SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  For the quarterly period ended June 30, 2001
                           Commission File No. 0-9989

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

                              STAKE TECHNOLOGY LTD.
                              ---------------------
             (Exact name of registrant as specified in its charter)

                                     CANADA
                         (Jurisdiction of Incorporation)

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

                                 2838 Highway 7
                         Norval, Ontario L0P 1K0, Canada
                    (Address of Principle Executive Offices)

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

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

              Securities registered pursuant to 12(g) of the Act:

                           Common Shares, no Par value
                           ---------------------------
                                (Title of Class)

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

                                 Yes |X| No |_|

At August 7, 2001 registrant had 32,923,203 common shares outstanding, the only
class of registrant's common stock outstanding. There were no other classes of
stock outstanding and the aggregate market value of voting stock held by
non-affiliates at such date was US $41,765,000. The Company's common shares are
traded on the Nasdaq Small Cap Market tier of the Nasdaq Stock Market under the
symbol STKL.

There are 31 pages in the June 30, 2001 10-Q and the index follows the cover
page.


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  1                      June 30, 2001 10-Q

<PAGE>

STAKE TECHNOLOGY LTD.

                                    FORM 10-Q
                                  June 30, 2001


PART I - FINANCIAL INFORMATION


Item 1. Consolidated Financial Statements

            Consolidated Balance Sheets as at June 30, 2001 and December 31,
            2000

            Consolidated Statements of Retained Earnings for the six months
            ended June 30, 2001 and the year ended December 31, 2000

            Consolidated Statements of Earnings for the three months ended June
            30, 2001 and 2000

            Consolidated Statements of Earnings for the six months ended June
            30, 2001 and 2000.

            Consolidated Statements of Cash Flow for the three months ended June
            30, 2001 and 2000

            Consolidated Statements of Cash Flow for the six months ended June
            30, 2001 and 2000

            Condensed Notes to Consolidated Financial Statements.


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


Item 3.  Quantitative and Qualitative Disclosure about Market Risk


PART II - OTHER INFORMATION

            All financial information is expressed in Canadian Dollars The
            closing rate of exchange on August 7, 2001 was CDN. $1 = US $0.6514


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  2                      June 30, 2001 10-Q

<PAGE>


PART I - FINANCIAL INFORMATION


Item 1 -

                        Consolidated Financial Statements

                              Stake Technology Ltd.

                     For the Six Months ended June 30, 2001


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  3                      June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Consolidated Balance Sheets as at June 30, 2001 and December 31, 2000
Unaudited
(Expressed in Canadian Dollars)


<TABLE>
<CAPTION>
=================================================================================================
                                                                      June 30,       December 31,
                                                                        2001             2000
=================================================================================================
<S>                                                                 <C>              <C>
Assets (note 5)
Current assets
Cash and cash equivalents                                           $  2,775,000     $ 1,013,000
Restricted cash (note 5(a) and 6(g))                                   2,216,000              --
Accounts receivable - trade                                           17,969,000      13,111,000
Current portion of note receivable                                     2,031,000       2,150,000
Inventories (note 4)                                                  13,987,000      15,290,000
Other receivables and prepaid expenses                                 2,414,000       1,341,000
Future income taxes                                                      971,000         954,000
                                                                    ----------------------------
                                                                      42,363,000      33,859,000

Note receivable                                                        2,335,000       3,036,000

Property, plant and equipment - at cost, less accumulated
amortization of $11,434,000  (December 31, 2000 - $9,132,000)         43,599,000      43,158,000

Investments                                                              362,000         382,000

Goodwill - at cost, less accumulated amortization of
$1,174,000 (December 31, 2000 - $925,000)                             10,982,000      11,231,000

Pre-operating costs - at cost, less accumulated amortization of
$128,000 (December 31, 2000 - $nil)                                      640,000         768,000

Patents, trademarks, licences and other assets - at cost
less accumulated amortization of $1,151,000
(December 31, 2000 - $1,034,000) (note 3)                              4,223,000         432,000
                                                                    ----------------------------
                                                                    $104,504,000     $92,866,000
                                                                    ============================
Liabilities
Current liabilities
Bank indebtedness (note 5)                                          $  6,207,000     $ 3,405,000
Accounts payable and accrued liabilities                              18,802,000      19,359,000
Customer deposits                                                        227,000       1,262,000
Current portion of long-term debt (note 5)                             7,156,000       6,799,000
Current portion of preference shares of subsidiary companies             247,000         387,000
                                                                    ----------------------------
                                                                      32,639,000      31,212,000

Long-term debt  (note 5)                                              21,191,000      24,756,000
Other long-term payable                                                1,688,000       1,651,000
Future income taxes (note 3)                                           2,713,000       1,508,000
Preference shares of subsidiary companies                                448,000         462,000
                                                                    ----------------------------
                                                                      58,679,000      59,589,000
                                                                    ----------------------------
Shareholders' Equity
Capital stock (note 6)
Authorized
     Unlimited common shares without par value
Issued
     32,923,203 (December 31, 2000 - 28,186,972) common shares        33,517,000      22,710,000
Contributed surplus                                                    4,635,000       4,635,000
Retained earnings  (note 6 (b))                                        6,740,000       5,869,000
Currency translation adjustment                                          933,000          63,000
                                                                    ----------------------------
                                                                      45,825,000      33,277,000
                                                                    ----------------------------
                                                                    $104,504,000     $92,866,000
                                                                    ============================
</TABLE>


          (See accompanying notes to consolidated financial statements)


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  4                      June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Consolidated Statements of Retained Earnings
For the six months ended June 30, 2001 and the year ended December 31, 2000
Unaudited
(Expressed in Canadian Dollars)

================================================================================
                                            Six months ended       Year ended
                                              June 30, 2001    December 31, 2000
================================================================================
Retained Earnings - Beginning of the Year       $5,869,000         $2,495,000

Net Earnings for the Period                        871,000          3,374,000
                                                -----------------------------

Retained Earnings - End of Period               $6,740,000         $5,869,000
                                                =============================

          (See accompanying notes to consolidated financial statements)


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  5                      June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Consolidated Statements of Earnings
For the three months ended June 30, 2001 and 2000
Unaudited
(Expressed in Canadian Dollars)


<TABLE>
<CAPTION>
=====================================================================================================
                                                                         June 30,          June 30,
                                                                           2001              2000
=====================================================================================================
<S>                                                                    <C>               <C>
Revenues                                                               $ 38,208,000      $ 29,432,000
Cost of goods sold                                                       32,142,000        25,564,000
                                                                       ------------------------------
Gross profit                                                              6,066,000         3,868,000
                                                                       ------------------------------

Expenses

Research and development                                                    107,000           122,000
Administration, market development and demonstration                      3,420,000         2,404,000
Amortization of patents, trademarks, licences, pre-operating costs
     and goodwill                                                           445,000            99,000
                                                                       ------------------------------
                                                                          3,972,000         2,625,000
                                                                       ------------------------------
Earnings from operations                                                  2,094,000         1,243,000

Interest on long-term debt                                                 (638,000)          (88,000)
Other interest                                                             (188,000)          (19,000)
Interest and other income                                                   247,000                --
Foreign exchange (loss) gain                                                (65,000)           20,000
Share of losses of equity accounted investee                                (13,000)          (12,000)
Dividend on preference shares of subsidiary company                          (8,000)           (7,000)
                                                                       ------------------------------

Earnings before income taxes                                              1,429,000         1,137,000
                                                                       ------------------------------

Recovery of (Provision for) income taxes
Current                                                                    (457,000)          200,000
Future                                                                     (136,000)         (227,000)
                                                                       ------------------------------
                                                                           (593,000)          (27,000)
                                                                       ------------------------------
Net earnings for the period                                            $    836,000      $  1,110,000
                                                                       ==============================

Net earnings per share for the period
   - Basic                                                             $       0.03      $       0.05
                                                                       ==============================
   - Fully diluted                                                     $       0.03      $       0.05
                                                                       ==============================
</TABLE>


          (See accompanying notes to consolidated financial statements)


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  6                      June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Consolidated Statements of Earnings
For the six months ended June 30, 2001 and 2000
Unaudited
(Expressed in Canadian Dollars)


<TABLE>
<CAPTION>
=====================================================================================================
                                                                          June 30,         June 30,
                                                                            2001             2000
=====================================================================================================
<S>                                                                    <C>               <C>
Revenues                                                               $ 68,661,000      $ 45,441,000
Cost of goods sold                                                       58,350,000        39,002,000
                                                                       ------------------------------
Gross profit                                                             10,311,000         6,439,000
                                                                       ------------------------------

Expenses

Research and development                                                    220,000           249,000
Administration, market development and demonstration                      6,990,000         4,356,000
Amortization of patents, trademarks, licences, pre-operating costs
     and goodwill                                                           554,000           167,000
                                                                       ------------------------------
                                                                          7,764,000         4,772,000
                                                                       ------------------------------
Earnings from operations                                                  2,547,000         1,667,000

Interest on long-term debt                                               (1,336,000)         (231,000)
Other interest                                                             (270,000)          (43,000)
Interest and other income                                                   401,000            79,000
Foreign exchange (loss) gain                                                (18,000)           30,000
Gain on dilution of investment interests
   in equity accounted investee                                                  --           140,000
Share of losses of equity accounted investee                                (25,000)          (24,000)
Dividend on preference shares of subsidiary company                         (14,000)          (14,000)
                                                                       ------------------------------

Earnings before income taxes                                              1,285,000         1,604,000
                                                                       ------------------------------

Recovery of (Provision for) income taxes
Current                                                                    (322,000)          240,000
Future                                                                      (92,000)         (326,000)
                                                                       ------------------------------
                                                                           (414,000)          (86,000)
                                                                       ------------------------------
Net earnings for the period                                            $    871,000      $  1,518,000
                                                                       ==============================

Net earnings per share for the period
   - Basic                                                             $       0.03      $       0.07
                                                                       ==============================
   - Fully diluted                                                     $       0.03      $       0.07
                                                                       ==============================
</TABLE>


          (See accompanying notes to consolidated financial statements)


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  7                      June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Consolidated Statements of Cash Flow
For the three months ended June 30, 2001 and 2000
Unaudited
(Expressed in Canadian Dollars)


<TABLE>
<CAPTION>
==================================================================================================
                                                                       June 30,         June 30,
                                                                         2001             2000
==================================================================================================
<S>                                                                   <C>              <C>
Cash provided by (used in)

Operating activities
Net earnings for the period                                           $   836,000      $ 1,110,000
Items not affecting cash
      Amortization                                                      1,313,000          455,000
      Share of losses of equity accounted investee                         13,000           12,000
      Loss on sale of property, plant and equipment                        10,000           41,000
      Gain on settlement of preference shares                             (25,000)              --
      Imputed interest                                                   (107,000)           8,000
      Future income taxes                                                 136,000          155,000
                                                                      ----------------------------
                                                                        2,176,000        1,781,000
Change in non-cash working capital balances related to operations
      Accounts receivable - trade                                      (4,273,000)      (4,467,000)
      Inventories                                                       1,047,000        2,473,000
      Other receivables and prepaid expenses                             (129,000)        (322,000)
      Accounts payable and accrued liabilities                          4,607,000        1,878,000
      Note payable                                                             --       (1,122,000)
      Customer deposits                                                (1,563,000)         662,000
                                                                      ----------------------------
                                                                        1,865,000          883,000
                                                                      ----------------------------
Investing activities
(Increase) decrease in patents, trademarks, licences and other
      assets                                                              (24,000)          69,000
Disposal of other assets                                                       --           67,000
Restricted cash                                                        (2,216,000)              --
Acquisition of property, plant and equipment                           (1,815,000)        (201,000)
Proceeds on sale of property, plant and equipment                              --           27,000
Increase in investments and advances                                           --         (337,000)
Decrease in notes receivable                                              552,000               --
                                                                      ----------------------------
                                                                       (3,503,000)        (375,000)
                                                                      ----------------------------
Financing activities
Purchase and redemption of preference shares of subsidiary
      companies                                                           (31,000)         (26,000)
Repayment of long-term debt and note payable                           (3,333,000)         (74,000)
Issuance of long-term debt                                                 97,000               --
Repayments of line of credit                                             (520,000)              --
Borrowings under line of credit                                        (1,352,000)      (2,980,000)
Issuance of common shares and warrants                                  9,521,000            2,000
                                                                      ----------------------------
                                                                        4,382,000       (3,078,000)
Foreign exchange gain on cash held in a foreign currency                   31,000          106,000
                                                                      ----------------------------
Increase (decrease) in cash during the period                           2,775,000       (2,464,000)

Cash and cash equivalents - Beginning of period                                --      $ 2,464,000
                                                                      ----------------------------
Cash and cash equivalents - End of period                             $ 2,775,000               --
                                                                      ============================

Supplemental cash flow information:

Interest paid                                                         $   583,000      $    99,000
                                                                      ============================
Income taxes paid                                                     $        --      $        --
                                                                      ============================
</TABLE>


          (See accompanying notes to consolidated financial statements)


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  8                      June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Consolidated Statements of Cash Flow
For the six months ended June 30, 2001 and 2000
Unaudited
(Expressed in Canadian Dollars)


<TABLE>
<CAPTION>
==================================================================================================
                                                                        June 30,         June 30,
                                                                          2001             2000
==================================================================================================
<S>                                                                   <C>              <C>
Cash provided by (used in)

Operating activities
Net earnings for the period                                           $   871,000      $ 1,518,000
Items not affecting cash
      Amortization                                                      2,672,000          865,000
      Share of losses of equity accounted investee                         25,000           24,000
      Loss (gain) on sale of property, plant and equipment                 13,000          (43,000)
      Gain on dilution of interest in investee                                 --         (140,000)
      Gain on settlement of preference shares                             (25,000)              --
      Imputed interest                                                   (130,000)          16,000
      Future income taxes                                                  92,000           95,000
                                                                      ----------------------------
                                                                        3,518,000        2,335,000
Change in non-cash working capital balances related to operations
      Accounts receivable - trade                                      (4,829,000)      (4,292,000)
      Inventories                                                       1,408,000        2,351,000
      Other receivables and prepaid expenses                           (1,074,000)        (253,000)
      Accounts payable and accrued liabilities                            150,000       (2,683,000)
      Note payable                                                             --       (1,122,000)
      Customer deposits                                                (1,061,000)         840,000
                                                                      ----------------------------
                                                                       (1,888,000)      (2,824,000)
                                                                      ----------------------------
Investing activities
Acquisition of company - net of cash acquired                            (513,000)      (4,508,000)
Decrease in patents, trademarks, licences and other assets                 10,000               --
Disposal of other assets                                                       --           67,000
Restricted cash                                                        (2,216,000)         400,000
Acquisition of property, plant and equipment                           (2,444,000)        (332,000)
Proceeds on sale of property, plant and equipment                              --          139,000
Increase in investments and advances                                       (5,000)        (340,000)
Decrease in notes receivable                                            1,100,000               --
                                                                      ----------------------------
                                                                       (4,068,000)      (4,574,000)
                                                                      ----------------------------
Financing activities
Purchase and redemption of preference shares of subsidiary
      companies                                                          (149,000)        (136,000)
Repayment of long-term debt and note payable                           (4,588,000)        (521,000)
Issuance of long-term debt                                                 97,000        2,635,000
Repayments of line of credit                                             (520,000)              --
Borrowings under line of credit                                         3,341,000        2,470,000
Issuance of common shares and warrants                                  9,526,000          366,000
                                                                      ----------------------------
                                                                        7,707,000        4,814,000
Foreign exchange gain on cash held in a foreign currency                   11,000          120,000
                                                                      ----------------------------
Increase in cash during the period                                      1,762,000        2,464,000

Cash and cash equivalents - Beginning of period                         1,013,000      $ 2,464,000
                                                                      ----------------------------
Cash and cash equivalents - End of period                             $ 2,775,000               --
Supplemental cash flow information:
                                                                      ============================

Interest paid                                                         $ 1,248,000      $   299,000
                                                                      ============================
Income taxes paid                                                     $        --      $        --
                                                                      ============================
</TABLE>


          (See accompanying notes to consolidated financial statements)


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  9                      June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Condensed Notes to Consolidated Financial Statements
For the six months ended June 30, 2001
Unaudited
(Expressed in Canadian Dollars)

--------------------------------------------------------------------------------

1.    Interim Financial Statement

      The accompanying interim consolidated financial statements of Stake
      Technology Ltd. have been prepared in accordance with the instructions to
      Form 10-Q and Rule 10-01 of Regulation S-X and in accordance with
      accounting principles generally accepted in Canada which conform, in all
      material respects (except as indicated in Note 8), with accounting
      principles generally accepted in the U.S. Accordingly, these interim
      consolidated financial statements do not include all of the disclosures
      required by generally accepted accounting principles for annual financial
      statements. In the opinion of management, all adjustments considered
      necessary for fair presentation have been included; all such adjustments
      are of a normal, recurring nature. Operating results for the six months
      ended June 30, 2001 are not necessarily indicative of the results that may
      be expected for the full year ending December 31, 2001. For further
      information, see the Company's consolidated financial statements,
      including the accounting policies and notes thereto, included in the
      Annual Report on Form 10KSB for the year ended December 31, 2000.

2.    Description of business and significant accounting policies

      Stake Technology Ltd. (the Company) was incorporated under the laws of
      Canada on November 13, 1973 and operates in three principal businesses.
      The SunRich Food Group manufactures and sells agricultural products with a
      focus on soy, soymilk and other food products. The Environmental
      Industrial Group sells abrasives and industrial materials and recycles
      inorganic materials. The Company also operates a division developing and
      commercializing a proprietary steam explosion technology for processing of
      biomass into higher value products. The Company's assets, operations and
      employees at June 30, 2001 are located in Canada and the United States.

      The significant policies are outlined below:

      Basis of presentation

      The consolidated financial statements include the accounts of the Company
      and its subsidiaries, all of which are wholly owned. All significant
      intercompany accounts and transactions have been eliminated on
      consolidation.

      Cash and cash equivalents

      Cash and cash equivalents consist of unrestricted cash and short-term
      deposits with a maturity at acquisition of less than 90 days.

      Inventories

      Raw materials, finished goods and merchandise inventory are valued at the
      lower of cost and estimated net realizable value. Cost is determined on a
      first-in, first-out basis.

      Inventories of grain are valued at market. Changes in market value are
      included in cost of sales. The SunRich Food Group generally follows a
      policy of hedging its grain transactions to protect gains and minimize
      losses due to market fluctuations. Hedge contracts are adjusted to market
      price and gains and losses from such transactions are included in cost of
      sales. The Company has a risk of loss from hedge activity if the grower
      does not deliver the grain as scheduled.


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  10                     June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Condensed Notes to Consolidated Financial Statements
For the six months ended June 30, 2001
Unaudited
(Expressed in Canadian Dollars)

--------------------------------------------------------------------------------

      Investments

      Investments in companies over which the Company exercises significant
      influence are accounted for by the equity method whereby the Company
      includes its proportionate share of earnings and losses of such companies
      in earnings.

      Property, plant and equipment

      Property, plant and equipment are stated at cost, less accumulated
      amortization.

      Amortization is provided on property, plant and equipment on the
      diminishing balance basis or, in the case of certain US-based
      subsidiaries, straight-line basis at rates based on the estimated useful
      lives of the assets as follows: 10% to 33% for office furniture and
      equipment, machinery and equipment and vehicles and 4-8% for buildings.
      Amortization is calculated from the time the asset is put into use.

      Pre-operating costs

      Net costs incurred in the pre-operating stage of start-up businesses are
      deferred until the business reaches commercial operation or the passage of
      a certain period of time as predetermined by management. During 2000, the
      Company acquired Nordic Aseptic, Inc. (Nordic), which was considered a
      start-up business from the date of acquisition to December 31, 2000.
      Certain operating costs, net of income earned during the pre-operating
      period, have been deferred. Amortization of these net costs is computed on
      a straight-line basis over 3 years and commenced on January 1, 2001.

      Patents, trademarks, licences and other assets

      Costs of acquiring or registering patents, trademarks and licences are
      capitalized and amortized on a straight-line basis over their expected
      lives of 10 to 20 years. Costs of renewing patents and trademarks are
      expensed as incurred.

      Costs incurred in connection with obtaining long-term financing are
      deferred and amortized over the term of the related financing agreement.

      Goodwill

      Goodwill represents the excess of the cost of subsidiaries and businesses
      over the assigned value of net assets acquired. Goodwill is amortized on a
      straight-line basis over its estimated life of 20 years. The Company
      reviews the recoverability of goodwill whenever events or changes in
      circumstance indicate that the carrying amount may not be recoverable. The
      measurement of possible impairment is based primarily on the ability to
      recover the balance of the goodwill from expected future operating cash
      flows on an undiscounted basis.

      Revenue recognition

      i) Environmental Industrial Group

            Revenue from the sale of industrial minerals is recognized upon
            shipment or providing of a service to a customer.


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  11                     June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Condensed Notes to Consolidated Financial Statements
For the six months ended June 30, 2001
Unaudited
(Expressed in Canadian Dollars)

--------------------------------------------------------------------------------

      ii) SunRich Food Group

            Grain sales are recorded at the time of shipment. Revenues from
            custom drying services are recorded upon provision of services and
            on completion of quality testing. All other SunRich Food Group
            revenue is recognized upon the sale and shipment of a product or the
            providing of a service to a customer.

      iii) Steam Explosion Technology

            The percentage of completion method is used to account for
            significant contracts in progress when related costs can be
            reasonably estimated. The Company uses costs incurred to date as a
            percentage of total expected costs to measure the extent of progress
            towards completion.

            Revenue from consulting and contract research is recognized when the
            service is completed.

            Licence fees related to sales of the Company's technologies are
            recorded as revenue when earned and collection is reasonably
            assured.

      Foreign currency translation

      The SunRich Food Group is considered to be a self-sustaining operation.
      The SunRich Food Group's assets and liabilities are translated at exchange
      rates in effect at the balance sheet date. Revenues and expenses are
      translated at average exchange rates prevailing during the year. Resulting
      unrealized gains or losses are accumulated and reported as currency
      translation adjustment in shareholders' equity.

      Other revenues and expenses arising from foreign currency transactions are
      translated into Canadian dollars using the exchange rate in effect at the
      transaction date. Monetary assets and liabilities are translated using the
      rate in effect at the balance sheet date. Related exchange gains and
      losses are included in the determination of earnings.

      Customer Deposits

      Customer deposits principally include prepayments by the SunRich Food
      Group's customers for merchandise inventory to be purchased during the
      spring planting season.

      Income taxes

      The Company follows the asset and liability method of accounting for
      income taxes whereby future income tax assets are recognized for
      deductible temporary differences and operating loss carry-forwards, and
      future income tax liabilities are recognized for taxable temporary
      differences. Temporary differences are the differences between the amounts
      of assets and liabilities recorded for income tax and financial reporting
      purposes. Future income tax assets are recognized only to the extent that
      management determines that it is more likely than not that the future
      income tax assets will be realized. Future income tax assets and
      liabilities are adjusted for the effects of changes in tax laws and rates
      on the date of enactment or substantive enactment. The income tax expense
      or benefit is the income tax payable or recoverable for the period plus or
      minus the change in future income tax assets and liabilities during the
      period.


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  12                     June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Condensed Notes to Consolidated Financial Statements
For the six months ended June 30, 2001
Unaudited
(Expressed in Canadian Dollars)

--------------------------------------------------------------------------------

      Derivative instruments

      The SunRich Food Group enters into exchange-traded commodity futures and
      options contracts to hedge its exposure to price fluctuations on grain
      transactions to the extent considered practicable for minimizing risk from
      market price fluctuations. Futures contracts used for hedging purposes are
      purchased and sold through regulated commodity exchanges. Inventories,
      however, may not be completely hedged, due in part to the Company's
      assessment of its exposure from expected price fluctuations. Exchange
      purchase and sales contracts may expose the Company to risk in the event
      that a counterparty to a transaction is unable to fulfill its contractual
      obligation. The Company manages its risk by entering into purchase
      contracts with pre-approved producers. The Company has a risk of loss from
      hedge activity if a grower does not deliver the grain as scheduled. Sales
      contracts are entered into with organizations of acceptable
      creditworthiness, as internally evaluated. All futures transactions are
      marked to market. Gains and losses on futures transactions related to
      grain inventories are included in cost of goods sold.

      Use of estimates

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

3.    Acquisition of a Business

      First Light Foods

      On February 1, 2001, the Company acquired 100% of the common shares of
      Jenkins and Gournoe Inc., which operates under the name of First Light
      Foods. Consideration consisted of the issuance of 833,333 common shares,
      US $300,000 in cash, a US $700,000 note payable that is repayable
      quarterly over 2 years by payments of US $87,500, plus interest at US
      Prime, 35,000 warrants exercisable at US $1.70 for five years to February,
      2006 and acquisition costs of approximately US $60,000. In addition,
      contingent consideration may be payable on this acquisition; (a) if
      certain predetermined profit targets are achieved by the acquired business
      up to an additional 140,000 warrants may be issued in 2002 through to
      2005, and (b) a percentage of gross profits in excess of US $1,100,000 per
      annum from 2001- 2005 will be paid to the vendors of First Light Foods.

      First Light Foods owns several trade marked soymilk brands that are
      marketed as the private label brands of a major California food chain. The
      acquisition of First Light Foods complements the SunRich Food Group's
      strategy of becoming a vertically integrated group - from seed to
      merchandisable products of soymilk

      The acquisition of First Light Foods has been accounted for using the
      purchase method, and accordingly, the consolidated financial statements
      include the results of operations of the acquired business from the date
      of the acquisition. The purchase price has been allocated to the assets
      acquired and the liabilities assumed based on management's best estimate
      of fair values. Given the complexity of the acquired operations, as well
      as the short time that has elapsed since acquisition, the cost and the
      allocation thereof, of the acquisition is subject to change based on the
      final resolution of those estimates. However, management believes that the
      final resolution of the estimates will not have a material impact on the
      financial position or results of operations of the Company. The fair value
      of the net assets acquired consists primarily of trademarks of $4,000,000
      and future income tax liabilities of $1,000,000. The trademarks will be
      amortized over twenty years.


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  13                     June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Condensed Notes to Consolidated Financial Statements
For the six months ended June 30, 2001
Unaudited
(Expressed in Canadian Dollars)

--------------------------------------------------------------------------------

4.    Inventories

                                                  June 30,    December 31,
                                                      2001            2000
                                                ----------    ------------
                                                         $               $

      Raw materials                              4,347,000       4,991,000
      Finished goods and merchandise             6,983,000       7,834,000
      Grain                                      2,657,000       2,465,000
                                                --------------------------

                                                13,987,000      15,290,000
                                                ==========================

      Grain inventories consist of the following:

                                                  June 30,    December 31,
                                                      2001            2000
                                                ----------    ------------
                                                         $               $
      Company owned grain                        2,477,000       2,208,000
      Unrealized gain on
           Contracts with producers                 14,000         156,000
           Futures contracts                       166,000         101,000
                                                 -------------------------

                                                 2,657,000       2,465,000
                                                 =========================

5.    Long-term debt and banking facilities

      a)    The SunRich Food Group and certain of its subsidiary companies have
            co-guaranteed a bank loan payable by the Group's wholly owned
            subsidiary Nordic of $4,935,000 (December 31, 2000 - $5,286,000).
            The loan contains restrictive financial covenants for the SunRich
            Food Group and certain subsidiaries. As at December 31, 2000 and
            March 31, 2001, Nordic was not in compliance with certain of the
            financial covenants.

            However, on April 12, 2001, the Company entered into an agreement
            with the lender whereby the lender agreed to forebear taking action
            (if any), until April 15, 2002, with respect to the various covenant
            breaches, which existed at December 31, 2000 and March 31, 2001. As
            part of the agreement, the Company renegotiated the financial
            covenants of the bank loan payable and agreed to maintain US
            $264,000 on deposit with the lender. This deposit has been included
            in restricted cash on the balance sheet of the Company at June 30,
            2001. As at April 12, 2001 and June 30, 2001, the Company is in
            compliance with the new financial covenants and expects to remain in
            compliance throughout 2001.

      b)    During the first quarter of 2001, the SunRich Food Group issued a US
            $700,000 note payable in connection with the acquisition of First
            Light Foods, which is repayable over 2 years by payments of US
            $87,500 per quarter plus interest at US Prime (note 3).

      c)    During the second quarter of 2001, the Company repaid a US dollar
            term loan of US $1,000,000.


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  14                     June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Condensed Notes to Consolidated Financial Statements
For the six months ended June 30, 2001
Unaudited
(Expressed in Canadian Dollars)

--------------------------------------------------------------------------------

            Substantially all of the Company's assets are pledged as collateral
            under various lending agreements, with the exception of the real
            property at Stake's corporate offices in Norval, and the lease and
            physical assets in Louisiana.

6.    Capital stock

      (a)   The following is a summary of changes in share capital during the
            period.


<TABLE>
<CAPTION>
                                                   Warrants                 Common shares
                                           --------------------------------------------------------------------
                                             Number              $       Number                $       Total $
                                           --------------------------------------------------------------------
        <S>                                <C>           <C>           <C>            <C>            <C>
        Balance at December 31, 2000         500,000        30,000     28,186,972     22,680,000     22,710,000
        Shares and warrants to acquire
        First Light Foods (c)                 35,000        13,000        833,333      1,268,000      1,281,000
        Options exercised (d)                     --            --         91,400        146,000        146,000
        US private placement (f)             705,749       808,000      1,411,498      1,843,000      2,651,000
        Canadian private placement (g)     1,200,000     1,214,000      2,400,000      5,515,000      6,729,000
                                           --------------------------------------------------------------------
        Balance at June 30, 2001           2,440,749     2,065,000     32,923,203     31,452,000     33,517,000
                                           ====================================================================
</TABLE>


      (b)   During 1997, the shareholders of the Company agreed to reduce the
            capital account of the Company's common shares by $25,026,000
            through a reduction of the deficit.

      (c)   In February 2001, the Company issued 833,333 common shares as a
            component of the purchase price to acquire First Light Foods (note
            3) as partial consideration of the acquired company; the Company
            also issued 35,000 warrants which are exercisable at US $1.70 for
            five years to February 2006. An additional 140,000 warrants may be
            issued prior to 2006 if First Light Foods achieves certain gross
            profits targets.

      (d)   In the first six months of 2001, employees exercised 91,400 options
            and 91,400 common shares were issued for net proceeds of $146,000.

      (e)   On March 5, 2001, the Board approved a resolution extending the
            exercise period of 304,375 options from March 10, 2001 to December
            31, 2003.

      (f)   On April 18, 2001, the Company entered into a transaction for the
            private placement of 1,411,498 units. Each unit was comprised of one
            common share plus a warrant to purchase one-half of a common share.
            As a result, the Company issued 1,411,498 common shares and 705,749
            whole warrants which are exercisable at US $1.75 to purchase 705,749
            common shares until April 30, 2004. The net proceeds of this
            transaction were US $1,728,000 after associated commission, legal
            and other related costs.

      (g)   The Company entered into an agreement on May 18, 2001 for the
            private placement, outside of the United States of 2,400,000 units
            at US $2.00 per unit. Each unit consisted of one common share plus a
            warrant to purchase one-half of a common share. As a result, the
            Company issued 2,400,000 common shares and 1,200,000 whole warrants
            which are exercisable at US $2.40 to purchase 1,200,000 common
            shares until March 31, 2004.

            The Company's agent on this transaction was paid a cash commission
            and was granted a compensation warrant, exercisable until June 8,
            2003, to purchase 144,000 option units at US $2.00 per unit. Each
            option unit is comprised of one common share plus a warrant to
            purchase one-half a common share. As a result, the Company issued
            144,000 common shares and 72,000 whole warrants which are
            exercisable at US $2.40 to purchase 72,000 common shares until March
            31, 2004.


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  15                     June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Condensed Notes to Consolidated Financial Statements
For the six months ended June 30, 2001
Unaudited
(Expressed in Canadian Dollars)

--------------------------------------------------------------------------------

            The net proceeds of this transaction were approximately US
            $4,375,000 after associated commission, legal and other related
            costs.

            One quarter of the gross proceeds of this private placement which
            amounted to US $1,200,000 is held in escrow at June 30, 2001 and
            will be released to the Company on the earlier of (i) the second
            business day following receipt by the Agent and the Escrow Agent of
            an opinion of the Company's US counsel that the Form S-3
            Registration Statement filed by the Company registering the common
            shares issued or issuable in this private placement has been
            declared effective by the SEC, or (ii) June 8, 2002, the first
            anniversary of the closing of this private placement. The escrowed
            amount is included in restricted cash on the balance sheet at June
            30, 2001.

      (h)   As at June 30, 2001 there were options vested to Employees and
            Directors to acquire 1,366,325 common shares at exercise prices of
            US $0.75 to US $1.80. In addition, at June 30, 2001 options to
            acquire an additional 548,900 common shares at US $1.063 to US $1.80
            had been granted but had not yet vested.

7.    Segmented information

            The Company operates in three industry segments: (a) Steam Explosion
            Technology Group: which designs, engineers and sells customized
            steam explosion technology systems; (b) Environmental Industrial
            Group, which sells abrasives and industrial materials and recycles
            in-organic materials and (c) the SunRich Food Group, which
            manufactures, markets, distributes and packages grains and other
            food products with a focus on soy products. The Company's assets,
            operations and employees are located in Canada and the United
            States.


<TABLE>
<CAPTION>
            Industry segments                                                               June 30, 2001
                                                                  -----------------------------------------------------------------
                                                                  Steam
                                                                  Explosion
                                                                  Technology
                                                                  Group and    Environmental           SunRich
                                                                  Corporate    Industrial Group        Food Group       Consolidated
                                                                  $            $                       $                $
                                                                  -----------------------------------------------------------------
            <S>                                                   <C>                <C>               <C>              <C>
            External sales by market
            Canada                                                        --         11,971,000           125,000        12,096,000
            US                                                       450,000          3,500,000        51,513,000        55,463,000
            Asia                                                          --                 --           993,000           993,000
            Other                                                         --            109,000                --           109,000
                                                                  -----------------------------------------------------------------
            Total sales to external customers                        450,000         15,580,000        52,631,000        68,661,000
                                                                  =================================================================

            Interest expense                                          50,000            262,000         1,294,000         1,606,000
                                                                  -----------------------------------------------------------------

            Income tax provision (recovery)                         (227,000)           207,000           434,000           414,000
                                                                  -----------------------------------------------------------------

            Segment net income (loss)                               (557,000)           586,000           842,000           871,000
                                                                  -----------------------------------------------------------------

            Identifiable assets                                   10,441,000         19,444,000        74,619,000       104,504,000
                                                                  -----------------------------------------------------------------

            Amortization                                              86,000            461,000         2,125,000         2,672,000
                                                                  -----------------------------------------------------------------

            Expenditures on property, plant and equipment             12,000            383,000         2,049,000         2,444,000
                                                                  -----------------------------------------------------------------

            Equity accounted investments                             362,000                 --                --           362,000
                                                                  -----------------------------------------------------------------
</TABLE>



--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  16                     June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Condensed Notes to Consolidated Financial Statements
For the six months ended June 30, 2001
Unaudited
(Expressed in Canadian Dollars)

--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                     June 30, 2000
                                                           ------------------------------------------------------------------
                                                           Steam
                                                           Explosion
                                                           Technology
                                                           Group and    Environmental           SunRich
                                                           Corporate    Industrial Group        Food Group       Consolidated
                                                           $            $                       $                $
                                                           ------------------------------------------------------------------
      <S>                                                   <C>               <C>               <C>                <C>
      External sales by market
      Canada                                                   34,000         12,267,000           190,000         12,491,000
      US                                                        4,000          1,911,000        29,560,000         31,475,000
      Asia                                                         --                 --         1,424,000          1,424,000
      Other                                                        --             27,000            24,000             51,000
                                                           ------------------------------------------------------------------

      Total sales to external customers                        38,000         14,205,000        31,198,000         45,441,000
                                                           ==================================================================

      Interest expense                                             --            170,000           104,000            274,000
                                                           ------------------------------------------------------------------

      Income tax  provision (recovery)                       (240,000)                --           326,000            (86,000)
                                                           ------------------------------------------------------------------

      Segment net income (loss)                              (558,000)         1,335,000           741,000          1,518,000
                                                           ------------------------------------------------------------------

      Identifiable assets                                   3,757,000         22,066,000        16,605,000         42,428,000
                                                           ------------------------------------------------------------------

      Amortization                                             65,000            372,000           428,000            865,000
                                                           ------------------------------------------------------------------

      Expenditures on property, plant and equipment             6,000            225,000           101,000            332,000
                                                           ------------------------------------------------------------------

      Equity accounted investments                            365,000                 --                --            365,000
                                                           ------------------------------------------------------------------
</TABLE>


      Geographic segments


<TABLE>
<CAPTION>
                                                  June 30, 2001                                December 31, 2000
                                    -----------------------------------------------------------------------------------------
                                    Canada          US            Total            Canada          US              Total
                                    $               $             $                $               $               $
      <S>                           <C>             <C>           <C>              <C>             <C>             <C>
      Property, plant and
           equipment                 9,933,000      33,666,000     43,599,000       9,944,000      33,214,000      43,158,000
                                    =========================================      ==========================================

      Goodwill                       2,651,000       8,331,000     10,982,000       2,774,000       8,457,000      11,231,000
                                    =========================================      ==========================================

      Total assets                  29,885,000      74,619,000    104,504,000      21,526,000      71,340,000      92,866,000
                                    =========================================      ==========================================
</TABLE>


8.    United States Accounting Principles Differences

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

      Under US GAAP, the gain on dilution resulting from the dilution of the
      Company's ownership of the common share equity of Easton Minerals Limited
      (Easton) would have been excluded from income and included as a separate
      component of shareholders' equity as Easton is a development stage
      company. Also, under US GAAP,


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  17                     June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Condensed Notes to Consolidated Financial Statements
For the six months ended June 30, 2001
Unaudited
(Expressed in Canadian Dollars)

--------------------------------------------------------------------------------

      certain development and start-up costs deferred in these financial
      statements would be expensed. Amortization of related to the development
      and start-up costs would not have been expensed.

      During 2001, the Company repriced certain options. As a result
      compensation expense would be recognized under US GAAP.

      The net effect of income taxes on the above items is insignificant.

      Accordingly, the following would have been reported under US GAAP:


<TABLE>
<CAPTION>
                                                                     Six months ended                Year ended
                                                              --------------------------------------------------
                                                                June 30,           June 30,           December
                                                                    2001               2000           31, 2000
                                                              --------------------------------------------------
<S>                                                           <C>                <C>                <C>
Net earnings for the period - as reported                     $    871,000       $  1,518,000       $  3,374,000
Dilution gain                                                           --           (140,000)          (140,000)
Development, start-up and pre-operating costs expensed             169,000                 --            157,000
Pre-operating costs capitalized                                         --                 --           (768,000)
Stock option compensation expense                                 (891,000)                --            (52,000)
                                                              --------------------------------------------------
Net earnings for the period - US GAAP                         $    149,000       $  1,378,000       $  2,571,000
                                                              ==================================================

Net earnings per share - US GAAP                              $       0.01       $       0.07       $       0.11
                                                              --------------------------------------------------
Weighted average number of common shares outstanding            29,322,000         20,817,000         22,976,000
                                                              ==================================================

Shareholders' equity - as reported                            $ 45,825,000       $ 20,102,000       $ 33,277,000
Cumulative development, start-up and pre-operating costs
    expensed (net of related amortization)                        (681,000)          (164,000)          (850,000)
Cumulative stock compensation expense                             (943,000)                --            (52,000)
                                                              --------------------------------------------------

Shareholders' equity - US GAAP                                $ 44,201,000       $ 19,938,000       $ 32,375,000
                                                              ==================================================
</TABLE>


      Other U.S. GAAP disclosures

                                                         June 30,   December 31,
                                                             2001           2000
                                                        ---------        -------
                                                                $              $
          Allowance for doubtful accounts               1,104,000        939,000
                                                        ------------------------

          Due from Related Parties                        497,000        451,000
                                                        ------------------------

          Inventory provisions                             53,000         61,000
                                                        ------------------------

          Accrued recycling costs                         346,000        298,000
                                                        ------------------------


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  18                     June 30, 2001 10-Q

<PAGE>

Stake Technology Ltd.
Condensed Notes to Consolidated Financial Statements
For the six months ended June 30, 2001
Unaudited
(Expressed in Canadian Dollars)

--------------------------------------------------------------------------------

Comprehensive Income

      US GAAP requires that a comprehensive income statement be prepared.
      Comprehensive income is defined as "The change in equity of a business
      enterprise during a period from transactions and other events and
      circumstances from non-owner events". It includes all changes in equity
      during a period, except those resulting from investments by owners and
      distribution to owners. The comprehensive income statement reconciles the
      reported net income to the comprehensive income.

      The following is a comprehensive income statement (prepared in accordance
      with US GAAP), which, under US GAAP, would have the same prominence as
      other financial statements.


<TABLE>
<CAPTION>
                                                   Six months ended             Year ended
                                              June 30,          June 30,          December
                                                  2001              2000          31, 2000
                                             ----------------------------------------------
<S>                                          <C>               <C>               <C>
Net earnings for the period - US GAAP        $  149,000        $1,378,000        $2,571,000
Currency translation adjustment                 870,000           120,000           258,000
                                             ----------------------------------------------

Comprehensive income                         $1,019,000        $1,498,000        $2,829,000
                                             ==============================================
</TABLE>


9.    Comparative Balances

      Certain comparative account balances have been reclassified to achieve
      comparability to current period balances.


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  19                     June 30, 2001 10-Q

<PAGE>

PART I - FINANCIAL INFORMATION


Item 2 -


      Management's Discussion and Analysis of Financial Condition and Results of
      Operations

      Recent corporate developments

      On April 18, 2001, the Company entered into a transaction for the private
      placement of 1,411,498 units. Each unit was comprised of one common share
      plus a warrant to purchase one-half of a common share. As a result, the
      Company issued 1,411,498 common shares and 705,749 whole warrants which
      are exercisable at US $1.75 to purchase 705,749 common shares until April
      30, 2004. The net proceeds of this transaction were US $1,728,000 after
      associated commission, legal and other related costs.

      The Company entered into an agreement on May 18, 2001 for the private
      placement, outside of the United States of 2,400,000 units at US $2.00 per
      unit. Each unit consisted of one common share plus a warrant to purchase
      one-half of a common share. As a result, the Company issued 2,400,000
      common shares and 1,200,000 whole warrants which are exercisable at US
      $2.40 to purchase 1,200,000 common shares until March 31, 2004. In
      addition to a commission, the agent was granted a compensation warrant,
      exercisable until June 8, 2003, to purchase 144,000 option units at the US
      $2.00 per unit sale price. Each option unit is comprised of one common
      share plus a warrant to purchase one-half a common share. As a result, the
      Company issued 144,000 common shares and 72,000 whole warrants which are
      exercisable at US $2.40 to purchase 72,000 common shares until March 31,
      2004. The net proceeds of this transaction were US $4,375,000 after
      associated commission, legal and other related costs.

      One quarter of the gross proceeds of this private placement which amounted
      to US $1,200,000 is held in escrow at June 30, 2001 and will be released
      to the Company on the earlier of (i) the second business day following
      receipt by the Agent and the Escrow Agent of an opinion of the Company's
      US counsel that the Form S-3 Registration Statement filed by the Company
      registering the common shares issued or issuable in this private placement
      has been declared effective by the SEC, or (ii) June 8, 2002, the first
      anniversary of the closing of this private placement. The escrowed amount
      is included in restricted cash on the balance sheet at June 30, 2001.

      To date, from the proceeds of the two private placements, the Company has
      repaid a US $1,000,000 corporate loan that was drawn in 2000 to provide
      working capital to Northern Food and Dairy, Inc. The Company also
      transferred US $1,995,000 (at June 30, 2000 US $745,000 and a further US
      $1,250,000 subsequent to June 30, 2001) to the SunRich Food Group, Inc. to
      fund the Wyoming soy plant expansion; to replace funds used in the start
      up of Nordic, Inc., the Company's aseptic packaging company and improve
      the Group's working capital. The remaining proceeds will be used for
      working capital as needed and for future business acquisitions.

      Developments at SunRich Food Group, Inc.

      Acquisition in 2001 - Jenkins & Gournoe, Inc.

      In February, 2001, the Company's wholly owned subsidiary, SunRich Food
      Group, Inc acquired 100% of the common shares of Jenkins & Gournoe, Inc.
      (First Light Foods), a private Illinois company that owns certain soy
      trademarks including Soy-Um, and Rice-Um that are sold under an agreement
      to a major California based food retailer. The purchase price was
      approximately $3,000,000 plus certain contingent consideration. The fair
      value of the assets acquired consists primarily of trademarks of
      $4,000,000 less future tax liabilities of $1,000,000.

      The acquisition of First Light Foods complements the SunRich Food Group's
      strategy of becoming a vertically integrated group - from seed to
      merchandisable products of soymilk. Sales for this profitable company are
      running at approximately US $12 million per annum and the business is
      growing with the rapid expansion of the California based retailer across
      the US. First Light Foods operations are included for 150 days in 2001 and
      its assets are included in the June 30, 2001 balance sheet.


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  20                     June 30, 2001 10-Q

<PAGE>

      Nordic start-up losses have decreased in each successive month this year
      and we expect Nordic to be profitable by the end of the fourth quarter of
      2001; however, positive cash flow should be achieved in the third quarter
      of 2001 due to a number of contracts that Nordic has signed that will
      increase production levels.

      In the first week of August, Northern began commissioning its second soy
      milk plant in Wyoming, with production expected to commence in September
      2001. This plant allows Northern to increase total production and better
      serve its customers needs for Western US distribution.

      Northern's revenues exceeded their internal budget in the first quarter
      but had lower sales in the second quarter due to customers reducing
      inventory and some lost dairy business as result of foot and mouth disease
      affecting the transfer of raw materials. Northern sales are now improving
      and the outlook for the second half is encouraging. SunRich's operations
      were affected by poor winter weather conditions and flooding conditions on
      the Mississippi River that resulted in certain shipments budgeted for the
      first quarter being delayed until the second quarter. SunRich has now
      achieved its budgeted earnings and in fact has had a record first half.
      Results for the second half from this subsidiary of the Group should equal
      or exceed budget. Overall soy milk markets remain strong as more consumers
      recognize the health benefit of soy.

      Developments at the Environmental Industrial Group

      The Environmental Industrial Group's aggregates blasting business has
      secured significant sales contracts for supply of the aggregate materials
      for most of the major bridges in the city of New York, the Holland Tunnel
      and 45 bridges in Michigan. Sales of garnets from China continue to expand
      with the appointment of three new distributors.

      Significant new markets are being penetrated in 2001 in the water
      filtration and golf sand trap markets as a result of having a raw material
      source acquired in the Temisca acquisition. The worldwide shortage of
      zircon has resulted in significant price increases, which has benefited
      current inventory balances and margins.

      During the year, the Environmental Industrial Group successfully, achieved
      ISO9002 registration for its Hamilton plant operations.

      During the year, the Temisca sales functions were integrated with the
      BEI/PECAL national sales force resulting in a growth in sales. The
      financial systems have been fully integrated in the second quarter.

      The Environmental Industrial Group was profitable each month during the
      first half of 2001 however, earnings were affected by two bad debts of
      foreign controlled customers. The foundry and steel business have slowed
      in the second quarter with a commensurate slowdown in this Group's sales
      however business remains above the previous year and costs are being
      carefully controlled.

      Developments in the Steam Explosion Technology Group

      In the second quarter of 2001, activities in the steam explosion group
      focused on supporting Pacitec Inc. to market the Company's proprietary
      pulping systems in China. Pacitec acquired certain exclusive marketing
      rights for China under an agreement signed in August 1999.

      Securing the first system sale contract to China remains subject to
      several factors including client financing and approval of various
      government authorities in China.

      In the second quarter, the Company also entered into discussions with an
      overseas group in regard to expanding the Company's marketing efforts into
      certain other regions. These discussions are at an early stage and the
      Company is not in a position to predict whether any agreement will be
      reached. These discussions are covered by a confidentiality agreement
      between the parties.


--------------------------------------------------------------------------------
STAKE TECHNOLOGY LTD.                  21                     June 30, 2001 10-Q

<PAGE>

      The First Six Months of 2001 Operations Compared with the First Six Months
      of 2000 Operations

      Results of operations

      Revenues in the first six months of 2001 increased by 51% to $68,661,000
      from $45,441,000 in 2000 and the Company's earnings for the first six
      months of 2001 were $871,000 or $0.03 per common share compared to
      $1,518,000 or $0.07 per share for the six months ended June 30, 2000.

      Revenues in the second quarter ended June 30, 2001 increased by 30% to
      $38,208,000 from $29,432,000 in 2000 and the Company's earnings for the
      second quarter of 2001 were $836,000 or $0.03 per common share compared to
      $1,110,000 or $0.05 per share in the second quarter of 2000.

      Revenues have increased due to the inclusion of the revenues from
      companies acquired over the past year that were not owned by the Company
      in the first six months of 2000; specifically Northern, Nordic, First
      Light Foods and Temisca. The decrease in earnings in the first six months
      of 2001 compared to 2000 is due to general weakness in the industrial
      minerals business due to the economy and the after tax start-up losses in
      Nordic of $872,000. The Company expects that Nordic will be profitable by
      the fourth quarter of 2001.

      Revenues in the first six months of 2001 from SunRich Food Group
      operations were $52,631,000 (2000 - $31,198,000). Environmental Industrial
      Group's 2001 sales to date were $15,580,000 (2000 - $14,205,000) and steam
      explosion and corporate sales in 2001 to date were $450,000 (2000 -
      $38,000).

      Cost of sales increased to $58,350,000 for the first half of 2001 compared
      to $39,002,000 for the 2000. Cost of sales in the first six months of 2001
      attributable to the Environmental Industrial Group segment were
      $13,079,000 (2000 - $11,848,000), and the SunRich Food Group, cost of
      sales were $45,200,000 (2000 - $27,106,000). Steam Explosion division
      costs of sales were $71,000 (2000 - $48,000), which primarily relates to
      standard amortization charges.

      The Company's consolidated gross margin improved to 15% in the first half
      of 2001 compared to 14.2% in the six months ended June 30, 2000 even
      though there was a negative operating margin of $508,000 resulting from
      Nordic's start-up costs. Without these costs of Nordic, which were not in
      the comparative 2000 margin, the Company's margin has increased to 15.8%
      from 14.2% in 2000 due to better margins in some of the businesses
      acquired into the SunRich Food Group over the past year.

      Research and development costs, principally related to steam explosion
      division as well as applied research done in the SunRich Food Group was
      $220,000 in the first half of 2001 (2000 - $249,000).

      Administration, market development and demonstration expenditures
      increased in the first half of 2001 to $6,990,000 compared to $4,356,000
      for the period ended June 30, 2000. The principal reason for the increase
      in these expenses results from the inclusion of the acquired companies:
      Northern, Nordic, First Light Foods and Temisca administration costs and
      as well as one additional month of PECAL's administrative expenses in 2001
      compared to 2000, increased corporate costs related to the retention of an
      investor relations firm starting in the fall of 2000 and the increased
      costs of administering a larger company.

      In the first half of 2001, SunRich Food Group's administration costs were
      $4,568,000 (2000 - $2,754,000); Environmental Industrial Group's
      operations accounted for $1,430,000 of the administration costs (2000 -
      $899,000) and steam explosion marketing and demonstration and corporate
      administration expenses were $992,000 (2000 - $703,000).

      Amortization of patents, trademarks, licences, pre-operating costs and
      goodwill increased to $554,000 in the first half of 2001, compared to
      $167,000 in the comparable period in 2000 due principally to the
      additional amortization of the goodwill from the acquisitions completed
      over the past year. In addition, the Company deferred $768,000 of
      pre-operating costs at December 31, 2000 related to Nordic, which is
      comprised of the portion of the operating losses from April to December
      31, 2000 that were related to the start up phase of the plant. This amount
      will be written off equally over 36 months and $128,000 of these deferred
      costs was


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STAKE TECHNOLOGY LTD.                  22                     June 30, 2001 10-Q

<PAGE>

      amortized in the first half of 2001. US readers should note that the
      $768,000 of pre-operating costs was expensed under US GAAP in 2000 and the
      $128,000 in amortization expensed under Canadian GAAP in the first half of
      2001 would not be recorded under US GAAP.

      Operating earnings outpaced sales growth of 51% and increased by 53% in
      the first six months of 2001 compared to 2000. For the six months ended
      June 30, 2001 operating earnings were $2,547,000 compared to $1,667,000 in
      the same period in 2000, even after absorbing $1,208,000 (2000 - $nil) of
      operating losses resulting from start up losses of Nordic.

      Interest on long-term debt and other interest increased to $1,606,000 in
      the first half of 2001 from $274,000 in the same period of 2000, due
      principally to the acquisition of Northern and Nordic and their existing
      debt instruments into the SunRich Food Group in August and September 2000.

      Interest and other income increased to $401,000 in the first half of 2001
      from $79,000 in the same period in 2000 due to imputed interest earned on
      the discounted note receivable balance and interest earned on cash
      received from the two private placements.

      The share of losses of equity accounted investees of $25,000 in the first
      half of 2001 (2000 - $24,000) and dilution gain of $nil (2000 - $140,000)
      is related to the Company's 32% equity investment in Easton Minerals Ltd.

      Income before taxes decreased by $319,000 to $1,285,000 for the first six
      months after absorbing the pre - tax startup costs of Nordic of $1,452,000
      compared to pre-tax earnings of $1,604,000 in the first six months of
      2000.

      In contrast, the Company's income before taxes for the second quarter
      increased to $1,429,000 for the period of April 1- June 30, 2001 compared
      to $1,137,000 in the comparable period of 2000, largely due to Nordic's
      pre-tax loss before taxes in the second quarter being $512,000, compared
      to $940,000 in the first quarter of 2001. Nordic's losses continue to
      decrease each month as production levels increase.

      During the year the Company received a $135,000 tax refund related to a
      reassessment of an acquired company's 1998 income taxes. Effective January
      2, 2001, the Company restructured the US operations which allows the US
      companies to file consolidated tax returns and therefore the SunRich Food
      Group, Inc. has recognized the benefits of the Nordic start-up losses
      incurred in the period ended June 30, 2001.

      Net earnings of $871,000 result from the first six months of 2001 compared
      to $1,518,000 in the first six months of 2000. Start up costs expensed by
      Nordic negatively impacted earnings by $872,000 or $0.03 per common share
      after tax. A large part of this decrease is also due to the Company's
      taxes on earning is the six months of 2001 being $414,000 or 32% compared
      to $86,000 or 5% in 2000, due to the 2000 tax provision including the
      recognition of the benefit of the Canadian tax loss carryforward.

      Net earnings of $836,000 result from the second quarter compared to
      $1,110,000 in 2000. This decrease is directly connected to the fact that
      $593,000 or 41% of tax was provided against 2001 income compared to
      $27,000 or 2% being taxed against 2000 income due to the 2000 tax
      provision including the recognition of the benefit of the Canadian tax
      loss carryforward.

      Segmented Operations Information

      The SunRich Food Group

      The SunRich Food Group contributed 77% or $52,631,000 of the $68,661,000
      in consolidated revenues in the first six months. (2000 - $31,198,000 or
      69% of consolidated sales). For the six months ended June 30, 2001,
      SunRich, which now includes First Light Foods sales were $33,750,000 (2000
      - $31,198,000); Northern sales were $16,726,000 (2000 - N/A), and Nordic's
      were $2,155,000 (2000 - N/A).


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STAKE TECHNOLOGY LTD.                  23                     June 30, 2001 10-Q

<PAGE>

      The SunRich Food Group's cost of sales in the first six months of 2001 was
      $45,200,000 (2000 - $27,106,000). The SunRich Food Group's margin in the
      second quarter of 2001 was 14.1% (2000 - 13.1%). The increased margin is
      due to the addition of higher margin businesses by acquisition during the
      year after accounting for Nordic's negative margin in the quarter of
      $508,000. (2000 - $4,000).

      In the first half of 2001, the SunRich Food Group's administration costs
      were $4,568,000 (2000 - $2,754,000). The increase in administrative costs
      is due to additional administration costs of the newly acquired companies
      in the Group: Northern, Nordic and First Light Foods.

      Pre-tax earnings of the SunRich Food Group were $1,276,000 (2000 -
      $1,067,000). While the net earnings of the Group have increased due to the
      addition of Northern and First Light Foods in 2001 compared to 2000, the
      net earnings of the SunRich Food Group were significantly impacted by the
      pre-tax tax loss from the start-up of the Nordic Tetra-Pak operations,
      which totaled $1,452,000 (2000- $120,000) in the period. The Company
      expects Nordic to be profitable by the fourth quarter.

      As a result of a corporate restructuring in the US companies, the benefit
      of tax losses on the Nordic in the first six months have been offset
      against the tax provisions of the profitable companies in the Sunrich Food
      Group; Northern, SunRich and First Light Foods. As a result, a tax
      provision of $434,000 was recorded on consolidated US earnings in the
      period.

      Environmental Industrial Group

      The Environmental Industrial Group contributed 23% or $15,580,000 of the
      first six months of 2001 consolidated revenues (2000 - $14,205,000). The
      9.7% increase in revenues is due to one more month of PECAL operations
      being included in 2001 compared to 2000, as well as the sales of Temisca
      that was acquired into this Group in November 2000. There has been some
      slowdown in the industries that this Group sells to as well as a decision
      to exit a long term low margin supply arrangement that have lead the
      existing B.E.I. sales levels prior to these acquisitions being only
      slightly improved in total in 2001 compared to 2000.

      Cost of sales in the second quarter of 2001 for the Environmental
      Industrial Group was $13,079,000 (2000 - $11,848,000). The Environmental
      Industrial Group's margin decreased to 16.1% in the first six months of
      2001 (2000 - 16.6%). The decrease in margins in 2001 compared to 2000 is
      due to fewer higher margin products being sold in 2001 compared to 2000
      due to supply difficulties as well as general resistance to sales price
      increases from customers due to the general economic uncertainty while
      certain other costs continue to increase.

      The Environmental Industrial Group's operations accounted for $1,430,000
      of consolidated administration costs (2000 - $899,000). The 59% increase
      in these costs is due to the addition of three salesmen, the addition of
      the Temisca administrative staff, the retention of certain administration
      staff from the PECAL acquisition to create a new customer service function
      for the Environmental Industrial Group and the costs of running a larger
      Group with more locations.

      The lower margins and increased administration costs of running a larger
      Group has resulted in pre-tax earnings from operations of the
      Environmental Industrial Group being $793,000 in the first half (2000 -
      $1,335,000).

      Steam Explosion Technology Group and Corporate Activities

      Revenue of $450,000 was derived from the Steam Explosion Technology Group
      and corporate sales in the first half of 2001 (2000 - $38,000) and are
      related mainly to license fees and private industry projects.

      Steam Explosion Technology Group's cost of sales in the first half was
      $71,000 (2000 - $48,000), which primarily relates to standard amortization
      charges. Steam Explosion Technology Group and corporate margins fluctuate
      significantly due to the nature of the revenues in this Group.


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STAKE TECHNOLOGY LTD.                  24                     June 30, 2001 10-Q

<PAGE>

      Steam Explosion Technology Group's marketing and demonstration and
      corporate administration expenses in the first half of 2001 were $992,000
      (2000 - $703,000). The increase in these costs was due to more aggressive
      investor relations' activities, the increased costs of insurance, salaries
      and other costs of operating a larger public company.

      The loss from operations pre - tax of $784,000 (2000 - $798,000) is
      similar due to higher revenues in the six months offset by the these
      additional corporate costs.

      Liquidity and Capital Resources at June 30, 2001

      Cash and cash equivalents of $2,775,000 results from the cash balances of
      $4,636,000 at corporate office remaining from the private placement of
      common shares offset by amounts drawn on the Canadian line of credit of
      $2,368,000 with the ability of offset and cash of $507,000 in the Sunrich
      Food Group.

      From the proceeds of the two private placements, the Company has repaid a
      US $1,000,000 corporate loan that was drawn in 2000 to provide working
      capital to Northern Food and Dairy, Inc. The Company also transferred US
      $745,000 up to June 30, 2001 to the SunRich Food Group, Inc. to fund the
      Wyoming soy plant expansion; to replace funds used in the start up of
      Nordic, Inc., the Company's aseptic packaging company and improve its
      working capital. The remaining proceeds will be used for working capital
      as needed and for future business acquisitions.

      Restricted cash of $2,216,000 (December 31, 2000 - nil) results primarily
      from one quarter of the gross proceeds of the May 18, 2001 private
      placement which amounted to US $1,200,000 is held in escrow and will be
      released to the Company on the earlier of (i) the second business day
      following receipt by the Agent and the Escrow Agent of an opinion of the
      Company's US counsel that the Form S-3 Registration Statement filed by the
      Company registering the common shares issued or issuable in this private
      placement has been declared effective by the SEC, or (ii) June 8, 2002,
      the first anniversary of the closing of this private placement. The
      remaining restricted cash balance is US $264,000 in cash that his held on
      deposit with Nordic's lender as part of security provided under terms of
      the lending agreement.

      Trade accounts receivable increased to $17,969,000 at June 30, 2001 from
      $13,111,000 at December 31, 2000 due the increase in sales, especially in
      the second quarter compared to the fourth quarter of 2000. Trade
      receivables at June 30, 2001 related to the Environmental Industrial
      Group's operations were $5,600,000 (December 31, 2000 - $4,836,000);
      SunRich Food Group's operations receivables were $11,782,000 at June 30,
      2001 (December 31, 2000 - $8,250,000) and general corporate activities and
      steam explosion $587,000 (December 31, 2000 - $25,000).

      The note receivable totalling $4,366,000 at June 30, 2001 (December 31,
      2000 - $5,186,000) and the other long-term payable of $1,688,000 (December
      31, 2000 - $1,651,000) are related to an agreement with a major European
      based company. In the first half of 2001, Northern received payments of
      $1,100,000 on the note receivable from this agreement.

      Inventories were $13,987,000 at June 30, 2001 (December 31, 2000 -
      $15,290,000) due to lower inventories at SunRich due principally to the
      large shipment of grain inventories in the second quarter. First Light
      Foods and the steam explosion business do not carry an inventory balance.

      Future income tax assets of $971,000 at June 30, 2001 ($954,000 - December
      31, 2000) consist principally of the benefit of Canadian tax losses and
      scientific research expenditures recorded by the Canadian entity.

      In the first six months of 2001, $2,444,000 was spent on capital additions
      throughout the Company for scheduled and budgeted machinery and equipment
      improvements and the construction of the Star Valley facility in Wyoming,
      which is expected to start up in September 2001. The Company has no
      significant unbudgeted capital commitments at June 30, 2001.


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STAKE TECHNOLOGY LTD.                  25                     June 30, 2001 10-Q

<PAGE>

      Investments decreased to $362,000 at June 30, 2001 from $382,000 at
      December 31, 2000 due primarily to the equity loss on Easton of $25,000
      (2000 - $24,000) offset by cash advances of $5,000 (Q2 - 2000 - $nil).

      The Company deferred $768,000 of pre-operating costs in 2000 related to
      Nordic and as previously discussed expensed $128,000 of these costs in the
      first half of 2001, which results in the net balance of $640,000 at June
      30, 2001.

      Goodwill decreased to $10,982,000 at June 30, 2001 from $11,231,000 at
      December 31, 2000 due to currency fluctuations, offset by amortization of
      goodwill on the acquisitions of Northern, SunRich, PECAL, Nordic and BEI.

      Patents, trademarks, licences and other assets has increased to $4,223,000
      at June 30, 2001 from $432,000 at December 31, 2000 due to the addition of
      trademarks acquired in the First Light Foods acquisition of approximately
      $4,000,000 (which is being amortized over 20 years on a straight line
      basis), offset by the amortization of existing patents and other assets.

      Accounts payable and accrued liabilities decreased to $18,802,000 in 2001
      from $19,359,000 in December 31, 2000. The decrease in this balance is due
      to the seasonal nature of SunRich's business, which results in the
      decrease in this balance and a compensating increase in the bank
      indebtedness balance.

      Customer deposits decreased to $227,000 at June 30, 2001 ($1,262,000 -
      December 31, 2000) because SunRich's products where shipped during 2001.
      This balance is related to cash deposits made by SunRich customers in 2000
      and early year 2001 for year 2001 purchases. Revenue is booked on these
      transactions when the goods are shipped.

      Lines of Credit

      The Company has total available lines of credit of $10,356,000, comprised
      of $4,300,000 in two Canadian facilities and two US lines comprising US
      $4,000,000 in facilities. The increase in the use of lines of credit from
      $3,405,000 at December 31, 2000 to $6,207,000 at June 30, 2001 is
      principally due to the nature of the SunRich business. SunRich has
      increased their line of credit to US $3,000,000 at June 30, 2001 compared
      to US $900,000 at December 31, 2000. This increase in the bank
      indebtedness of SunRich occurs each year and is quickly repaid in the
      third quarter once the Company has collected the cash from the large barge
      shipments of inventory shipped during the second quarter. The
      Environmental Industrial Group's line of credit use also increased at June
      30, 2001 from December 31, 2000 due the building of inventories to meet
      the large demands of summer business in this Group.

      As part of the Company's strategy to consolidate its US banking, the
      SunRich Food Group is negotiating a line of credit of up to US $4,000,000
      to replace US $3,000,000 of the US $4,000,000 in line of credit. The US
      $4,000,000 line of credit is subject to completion of the lender's due
      diligence on the security being provided. The Company expects this to be
      completed during the third quarter.

      In addition to the above cash draws against the lines of credit, at June
      30, 2001 - $952,000 (December 31, 2000 - $900,000) was drawn against the
      $4,000,000 Canadian facility for a letter of credit to the Ontario
      Ministry of the Environment and Energy for the Certificate of Approval; to
      three key suppliers and for security on the Louisiana lease. There are no
      amounts drawn against the US lines of credit at June 30, 2001 for letters
      of credit.

      Long Term Debt

      Long-term debt, current and long-term portions combined total $28,347,000
      at June 30, 2001 compared to $31,555,000 at December 31, 2000. The
      decrease in the long term debt is due to scheduled repayments, repayment
      of the corporate loan of $1,500,000, offset by a new loan issued as part
      of the consideration paid for First Light Foods.


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STAKE TECHNOLOGY LTD.                  26                     June 30, 2001 10-Q

<PAGE>

      The new loan is for US $700,000 and is to be repaid quarterly in principal
      payment of US $87,500 plus interest at US Prime.

      Substantially all of the Company's assets are pledged as collateral under
      various lending agreements, with the exception of the real property at
      Stake's corporate offices in Norval and physical assets in Louisiana.

      The Company considers its relationship with its principal Canadian bankers
      and the various SunRich Food Group bankers in the US to be satisfactory.

      The Company believes that the cash to be generated from operations in
      2001, its available lines of credit and its ability to secure additional
      working capital financing through an increased US line of credit and the
      additional cash resulting from the private placement of common shares are
      sufficient for the Company's operations during 2001.

      Other long-term liabilities

      The long-term future tax liability of $2,713,000 (December 31, 2000 -
      $1,508,000) has increased principally due to the recording of a future tax
      liability related to the trademarks acquired in the First Light Food
      acquisition.

      The short-term portion of the preference shares in subsidiary companies
      decreased to $247,000 at June 30, 2001 compared to $387,000 at December
      31, 2000 due to $140,000 in preference shares being redeemed in the year
      to date. The remaining balance is due when Temisca achieves certain profit
      and balance sheet stability tests which management anticipates may be
      achieved during fiscal 2001 as well as the scheduled yearly payments for
      the preference shares related to the purchase of land in the BEI
      acquisition.

      Cash Flow

      Cash flow provided by operations before working capital changes for the
      six months ended June 30, 2001 increased by $1,183,000 to $3,518,000 (2000
      - $2,335,000) due to the increase in amortization in the period due to
      larger capital base the Company has now due to the acquisitions over the
      past year. Cash flow used by operations after working capital changes was
      lower by $936,000 resulting in cash used of $1,888,000 compared to
      $2,824,000 in the first half of 2000.

      Cash used in investment activities decreased to $4,068,000 for the six
      months ended June 30, 2001 (2000 - $4,574,000). In 2001 the investment
      activities were related to a larger acquisition of property plant and
      equipment of $2,444,000 (2000 - $332,000) due to the increased size of the
      Company and $2,216,000 (2000 - nil) from the addition of restricted cash
      resulting from a deposit placed with a lender and certain funds held in
      escrow from the private placement of shares in the second quarter. In
      2000, the cash used was principally connected to the acquisition of PECAL,
      which is now part of the Environmental Industrial Group.

      Cash provided by financing activities was $7,707,000 in the first half of
      2001 (2000 - $4,814,000). The increase is largely due to the issuance of
      common shares from two private placements completed during the second
      quarter offset by the repayments of long-term debt exceeding the
      borrowings under lines of credit. In 2000 the financing activities were
      substantially connected to the issuance of new debt connected to the
      acquisition of PECAL in the first quarter of 2000, which is now part of
      the Environmental Industrial Group.


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<PAGE>


 
     Item 3 -

      Quantitative and Qualitative Disclosures about Market Risk

      Interest Rate Risk

      The primary objective of our investment activities is to preserve
      principal while at the same time maximizing yields without significantly
      increasing risk. To achieve this objective, we maintain our portfolio of
      cash equivalents, short-term and long-term investments in a variety of
      securities, including both government and corporate obligations and money
      market funds. These securities are generally classified as available for
      sale and consequently are recorded on the balance sheet at fair value with
      unrealised gains or losses reported as a separate component of accumulated
      other comprehensive income, net of tax.

      Debt in both fixed rate and floating rate interest carry varying degrees
      of interest rate risk. Fixed rate debt may have their fair market value
      adversely impacted due to a rise in interest rates. In general, longer
      date debts are subject to greater interest rate risk than shorter dated
      securities. Floating rate securities generally are subject to less
      interest rate risk than fixed rate securities. As of June 30, 2001, the
      weighted average interest rate of the fixed rate debt was 9%. If interest
      rates were to instantaneously increase (decrease) by 100 basis points, the
      fair market value of the total fixed rate debt could decrease (increase)
      by approximately $241,000.

      Foreign Currency Risk

      International sales are made mostly from our foreign sales in the US and
      other countries by our US subsidiaries that also incur most of their
      expenses in the local currency. Accordingly, all US subsidiaries use the
      local currency as their functional currency. Our international business is
      subject to risks typical of international business, including, but not
      limited to differing economic conditions, changes in political climate,
      differing tax structures, other regulations and restrictions, and foreign
      exchange rate volatility. Accordingly, our future results could be
      materially adversely impacted by changes in these or other factors. These
      intercompany accounts are typically denominated in US $, the functional
      currency of the US subsidiaries order to centralize foreign exchange risk
      with the parent Company in Canada. We are also exposed to foreign exchange
      rate fluctuations as the financial results of US subsidiaries are
      translated into Canadian $ on consolidation. As exchange rates vary, these
      results when translated may vary from expectations and adversely impact
      overall expected profitability.

      A 10% movement in the levels of foreign currency exchange rates against
      the Canadian dollar with all other variables held constant would result in
      a decrease in the fair value of the Company's financial instruments by
      $2,033,000. A 10% movement in favour of the Canadian dollar with all other
      variables held constant would result in an increase in the fair value of
      the Company's financial instructions by $2,033,000.

      Commodity Risk

      The SunRich Food Group enters into exchange-traded commodity futures and
      options contracts to hedge its exposure to price fluctuations on grain
      transactions to the extent considered practicable for minimizing risk from
      market price fluctuations. Futures contracts used for hedging purposes are
      purchased and sold through regulated commodity exchanges. Inventories,
      however, may not be completely hedged, due in part to the Company's
      assessment of its exposure from expected price fluctuations. Exchange
      purchase and sales contracts may expose the Company to risk in the event
      that counterparty to a transaction is unable to fulfill its contractual
      obligation. The Company manages its risk by entering into purchase
      contracts with pre-approved producers. The Company has a risk of loss from
      hedge activity if a grower does not deliver the grain as scheduled. Sales
      contracts are entered into with organizations of acceptable
      creditworthiness, as internally evaluated. All futures transactions are
      marked to market. Gains and losses on futures transactions related to
      grain inventories are included in cost of goods sold.


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STAKE TECHNOLOGY LTD.                  28                     June 30, 2001 10-Q

<PAGE>


PART II - OTHER INFORMATION.


      Item 1. Legal proceedings

      The Company has filed a claim against a former director relating to
      certain actions taken when he was the President of its operating division,
      BEI. The former director has counter-claimed against the Company and its
      subsidiaries, the Chairman of the Company and Easton, the Company's 32%
      equity investment. In addition, this former director has claimed that the
      Montreal distribution facility that the Environmental Industrial Group
      leases from the former director needs significant repairs.

      The Company and its legal counsel believe in the first matter their claim
      has merit and that the counter-claim is without merit. In the second
      matter, the Company has determined that it is connected to the first
      matter, and the Company and its legal counsel believe the claim is without
      merit as to the full extent of the claim. It cannot be determined if there
      will be any recovery by the Company at this time or if there will be an
      additional loss to the Company, and no provision has been made in the
      Company's financial statements in respect of these matters.

      During 2001, the SunRich Food Group has commenced a suit against a
      supplier for failure to adhere to the terms of a contract. The Company and
      its legal counsel believe that this claim has merit. It cannot however be
      determined if there will be any recovery by the Company at this time and
      the Group is providing for the costs of pursuing this suit on a monthly
      basis. Other than this action, the Group has not been and is not currently
      a party to any material litigation.

      The Environmental Industrial Group has not been and is not currently a
      party to any material litigation.

      The Steam Explosion Technology Group has not been and is not currently a
      party to any material litigation.


      Item 2. Changes in securities and use of proceeds

      In February 2001, the Company issued to the shareholders of Jenkins and
      Gournoe, Inc., which operate under the name First Light Foods, 833,333 of
      its common shares as a component of the purchase price for 100% of the
      common stock of Jenkins and Gournoe. In addition, the Company also issued
      35,000 warrants to acquire common shares of the Company, which are
      exercisable at US $1.70 per share for a five-year period ending February
      2006. Up to an additional 140,000 warrants to acquire common shares of the
      Company may be issued prior to February 2006 if First Light Foods achieves
      certain pre determined gross profit targets. The exercise price for these
      warrants, if issued, will be the market price of the Company's common
      shares at the time the warrants are issued. The warrants will have a term
      of five years from the date of issue. See note 3 to the Financial
      Statements for further information.

      On April 18, 2001, the Company entered into a transaction for the private
      placement of 1,411,498 units. Each unit was comprised of one common share
      plus a warrant to purchase one-half of a common share. As a result, the
      Company issued 1,411,498 common shares and 705,749 whole warrants which
      are exercisable at US $1.75 to purchase 705,749 common shares until April
      30, 2004. The net proceeds of this transaction were US $1,728,000 after
      associated commission, legal and other related costs.

      The Company entered into an agreement on May 18, 2001 for the private
      placement, outside of the United States of 2,400,000 units at US $2.00 per
      unit. Each unit consisted of one common share plus a warrant to purchase
      one-half of a common share. As a result, the Company issued 2,400,000
      common shares and 1,200,000 whole warrants which are exercisable at US
      $2.40 to purchase 1,200,000 common shares until March 31, 2004. In
      addition to commission, the agent was granted a compensation warrant,
      exercisable until June 8, 2003, to purchase 144,000 option units at the US
      $2.00 per unit sale price. Each option unit is comprised of one common
      share plus a warrant to purchase one-half a common share. As a result, the
      Company issued 144,000 common shares and 72,000 whole warrants which are
      exercisable at US $2.40 to purchase 72,000 common shares until


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<PAGE>

      March 31, 2004. The net proceeds of this transaction were US $4,375,000
      after associated commission, legal and other related costs.

      One quarter of the gross proceeds of this private placement which amounted
      to US $1,200,000 is held in escrow at June 30, 2001 and will be released
      to the Company on the earlier of (i) the second business day following
      receipt by the Agent and the Escrow Agent of an opinion of the Company's
      US counsel that the Form S-3 Registration Statement filed by the Company
      registering the common shares issued or issuable in this private placement
      has been declared effective by the SEC, or (ii) June 8, 2002, the first
      anniversary of the closing of this private placement. The escrowed amount
      is included in restricted cash on the balance sheet at June 30, 2001.

      To date, from the proceeds of the two private placements, the Company has
      repaid a US $1,000,000 corporate loan that was drawn in 2000 to provide
      working capital to Northern Food and Dairy, Inc. as was agreed in the
      purchase agreement with Northern. The Company transferred US $745,000 up
      to June 30, 2001 and a further US $1,250,000 subsequent to June 30, 2001
      for a total of US $1,995,000 to the SunRich Food Group, Inc. to fund the
      Wyoming soy plant expansion; to replace funds used in the start up of
      Nordic, Inc., the Company's aseptic packaging company and improve its
      working capital. The remaining proceeds will be used for working capital
      as needed and for future business acquisitions.

      As of the date of this document Stake has 32,923,203 Common Shares
      outstanding, and 4,571,975 additional common shares are reserved for
      issuance and are detailed as follows:

            1)    Warrants to purchase 500,000 shares exercisable at US$1.50
                  expiring September 15, 2005 from the acquisition of Northern;
            2)    Warrants to purchase 35,000 shares exercisable at US$1.70
                  expiring February 28, 2006 from the acquisition of Jenkins &
                  Gournoe Inc.;
            3)    Warrants to purchase 705,750 shares exercisable at US$1.75
                  expiring March 31, 2004 from the private placement completed
                  on April 18, 2001;
            4)    Warrants to purchase 1,200,000 shares exercisable at $US2.40
                  expiring March 31, 2004 from the private placement completed
                  on June 8, 2001;
            5)    Option to acquire 144,000 shares which may be acquired by the
                  agent under the terms of the May 18, 2001 private placement
                  agreement at US$2.00;
            6)    Warrants to purchase 72,000 shares, which may be acquired by
                  the agent under the terms of the May 18, 2001 private
                  placement agreement if the 144,000 options (noted above in 5)
                  are exercised. The warrants to purchase 72,000 shares are
                  exercisable at US$2.40 expiring March 31, 2004; and
            7)    Options to acquire 1,915,225 shares previously granted to
                  employees, directors and consultants under various company
                  stock option plans.


Item 3. Defaults on Senior Securities

      Not applicable


Item 4. Submission of Matters to a Vote of Security Holders

      Not applicable


Item 5. Other

      Not applicable


Item 6. Exhibits and reports on Form 8-K

            (a)   Exhibits - Not applicable

            (b)   Reports on Form 8-K - No current report on Form 8-K was filed
                  by the Company during the six month period ended June 30, 2001


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<PAGE>


SIGNATURES

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

                                        STAKE TECHNOLOGY LTD.


                                        /s/ Leslie N. Markow
Date August 10, 2001
     ---------------
                                        Stake Technology Ltd.
                                        by Leslie N. Markow
                                        Vice President - Finance
                                        & Chief Financial Officer


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STAKE TECHNOLOGY LTD.                  31                     June 30, 2001 10-Q