37,425  11,606 
Total asset-based credit facilities 191,457  164,899 
Finance lease liabilities (see note 4) 111,983  52,794 
Other 2,822  6,910 
Total debt 306,262  224,603 
Less: current portion 31,374  9,760 
Total long-term debt 274,888  214,843 

Asset-Based Credit Facilities

On December 31, 2020, the Company entered into a Second Amended and Restated Credit Agreement (the "Credit Agreement"), as amended by the First Amendment, dated as of April 15, 2021, the Second Amendment, dated as of July 2, 2021, and the Third Amendment, dated as of February 25, 2022, among the Company, SunOpta Foods Inc. ("SunOpta Foods"), the other borrowers and guarantors party thereto, and the lenders party thereto (the "Lenders"). As part of the Credit Agreement, the Lenders provided a five-year, $230 million asset-based revolving credit facility, subject to borrowing base capacity (the "Tranche A Subfacility"), a two-year, $20 million first-in-last-out tranche, subject to a separate borrowing base applicable to certain eligible accounts receivable and inventory with advance rates separate from the Tranche A Subfacility (the "Tranche B Subfacility", and together with the Tranche A Subfacility, the "Revolving Credit Facilities"), and a five-year $75 million delayed draw term loan facility which can be used for borrowings on or prior to March 31, 2023 (the "Term Loan Facility," and together with the Revolving Credit Facilities, the "Asset-Based Credit Facilities"), to finance certain capital expenditures. The Tranche A Subfacility includes borrowing capacity for letters of credit and provides for borrowings on same-day notice, including in the form of swingline loans.

SUNOPTA INC.

1314

July 2,October 1, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

The Tranche A Subfacility and Term Loan Facility mature on December 31, 2025. Commencing in March 2023, the Term Loan Facility is repayable in monthly installments equal to 1/84th of the then-outstanding principal amount of the Term Loan Facility, with the remaining amount payable at the maturity thereof. The Tranche B Subfacility matures on April 15, 2024, with amortization payments of $2.5 million, payable at the end of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2023, with the remaining amount payable at the maturity thereof. Each repayment of Tranche B Subfacility loans will result in an increase of the Lenders' commitments under the Tranche A Subfacility, provided that such increases will not cause the aggregate Lenders' commitments under the Tranche A Subfacility to exceed $250 million.

Borrowings under the Asset-Based Credit Facilities bear interest based on various reference rates, including the Secured Overnight Financing Rate, plus applicable margins, which are set quarterly based on average borrowing availability for the preceding fiscal quarter. For the twothree quarters ended July 2,October 1, 2022, the weighted-average interest rate on all outstanding borrowings under the Asset-Based Credit Facilities was 2.99%3.83%.

As at July 2,October 1, 2022, the Company was in compliance with all covenants of the Credit Agreement.

6. Series B-1 Preferred Stock

As at July 2,October 1, 2022, SunOpta Foods had 30,000 shares of Series B-1 preferred stock issued and outstanding, with a current liquidation preference of $1,015 per share, or $30.4 million in the aggregate. At any time, the Series B-1 preferred stock may be exchanged, in whole or in part, into the number of shares of the Company's common stock ("Common Shares") equal to, per share of Series B-1 preferred stock, the quotient of the liquidation preference divided by an exchange price of $2.50. On or after April 24, 2023, SunOpta Foods may cause the holders of the Series B-1 preferred stock to exchange all of their shares of Series B-1 preferred stock if the volume-weighted average price of the Common Shares during the then preceding 20 trading day period is greater than 200% of the exchange price then in effect. Preferred dividends accrue daily on the Series B-1 preferred stock at an annualized rate of 8.0% of the liquidation preference prior to September 30, 2029, and 10.0% of the liquidation preference thereafter. In each of the first twothree quarters of 2022, the Company paid quarterly cash dividends on the Series B-1 preferred stock of $0.6 million, and, as at July 2,October 1, 2022, the Company accrued unpaid dividends of $0.6 million for the secondthird quarter of 2022, which are recorded in accounts payable and accrued liabilities on the consolidated balance sheet. At any time on or after April 24, 2025, SunOpta Foods may redeem all of the Series B-1 preferred stock for an amount per share equal to the value of the liquidation preference at such time, plus accrued and unpaid dividends. The carrying value of the Series B-1 preferred stock is being accreted to the redemption value through charges to accumulated deficit, which amounted to $0.3$0.5 million for the twothree quarters ended JulyOctober 1, 2022 (October 2, 2022 (July 3, 2021 - $0.3$0.4 million).

7. Stock-Based Compensation

During the twothree quarters ended July 2,October 1, 2022, 1,750,935 performance share units ("PSUs") were granted to certain employees under the Company's 2022 Short-Term Incentive Plan ("STIP"), which vest subject to the Company achieving a predetermined measure of adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") for fiscal 2022 and subject to each employee's continued employment with the Company through March 31, 2023 (the requisite service period) (the "EBITDA PSUs"). The weighted-average grant-date fair value of each EBITDA PSU was estimated to be $5.27 based on the closing price of the Common Shares on the dates of grant. As at July 2,October 1, 2022, the remaining compensation cost related to theseoutstanding EBITDA PSUs granted under the 2022 STIP not yet recognized as an expense was determined to be $6.7$4.2 million, which will be amortized over the remaining requisite service period.

SUNOPTA INC.

14

July 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and two quarters ended July 2, 2022 and July 3, 2021

(Unaudited)
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

On March 30, 2022, all outstanding EBITDA PSUs previously granted to certain employees of the Company in connection with the Company's 2021 STIP were cancelled because the fiscal year 2021 performance condition was not achieved. No compensation expense was recognized related to these EBITDA PSUs.

SUNOPTA INC.

15

October 1, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

The following table summarizes all EBITDA PSU activity for the twothree quarters ended July 2,October 1, 2022:

    Weighted- 
    average grant- 
  EBITDA PSUs date fair value 
Non-vested, beginning of period 670,171 $11.77 
Granted 1,750,935  5.27 
Vested (58,235) 4.91 
Cancelled (715,435) 11.87 
Non-vested, end of period 1,647,436 $5.07 
     Weighted- 
     average grant- 
  EBITDA PSUs  date fair value 
Non-vested, beginning of period 670,171 $11.77 
Granted 1,750,935  5.27 
Vested (58,235)  4.91 
Cancelled (619,357) 12.93 
Non-vested, end of period 1,743,514 $5.06 

During the twothree quarters ended July 2,October 1, 2022, 92,877117,069 restricted stock units ("RSUs"), 522,878547,071 PSUs and 1,761,1181,800,007 stock options were granted to selected employees under the Company's 2022 Long-Term Incentive Plan ("LTIP"). The RSUs vest in three equal annual installments beginning on May 5, 2023, and each vested RSU entitles the employee to receive one Common Share without payment of additional consideration. The vesting of the PSUs is dependent on the Company's total shareholder return ("TSR") performance relative to food and beverage companies in a designated index during the three-year period commencing January 1, 2022 and continuing through December 31, 2024, and the employee's continued employment with the Company through May 5, 2025. The TSR for the Company and each of the companies in the designated index will be calculated using a 20-trading day average closing price as of December 31, 2024. The percentage of vested PSUs may range from 0% to 200% based on the Company's achievement of predetermined TSR thresholds. Each vested PSU entitles the employee to receive one Common Share without payment of additional consideration, with the Board of Directors having the option to settle vested PSUs in whole or part in cash in lieu of Common Shares. As at July 2,October 1, 2022, the Company had the intent and ability to settle the PSUs in Common Shares. The stock options vest ratably on each of the first through third anniversaries of the grant date and expire on the tenth anniversary of the grant date. Each vested stock option entitles the employee to purchase one Common Share at an exercise price of $5.91, which was the closing price of the Common Shares on May 5, 2022.

The weighted-average grant-date fair value of each RSU was estimated to be $5.91$6.57 based on the closing priceprices of the Common Shares on the datedates of grant. A grant-date fair value of $8.48 was estimated for each PSU using a Monte Carlo valuation model, and a weighted-average grant-date fair value of $3.48$3.49 was estimated for each stock option using the Black-Scholes option pricing model. The following table summarizes the assumptions used to determine the fair values of the PSUs and stock options granted under the 2022 LTIP.

  PSUs  Stock options 
Grant-date stock price$5.91 $5.91 
Exercise price NA $5.91 
Dividend yield 0%  0% 
Expected volatility(a) 67.8%  61.6% 
Risk-free interest rate(b) 2.8%  3.0% 
Expected life (in years)(c) 2.7  6.0 

(a) Determined based on the historical volatility of the Common Shares over the performance period of the PSUs and expected life of the stock options.

(b) Determined based on U.S. Treasury yields with a remaining term equal to the performance period of the PSUs and expected life of the stock options.

(c) Determined based on the performance period of the PSUs and the mid-point of vesting (three years) and expiration (ten years) for the stock options.

SUNOPTA INC.

15

July 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and two quarters ended July 2, 2022 and July 3, 2021

(Unaudited)
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

As at July 2,October 1, 2022, the remaining compensation cost related to outstanding RSUs, PSUs and stock options granted under the 2022 LTIP not yet recognized as an expense was determined to be $10.5$10.0 million, which will be recognized on a straight-line basis over the remaining requisite service period ending May 5, 2025.

SUNOPTA INC.

16

October 1, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

8. Other Expense, Net

The components of other expense (income) were as follows:

     Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
  $  $  $  $ 
Facility closure costs(1) 1,287  2,962  1,287  4,394 
Settlement losses, net(2) 283  163  283  163 
Asset impairment charges -  -  260  - 
Employee termination costs(3) -  1,161  -  1,161 
Divestiture costs(4) -  291  -  474 
Other (30) 84  (3) 84 
  1,540  4,661  1,827  6,276 
  Quarter ended  Three quarters ended 
  October 1, 2022  October 2, 2021  October 1, 2022  October 2, 2021 
  $  $  $  $ 
Loss on classification of sunflower business as held for sale (see note 3) 23,227  -  23,227  - 
Gain on sale of frozen fruit processing facility(1) (3,779) -  (3,779) - 
Facility closure costs(2) 526  479  1,813  4,873 
Settlement losses, net(3) -  -  283  163 
Employee termination costs(4) -  499  -  1,660 
Divestiture costs(5) -  154  -  628 
Other 226  40  483  124 
  20,200  1,172  22,027  7,448 

(1)Gain on sale of frozen fruit processing facility

For the quarter and three quarters ended October 1, 2022, the Company recognized a $3.8 million pre-tax gain on the sale of its frozen fruit processing facility located in Oxnard, California. Net cash proceeds on the sale were $16.1 million.

(2) Facility closure costs

For the quarter and twothree quarters ended July 2,October 1, 2022, expense primarily relates to the relocation of certain equipment from the Company's held-for-salesold Oxnard California, fruit processing facility to its Mexican facility.

For the quarter and two quarters ended July 3,October 2, 2021, expense represents asset impairment charges relatedcosts incurred to relocate inventory and equipment following the exit fromclosure of the Company's former South Gate, California, fruit ingredient processing facility. In addition, forFor the twothree quarters ended July 3,October 2, 2021, expense includesfacility closure costs also include asset impairment charges of $3.0 million recorded in connection with the closure of the South Gate facility and costs to complete the exit from the Company's former Santa Maria, California, frozen fruit processing facility.

(2)(3) Settlement losses, net

For the quarter and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021, expense represents net losses incurred on the settlement of certain legal and contractual matters.

(3)(4) Employee termination costs

For the quarter and twothree quarters ended July 3,October 2, 2021, expense represents termination costs for employees impacted by the closure of the Company's fruit ingredient processing facility.facility and a workforce reduction in the Company's frozen fruit operations.

(4)(5) Divestiture costs

For the quarter and twothree quarters ended July 3,October 2, 2021, expense relates to professional fees incurred in connection with post- closingpost-closing matters related to the 2020 divestiture of the Company's global ingredients business, Tradin Organic.

SUNOPTA INC.

1617

July 2,October 1, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

9. Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share were calculated as follows (shares in thousands):

    Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
Basic Earnings (Loss) Per Share            
Numerator for basic earnings (loss) per share:            
Earnings (loss) from continuing operations$2,498 $(918)$3,152 $754 
Less: dividends and accretion on preferred stock (760) (744) (1,515) (2,697)

Earnings (loss) from continuing operations attributable to common shareholders

 1,738  (1,662) 1,637  (1,943)
Earnings (loss) from discontinued operations (814) -  2,752  - 
Earnings (loss) attributable to common shareholders$924 $(1,662)$4,389 $(1,943)
             
Denominator for basic earnings (loss) per share:            
Basic weighted-average number of shares outstanding 107,622  105,676  107,510  100,898 
             
Basic earnings (loss) per share:            
From continuing operations$0.02 $(0.02)$0.02 $(0.02)
From discontinued operations (0.01) -  0.03  - 
Basic earnings (loss) per share$0.01 $(0.02)$0.04 $(0.02)
             
Diluted Earnings (Loss) Per Share            
Numerator for diluted earnings (loss) per share:            
Earnings (loss) from continuing operations$2,498 $(918)$3,152 $754 
Less: dividends and accretion on preferred stock (760) (744) (1,515) (2,697)

Earnings (loss) from continuing operations attributable to common shareholders

 1,738  (1,662) 1,637  (1,943)
Earnings (loss) from discontinued operations (814) -  2,752  - 
Earnings (loss) attributable to common shareholders$924 $(1,662)$4,389 $(1,943)
             
Denominator for diluted earnings (loss) per share:            
Basic weighted-average number of shares outstanding 107,622  105,676  107,510  100,898 
Dilutive effect of the following:            

Stock options, restricted stock units and performance share units(1)

 1,045  -  985  - 
Preferred stock(2) -  -  -  - 
Diluted weighted-average number of shares outstanding 108,667  105,676  108,495  100,898 
             
Diluted earnings (loss) per share:            
From continuing operations$0.02 $(0.02)$0.02 $(0.02)
From discontinued operations (0.01) -  0.03  - 
Diluted earnings (loss) per share$0.01 $(0.02)$0.04 $(0.02)
 Quarter ended Three quarters ended 
  October 1,
2022		  October 2,
2021		  October 1,
2022		  October 2,
2021		 
Basic Earnings (Loss) Per Share            
Numerator for basic earnings (loss) per share:            
Loss from continuing operations$(12,639)$(3,034)$(9,487)$(2,280)
Less: dividends and accretion on preferred stock (764) (748) (2,279) (3,445)
Loss from continuing operations attributable to common shareholders (13,403) (3,782) (11,766) (5,725)
Earnings from discontinued operations -  -  2,752  - 
Loss attributable to common shareholders$(13,403)$(3,782)$(9,014)$(5,725)
             
Denominator for basic earnings (loss) per share:            
Basic weighted-average number of shares outstanding 107,752  107,255  107,566  103,017 
             
Basic earnings (loss) per share:            
From continuing operations$(0.12)$(0.04)$(0.11)$(0.06)
From discontinued operations -  -  0.03  - 
Basic earnings (loss) per share$(0.12)$(0.04)$(0.08)$(0.06)
             
Diluted Earnings (Loss) Per Share            
Numerator for diluted earnings (loss) per share:            
Loss from continuing operations$(12,639)$(3,034)$(9,487)$(2,280)
Less: dividends and accretion on preferred stock (764) (748) (2,279) (3,445)
Loss from continuing operations attributable to common shareholders (13,403) (3,782) (11,766) (5,725)
Earnings from discontinued operations -  -  2,752  - 
Loss attributable to common shareholders$(13,403)$(3,782)$(9,014)$(5,725)
             
Denominator for diluted earnings (loss) per share:            
Basic weighted-average number of shares outstanding 107,752  107,255  107,566  103,017 
Dilutive effect of the following:            
Stock options, restricted stock units and performance share units(1) -  -  -  - 
Preferred stock(2) -  -  -  - 
Diluted weighted-average number of shares outstanding 107,752  107,255  107,566  103,017 
             
Diluted earnings (loss) per share:            
From continuing operations$(0.12)$(0.04)$(0.11)$(0.06)
From discontinued operations -  -  0.03  - 
Diluted earnings (loss) per share$(0.12)$(0.04)$(0.08)$(0.06)

(1)For the quarter and twothree quarters ended JulyOctober 1, 2022, 1,486,560 (October 2, 2022, stock options and RSUs to purchase or receive 2,544,112 (July 3, 2021 - 263,134)1,576,776) and 2,551,746 (July 3,1,165,008 (October 2, 2021 - 260,634) potential common shares, respectively, were anti-dilutive because the assumed proceeds exceeded the average market price of the Common Shares for the respective periods. In addition, for the quarter and two quarters ended July 3, 2021, 2,764,865 and 4,317,1183,412,854) potential common shares, respectively, were excluded from the calculation of diluted loss per share due to their effect of reducing the loss per share. Dilutive potential common shares consist of stock options, RSUs, and certain contingently issuable PSUs. In addition, for the quarter and three quarters ended October 1, 2022, stock options and RSUs to purchase or receive 339,798 (October 2, 2021 - 443,308) and 2,440,184 (October 2, 2021 - 259,245) potential common shares, respectively, were anti-dilutive because the assumed proceeds exceeded the average market price of the Common Shares for the respective periods.

SUNOPTA INC.

1718

July 2,October 1, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

(2) For the quarter and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021, it was more dilutive to assume the Series B-1 preferred stock was not converted into Common Shares and, therefore, the numerator of the diluted earnings (loss) per share calculation was not adjusted to add back the dividends and accretion on the Series B-1 preferred stock and the denominator was not adjusted to include 12,178,667 Common Shares issuable on an if-converted basis as at July 2,October 1, 2022 and July 3,October 2, 2021.

10. Supplemental Cash Flow Information

 Quarter ended Two quarters ended  Quarter ended Three quarters ended 
 July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021  

October 1,
2022

 

October 2,
2021

 

October 1,
2022

 

October 2,
2021

 
 $ $ $ $  $ $ $ $ 
Changes in Operating Assets and Liabilities   
Accounts receivable 14,416 5,118 (1,019) (10,385)  (1,033) (3,665) (2,052) (14,050)
Inventories (43,924) (64,514) (41,756) (82,108) 22,593  (1,035) (19,163) (83,143)
Accounts payable and accrued liabilities 13,571  7,420  27,111  14,920  (22,572) (9) 4,539  14,911 
Other operating assets and liabilities (6,515) 1,654  (3,507) 5,595  3,015  (785) (492) 4,810 
 (22,452) (50,322) (19,171) (71,978) 2,003  (5,494) (17,168) (77,472)
            
Non-Cash Investing and Financing Activities                        

Change in additions to property, plant and equipment included in accounts payable and accrued liabilities

 337  1,397  (5,439) (617) 668  (1,358) (4,771) (1,975)

Change in accounts payable and accrued liabilities related to discontinued operations

 (6,324) -  -  (13,380) -  -  -  (13,380)
Change in accrued dividends on preferred stock -  -  -  (1,769) -  -  -  (1,769)
Change in accrued debt issuance costs -  -  -  (1,690) -  -  -  (1,690)

11. Commitments and Contingencies

Legal Proceedings

Various current and potential claims and litigation arising in the ordinary course of business are pending against the Company. The Company believes it has established adequate accruals for liabilities that are probable and reasonably estimable that may be incurred in connection with any such currently pending matter. In the Company's opinion, the eventual resolution of such matters, either individually or in the aggregate, is not expected to have a material impact on the Company's financial position, results of operations, or cash flows. However, litigation is inherently unpredictable and resolutions or dispositions of claims or lawsuits by settlement or otherwise could have an adverse impact on the Company's financial position, results of operations, and cash flows for the reporting period in which any such resolution or disposition occurs.

Arbitration Proceedings

On January 31, 2022, Amsterdam Commodities N.V. ("Acomo") submitted a Request for Summary Arbitral Proceedings to the Netherlands Arbitration Institute, which was later amended on February 16, 2022, asserting alleged claims against the Company and its subsidiaries, Coöperatie SunOpta U.A. and SunOpta Holdings LLC, relating to a dispute regarding the allocation of the purchase price Acomo paid to acquire the shares of The Organic Corporation B.V. and the membership interests of Tradin Organics USA LLC in connection with the closing of the transactions contemplated by the Master Purchase Agreement entered into by Acomo, the Company and the aforementioned subsidiaries on November 25, 2020 (the "Transaction"). On May 25, 2022, the parties entered into a definitive Settlement Agreement to resolve all outstanding matters related to the Master Purchase Agreement, following which the Request for Summary Arbitral Proceedings was withdrawn. In connection with the Settlement Agreement, the Company recognized a lossearnings from discontinued operations of $0.8 million for the quarter ended July 2, 2022 and earnings of $2.8 million for the twothree quarters ended July 2,October 1, 2022, which reflected the estimated tax benefits resulting from the final allocation of the purchase price between the share capital of The Organic Corporation B.V. and the membership interests of Tradin Organics USA LLC, partially offset by a cash payment of $5.9 million from the Company to Acomo to settle certain post-closing adjustments related to the Transaction, as well as professional fees incurred in connection with the arbitration proceedings.

SUNOPTA INC.

1819

July 2,October 1, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

12. Segment Information

The composition of the Company's operating and reportable segments is as follows:

  • Plant-Based Foods and Beverages includes plant-based beverages and liquid and powder ingredients (utilizing oat, almond, soy, coconut, rice, hemp, and other bases), as well as broths, teas, and nutritional beverages. In addition, Plant-Based Foods and Beverages includes packagedthe held-for-sale sunflower business (see note 3) packages dry- and oil-roasted inshell sunflower and sunflower kernels, and the processing and sale ofprocesses raw sunflower inshell and kernel for food and feed applications.
  • Fruit-BasedFruit-Based Foods and Beverages includes individually quick frozen ("IQF") fruit for retail (including strawberries, blueberries, mango, pineapple, and other berries and blends) and IQF and bulk frozen fruit for foodservice (including toppings, purées, and smoothies). In addition, Fruit-Based Foods and Beverages includes fruit snacks, including bars, twists, ropes, and bite-sized varieties, and fruit smoothie bowls.

Corporate Services provides a variety of management, financial, information technology, treasury, and administration services to each of the Company's operating segments.

When reviewing the operating results of the Company's operating segments, management uses segment revenues from external customers and segment operating income/loss to assess performance and allocate resources. Total segment operating income/loss includes general and administrative expenses incurred by Corporate Services and excludes other income/expense items. In addition, interest on corporate debt and income taxes are not allocated to the operating segments.

Segment Revenues and Operating Income

ReportableOperating segment operating results for the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021 were as follows:

     Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
  $  $  $  $ 
Revenues from external customers            
Plant-Based Foods and Beverages 145,912  111,359  281,423  230,810 
Fruit-Based Foods and Beverages 97,619  90,914  202,281  179,103 
Total revenues from external customers 243,531  202,273  483,704  409,913 
             
Segment operating income (loss)            
Plant-Based Foods and Beverages 12,196  8,641  20,292  21,958 
Fruit-Based Foods and Beverages 3,211  (1,447)  3,995  (3,341) 
Corporate Services (7,298) (5,471) (12,262) (10,809)
Total segment operating income 8,109  1,723  12,025  7,808 
             
Other expense, net (see note 8) (1,540) (4,661) (1,827) (6,276)
Interest expense, net (3,132) (1,631) (5,662) (3,291)
Earnings (loss) from continuing operations before            
income taxes 3,437  (4,569) 4,536  (1,759)
  Quarter ended  Three quarters ended 
  October 1,
2022		  October 2,
2021		  October 1,
2022		  October 2,
2021		 
  $  $  $  $ 
Revenues from external customers            
Plant-Based Foods and Beverages 137,726  114,870  419,149  345,680 
Fruit-Based Foods and Beverages 91,939  83,609  294,220  262,712 
Total revenues from external customers 229,665  198,479  713,369  608,392 
             
Segment operating income (loss)            
Plant-Based Foods and Beverages 8,814  8,056  29,106  30,014 
Fruit-Based Foods and Beverages 2,870  (3,517) 6,865  (6,858)
Corporate Services (4,040) (618) (16,302) (11,427)
Total segment operating income 7,644  3,921  19,669  11,729 
             
Other expense, net (see note 8) (20,200) (1,172) (22,027) (7,448)
Interest expense, net (4,342) (2,854) (10,004) (6,145)
Loss from continuing operations before income taxes (16,898) (105) (12,362) (1,864)
SUNOPTA INC.

1920

July 2,October 1, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

Disaggregation of Revenue

The following table presents a disaggregation of revenues by operating segment based on categories used by the Company to evaluate sales performance:

 Quarter ended Two quarters ended  Quarter ended Three quarters ended 
 July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021  October 1,
2022		  October 2,
2021		  October 1,
2022		  October 2,
2021		 
 $ $ $ $  $  $  $  $ 
Plant-Based Foods and Beverages              
Beverages and broths 114,898  87,494  223,520  182,980  112,785  91,385  336,305  274,365 
Plant-based ingredients 9,712  7,578  19,438  15,422  7,632  7,383  27,070  22,805 
Sunflower and roasted snacks 21,302  16,287  38,465  32,408 
Sunflower and roasted snacks (see note 3) 17,309  16,102  55,774  48,510 
Total Plant-Based Foods and Beverages 145,912  111,359  281,423  230,810  137,726  114,870  419,149  345,680 
                        
Fruit-Based Foods and Beverages                        
Frozen fruit and fruit-based ingredients 74,164  75,076  157,657  146,890  68,333  68,029  225,990  214,919 
Fruit snacks and smoothie bowls 23,455  15,838  44,624  32,213  23,606  15,580  68,230  47,793 
Total Fruit-Based Foods and Beverages 97,619  90,914  202,281  179,103  91,939  83,609  294,220  262,712 
            
Total revenues 243,531  202,273  483,704  409,913  229,665  198,479  713,369  608,392 

Segment Assets

Total assets by operating segment as at July 2,October 1, 2022 and January 1, 2022 were as follows:

  July 2, 2022  January 1, 2022 
  $  $ 
Plant-Based Foods and Beverages 370,417  301,065 
Fruit-Based Foods and Beverages 378,798  368,976 
Corporate Services 83,116  85,078 
Assets held for sale (note 3) 11,591  - 
Total assets 843,922  755,119 
  October 1, 2022  January 1, 2022 
  $  $ 
Plant-Based Foods and Beverages 362,003  301,065 
Fruit-Based Foods and Beverages 362,167  368,976 
Corporate Services 118,629  85,078 
Assets held for sale (see note 3) 16,151  - 
Total assets 858,950  755,119 

Segment Depreciation and Amortization

Depreciation and amortization by operating segment for the quarters and twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021 was as follows:

     Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
  $  $  $  $ 
Plant-Based Foods and Beverages 4,572  3,881  9,006  7,015 
Fruit-Based Foods and Beverages 3,380  3,861  7,061  7,630 
Corporate Services 1,420  1,168  2,718  2,308 
Total depreciation and amortization 9,372  8,910  18,785  16,953 
  Quarter ended  Three quarters ended 
  October 1,
2022		  October 2,
2021		  October 1,
2022		  October 2,
2021		 
  $  $  $  $ 
Plant-Based Foods and Beverages 4,750  3,951  13,756  10,966 
Fruit-Based Foods and Beverages 3,541  3,625  10,602  11,255 
Corporate Services 1,439  1,261  4,157  3,569 
Total depreciation and amortization 9,730  8,837  28,515  25,790 
SUNOPTA INC.2021July 2,October 1, 2022 Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Financial Information

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the interim consolidated financial statements, and notes thereto, for the quarter ended July 2,October 1, 2022 contained under Item 1 of this Quarterly Report on Form 10-Q and in conjunction with the annual consolidated financial statements, and notes thereto, contained in the Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (the "Form 10-K"). Unless otherwise indicated herein, the discussion and analysis contained in this MD&A includes information available to August 11,November 10, 2022.

Certain statements contained in this MD&A may constitute forward-looking statements as defined under securities laws. Forward-looking statements may relate to our future outlook and anticipated events or results and may include statements regarding our future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives. In some cases, forward-looking statements can be identified by terms such as "anticipate," "estimate," "target," "intend," "project," "potential," "predict," "continue," "believe," "expect," "can," "could," "would," "should," "may," "might," "plan," "will," "budget," "forecast," or other similar expressions concerning matters that are not historical facts, or the negative of such terms are intended to identify forward-looking statements; however, the absence of these words does not necessarily mean that a statement is not forward-looking. To the extent any forward-looking statements contain future-oriented financial information or financial outlooks, such information is being provided to enable a reader to assess our financial condition, material changes in our financial condition, our results of operations, and our liquidity and capital resources. Readers are cautioned that this information may not be appropriate for any other purpose, including investment decisions.

Forward-looking statements contained in this MD&A are based on certain factors and assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While we consider these assumptions to be reasonable based on information currently available, they may prove to be incorrect. These factors are more fully described in the "Risk Factors" section at Item 1A of the Form 10-K and Item 1A of Part II of this report.

Forward-looking statements contained in this commentary are based on our current estimates, expectations, and projections, which we believe are reasonable as of the date of this report. Forward-looking statements are not guarantees of future performance or events. You should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. Other than as required under securities laws, we do not undertake to update any forward- lookingforward-looking information at any particular time. Neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements, and we hereby qualify all our forward-looking statements by these cautionary statements.

Unless otherwise noted herein, all currency amounts in this MD&A are expressed in U.S. dollars. All tabular dollar amounts are expressed in thousands of U.S. dollars, except per share amounts.

Overview

We procure, process, and package plant-based and fruit-based food and beverage products for sale to retailers, foodservice operators, branded food companies, and food manufacturers. The composition of our operating and reportable segments is as follows:

SUNOPTA INC.2122July 2,October 1, 2022 Form 10-Q

Current Macroeconomic Conditions

WeOur businesses continue to be exposed to the effects of the current global macroeconomic pressuresenvironment, including supply chain and labor challenges,elevated inflation and rising interest rates, as well as potential impacts from the persistent COVID-19 pandemic and the Russia-Ukraine war. We have been successful, however, in mitigating the effects of the supply chain and labor issues that adversely affected the efficiency of our operations in the second half of 2021 and first quarter of 2022, resulting in improved plant utilization and production output in the second quarter of 2022, and enabling us to alleviate the shortfall in our customer order fulfillment. In addition, through the pricing actions we took to offset inflationrates. Inflationary pressures on raw materials and packaging, as well as fuel costs and freight rates, we effectively passed-through most of these higher input costs to our customers during the second quarter of 2022. We were also able to largely absorb other inflationary impacts on labor costs and utility rates, as well as any remaining unrecovered raw material cost inflation, through the improved efficiency of our manufacturing plant operations. However, despite the actions we have taken to date, we may continue to experience further supply chain and labor challenges, and inflation impacts on our operations in future periods. In addition, the currenthousehold spending, together with general economic inflationuncertainty, is impacting purchasing behaviors, as consumers reduce discretionary spending and shift to lower priced product alternatives.alternatives, and our customers manage inventories in reaction to these shifts in consumer behavior. As a result, we have experienced a softening of demand for certain of our products and from certain of our customers, mainly within our frozen fruit business, which has had, and may continue to have, a negative impact on our results of operations. In addition, recent changes totighter U.S. monetary policy, including higher interest rates, havehas increased our current cost of borrowing and may limit our access to additional sources of financing to support our operations and investment plans.

Assets Held for Sale of Sunflower Business

On July 6,October 11, 2022, we finalized an agreementcompleted the sale of 100% of the assets and liabilities of our sunflower business and related roasted snacks operations, for cash consideration of $16.0 million, subject to sellclosing debt and working capital adjustments. The sale of the sunflower commodity business is consistent with our strategic priority of optimizing our non-core businesses and focusing our plant-based beverage and fruit snacks portfolios on high-growth, high-return opportunities. For the quarter and three quarters ended October 1, 2022, we recognized a $23.2 million pre-tax loss on sale in connection with the classification of the sunflower business as held for sale. The pre-tax loss on sale is included in other expense, net, on the statements of operations.

For more information regarding this transaction, see note 3 to the unaudited consolidated financial statements included in this report.

Sale of Frozen Fruit Processing Facility

On August 26, 2022, we completed the sale of our frozen fruit processing facility located in Oxnard, California, for grossnet cash proceeds of $16.5$16.1 million, payableresulting in casha pre-tax gain on sale of $3.8 million, which is included in other expense, net, on the closingstatements of operations for the transaction, which is expectedquarter and three quarters ended October 1, 2022. We continue to occurprocess frozen fruit at a leased facility in the third quarter of 2022.Oxnard, California. The sale of the Oxnard facility was facilitated by our efforts to expand the production capacity and capabilitiesexpansion of our frozen fruit operations in Mexico including the relocation of certain equipment from the Oxnard facility to Mexico, together with theand diversification of our fruit sourcing from California to Central and South America.

SUNOPTA INC.2223July 2,October 1, 2022 Form 10-Q

Consolidated Results of Operations for the Quarters Ended July 2,October 1, 2022 and July 3,October 2, 2021

  July 2, 2022 July 3, 2021 Change Change  October 1,
2022		 October 2,
2021		 Change Change 
For the quarter endedFor the quarter ended $ $ $ %  $ $ $ % 
     
RevenuesRevenues      
Plant-Based Foods and BeveragesPlant-Based Foods and Beverages 145,912 111,359 34,553 31.0%  137,726  114,870  22,856  19.9% 
Fruit-Based Foods and BeveragesFruit-Based Foods and Beverages 97,619 90,914 6,705 7.4%  91,939  83,609  8,330  10.0% 
Total revenuesTotal revenues 243,531 202,273 41,258 20.4%  229,665  198,479  31,186  15.7% 
             
Gross ProfitGross Profit             
Plant-Based Foods and BeveragesPlant-Based Foods and Beverages 23,940 19,896 4,044 20.3%  20,106  18,697  1,409  7.5% 
Fruit-Based Foods and BeveragesFruit-Based Foods and Beverages 10,958 6,440 4,518 70.2%  11,277  4,659  6,618  142.0% 
Total gross profitTotal gross profit 34,898 26,336 8,562 32.5%  31,383  23,356  8,027  34.4% 
             
Gross MarginGross Margin             
Plant-Based Foods and BeveragesPlant-Based Foods and Beverages 16.4% 17.9%   -1.5%  14.6%  16.3%     -1.7% 
Fruit-Based Foods and BeveragesFruit-Based Foods and Beverages 11.2% 7.1%   4.1%  12.3%  5.6%     6.7% 
Total gross marginTotal gross margin 14.3% 13.0%   1.3%  13.7%  11.8%     1.9% 
             
Segment operating income (loss)(1)Segment operating income (loss)(1)             
Plant-Based Foods and BeveragesPlant-Based Foods and Beverages 12,196 8,641 3,555 41.1%  8,814  8,056  758  9.4% 
Fruit-Based Foods and BeveragesFruit-Based Foods and Beverages 3,211 (1,447) 4,658 321.9%  2,870  (3,517) 6,387  181.6% 
Corporate ServicesCorporate Services (7,298) (5,471) (1,827) -33.4%  (4,040) (618) (3,422) -553.7% 
Total segment operating incomeTotal segment operating income 8,109  1,723  6,386  370.6%  7,644  3,921  3,723  95.0% 
                        
Other expense, netOther expense, net 1,540  4,661  (3,121) -67.0%  20,200  1,172  19,028  1623.5% 
Earnings (loss) before the followingEarnings (loss) before the following 6,569  (2,938) 9,507  323.6%  (12,556) 2,749  (15,305) -556.7% 
Interest expense, netInterest expense, net 3,132  1,631  1,501  92.0%  4,342  2,854  1,488  52.1% 
Income tax expense (benefit)Income tax expense (benefit) 939  (3,651) 4,590  125.7%  (4,259) 2,929  (7,188) -245.4% 
Earnings (loss) from continuing operations(2),(3) 2,498  (918) 3,416  372.1% 
Loss from discontinued operations (814) -  (814) - 
Net earnings (loss) 1,684  (918) 2,602  283.4% 
Net loss(2),(3) (12,639) (3,034) (9,605) -316.6% 
Dividends and accretion on preferred stockDividends and accretion on preferred stock (760) (744) (16) -2.2%  (764) (748) (16) -2.1% 
                         
Earnings (loss) attributable to common shareholders(4)  924  (1,662) 2,586  155.6% 
Loss attributable to common shareholders(4) (13,403) (3,782) (9,621) -254.4% 

(1) When assessing the financial performance of our operating segments, we use an internal measure of operating income/loss that excludes other income/expense items determined in accordance with U.S. GAAP. This measure is the basis on which management, including the CEO, assesses the underlying performance of our operating segments.

We believe that disclosing this non-GAAP measure assists investors in comparing financial performance across reporting periods on a consistent basis by excluding items that are not indicative of our operating performance. However, the non-GAAP measure of operating income/loss should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP. The following table presents a reconciliation of segment operating income/loss to "earnings (loss) before the following,"following" on the consolidated statements of operations, which we consider to be the most directly comparable U.S. GAAP financial measure.

        Plant-Based  Fruit-Based       
   Foods and  Foods and  Corporate    
   Beverages  Beverages  Services  Consolidated 
 For the quarter ended $  $  $  $ 
 July 2, 2022            
 Segment operating income (loss) 12,196  3,211  (7,298)  8,109 
 Other expense, net (203) (1,145) (192) (1,540)
 Earnings (loss) before the following 11,993  2,066  (7,490) 6,569 
              
 July 3, 2021            
 Segment operating income (loss) 8,641  (1,447) (5,471) 1,723 
 Other income (expense), net 219  (4,112) (768) (4,661)
 Earnings (loss) before the following 8,860  (5,559) (6,239) (2,938)
  Plant-Based  Fruit-Based       
  Foods and  Foods and  Corporate    
  Beverages  Beverages  Services  Consolidated 
For the quarter ended $  $  $  $ 
October 1, 2022            
Segment operating income (loss) 8,814  2,870  (4,040) 7,644 
Other income (expense), net (22,292) 3,199  (1,107) (20,200)
Earnings (loss) before the following (13,478) 6,069  (5,147) (12,556)
             
October 2, 2021            
Segment operating income (loss) 8,056  (3,517) (618) 3,921 
Other expense, net (10) (1,029) (133) (1,172)
Earnings (loss) before the following 8,046  (4,546) (751) 2,749 
SUNOPTA INC.2324July 2,October 1, 2022 Form 10-Q

We believe that investors' understanding of our financial performance is enhanced by disclosing the specific items that we exclude from segment operating income/loss. However, any measure of segment operating income/loss excluding any or all of these items is not, and should not be viewed as, a substitute for operating income/loss prepared under U.S. GAAP. These items are presented solely to allow investors to more fully understand how we assess financial performance.

(2) When assessing our financial performance, we use an internal measure of netadjusted earnings determined in accordance with U.S. GAAP that excludes specific items recognized in other income/expense, and other unusual items that are identified and evaluated on an individual basis, which due to their nature or size, we would not expect to occur as part of our normal business on a regular basis. We believe that the identification of these excluded items enhances the analysis of the financial performance of our business when comparing those operating results between periods, as we do not consider these items to be reflective of normal business operations. The following table presents a reconciliation of adjusted earnings from earnings (loss) from continuing operations,net loss, which we consider to be the most directly comparable U.S. GAAP financial measure.

     July 2, 2022     July 3, 2021 
     Per Share     Per Share 
For the quarter ended $  $  $  $ 
Earnings (loss) from continuing operations 2,498     (918)    
Dividends and accretion on preferred stock (760)     (744)    
Earnings (loss) from continuing operations attributable to common shareholders 1,738  0.02  (1,662)  (0.02) 
Adjusted for:            
Facility closure costs(a) 1,287     -    
Business development costs(b) 616     1,434    
Start-up costs(c) 281     -    
Costs related to exit from fruit ingredient processing facility(d) -     4,123    
Other(e) 253     247    
Net income tax effect(f) (640)    (4,022)   
Adjusted earnings 3,535  0.03  120  0.00 
  October 1, 2022  October 2, 2021 
     Per Share     Per Share 
For the quarter ended $  $  $  $ 
Net loss (12,639)    (3,034)   
Dividends and accretion on preferred stock (764)    (748)   
Loss attributable to common shareholders (13,403) (0.12) (3,782) (0.04)
Adjusted for:            
Loss on classification of sunflower business as held for sale(a) 23,227     -    
Gain on sale of frozen fruit processing facility(b) (3,779)    -    
Start-up costs(c) 608     -    
Facility closure costs(d) 525     -    
Business development costs(e) 75     1,782    
Workforce reduction charges(f) -     499    
Costs related to exit from fruit ingredient processing facility(g) -     479    
Other(h) 227     40    
Net income tax effect(i) (5,491)    2,121    
Adjusted earnings 1,989  0.02  1,139  0.01 

(a) Facility closure costs mainly related toReflects the relocationloss on the classification of certain equipment from our held-for-sale Oxnard, California, frozen fruit processing facility to our Mexican facility,the sunflower business as held for sale at the end of the third quarter of 2022, which werewas recorded in other expense.

(b) Represents third-party costs associated with business development activities, including costs related toReflects the evaluation, execution, and integrationgain on sale of external acquisitions and divestitures, internal expansion projects, and other strategic initiatives. For the second quarter of 2022, these costs related to our inaugural Investor Day heldfrozen fruit processing facility located in June 2022 ($0.5 million), as well as specific business transactions under consideration,Oxnard, California, which werewas recorded in SG&A expenses. For the second quarter of 2021, these costs were mainly related to the transition of the Dream and WestSoy brands, acquired in April 2021, and professional fees incurred in connection with post-closing matters related to the 2020 divestiture of our global ingredients business, Tradin Organic, which were recorded in SG&A expenses ($1.1 million) and other expense ($0.3 million).income.

(c) Represents incremental direct costs incurred in connection with plant expansion projects and new product introductions before the project or product reaches normal production levels, including costs for the hiring and training of additional personnel, fees for outside services, travel costs, and plant- and production-related expenses. For the secondthird quarter of 2022, start-up costs mainly related to new employee hires for our plant-based beverage facility under construction in Midlothian, Texas, which were recorded in cost of goods sold ($0.20.5 million) and SG&A expenses ($0.1 million).

(d) For the secondthird quarter of 2022, facility closure costs mainly related to the relocation of certain equipment from the sold Oxnard facility to our Mexican facility, which were recorded in other expense.

(e)Represents third-party costs associated with business development activities, including costs related to the evaluation, execution, and integration of external acquisitions and divestitures, internal expansion projects, and other strategic initiatives. For the third quarter of 2022, these costs related to actions undertaken to optimize non-core assets, which were recorded in SG&A expenses. For the third quarter of 2021, these costs were mainly related to the transition of the Dream and WestSoy brands, acquired in April 2021, and project development activities related to our new plant in Midlothian, Texas, which were recorded in SG&A expenses ($1.6 million), together with professional fees incurred in connection with post-closing matters related to the 2020 divestiture of our global ingredients business, Tradin Organic, which were recorded in other expense ($0.2 million).

(f)For the third quarter of 2021, represents asset impairment charges and employee termination costs related to workforce reduction actions in our frozen fruit operations, which were recorded in other expense.

(g)For the third quarter of 2021, these costs related to the exit from our former South Gate, California, fruit ingredient processing facility, which were recorded in other expense.

(e)(h) For the secondthird quarters of 2022 and 2021, other mainly reflects losses on the disposal of assets and the settlement of certain legal and contractual matters.

(f)(i) Reflects the tax effect of the preceding adjustments to earnings calculated based on the statutory tax rates applicable in the tax jurisdiction of the underlying adjustment.

We believe that investors' understanding of our financial performance is enhanced by disclosing the specific items that we exclude to compute adjusted earnings. However, adjusted earnings is not, and should not be viewed as, a substitute for net earnings prepared under U.S. GAAP. Adjusted earnings is presented solely to allow investors to more fully understand how we assess our financial performance.

(3) We use a measure of adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") when assessing the performance of our operations, which we believe is useful to investors' understanding of our operating profitability because it excludes non-operating expenses, such as interest and income taxes, and non-cash expenses, such as depreciation, amortization, and stock-based compensation, as well as other unusual items that affect the comparability of operating performance. We also use this measure to assess operating performance in connection with our employee incentive programs. We define adjusted EBITDA as segment operating income plus depreciation, amortization, and stock-based compensation, and excluding other unusual items as identified in the determination of adjusted earnings (refer above to footnote (2)). The following table presents a reconciliation of segment operating income and adjusted EBITDA from earnings (loss) from continuing operations,net loss, which we consider to be the most directly comparable U.S. GAAP financial measure.

SUNOPTA INC.2425July 2,October 1, 2022 Form 10-Q
 July 2, 2022 July 3, 2021  October 1, 2022 October 2, 2021 
For the quarter ended $  $  $  $ 
Earnings (loss) from continuing operations 2,498  (918)
Net loss (12,639) (3,034)
Income tax expense (benefit) 939  (3,651) (4,259) 2,929 
Interest expense, net 3,132  1,631  4,342  2,854 
Other expense, net 1,540  4,661  20,200  1,172 
Total segment operating income 8,109  1,723  7,644  3,921 
Depreciation and amortization 9,372  8,910  9,730  8,837 
Stock-based compensation 3,970  4,370  4,092  1,250 
Business development costs(a) 616  1,143 
Start-up costs(b) 281  - 
Start-up costs(a) 608  - 
Business development costs(b) 75  1,628 
Adjusted EBITDA 22,348  16,146  22,149  15,636 

(a) Business development activities were related to our Investor Day and the exploration of potential strategic opportunities in the second quarter of 2022, and the integration of the Dream and WestSoy brands in the second quarter of 2021, which costs were recorded in SG&A expenses.

(b)For the secondthird quarter of 2022, start-up costs mainly related to new employee hires for our plant-based beverage facility under construction in Midlothian, Texas, which were recorded in cost of goods sold.sold ($0.5 million) and SG&A expenses ($0.1 million).

(b)For the third quarter of 2022, business development costs related to actions undertaken to optimize non-core assets, which were recorded in SG&A expenses. For the third quarter of 2021, these costs related to the integration of the Dream and WestSoy brands and project development activities related to our new plant in Midlothian, Texas, which were recorded in SG&A expenses.

Although we use adjusted EBITDA as a measure to assess the performance of our business and for the other purposes set forth above, this measure has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for an analysis of our results of operations as reported in accordance with U.S. GAAP. Some of these limitations are:

Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by not viewing adjusted EBITDA in isolation, and specifically by using other U.S. GAAP and non-GAAP measures, such as revenues, gross profit, segment operating income/loss, net earnings, and adjusted earnings to measure our operating performance. Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP and should not be considered as an alternative to our results of operations or cash flows from operations determined in accordance with U.S. GAAP, and our calculation of adjusted EBITDA may not be comparable to the calculation of a similarly titled measure reported by other companies.

(4) In order to evaluate our results of operations, we use certain non-GAAP measures that we believe enhance an investor's ability to derive meaningful period-over-period comparisons and trends from our results of operations. In particular, we exclude specific items from our reported results that due to their nature or size, we do not expect to occur as part of our normal business on a regular basis. These items are identified above under footnote (2), and in the discussion of our results of operations below. These non-GAAP measures are presented solely to allow investors to more fully assess our results of operations and should not be considered in isolation of, or as substitutes for, an analysis of our results as reported under U.S. GAAP.

Revenues for the quarter ended July 2,October 1, 2022 increased by 20.4%15.7% to $243.5$229.7 million from $202.3$198.5 million for the quarter ended July 3,October 2, 2021, reflecting 31.0%19.9% revenue growth in the Plant-Based Foods and Beverages segment and 7.4%10.0% revenue growth in the Fruit-Based Foods and Beverages segment. The change in revenues from the secondthird quarter of 2021 to the secondthird quarter of 2022 was due to the following:

 Plant-Based  Fruit-Based   Plant-Based Fruit-Based     
 Foods and Beverages Foods and Beverages Consolidated  Foods and Beverages Foods and Beverages Consolidated 
 $ %  $ %  $ %  $ %  $ %  $ % 
2021 revenues 111,359     90,914     202,273     114,870     83,609     198,479    
Price 15,289  13.7%  9,477  10.4%  24,766  12.2%  18,625  16.2%  8,868  10.6%  27,493  13.9% 
Volume/Mix 19,264  17.3%  (2,772) -3.0%  16,492  8.2%  4,231  3.7%  (538) -0.6%  3,693  1.9% 
2022 revenues 145,912  31.0%  97,619  7.4%  243,531  20.4%  137,726  19.9%  91,939  10.0%  229,665  15.7% 

Note: percentages may not add due to rounding.

For the quarter ended July 2,October 1, 2022, the 31.0%19.9% increase in revenues for the Plant-Based Foods and Beverages segment reflected a 13.7%16.2% overall increase in pricing and a favorable volume/mix impact of 17.3%3.7%. The increase in pricing was driven by certain pricing actions taken with customers to offset inflationary cost increases, together with the pass-through effect of higher sunflower commodity pricing. Volume/mix was favorable mainly due to growth from our oat-based product offerings and other varieties of plant-based beverages and teas, including strength in our branded portfolio, partially offset by softer volumes of sunflower.sunflower and lower demand for everyday broths.

SUNOPTA INC.2526July 2,October 1, 2022 Form 10-Q

For the quarter ended July 2,October 1, 2022, the 7.4%10.0% increase in revenues for the Fruit-Based Foods and Beverages segment reflected a 10.4%10.6% overall increase in pricing, reflecting the benefit of pricing actions taken in the second half of 2021 and first quarter of 2022 to offset commodity inflation incurred on fruit inventories and other inflationary impacts to operating expenses.cost increases. The increase in pricing was partially offset by an unfavorable volume/mix impact of 3.0%0.6%, which reflected decreasedthe volume impact of our frozen fruit portfolio rationalization efforts, together with lower consumer demand for retail frozen fruit due to higher prices resulting from inflation, together with lower volumes due to our portfolio rationalization efforts, partially offset by strong demand for fruit snacks and the introduction of smoothie bowls.

Consolidated gross profit increased $8.6$8.0 million, or 32.5%34.4%, to $34.9$31.4 million for the quarter ended July 2,October 1, 2022, compared with $26.3$23.4 million for the quarter ended July 3,October 2, 2021. Consolidated gross margin for the quarter ended July 2,October 1, 2022 was 14.3%13.7% compared to 13.0%11.8% for the quarter ended July 3,October 2, 2021, an increase of 130190 basis points.

Gross profit for the Plant-Based Foods and Beverages segment increased $4.0$1.4 million to $23.9$20.1 million for the quarter ended July 2,October 1, 2022, compared with $19.9$18.7 million for the quarter ended July 3,October 2, 2021, while gross margin decreased to 16.4%14.6% in the secondthird quarter of 2022 from 17.9%16.3% in the secondthird quarter of 2021. The 150-basis170-basis point decrease in the plant-based gross margin mainly reflected an estimated 215225 basis-point decline due to the dilutive effect of pass-through pricing to recover cost inflation on raw materials and packaging, together with unrecovered raw material cost inflation due to the lag in pricing adjustments, together withimpacts of higher labor and utility costs, increased inventory reserves, and higher depreciation expense. In addition, we incurred start-up costs of $0.2$0.5 million (0.2%(0.4% gross margin impact) in connection with our new plant expansion in Midlothian, Texas. All of these factors were partially absorbed through higher production volumes and plant utilization in our plant-based beverage and ingredient operations.

Gross profit for the Fruit-Based Foods and Beverages segment increased $4.5$6.6 million to $11.0$11.3 million for the quarter ended July 2,October 1, 2022, compared with $6.4$4.7 million for the quarter ended July 3,October 2, 2021, and gross margin increased to 11.2%12.3% in the secondthird quarter of 2022 from 7.1%5.6% in the secondthird quarter of 2021, despite an estimated 70 basis-point decline due to the dilutive effect of pass-through pricing to recover commodity cost inflation. Excluding this pricing effect, fruit-based2021. The 670-basis point improvement in gross margin reflected the benefits of portfolio rationalizations for frozen fruit and manufacturing cost savings from the consolidation of our fruit processing facilities, together with increased production volumes and plant efficiencies in 2021,our fruit snack operations, partially offset by increases in freight and storage rates, a higher mix of low-margin fruit juice sales, and frozen fruit inventory lossesan estimated 50 basis-point decline due to excess spoilage during handling.the dilutive effect of pass-through pricing to recover commodity cost inflation.

For the quarter ended July 2,October 1, 2022, we realized total segment operating income of $8.1$7.6 million, compared with $1.7$3.9 million for the quarter ended July 3,October 2, 2021. The $6.4$3.7 million increase in total segment operating income reflected higher gross profit, as described above, partially offset by a $1.6$4.2 million increase in SG&A expenses. The increase in SG&A expenses was mainly due to higher employee compensation costs, including incremental 2022 incentive plan accruals based on performance, partially offset by lower employee compensation costs related to headcount reductionsa reduction in our frozen fruit operations in August 2021 and lower business development expenses related to costs incurred to acquire the integration of the acquired Dream and WestSoy brands, which were primarily incurred in April 2021. In addition, we recognized an unfavorable year-over- year foreign exchange impact related to our Mexican operations of $0.5 million.

Further details on revenue, gross profit and segment operating income/loss variances are provided below under "Operating Segment Information."

Other expense was $1.5$20.2 million for the quarter ended July 2,October 1, 2022, compared with other expense of $4.7$1.2 million for the quarter ended July 3,October 2, 2021. Other expense in the secondthird quarter of 2022 mainly reflected costs to relocate certain equipment froma pre-tax loss of $23.2 million recognized on the classification of the sunflower business as held for sale, partially offset by a pre-tax gain of $3.8 million realized on the sale of our held-for-sale Oxnard, California, frozen fruit processing facility to our Mexican facility, while otherlocated in Oxnard, California. Other expense in the secondthird quarter of 2021 mainly reflected employee termination costs related to a workforce reduction in our frozen fruit operations, together with plant closure costs related to the consolidation of our fruit ingredient processing facility.facilities.

Net interest expense increased by $1.5$1.4 million to $3.1$4.3 million for the quarter ended July 2,October 1, 2022, compared with $1.6$2.9 million for the quarter ended July 3,October 2, 2021, resulting from an increase in outstanding debt to finance capital expansion projects and fund working capital requirements.requirements, together with the impact of higher interest rates.

Income tax expensebenefit was $0.9$4.3 million on pre-tax earnings from continuing operationsloss of $3.4$16.9 million for the quarter ended July 2,October 1, 2022, compared with an income tax benefitexpense of $3.7$2.9 million on a pre-tax loss from continuing operations of $4.6$0.1 million for the quarter ended July 3,October 2, 2021.

Earnings from continuing operations Excluding the impact of stock-based compensation and other non-deductible expenses on pre-tax earnings, our effective tax rate was approximately 26% for the third quarter ended July 2, 2022 were $2.5 million, compared with a loss of $0.9 million for the quarter ended July 3, 2021. Diluted earnings per share from continuing operations attributable to common shareholders (after dividends and accretion on preferred stock) was $0.02 for the quarter ended July 2, 2022, compared with a loss per share $0.02approximately 27% for the third quarter ended July 3,of 2021.

SUNOPTA INC.26July 2, 2022 Form 10-Q

We recognized a loss from discontinued operations of $0.8 million for the quarter ended July 2, 2022, which was related to the settlement of the purchase price allocation and other post-closing matters in connection with the 2020 divestiture of our global ingredients business, Tradin Organic (see note 11 to the unaudited consolidated financial statements included in this report.)

We realized earningsa loss attributable to common shareholders of $0.9$13.4 million (diluted earningsloss per share of $0.01)$0.12) for the quarter ended July 2,October 1, 2022, which was inclusive of an after-tax loss on the held-for-sale sunflower business of $16.9 million and an after-tax gain on the sale of the Oxnard facility of $2.7 million, compared with a loss attributable to common shareholders of $1.7$3.8 million (diluted loss per share of $0.02)$0.04) for the quarter ended July 3, 2021, whichOctober 2, 2021. The loss attributable to common shareholders included dividends and accretion on our Series B-1 preferred stock of $0.8 million and $0.7 million in the secondthird quarters of 2022 and 2021, respectively.

SUNOPTA INC.27October 1, 2022 Form 10-Q

For the quarter ended July 2,October 1, 2022, adjusted earnings were $3.5$2.0 million, or $0.03$0.02 per diluted share, compared with adjusted earnings of $0.1$1.1 million, or $0.00$0.01 per diluted share for the quarter ended July 3,October 2, 2021. Adjusted EBITDA for the quarter ended July 2,October 1, 2022 was $22.3$22.1 million, compared with $16.1$15.6 million for the quarter ended July 3,October 2, 2021. Adjusted earnings and adjusted EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the table above for a reconciliation of adjusted earnings and adjusted EBITDA from earnings (loss) from continuing operations,net loss, which we consider to be the most directly comparable U.S. GAAP financial measure.

Operating Segment Information

Plant-Based Foods and Beverages 
For the quarter ended July 2, 2022  July 3, 2021  Change % Change 
Plant-Based Foods and Beverages
For the quarter ended		 October 1, 2022  October 2, 2021  Change % Change 
             
Revenues$145,912 $111,359 $34,553  31.0% $137,726 $114,870 $22,856  19.9% 
Gross profit 23,940  19,896  4,044  20.3%  20,106  18,697  1,409  7.5% 
Gross margin 16.4%  17.9%     -1.5%  14.6%  16.3%     -1.7% 
                        
Operating income$12,196 $8,641 $3,555  41.1% $8,814 $8,056 $758  9.4% 
Operating margin 8.4%  7.8%     0.6%  6.4%  7.0%     -0.6% 

Plant-Based Foods and Beverages contributed $145.9$137.7 million in revenues for the quarter ended July 2,October 1, 2022, compared to $111.4$114.9 million for the quarter ended July 3,October 2, 2021, an increase of $34.6$22.9 million, or 31.0%19.9%. The table below explains the increase in revenues:

Plant-Based Foods and Beverages Revenue Changes   
Revenues for the quarter ended July 3, 2021$111,359 
Sales volume growth for oat-based product offerings, and other varieties of plant-based beverages and teas, including strength in our branded portfolio, together with the benefit of certain pricing actions taken to offset input cost inflation 29,538 
Increased commodity pricing for sunflower, partially offset by lower volumes 5,015 
Revenues for the quarter ended July 2, 2022$145,912 
Plant-Based Foods and Beverages Revenue Changes
Revenues for the quarter ended October 2, 2021$114,870
Benefit of pricing actions taken to offset input cost inflation, together with sales volume growth for oat-based product offerings and teas, partially offset by lower demand for everyday broths21,649
Increased commodity pricing for sunflower, partially offset by lower volumes1,207
Revenues for the quarter ended October 1, 2022$137,726

Gross profit in Plant-Based Foods and Beverages increased by $4.0$1.4 million to $23.9$20.1 million for the quarter ended July 2,October 1, 2022, compared to $19.9$18.7 million for the quarter ended July 3,October 2, 2021. The table below explains the increase in gross profit:

SUNOPTA INC.Plant-Based Foods and Beverages Gross Profit Changes27
Gross profit for the quarter ended October 2, 2021July 2,$18,697
Higher volumes and pricing for plant-based beverages and ingredients, partially offset by higher manufacturing plant spend due to inflationary pressures on wage costs and utility rates, together with higher inventory reserves, incremental depreciation of new production equipment for capital expansion projects, and start-up costs incurred for our new plant in Midlothian, Texas1,905
Lower volumes of sunflower, partially offset by higher pricing spreads(496)
Gross profit for the quarter ended October 1, 2022 Form 10-Q$20,106
Plant-Based Foods and Beverages Gross Profit Changes   
Gross profit for the quarter ended July 3, 2021$19,896 
Higher volumes and pricing for plant-based beverages and ingredients, partially offset by increased manufacturing plant spend, including unrecovered inflationary increases in raw material costs and utility and freight rates, and higher wages to retain employees and costs to hire and train new employees, together with higher inventory reserves, incremental depreciation of new production equipment for capital expansion projects, and start-up costs incurred for our plant expansion in Midlothian, Texas 3,336 
Higher pricing spreads for sunflower, partially offset by lower volumes 708 
Gross profit for the quarter ended July 2, 2022$23,940 

Operating income in Plant-Based Foods and Beverages increased by $3.6$0.8 million to $12.2$8.8 million for the quarter ended July 2,October 1, 2022, compared to $8.6$8.1 million for the quarter ended July 3,October 2, 2021. The table below explains the increase in operating income:

Plant-Based Foods and Beverages Operating Income Changes   
Operating income for the quarter ended July 3, 2021$8,641 
Increase in gross profit, as explained above 4,044 
Lower third-party consulting costs related to the acquisition of the Dream and WestSoy brands in April 2021, partially offset by increased travel, and brand marketing and advertising expenses 553 
Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees (1,042)
Operating income for the quarter ended July 2, 2022$12,196 
SUNOPTA INC.28October 1, 2022 Form 10-Q
 
Plant-Based Foods and Beverages Operating Income Changes
Operating income for the quarter ended October 2, 2021$8,056
Increase in gross profit, as explained above1,409
Reduced third-party consulting costs related to the transition of the Dream and WestSoy brands in the third quarter of 2021, partially offset by higher employee compensation costs in the third quarter of 2022391
Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees(1,042)
Operating income for the quarter ended October 1, 2022$8,814

Following the sale of our sunflower business in October 2022, we are focusing our core plant-based operations on the development, manufacture, and sale of value-added, non-dairy beverage alternatives. Looking forward, assuming economic conditions, including inflation, pressures, do not significantly worsen, we anticipate year-over-year revenue growth for our Plant-Based Foods and Beverages operating segment in the second halffourth quarter of 2022, compared with the second half of 2021, driven by higher expected output fromcapacity gains across our manufacturing facilities,aseptic network, together with the expected benefit of customer pricing actions taken to offset input cost inflation. We expect these pricing actions, together with an anticipated improvement in plant operating performance,the divestiture of the lower-margin sunflower commodity business, to drive a year-over-year gross margin improvementimprovements in our plant-based operations in the fourth quarter of 2022, excluding the impact of start-up costs related to our new 285,000 square foot plant-based beverage facility under constructionplant in Midlothian, Texas. Despite challenges due to supply chain issues, we believe we remain largely on track with our original estimate to begin operations at this facility in late 2022, with the ramp-up of commercial production expected to commence in the first quarter of 2023.Texas, and other capital projects. The statements in this paragraph are forward-looking statements. See "Forward-Looking Statements" above. Several factors could adversely impact our ability to meet these forward-looking expectations, including the extent and duration of inflation headwinds; our ability to continue to pass through price increases to our customers to offset inflationary pressures; the impact of price inflation on consumer buying behavior and demand for plant-based beverage alternatives to dairy; our ability to successfully execute on our capital expansion projects, including our ability to commence commercial production at our Midlothian, Texas, facility in the first quarter of 2023, and the viability of those projects; and other factors described above under "Forward-Looking Statements."

Fruit-Based Foods and Beverages            
For the quarter ended July 2, 2022  July 3, 2021  Change  % Change 
             
Revenues$97,619 $90,914 $6,705  7.4% 
Gross profit 10,958  6,440  4,518  70.2% 
Gross margin 11.2%  7.1%     4.1% 
             
Operating income (loss)$3,211 $(1,447)$4,658  321.9% 
Operating margin 3.3%  -1.6%     4.9% 
SUNOPTA INC.28July 2, 2022 Form 10-Q
Fruit-Based Foods and Beverages
For the quarter ended		 October 1, 2022  October 2, 2021  Change  % Change 
             
Revenues 91,939 $83,609 $8,330  10.0% 
Gross profit 11,277  4,659  6,618  142.0% 
Gross margin 12.3%  5.6%     6.7% 
             
Operating income (loss) 2,870 $(3,517)$6,387  181.6% 
Operating margin 3.1%  -4.2%     7.3% 

Fruit-Based Foods and Beverages contributed $97.6$91.9 million in revenues for the quarter ended July 2,October 1, 2022, compared to $90.9$83.6 million for the quarter ended July 3,October 2, 2021, an increase of $6.7$8.3 million, or 7.4%10.0%. The table below explains the increase in revenues:

Fruit-Based Foods and Beverages Revenue Changes   
Revenues for the quarter ended July 3, 2021$90,914 
Higher sales volumes and pricing for fruit snacks and incremental revenue from the introduction of smoothie bowls 7,617 
Lower retail sales of frozen fruit due to the impact of higher prices on consumer demand, together with lower volumes due to our portfolio rationalization efforts, partially offset by the benefit of pricing actions taken to offset commodity inflation incurred on fruit inventories and inflationary impacts to operating expenses (912)
Revenues for the quarter ended July 2, 2022$97,619 
Fruit-Based Foods and Beverages Revenue Changes
Revenues for the quarter ended October 2, 2021$83,609
Higher sales volumes and pricing for fruit snacks and incremental revenue from the introduction of smoothie bowls8,026
Benefit of pricing actions taken to offset commodity inflation incurred on fruit inventories and other inflationary cost increases, partially offset by lower volumes due to our frozen fruit portfolio rationalization efforts, together with lower retail sales of frozen fruit due to the impact of higher prices on consumer demand304
Revenues for the quarter ended October 1, 2022$91,939

Gross profit in Fruit-Based Foods and Beverages increased by $4.5$6.6 million to $11.0$11.3 million for the quarter ended July 2,October 1, 2022, compared to $6.4$4.7 million for the quarter ended July 3,October 2, 2021. The table below explains the increase in gross profit:

Fruit-Based Foods and Beverages Gross Profit Changes   
Gross profit for the quarter ended July 3, 2021$6,440 
Improved margin profile from portfolio rationalizations and reduced manufacturing cost base within our frozen fruit operations, together with higher pricing for retail frozen fruit, partially offset by lower sales volumes, together with increases in freight and storage rates, a higher mix of low-margin fruit juice sales, and frozen fruit inventory losses due to excess spoilage during handling 3,220 
Higher sales, production volumes, and pricing for fruit snacks 1,298 
Gross profit for the quarter ended July 2, 2022$10,958 
SUNOPTA INC.29October 1, 2022 Form 10-Q
 
Fruit-Based Foods and Beverages Gross Profit Changes
Gross profit for the quarter ended October 2, 2021$4,659
Improved margin profile from portfolio rationalizations and reduced manufacturing cost base within our frozen fruit operations, together with higher pricing for retail frozen fruit, partially offset by lower sales volumes4,320
Higher sales volumes and pricing for fruit snacks, together with increased production volumes and plant efficiencies in our fruit snack operations2,298
Gross profit for the quarter ended October 1, 2022$11,277

Operating income in Fruit-Based Foods and Beverages increased by $4.7$6.4 million to $3.2$2.9 million for the quarter ended July 2,October 1, 2022, compared to an operating loss of $1.4$3.5 million for the quarter ended July 3,October 2, 2021. The table below explains the increase in operating income:

Fruit-Based Foods and Beverages Operating Income Changes   
Operating loss for the quarter ended July 3, 2021$(1,447)
Increase in gross profit, as explained above 4,518 
Lower employee compensation costs due to a workforce reduction in August 2021, partially offset by an unfavorable foreign exchange impact within our frozen fruit operations in Mexico 274 
Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees (134)
Operating income for the quarter ended July 2, 2022$3,211 
SUNOPTA INC.Fruit-Based Foods and Beverages Operating Income Changes29
Operating loss for the quarter ended October 2, 2021July 2,$(3,517)
Increase in gross profit, as explained above6,618
Increase in corporate cost allocation, mainly related to incremental 2022 Form 10-Qincentive plan accruals allocable to operating segment employees(133)
Unfavorable foreign exchange impact within our frozen fruit operations in Mexico, partially offset by lower SG&A expenses(98)
Operating income for the quarter ended October 1, 2022$2,870

Looking forward, assuming economic conditions, including inflationary pressures,inflation, do not significantly worsen, we expect thatanticipate year-over-year gross margin improvement for our Fruit-Based Foods and Beverages operating segment in the fourth quarter of 2022, driven by the pricing actions taken on frozen fruit to offset commodity inflation and other inflationary impacts to operating expenses,cost increases, together with the benefit of a reduced manufacturing cost base within our frozen fruit operations (including cost savings and efficiencies expected to be achieved following the sale of our Oxnard, California, frozen fruit processing facility), will result in gross margin improvement in our Fruit-Based Foods and Beverages operating segment in the second half of 2022, compared with the second half of 2021. However, we anticipate that higher prices and inflationary headwinds may continue to impact overall retail demand for frozen fruit in the second half of 2022. We have successfully completed our 2022 prime fruit seasons in Mexico and California with the overall results comparing favorably to 2021 in terms of volumes and pricing. Within our fruit snacks operations,operations. In addition, we expect strong year-over-year revenue and profit growth in the second halffourth quarter of 2022, compared with the same period in 2021, driven by volume gains and pricing actions for core fruit snack products, and further commercializationexpansion of our smoothie bowl line. However, while capital expansion projects are underway in our fruit snacks operations to meet current unfilled demand, we expect that existing capacity constraints will limit the growth potential for this business through the first half of 2023. The statements in this paragraph are forward-looking statements. See "Forward-Looking Statements" above. Several factors could adversely impact our ability to meet these forward-looking expectations, including the extent and duration of inflation headwinds, and the impact on consumer buying behavior and overall demand for frozen fruit; the outcome of our pricing actions with customers, including the softening of consumer demand due to higher retail prices; our ability to achieve the anticipated cost savings and efficiencies from our manufacturing network consolidation; our ability to successfully commercializeexpand our smoothie bowl product line; our assessment of future capacity requirements in fruit snacks operations; our ability to successfully execute on our capital expansion projects and the viability of those projects; and other factors described above under "Forward- Looking"Forward-Looking Statements."

Corporate Services            
For the quarter ended July 2, 2022  July 3, 2021  Change  % Change 
Operating loss$(7,298)$(5,471)$(1,827) -33.4% 
Corporate Services
For the quarter ended		 October 1, 2022  October 2, 2021  Change  % Change 
             
Operating loss$(4,040)$(618)$(3,422) -553.7% 

Operating loss at Corporate Services increased by $1.8$3.4 million to $7.3$4.0 million for the quarter ended July 2,October 1, 2022, compared to a loss of $5.5$0.6 million for the quarter ended July 3,October 2, 2021. The table below explains the increase in operating loss:

Corporate Services Operating Loss Changes   
Operating loss for the quarter ended July 3, 2021$(5,471)
Incremental 2022 incentive plan accruals based on performance, together with costs related to our 2022 Investor Day of $0.5 million (3,459)
Increase in corporate cost allocations, mainly related to the portion of the incremental 2022 incentive plan accruals allocable to operating segment employees 1,176 
Lower variable stock-based compensation, related to the timing of annual grants under our incentive plans 456 
Operating loss for the quarter ended July 2, 2022$(7,298)
SUNOPTA INC.30October 1, 2022 Form 10-Q
 
Corporate Services Operating Loss Changes
Operating loss for the quarter ended October 2, 2021$(618)
Higher variable stock-based compensation, based on improved performance(2,842)
Higher employee compensation costs, including incremental 2022 incentive plan accruals based on performance, partially offset by lower business development costs(1,755)
Increase in corporate cost allocations, mainly related to the portion of the incremental 2022 incentive plan accruals allocable to operating segment employees1,175
Operating loss for the quarter ended October 1, 2022$(4,040)

Corporate cost allocations mainly consist of salaries of corporate personnel who directly support the operating segments, as well as costs related to our enterprise resource management system. These expenses are allocated to the operating segments based on (1) specific identification of allocable costs that represent a service provided to each segment and (2) a proportionate distribution of costs based on a weighting of factors such as revenue contribution and the number of people employed within each segment.

SUNOPTA INC.30July 2, 2022 Form 10-Q

Consolidated Results of Operations for the twothree quarters ended July 2,October 1, 2022 and July 3,October 2, 2021

  July 2, 2022  July 3, 2021  Change  Change 
For the two quarters ended $  $  $  % 
             
Revenues            
Plant-Based Foods and Beverages 281,423  230,810  50,613  21.9% 
Fruit-Based Foods and Beverages 202,281  179,103  23,178  12.9% 
Total revenues 483,704  409,913  73,791  18.0% 
             
Gross Profit            
Plant-Based Foods and Beverages 43,920  43,054  866  2.0% 
Fruit-Based Foods and Beverages 18,969  13,271  5,698  42.9% 
Total gross profit 62,889  56,325  6,564  11.7% 
             
Gross Margin            
Plant-Based Foods and Beverages 15.6%  18.7%     -3.1% 
Fruit-Based Foods and Beverages 9.4%  7.4%     2.0% 
Total gross margin 13.0%  13.7%     -0.7% 
             
Segment operating income (loss)(1)            
Plant-Based Foods and Beverages 20,292  21,958  (1,666) -7.6% 
Fruit-Based Foods and Beverages 3,995  (3,341) 7,336  219.6% 
Corporate Services (12,262) (10,809) (1,453) -13.4% 
Total segment operating income 12,025  7,808  4,217  54.0% 
             
Other expense, net 1,827  6,276  (4,449) -70.9% 
Earnings from continuing operations before the following 10,198  1,532  8,666  565.7% 
Interest expense, net 5,662  3,291  2,371  72.0% 
Income tax expense (benefit) 1,384  (2,513) 3,897  155.1% 
Earnings from continuing operations(2),(3) 3,152  754  2,398  318.0% 
Earnings from discontinued operations 2,752  -  2,752  - 
Net earnings 5,904  754  5,150  683.0% 
Dividends and accretion on preferred stock (1,515) (2,697) 1,182  43.8% 
             
Earnings (loss) attributable to common shareholders(4) 4,389  (1,943) 6,332  325.9% 
   October 1,
2022		  October 2,
2021		  Change  Change 
For the three quarters ended $  $  $  % 
              
Revenues            
 Plant-Based Foods and Beverages 419,149  345,680  73,469  21.3% 
 Fruit-Based Foods and Beverages 294,220  262,712  31,508  12.0% 
Total revenues 713,369  608,392  104,977  17.3% 
              
Gross Profit            
 Plant-Based Foods and Beverages 64,026  61,751  2,275  3.7% 
 Fruit-Based Foods and Beverages 30,246  17,930  12,316  68.7% 
Total gross profit 94,272  79,681  14,591  18.3% 
              
Gross Margin            
 Plant-Based Foods and Beverages 15.3%  17.9%     -2.6% 
 Fruit-Based Foods and Beverages 10.3%  6.8%     3.5% 
Total gross margin 13.2%  13.1%     0.1% 
              
Segment operating income (loss)(1)            
 Plant-Based Foods and Beverages 29,106  30,014  (908) -3.0% 
 Fruit-Based Foods and Beverages 6,865  (6,858) 13,723  200.1% 
 Corporate Services (16,302) (11,427) (4,875) -42.7% 
Total segment operating income 19,669  11,729  7,940  67.7% 
              
Other expense, net 22,027  7,448  14,579  195.7% 
Earnings (loss) from continuing operations before the following (2,358) 4,281  (6,639) -155.1% 
Interest expense, net 10,004  6,145  3,859  62.8% 
Income tax expense (benefit) (2,875) 416  (3,291) -791.1% 
Loss from continuing operations(2),(3) (9,487) (2,280) (7,207) -316.1% 
Earnings from discontinued operations 2,752  -  2,752  - 
Net loss (6,735) (2,280) (4,455) -195.4% 
Dividends and accretion on preferred stock (2,279) (3,445) 1,166  33.8% 
              
Loss attributable to common shareholders(4) (9,014) (5,725) (3,289) -57.4% 

(1) The following table presents a reconciliation of segment operating income/loss to "earnings (loss) from continuing operations before the following,"following" on the consolidated statements of operations, which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (1) to the "Consolidated Results of Operations for the Quarters Ended July 2,October 1, 2022 and July 3,October 2, 2021" table regarding the use of this non-GAAP measure).

  Plant-Based  Fruit-Based       
  Foods and  Foods and  Corporate    
  Beverages  Beverages  Services  Consolidated 
For the two quarters ended $  $  $  $ 
             
July 2, 2022            
Segment operating income (loss) 20,292  3,995  (12,262) 12,025 
Other expense, net (246) (1,155) (426) (1,827)
Earnings (loss) from continuing operations before the following 20,046  2,840  (12,688) 10,198 
             
July 3, 2021            
Segment operating income (loss) 21,958  (3,341) (10,809) 7,808 
Other expense, net (80) (5,477) (719) (6,276)
Earnings (loss) from continuing operations before the following 21,878  (8,818) (11,528) 1,532 
SUNOPTA INC.31October 1, 2022 Form 10-Q
 
  Plant-Based  Fruit-Based       
  Foods and  Foods and  Corporate    
  Beverages  Beverages  Services  Consolidated 
For the three quarters ended $  $  $  $ 
             
October 1, 2022            
Segment operating income (loss) 29,106  6,865  (16,302) 19,669 
Other income (expense), net (22,538) 2,044  (1,533) (22,027)
Earnings (loss) from continuing operations before the following 6,568  8,909  (17,835) (2,358)
             
October 2, 2021            
Segment operating income (loss) 30,014  (6,858) (11,427) 11,729 
Other expense, net (90) (6,506) (852) (7,448)
Earnings (loss) from continuing operations before the following 29,924  (13,364) (12,279) 4,281 

We believe that investors' understanding of our financial performance is enhanced by disclosing the specific items that we exclude from segment operating income. However, any measure of operating income excluding any or all of these items is not, and should not be viewed as, a substitute for operating income prepared under U.S. GAAP. These items are presented solely to allow investors to more fully understand how we assess financial performance.

SUNOPTA INC.31July 2, 2022 Form 10-Q

(2) The following table presents a reconciliation of adjusted earnings from earningsloss from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (2) to the "Consolidated Results of Operations for the Quarters Ended July 2,October 1, 2022 and July 3,October 2, 2021" table regarding the use of this non-GAAP measure).

  July 2, 2022  July 3, 2021 
     Per Share     Per Share 
For the two quarters ended $  $  $  $ 
Earnings from continuing operations 3,152     754    
Dividends and accretion on preferred stock (1,515)    (2,697)   
Earnings (loss) from continuing operations attributable to common shareholders 1,637  0.02  (1,943) (0.02)
Adjusted for:            
Facility closure costs(a) 1,287     -    
Business development costs(b) 799     1,786    
Start-up costs(c) 721     -    
Costs related to exit from fruit ingredient processing facility(d) -     4,123    
Restructuring costs(e) -     1,432    
Other(f) 540     247    
Net income tax effect(g) (879)    (4,262)   
Adjusted earnings 4,105  0.04  1,383  0.01 
  October 1, 2022  October 2, 2021 
     Per Share     Per Share 
For the three quarters ended $  $  $  $ 
Loss from continuing operations (9,487)    (2,280)   
Dividends and accretion on preferred stock (2,279)    (3,445)   
Loss from continuing operations attributable to common shareholders (11,766) (0.11) (5,725) (0.06)
Adjusted for:            
Loss on classification of sunflower business as held for sale(a) 23,227     -    
Gain on sale of frozen fruit processing facility(b) (3,779)    -    
Facility closure costs(c) 1,812     -    
Start-up costs(d) 1,329     -    
Business development costs(e) 874     3,568    
Costs related to exit from fruit ingredient processing facility(f) -     4,602    
Restructuring costs(g) -     1,432    
Workforce reduction charges(h) -     499    
Other(i) 767     287    
Net income tax effect(j) (6,370)    (2,141)   
Adjusted earnings 6,094  0.06  2,522  0.02 

(a)Reflects the loss on the classification of the sunflower business as held for sale at the end of the third quarter of 2022, which was recorded in other expense.

(b)Reflects the gain on sale of our frozen fruit processing facility located in Oxnard, California, which was recorded in other income.

(c) Facility closure costs mainly related to the relocation of certain equipment from our held-for-salethe sold Oxnard California, frozen fruit processing facility to our Mexican facility, which were recorded in other expense.

(b)Represents third-party costs associated with business development activities, including costs related to the evaluation, execution, and integration of external acquisitions and divestitures, internal expansion projects, and other strategic initiatives. For the first two quarters of 2022, these costs related to our inaugural Investor Day held in June 2022 ($0.5 million), as well as specific business transactions under consideration, which were recorded in SG&A expenses. For the first two quarters of 2021, these costs were mainly related to the transition of the Dream and WestSoy brands, acquired in April 2021, and professional fees incurred in connection with post-closing matters related to the 2020 divestiture of our global ingredients business, Tradin Organic, which were recorded in SG&A expenses ($1.3 million) and other expense ($0.5 million).

(c)(d) Represents incremental direct costs incurred in connection with plant expansion projects and new product introductions before the project or product reaches normal production levels, including costs for the hiring and training of additional personnel, fees for outside services, travel costs, and plant- and production-related expenses. For the first twothree quarters of 2022, start-up costs mainly related to new employee hires for our plant-based beverage facility under construction in Midlothian, Texas, and the integration of the Dream and WestSoy brands, which were recorded in cost of goods sold ($0.61.1 million) and SG&A expenses ($0.10.2 million).

(d)(e)Represents third-party costs associated with business development activities, including costs related to the evaluation, execution, and integration of external acquisitions and divestitures, internal expansion projects, and other strategic initiatives. For the first three quarters of 2022, these costs related to actions undertaken to optimize non-core assets, including the sale of the sunflower business, as well as costs related to our inaugural Investor Day held in June 2022, which were recorded in SG&A expenses. For the first three quarters of 2021, these costs were mainly related to the transition of the Dream and WestSoy brands, acquired in April 2021, and project development activities related to our new plant in Midlothian, Texas, which were recorded in SG&A expenses ($2.9 million), together with professional fees incurred in connection with post-closing matters related to the 2020 divestiture of our global ingredients business, Tradin Organic, which were recorded in other expense ($0.7 million).

(f) For the first twothree quarters of 2021, represents asset impairment charges, andtogether with employee termination and asset relocation costs related to the exit from our former South Gate, California, fruit ingredient processing facility, which were recorded in other expense.

(e)(g) For the first twothree quarters of 2021, represents costs to complete the exit from our former Santa Maria, California, frozen fruit processing facility, which were recorded in other expense.

SUNOPTA INC.32October 1, 2022 Form 10-Q

(f)(h) For the first twothree quarters of 2021, represents employee termination costs related to workforce reduction actions in our frozen fruit operations, which were recorded in other expense.

(i)For the first three quarters of 2022 and 2021, other mainly reflects the settlement of certain legal and contractual matters, together with asset impairment charges. Forlosses on the first two quartersdisposal of 2021,assets, which were recorded in other mainly reflects the settlement of certain legal and contractual matters.expense.

(g)(j) Reflects the tax effect of the preceding adjustments to earnings calculated based on the statutory tax rates applicable in the tax jurisdiction of the underlying adjustment.

(3) The following table presents a reconciliation of segment operating income and adjusted EBITDA from earningsloss from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (3) to the "Consolidated Results of Operations for the Quarters Ended July 2,October 1, 2022 and July 3,October 2, 2021" table regarding the use of this non-GAAP measure).

  July 2, 2022  July 3, 2021 
For the two quarters ended $  $ 
Earnings from continuing operations 3,152  754 
Income tax expense (benefit) 1,384  (2,513)
Interest expense, net 5,662  3,291 
Other expense, net 1,827  6,276 
Total segment operating income 12,025  7,808 
Depreciation and amortization 18,785  16,953 
Stock-based compensation 5,599  8,343 
Business development costs(a) 799  1,312 
Start-up costs(b) 721  - 
Adjusted EBITDA 37,929  34,416 
   October 1, 2022  October 2, 2021 
For the three quarters ended $  $ 
Loss from continuing operations (9,487) (2,280)
Income tax expense (benefit) (2,875) 416 
Interest expense, net 10,004  6,145 
Other expense, net 22,027  7,448 
Total segment operating income 19,669  11,729 
 Depreciation and amortization 28,515  25,790 
 Stock-based compensation 9,691  9,593 
 Start-up costs(a) 1,329  - 
 Business development costs(b) 874  2,940 
Adjusted EBITDA 60,078  50,052 

(a)Business development activities were related to our Investor Day and the exploration of potential strategic opportunities in the first two quarters of 2022, and the integration of the Dream and WestSoy brands in the first two quarters of 2021, which costs were recorded in SG&A expenses.

(b) For the first twothree quarters of 2022, start-up costs mainly related to new employee hires for our plant-based beverage facility under construction in Midlothian, Texas, and the integration of the Dream and WestSoy brands acquired in April 2021, which were recorded in cost of goods sold.sold ($1.1 million) and SG&A expenses ($0.2 million).

SUNOPTA INC.32July 2, 2022 Form 10-Q

(b)For the first three quarters of 2022, business development costs related to actions undertaken to optimize non-core assets, including the sale of the sunflower business, as well as costs related to our Investor Day, which were recorded in SG&A expenses. For the first three quarters of 2021, these costs related to the integration of the Dream and WestSoy brands and project development activities related to our new plant in Midlothian, Texas, which were recorded in SG&A expenses.

(4) Refer to footnote (4) to the "Consolidated Results of Operations for the Quarters Ended July 2,October 1, 2022 and July 3,October 2, 2021" table regarding the use of certain other non-GAAP measures in the discussion of our results of operations below.

Revenues for the twothree quarters ended July 2,October 1, 2022 increased by 18.0%17.3% to $483.7$713.4 million from $409.9$608.4 million for the twothree quarters ended July 3,October 2, 2021, reflecting 21.9%21.3% revenue growth in the Plant-Based Foods and Beverages segment and 12.9%12.0% revenue growth in the Fruit-Based Foods and Beverages segment. The change in revenues from the first twothree quarters of 2021 to the first twothree quarters of 2022 was due to the following:

 Plant-Based  Fruit-Based   Plant-Based Fruit-Based     
 Foods and Beverages Foods and Beverages Consolidated  Foods and Beverages Foods and Beverages Consolidated 
 $ %  $ %  $ %  $ %  $ %  $ % 
2021 revenues 230,810     179,103     409,913     345,680     262,712     608,392    
Price 24,917  10.8%  20,682  11.5%  45,599  11.1%  43,542  12.6%  29,550  11.2%  73,092  12.0% 
Volume/Mix 21,961  9.5%  2,496  1.4%  24,457  6.0%  26,192  7.6%  1,958  0.7%  28,150  4.6% 
Acquisition 3,735  1.6%  -  -  3,735  0.9%  3,735  1.1%  -  -  3,735  0.6% 
2022 revenues 281,423  21.9%  202,281  12.9%  483,704  18.0%  419,149  21.3%  294,220  12.0%  713,369  17.3% 

Note: percentages may not add due to rounding.

For the twothree quarters ended July 2,October 1, 2022, the 21.9%21.3% increase in revenues for the Plant-Based Foods and Beverages segment reflected a 10.8%12.6% overall increase in pricing, a favorable volume/mix impact of 9.5%7.6%, and 1.6%1.1% of incremental revenue in the first quarter of 2022 related to the acquisition of the Dream and WestSoy brands in April 2021. The increase in pricing was driven by certain pricing actions taken with customers to offset inflationary cost increases, together with the pass-through effect of higher sunflower commodity pricing. Volume/mix was favorable mainly due to growth from our oat-based product offerings and other varieties of plant-based beverages and teas, including strength in our branded portfolio, partially offset by softer volumes of sunflower.sunflower and lower demand for everyday broths.

For the twothree quarters ended July 2,October 1, 2022, the 12.9%12.0% increase in revenues for the Fruit-Based Foods and Beverages segment reflected an 11.5%11.2% overall increase in pricing and a favorable volume/mix impact of 1.4%0.7%. The favorability in priceincreased pricing reflected the benefit of pricing actions taken in the second half of 2021 and first quarter of 2022 to offset commodity inflation incurred on fruit inventories and other inflationary impacts to operating expenses.cost increases. The favorable volume/mix impact reflected strong demand for fruit snacks and the introduction of smoothie bowls, partially offset by decreasedwhich reflected the volume impact of our frozen fruit portfolio rationalization efforts, together with lower consumer demand for retail frozen fruit due to higher prices resulting from inflation, together with lower volumes due to our portfolio rationalization efforts.inflation.

SUNOPTA INC.33October 1, 2022 Form 10-Q

Consolidated gross profit increased $6.6$14.6 million, or 11.7%18.3%, to $62.9$94.3 million for the twothree quarters ended July 2,October 1, 2022, compared with $56.3$79.7 million for the twothree quarters ended July 3,October 2, 2021. Consolidated gross margin for the twothree quarters ended July 2,October 1, 2022 was 13.0%13.2% compared to 13.7%13.1% for the twothree quarters ended July 3,October 2, 2021, a decreasean increase of 7010 basis points.

Gross profit for the Plant-Based Foods and Beverages segment increased $0.9$2.3 million to $43.9$64.0 million for the twothree quarters ended July 2,October 1, 2022, compared with $43.1$61.8 million for the twothree quarters ended July 3,October 2, 2021, while gross margin decreased to 15.6%15.3% in the first twothree quarters of 2022 from 18.7%17.9% in the first twothree quarters of 2021. The 310-basis260-basis point decrease in the plant- based gross margin includedreflected an estimated 180200 basis-point decline due to the dilutive effect of pass-through pricing to recover cost inflation on raw materials and packaging. The remaining gross margin impact reflected unrecovered raw material cost inflation due topackaging, together with the lag in pricing adjustments, together withimpacts of higher labor and utility costs, increased inventory reserves, and higher depreciation expense. In addition, the reported plant-based gross margin was negatively impacted bywe incurred start-up costs of $0.6$1.2 million (0.2%(0.3% gross margin impact) incurred in connection with our new plant expansion in Midlothian, Texas, and the integration of the Dream and WestSoy brands. These negativeAll of these factors were partially offset byabsorbed through higher production volumes and plant utilization in our plant-based beverage and ingredient operations.

Gross profit for the Fruit-Based Foods and Beverages segment increased $5.7$12.3 million to $19.0$30.2 million for the twothree quarters ended July 2,October 1, 2022, compared with $13.3$17.9 million for the twothree quarters ended July 3,October 2, 2021, and gross margin increased 200 basis points to 9.4%10.3% in the first twothree quarters of 2022 from 7.4%6.8% in the first twothree quarters of 2021, despite an estimated 80 basis-point decline due to the dilutive effect of pass-through pricing to recover commodity cost inflation. Excluding this pricing effect, fruit-based2021. The 350-basis point improvement in gross margin reflected the benefits of portfolio rationalizations for frozen fruit and manufacturing cost savings from the consolidation of our fruit processing facilities in 2021,facilities. These factors were partially offset by an estimated 70 basis-point decline due to the dilutive effect of pass-through pricing to recover commodity cost inflation, together with increases in freight and storage rates, a higher mix of low-margin fruit juice sales, and frozen fruit inventory losses due to excess spoilage during handling.

SUNOPTA INC.33July 2, 2022 Form 10-Q

For the twothree quarters ended July 2,October 1, 2022, we realized total segment operating income of $12.0$19.7 million, compared with $7.8$11.7 million for the twothree quarters ended July 3,October 2, 2021. The $4.2$7.9 million increase in total segment operating income reflected higher gross profit, as described above, partially offset by a $2.6$6.8 million increase in SG&A expenses and a $0.5 million increase in amortization expense related to our acquisition of the acquired Dream and WestSoy brand name intangible assets in April 2021.assets. The increase in SG&A expenses was mainly due to a special one-time recognition bonus of $1.6 million to reward employees for improved performance in the first quarter of 2022, together withhigher employee compensation costs, including incremental 2022 incentive plan accruals based on performance. These factors wereperformance, and a one-time bonus of $1.6 million recognized in the first quarter of 2022 to reward employees for improved performance, partially offset by a $2.1 million reduction in variable stock-based compensation because the performance condition under our 2021 incentive plan was not achieved, together with lower employee compensation costscost savings related to headcount reductions in our frozen fruit operations in August 2021, and lower business development expenses related to costs incurred to acquire the Dream and WestSoy brands in April 2021. In addition, we recognized a favorable year-over- yearyear-over-year foreign exchange impact related to our Mexican operations of $0.8$0.7 million.

Further details on revenue, gross profit and segment operating income/loss variances are provided below under "Operating Segment Information."

Other expense was $1.8$22.0 million for the twothree quarters ended July 2,October 1, 2022, compared with other expense of $6.3$7.4 million for the twothree quarters ended July 3,October 2, 2021. Other expense in the first twothree quarters of 2022 mainly reflected a pre-tax loss of $23.2 million recognized on the classification of the sunflower business as held for sale, together with costs to relocate certain equipment from our held-for-salesold Oxnard, California, frozen fruit processing facility to our Mexican facility, while otherpartially offset by a pre-tax gain of $3.8 million realized on the sale of the Oxnard facility. Other expense in the first twothree quarters of 2021 mainly reflected plant closure costs related to the consolidation of our fruit processing facilities.facilities, together with employee termination costs related to the workforce reduction in our frozen fruit operations.

Net interest expense increased by $2.4$3.9 million to $5.7$10.0 million for the twothree quarters ended July 2,October 1, 2022, compared with $3.3$6.1 million for the twothree quarters ended July 3,October 2, 2021, resulting from an increase in outstanding debt to finance capital expansion projects and fund working capital requirements.requirements, together with the impact of higher interest rates.

Income tax expensebenefit was $1.4$2.9 million on pre-tax earnings from continuing operationsloss of $4.5$12.4 million for the twothree quarters ended July 2,October 1, 2022, compared with an income tax benefitexpense of $2.5$0.4 million on a pre-tax loss from continuing operations of $1.8$1.9 million for the twothree quarters ended July 3,October 2, 2021. Excluding the impact of stock-based compensation and other non-deductible expenses included inon pre-tax earnings, our effective tax rate was 27.5% inapproximately 26% for the first twothree quarters of 2022, compared with 24.9% inapproximately 27% for the first twothree quarters of 2021.

EarningsLoss from continuing operations for the twothree quarters ended July 2,October 1, 2022 were $3.2was $9.5 million, which was inclusive of an after-tax loss on the held-for-sale sunflower business of $16.9 million and an after-tax gain on the sale of the Oxnard facility of $2.7 million, compared with earningsa loss of $0.8$2.3 million for the twothree quarters ended July 2,October 1, 2022. Diluted earningsloss per share from continuing operations attributable to common shareholders (after dividends and accretion on preferred stock) was $0.02$0.11 for the twothree quarters ended July 2,October 1, 2022, compared with a loss per share $0.02$0.06 for the twothree quarters ended July 3,October 2, 2021.

SUNOPTA INC.34October 1, 2022 Form 10-Q

Earnings from discontinued operations of $2.8 million for the twothree quarters ended July 2,October 1, 2022, were related to the settlement of the purchase price allocation and other post-closing matters in connection with the 2020 divestiture of our global ingredients business, Tradin Organic (see note 11 to the unaudited consolidated financial statements included in this report.).Organic.

We realized earningsa loss attributable to common shareholders of $4.4$9.0 million (diluted earningsloss per share of $0.04)$0.08) for the twothree quarters ended July 2,October 1, 2022, inclusive of the after-tax loss on the held-for-sale sunflower business of $16.9 million and after-tax gain on the sale of the Oxnard facility of $3.2 million, compared with a loss attributable to common shareholders of $1.9$5.7 million (diluted loss per share of $0.02)$0.06) for the twothree quarters ended July 3, 2021, which reflectedOctober 2, 2021.  The loss attributable to common shareholders included dividends and accretion on preferred stock of $1.5$2.3 million and $2.7$3.4 million in the first twothree quarters of 2022 and 2021, respectively. The decline in preferred stock dividends and accretion reflected the exchange of all of the shares of Series A preferred stock for shares of our common stock in February 2021. Outstanding preferred stock since February 2021 consists entirely of our Series B-1 preferred stock.

For the twothree quarters ended July 2,October 1, 2022, adjusted earnings were $4.1$6.1 million, or $0.04$0.06 per diluted share, compared with adjusted earnings of $1.4$2.5 million, or $0.01$0.02 per diluted share for the twothree quarters ended July 3,October 2, 2021. Adjusted EBITDA for the twothree quarters ended July 2,October 1, 2022 was $37.9$60.1 million, compared with $34.4$50.1 million for the twothree quarters ended July 3,October 2, 2021. Adjusted earnings and adjusted EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the table above for a reconciliation of adjusted earnings and adjusted EBITDA from earningsloss from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure.

SUNOPTA INC.34July 2, 2022 Form 10-Q

Segmented Operations Information

Plant-Based Foods and Beverages 
For the two quarters ended July 2, 2022  July 3, 2021  Change % Change 
Plant-Based Foods and Beverages
For the three quarters ended		 October 1, 2022  October 2, 2021  Change % Change 
             
Revenues$281,423 $230,810 $50,613  21.9% $419,149 $345,680 $73,469  21.3% 
Gross profit 43,920  43,054  866  2.0%  64,026  61,751  2,275  3.7% 
Gross margin 15.6%  18.7%     -3.1%  15.3%  17.9%     -2.6% 
                        
Operating income$20,292 $21,958 $(1,666) -7.6% $29,106 $30,014 $(908) -3.0% 
Operating margin 7.2%  9.5%     -2.3%  6.9%  8.7%     -1.8% 

Plant-Based Foods and Beverages contributed $281.4$419.1 million in revenues for the twothree quarters ended July 2,October 1, 2022, compared to $230.8$345.7 million for the twothree quarters ended July 3,October 2, 2021, an increase of $50.6$73.5 million, or 21.9%21.3%. The table below explains the increase in revenues:

Plant-Based Foods and Beverages Revenue Changes   
Revenues for the two quarters ended July 3, 2021$230,810 
Sales volume growth for oat-based product offerings, and other varieties of plant-based beverages and teas, including strength in our branded portfolio, together with the benefit of certain pricing actions taken to offset input cost inflation 40,821 
Increased commodity pricing for sunflower, partially offset by lower volumes 6,057 
Incremental revenue in the first quarter of 2022 related to the acquisition of the Dream and WestSoy brands in April 2021 3,735 
Revenues for the two quarters ended July 2, 2022$281,423 
Plant-Based Foods and Beverages Revenue Changes
Revenues for the three quarters ended October 2, 2021$345,680
Benefit of pricing actions taken to offset input cost inflation, together with sales volume growth for oat-based product offerings, and other varieties of plant-based beverages and teas, partially offset by lower demand for everyday broths62,470
Increased commodity pricing for sunflower, partially offset by lower volumes7,264
Incremental revenue in the first quarter of 2022 related to the acquisition of the Dream and WestSoy brands in April 20213,735
Revenues for the three quarters ended October 1, 2022$419,149

Gross profit in Plant-Based Foods and Beverages increased by $0.9$2.3 million to $43.9$64.0 million for the twothree quarters ended July 2,October 1, 2022, compared to $43.1$61.8 million for the twothree quarters ended July 3,October 2, 2021. The table below explains the increase in gross profit:

Plant-Based Foods and Beverages Gross Profit Changes   
Gross profit for the two quarters ended July 3, 2021$43,054 
Higher volumes and pricing for plant-based beverages and ingredients, including the incremental contribution in the first quarter of 2022 from the acquisition of the Dream and WestSoy brands in April 2021, partially offset by increased manufacturing plant spend, including unrecovered inflationary increases in raw material costs and utility and freight rates, and higher wages to retain employees and costs to hire and train new employees, together with higher inventory reserves and incremental depreciation of new production equipment for capital expansion projects, and start-up costs incurred for our plant expansion in Midlothian, Texas 737 
Higher pricing spreads for sunflower, partially offset by lower volumes 129 
Gross profit for the two quarters ended July 2, 2022$43,920 
SUNOPTA INC.35October 1, 2022 Form 10-Q
 
Plant-Based Foods and Beverages Gross Profit Changes
Gross profit for the three quarters ended October 2, 2021$61,751
Higher volumes and pricing for plant-based beverages and ingredients, including the incremental contribution in the first quarter of 2022 from the acquisition of the Dream and WestSoy brands in April 2021, partially offset by higher manufacturing plant spend due to inflationary pressures on wage costs and utility rates, together with higher inventory reserves, incremental depreciation of new production equipment for capital expansion projects, and start-up costs incurred for our new plant in Midlothian, Texas2,642
Lower volumes of sunflower, partially offset by higher pricing spreads(367)
Gross profit for the three quarters ended October 1, 2022$64,026

Operating income in Plant-Based Foods and Beverages decreased by $1.7$0.9 million to $20.3$29.1 million for the twothree quarters ended July 2,October 1, 2022, compared to $22.0$30.0 million for the twothree quarters ended July 3,October 2, 2021. The table below explains the decrease in operating income:

SUNOPTA INC.Plant-Based Foods and Beverages Operating Income Changes35
Operating income for the three quarters ended October 2, 2021July 2,$30,014
Increase in corporate cost allocation, mainly related to incremental 2022 Form 10-Qincentive plan accruals allocable to operating segment employees(3,126)
Incremental amortization of the acquired Dream and WestSoy brand name intangible assets, together with higher employee compensation costs and sales and marketing expenses, partially offset by reduced third-party consulting costs related to the acquisition and integration of the Dream and WestSoy brands in 2021(57)
Increase in gross profit, as explained above2,275
Operating income for the three quarters ended October 1, 2022$29,106
Plant-Based Foods and Beverages Operating Income Changes   
Operating income for the two quarters ended July 3, 2021$21,958 
Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees (2,084)
Incremental amortization of the acquired Dream and WestSoy brand name intangible assets in the first quarter of 2022, together with increased brand marketing and advertising, and travel expenses, partially offset by lower third-party consulting costs related to the acquisition of the Dream and WestSoy brands in April 2021 (448)
Increase in gross profit, as explained above 866 
Operating income for the two quarters ended July 2, 2022$20,292 
Fruit-Based Foods and Beverages            
For the two quarters ended July 2, 2022  July 3, 2021  Change  % Change 
             
Revenues$202,281 $179,103 $23,178  12.9% 
Gross profit 18,969  13,271  5,698  42.9% 
Gross margin 9.4%  7.4%     2.0% 
             
Operating income (loss)$3,995 $(3,341)$7,336  219.6% 
Operating margin 2.0%  -1.9%     3.9% 
Fruit-Based Foods and Beverages
For the three quarters ended		 October 1, 2022  October 2, 2021  Change  % Change 
             
Revenues$294,220 $262,712 $31,508  12.0% 
Gross profit 30,246  17,930  12,316  68.7% 
Gross margin 10.3%  6.8%     3.5% 
             
Operating income (loss)$6,865 $(6,858)$13,723  200.1% 
Operating margin 2.3%  -2.6%     4.9% 

Fruit-Based Foods and Beverages contributed $202.3$294.2 million in revenues for the twothree quarters ended July 2,October 1, 2022, compared to $179.1$262.7 million for the twothree quarters ended July 3,October 2, 2021, an increase of $23.2$31.5 million, or 12.9%12.0%. The table below explains the increase in revenues:

Fruit-Based Foods and Beverages Revenue Changes   
Revenues for the two quarters ended July 3, 2021$179,103 
Higher sales volumes and pricing for fruit snacks and incremental revenue from the introduction of smoothie bowls 12,411 
Benefit of pricing actions taken to offset commodity inflation incurred on fruit inventories and inflationary impacts to operating expenses, partially offset by lower retail sales of frozen fruit due to the impact of higher prices on consumer demand, together with lower volumes due to our portfolio rationalization efforts 10,767 
Revenues for the two quarters ended July 2, 2022$202,281 
SUNOPTA INC.36October 1, 2022 Form 10-Q
 
Fruit-Based Foods and Beverages Revenue Changes
Revenues for the three quarters ended October 2, 2021$262,712
Higher sales volumes and pricing for fruit snacks and incremental revenue from the introduction of smoothie bowls20,437
Benefit of pricing actions taken to offset commodity inflation incurred on fruit inventories and other inflationary cost increases, partially offset by lower volumes due to our frozen fruit portfolio rationalization efforts, together with lower retail sales of frozen fruit due to the impact of higher prices on consumer demand11,071
Revenues for the three quarters ended October 1, 2022$294,220

Gross profit in Fruit-Based Foods and Beverages increased by $5.7$12.3 million to $19.0$30.2 million for the twothree quarters ended July 2,October 1, 2022, compared to $13.3$17.9 million for the twothree quarters ended July 3,October 2, 2021. The table below explains the increase in gross profit:

Fruit-Based Foods and Beverages Gross Profit Changes   
Gross profit for the two quarters ended July 3, 2021$13,271 
Improved margin profile from portfolio rationalizations and reduced manufacturing cost base within our frozen fruit operations, together with higher pricing for retail frozen fruit, partially offset by lower sales volumes, together with increases in freight and storage rates, a higher mix of low-margin fruit juice sales, and frozen fruit inventory losses due to excess spoilage during handling 5,075 
Higher sales, production volumes, and pricing for fruit snacks 623 
Gross profit for the two quarters ended July 2, 2022$18,969 
SUNOPTA INC.Fruit-Based Foods and Beverages Gross Profit Changes36
Gross profit for the three quarters ended October 2, 2021July 2,$17,930
Improved margin profile from portfolio rationalizations and reduced manufacturing cost base within our frozen fruit operations, together with higher pricing for retail frozen fruit, partially offset by lower sales volumes, a higher mix of low-margin fruit juice sales, and frozen fruit inventory losses due to excess spoilage during handling9,395
Higher sales volumes and pricing for fruit snacks, together with increased production volumes and plant efficiencies in our fruit snack operations2,921
Gross profit for the three quarters ended October 1, 2022 Form 10-Q$30,246

Operating income in Fruit-Based Foods and Beverages increased by $7.3$13.7 million to $4.0$6.9 million for the quarter ended July 2,October 1, 2022, compared to an operating loss of $3.3$6.9 million for the quarter ended July 3,October 2, 2021. The table below explains the increase in operating income:

Fruit-Based Foods and Beverages Operating Income Changes   
Operating loss for the two quarters ended July 3, 2021$(3,341)
Increase in gross profit, as explained above 5,698 
Lower employee compensation costs due to a workforce reduction in August 2021, together with a favorable foreign exchange impact within our frozen fruit operations in Mexico 1,905 
Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees (267)
Operating income for the two quarters ended July 2, 2022$3,995 
Corporate Services             
For the two quarters ended July 2, 2022  July 3, 2021  Change  % Change 
Operating loss$(12,262)$(10,809)$(1,453) -13.4% 
Fruit-Based Foods and Beverages Operating Income Changes
Operating loss for the three quarters ended October 2, 2021$(6,858)
Increase in gross profit, as explained above12,316
Lower employee compensation costs due to a workforce reduction in August 2021, together with a favorable foreign exchange impact within our frozen fruit operations in Mexico1,807
Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees(400)
Operating income for the three quarters ended October 1, 2022$6,865
Corporate Services
For the three quarters ended		 October 1, 2022  October 2, 2021  Change  % Change 
             
Operating loss$(16,302)$(11,427)$(4,875) -42.7% 

Operating loss at Corporate Services increased by $1.5$4.9 million to $12.3$16.3 million for the twothree quarters ended July 2,October 1, 2022, compared to a loss of $10.8$11.4 million for the twothree quarters ended July 3,October 2, 2021. The table below explains the increase in operating loss:

Corporate Services Operating Loss Changes   
Operating loss for the two quarters ended July 3, 2021$(10,809)
Incremental 2022 incentive plan accruals based on performance, and one-time recognition bonus of $1.6 million recognized in the first quarter of 2022 to reward employees for improved performance, together with costs related to our 2022 Investor Day of $0.5 million (6,548)
Lower variable stock-based compensation, mainly because the performance condition under our 2021 incentive plan was not achieved 2,744 
Increase in corporate cost allocations, mainly related to the portion of the incremental 2022 incentive plan accruals allocable to operating segment employees 2,351 
Operating loss for the two quarters ended July 2, 2022$(12,262)
SUNOPTA INC.37October 1, 2022 Form 10-Q
 
Corporate Services Operating Loss Changes
Operating loss for the three quarters ended October 2, 2021$(11,427)
Higher employee compensation costs, including incremental 2022 incentive plan accruals based on performance, and one-time bonus of $1.6 million recognized in the first quarter of 2022 to reward employees for improved performance, together with costs related to our 2022 Investor Day of $0.5 million, partially offset by lower business development costs(8,303)
Higher variable stock-based compensation, based on improved performance(98)
Increase in corporate cost allocations, mainly related to the portion of the incremental 2022 incentive plan accruals allocable to operating segment employees3,526
Operating loss for the three quarters ended October 1, 2022$(16,302)

Liquidity and Capital Resources

On December 31, 2020, we entered into a five-year credit agreement, as amended, for a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $250 million, subject to borrowing base capacity. As at July 2,October 1, 2022, we had outstanding borrowings under the revolving credit facility of $176.7$154.0 million (January 1, 2022 - $153.3 million), and available borrowing capacity of approximately $71$75 million (January 1, 2022 - $67 million). The credit agreement also provides a five-year, $75 million delayed draw term loan, to be used for capital expenditures, which may be drawn upon up to March 31, 2023. As at July 2,October 1, 2022, we had $19.4$37.4 million drawn on the term loan facility mainly to finance the purchase of equipment for our new plant-based beverage facility under construction in Midlothian, Texas, facility.Texas. For more information on our asset-based credit facilities see note 5 to the unaudited consolidated financial statements included in this report.

During the first twothree quarters of 2022, we recognized additional finance lease liabilities in the amount of $50.7$73.0 million, mainly related to the buildouts of our Midlothian, Texas, facility, and our executive office and innovation center located in Eden Prairie, Minnesota, together with the addition of new processing equipment at our Allentown, Pennsylvania, plant-based beverage facility, and plant improvements at our Alexandria, Minnesota, plant-based beverage facility. For more information on our operating and finance lease obligations, including maturity dates, see note 4 to the unaudited consolidated financial statements included in this report.

SUNOPTA INC.37July 2, 2022 Form 10-Q

As at July 2,October 1, 2022, our subsidiary, SunOpta Foods Inc., had 30,000 shares of Series B-1 preferred stock issued and outstanding. The Series B-1 preferred stock currently has a liquidation preference of approximately $1,015 per share and is exchangeable into shares of our common stock at an exchange price of $2.50 per share. Cumulative preferred dividends accrue daily on the Series B-1 preferred stock at an annualized rate of 8.0% of the liquidation preference prior to September 30, 2029, which presently equates to quarterly dividend distributions of approximately $0.6 million, and 10.0% of the liquidation preference thereafter. For more information on the Series B-1 preferred stock, see note 6 to the unaudited consolidated financial statements included in this report.

There have been no material changes outside the normal course of business in the nature of our contractual obligations since January 1, 2022.

We believe that our operating cash flows and expected net proceeds from the sale of our Oxnard, California, frozen fruit processing facility,businesses and assets, together with our revolving and term loan credit facilities, and access to lease financing, will be adequate to meet our operating, investing, and financing needs for the foreseeable future, including the 12-month period following the issuance of our financial statements. However, in order to finance significant investments in our existing businesses, or significant business acquisitions, if any, that may arise in the future, we may need additional sources of cash that we could attempt to obtain through a combination of additional bank or subordinated financing, a private or public offering of debt or equity securities, or the issuance of common stock. There can be no assurance that these types of financing would be available at all or, if so, on terms that are acceptable to us. In addition, we may explore the saleother sales of selected operationsbusinesses or assets from time to time to improve our profitability, reduce our indebtedness, and/or improve our position to obtain additional financing.

SUNOPTA INC.38October 1, 2022 Form 10-Q

Cash Flows

Summarized cash flow information for the periods ended July 2,October 1, 2022 and July 3,October 2, 2021 is as follows:

 For the quarter ended  For the three quarters ended 
 For the quarter ended  For the two quarters ended  October 1,
2022		 October 2,
2021		 Change  October 1,
2022		 October 2,
2021		 Change 
 July 2,
2022
$		 July 3,
2021
$		 Change
$		  July 2,
2022
$		 July 3,
2021
$		 Change
$		  $ $ $  $ $ $ 
Net cash flows provided by (used in):               
Operating activities of continuing operations (2,454) (39,147) 36,693  13,089  (46,162) 59,251  19,973  5,065  14,908  33,062  (41,097) 74,159 
Investing activities of continuing operations (34,060) (32,379) (1,681) (58,578) (40,326) (18,252) (21,908) (17,436) (4,472) (80,486) (57,762) (22,724)
Financing activities of continuing operations 42,896  71,251  (28,355) 52,139  100,296  (48,157) 1,841  12,176  (10,335) 53,980  112,472  (58,492)
Discontinued operations (6,324) -  (6,324) (6,324) (13,580) 7,256  -  -  -  (6,324) (13,580) 7,256 

Operating Activities of Continuing Operations

The decrease in cash used in operating activities of continuing operations of $36.7 million for the quarter ended July 2, 2022, compared with the quarter ended July 3, 2021, and the increase in cashCash provided by operating activities of continuing operations of $59.3increased $14.9 million and $74.2 million for the twoquarter and three quarters ended July 2,October 1, 2022, respectively, compared with the two quarters ended July 3, 2021,corresponding periods of 2021. The increases in cash provided reflected a normalization of frozen fruit inventory purchases in the current year periods, compared with a need to replenish those inventories in the corresponding periods of 2021, following a shortfall in supply in 2020.2020, partially offset by the year-over-year impact of higher commodity prices for frozen fruit, and higher inventory levels to support the growth in our fruit snacks operations. In addition, we havethe increases in cash provided reflected our improved operating performance in the current year periods, together with increased working capital efficiency through the selective use of early payment programs offered by some of our major customers, and improved payment terms with certain of our suppliers. These factors were partially offset by the year-over-year impact of higher commodity prices for frozen fruit and sunflower seeds, and higher inventory levels required to support the growth of our plant-based beverage and fruit snacks platforms.

SUNOPTA INC.38July 2, 2022 Form 10-Q

Investing Activities of Continuing Operations

Cash used in investing activities of continuing operations increased $1.7$4.5 million and $18.3$22.7 million for the quarter and twothree quarters ended July 2,October 1, 2022, respectively, compared with the corresponding periods of 2021. Investing cash flows reflected additions to property, plant and equipment of $37.0$38.0 million and $62.8$100.8 million in the secondthird quarter and first twothree quarters of 2022, compared with additions of $7.3$18.4 million and $16.6$35.0 million in the corresponding periods of 2021. Capital expenditures in 2022 were mainly related to the construction of our new plant-based beverage facility in Midlothian, Texas, facility,together with the completion of our executive office and innovation center in Eden Prairie, Minnesota, and other expansion projects within our plant-based and fruit snacks operations. Investing cash flowsinflows for the quarter and twothree quarters ended July 3,October 1, 2022, included net proceeds of $16.1 million received on the sale of our Oxnard, California, frozen fruit processing facility, while investing cash outflows for the first three quarters of 2021 included $25.1 million paid to acquire the Dream and WestSoy brand name intangible assets.

Financing Activities of Continuing Operations

Cash provided by financing activities of continuing operations decreased $28.4$10.3 million and $48.2$58.5 million for the quarter and twothree quarters ended July 2,October 1, 2022, respectively, compared with the corresponding periods of 2021. The decreases in cash provided mainly reflected reduced levels of incremental revolver borrowings required to fund changes in working capital in the current year periods, partially offset by increased borrowings of long-term debt related to term loan and lease financing for capital projects.

Discontinued Operations

Cash used in investing activities of discontinued operations of $6.3 million for the quarterthree quarters ended July 2,October 1, 2022, related to the settlement of the purchase price allocation and other post-closing matters in connection with the 2020 divestiture of Tradin Organic, while cash used in investing activities of discontinued operations of $13.4 million for the twothree quarters ended JulyOctober 2, 2022,2021, related to the settlement of transaction costs accrued in connection with the Tradin Organic sale.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. The estimates and assumptions made require us to exercise our judgment and are based on historical experience and various other factors that we believe to be reasonable under the circumstances. We continually evaluate the information that forms the basis of our estimates and assumptions as our business and the business environment generally changes.

SUNOPTA INC.39October 1, 2022 Form 10-Q
There have been no material changes to the critical accounting estimates disclosed under the heading "Critical Accounting Estimates" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of the Form 10-K. There have been no material changes to our exposures to market risks since January 1, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has established disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission's rules and forms. Such disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

SUNOPTA INC.39July 2, 2022 Form 10-Q

Under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we conducted an evaluation of our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act) as of the end of the period covered by this quarterly report. Based on this evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of July 2,October 1, 2022.

Changes in Internal Control Over Financial Reporting

Our management, with the participation of our CEO and CFO, has evaluated whether any change in our internal control over financial reporting (as such term is defined under Rule 13a-15(f) promulgated under the Exchange Act) occurred during the quarter ended July 2,October 1, 2022. Based on that evaluation, management concluded that there were no changes in our internal control over financial reporting during the quarter ended July 2,October 1, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

SUNOPTA INC.40July 2,October 1, 2022 Form 10-Q
PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of legal proceedings, see note 11 to the unaudited consolidated financial statements included under Part I, Item 1 of this report.

Item 1A. Risk Factors

Certain risks associated with our operations are discussed in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended January 1, 2022. There have been no material changes to the previously reported risk factors as of the date of this quarterly report. Our previously reported risk factors should be carefully reviewed in connection with an evaluation of our Company.

Item 6. Exhibits

The following exhibits are included as part of this report.

10.1†10.1*†Form of Stock Option Award Agreement, dated May 5,SunOpta Inc. 2022 between the Company and Joseph Ennen (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 9, 2022.)Short Term Incentive Plan
  
10.2†10.2*†Form of Performance Share Unit Award Agreement, dated May 5,SunOpta Inc. 2022 between the Company and Joseph Ennen (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 9, 2022.)Long Term Incentive Plan
  
31.1*Certification by Joseph D. Ennen, Chief Executive Officer, pursuant to Rule 13a - 14(a) under the Securities Exchange Act of 1934, as amended.
  
31.2*Certification by Scott Huckins, Chief Financial Officer, pursuant to Rule 13a - 14(a) under the Securities Exchange Act of 1934, as amended.
  
32*Certifications by Joseph D. Ennen, Chief Executive Officer, and Scott Huckins, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.
  
101.INS*Inline XBRL Instance Document - Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
 
101.SCH*Inline XBRL Taxonomy Extension Schema Document
  
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
  
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
  
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
  
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
  
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

†Indicates management contract or compensatory plan or arrangement.

*Filed herewith.

SUNOPTA INC.41July 2,October 1, 2022 Form 10-Q

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 SUNOPTA INC.
  
Date: August 11,November 10, 2022/s/ Scott Huckins
 Scott Huckins
 Chief Financial Officer

(Authorized Signatory and Principal Financial Officer)
SUNOPTA INC.42July 2,October 1, 2022 Form 10-Q