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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 27, 2014

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-50367

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

(250) 658-8582
Registrant’s telephone number, including area code

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [  ]

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ] No [X]

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.
66,378,003 shares of common stock as of November 10, 2014.

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CRAILAR TECHNOLOGIES INC.

Quarterly Report On Form 10-Q
For The Quarterly Period Ended
September 27, 2014

INDEX

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FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Forward-looking statements in this quarterly report include, among others, statements regarding our capital needs, business plans and expectations. Such forward-looking statements include, but are not limited to, statements with respect to the following:

Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined in our annual report on Form 10-K for the year ended December 29, 2013, this quarterly report on Form 10-Q, and, from time to time, in other reports that we file with the Securities and Exchange Commission (the “SEC”). These factors may cause our actual results to differ materially from any forward-looking statement. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The following unaudited interim financial statements of Crailar Technologies Inc. (formerly Naturally Advanced Technologies, Inc.) (sometimes referred to as “we”, “us” or the “Company”) are included in this quarterly report on Form 10-Q:

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The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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CRAiLAR Technologies Inc.
Notes to Consolidated Financial Statements
September 27, 2014
(Unaudited)

These unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial reporting and the rules and regulations of the Securities and Exchange Commission. They do not include all information and footnotes required by United States generally accepted accounting principles (“U.S. GAAP”) for complete financial statement disclosure. The interim consolidated financial statements have been prepared on a consistent basis with the audited consolidated financial statements for the year ended December 28, 2013, included in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission. Operating results for the thirty-nine week period ended September 27, 2014 are not necessarily indicative of the results that may be expected for the year ending December 27, 2014. These interim unaudited consolidated financial statements should be read in conjunction with the information included in the Company’s Form 10-K filed on March 28, 2014 with the U.S. Securities and Exchange Commission.

Effective fiscal 2013, the Company began to report quarterly results on a 4-4-5 basis, with the quarter ending on the Saturday closest to the last day of each third month. In fiscal 2014, the Company's first quarter ended on March 29, 2014, the second quarter ended on June 28, 2014, the third quarter ended on September 27, 2014 and the fourth quarter will end on December 27, 2014.

In the opinion of management, the accompanying balance sheet and related statement of operations and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with U.S. GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions.

The Company’s consolidated financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and payment of liabilities in the normal course of business. The Company has incurred losses since inception of $53,435,631 and further losses are anticipated in the development of its business. There can be no assurance that the Company will be able to achieve or maintain profitability and future operations are dependent on raising additional funding from debt or equity financings. These factors raise substantial doubt as to the Company's ability to continue as a going concern.

The Company has elected to early adopt the guidance in FASB Topic 915 and no longer provides the accounting disclosures for development stage companies. Accordingly, the figures for the period from inception to the current period are no longer provided and all references to development stage operations have been removed. Other recent accounting pronouncements with future effective dates are not expected to have an impact on the Company’s financial statements.

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CRAiLAR Technologies Inc.
Notes to Consolidated Financial Statements
September 27, 2014
(Unaudited)

During the thirty-nine week period ended September 27, 2014, the Company recorded amortization and depreciation expense of $426,993 (2013 - $643,379) of which $350,374 (2013 - $483,624) was classified as cost of sales.

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CRAiLAR Technologies Inc.
Notes to Consolidated Financial Statements
September 27, 2014
(Unaudited)

Deferred issuance costs:

Convertible Debentures

On September 20, 2012, the Company completed the offering of $10,051,262 (CAD$10,000,000) convertible debentures (the “September 2012 Debentures”). The September 2012 Debentures mature on September 20, 2017. The September 2012 Debentures bear interest at a rate of 10% per year, payable semi-annually on March 31 and September 30, starting March 31, 2013. As at September 27, 2014, accrued interest of $451,803 (CAD$493,585) (2013 – 485,296, (CAD$500,000)) was included in accrued liabilities. On February 26, 2013, the Company completed an offering of $4,943,643 (CAD$5,000,000) convertible debentures (the “February 2013 Debentures”). The February 2013 Debentures mature on September 30, 2017. The February 2013 Debentures bear interest at a rate of 10% per year, payable semi-annually on March 31 and September 30, starting September 30, 2013. As at September 27, 2014, accrued interest of $226,157 (CAD$246,576) (2013 – 288,518 (CAD$297,260)) was included in accrued liabilities. The Company paid a total of $427,049 (CAD$487,830) in cash issuance costs which have been recorded as deferred debt issuance costs.

Holders of the September 2012 Debentures and February 2013 Debentures have the option to convert the convertible debentures into shares of the Company’s common stock at a price of $2.85 (CAD$2.90) per common share at any time prior to the maturity date. The Company may redeem the September 2012 Debentures and the February 2013 Debentures after September 30, 2015 provided that the market price at the time of the redemption notice is not less than 125% of the conversion price. The conversion price is subject to standard anti-dilution provisions.

The September 2012 Debentures and February 2013 Debentures are secured by a Guaranty and Security Agreement signed with the Company’s wholly-owned subsidiary, Crailar Inc. (“CI”), a Nevada incorporated company. CI has provided a security interest over its assets, having an aggregate acquisition cost of no less than $5,500,000, as security for its guarantee obligation which shall rank in priority to all other indebtedness of CI.

The September 2012 Debentures and February 2013 Debentures do not contain a beneficial conversion feature, as the fair value of the Company’s common stock on the date of issuance was less than the conversion price. All proceeds from the debentures were recorded as a debt instrument.

On July 26, 2013, the Company closed a convertible debenture offering for gross proceeds of $3,363,606 (CAD$3,535,000) (the “July 2013 Debentures”). The July 2013 Debentures will mature on July 26, 2016 and will accrue interest at a rate of 10% per year, payable semi-annually in arrears on March 31 and September 30 commencing September 30, 2013. In the event the Company completes one or more equity financings between July 26, 2013 and July 26, 2016 with gross proceeds of at least an aggregate of $19.4 million (CAD$20.0 million), the Company must, subject to providing no less than 60 days prior notice to each holder of the July 2013 Debentures, redeem the July 2013 Debenture in whole at face value plus all accrued and unpaid interest thereon. As at September 27, 2014, accrued interest of $159,893 (CAD$174,329) was included in accrued liabilities. At the holder’s option, the debentures may be converted into common shares in the capital of the Company at any time up to the earlier of the maturity date and the business day immediately preceding the date specified by the Company for redemption of the debentures. The conversion price is CAD$1.25 per share.

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CRAiLAR Technologies Inc.
Notes to Consolidated Financial Statements
September 27, 2014
(Unaudited)

In addition, in connection with the July 2013 Debentures, the Company issued 800 transferable common share purchase warrants (each, a “Warrant”) for each $904 (CAD$1,000) of principal amount, resulting in the issuance of an aggregate of 2,828,000 Warrants, with each Warrant entitling the holder thereof to purchase one additional common share (each, a “Warrant Share”) at an exercise price of $2.00 per Warrant Share until July 26, 2016. The Company determined the fair value of the Warrants to be $974,387 (CAD$1,003,910) using the Black-Scholes Option Pricing Model with the following assumptions: expected dividend yield – 0; expected stock price volatility – 56%; risk-free interest rate – 0.59%; expected life – 2.83 years.

The proceeds were allocated to the July 2013 Debentures and the Warrants based on their relative fair values and accordingly, $2,295,309 (CAD$2,757,300) was allocated to the July 2013 Debentures and $754,829 (CAD$777,700) was allocated to the Warrants and recorded as a reduction in the July 2013 Debentures and an increase in additional paid-in capital.

The Company incurred a total of $440,139 in issuance and commission costs relating to the July 2013 Debentures. This included $373,861 in cash issuance costs and the fair value of warrants to purchase 192,360 common shares issued to a finder of $66,278. The warrants entitle the holder to purchase common shares for CAD $1.25 per share for three years from the date of issuance. The fair value of the warrants was calculated using the Black-Scholes Option Pricing Model with the following assumptions: expected dividend yield – 0; expected stock price volatility – 56%; risk-free interest rate – 0.59%; expected life – 2.83 years. The allocation of the issuance costs were based on the relative fair value of the July 2013 Debentures and the Warrants and, accordingly, $337,469 was allocated to deferred debt issuance costs and $102,670 was allocated to additional paid-in capital during the year ended December 28, 2013.

The July 2013 Debentures include a continuing security interest in certain of the Company’s assets pursuant to a Guaranty and Security Agreement. On December 17, 2013 the Guaranty and Security Agreement was amended to only provide a security interest in certain specific assets held by the Company which had an acquisition cost of $3,922,240. As consideration for the modification, the conversion price of the debentures was amended to $1.21 (CAD$1.25) per share. The Company determined the fair value of the additional debt discount to be $79,931 using the Black-Scholes Option Pricing Model with the following assumptions: expected dividend yield – 0; expected stock price volatility – 56%; risk-free interest rate – 0.59%; expected life – 2.42 years.

During the thirty-nine week period ending September 27, 2014 the Company recorded accretion of the July 2013 Debentures debt discount in the amount of $188,153 which was included in interest expense.

During the thirty-nine week period ended September 27, 2014, the Company recorded $307,444 (2013 - $288,462) in interest expense for the amortization of deferred issuance costs.

IKEA Supply AG Loan

During the thirty-nine week period ended September 27, 2014 the Company received $2,197,153 (€1,597,000) pursuant to a loan agreement entered into with IKEA Supply AG (“IKEA”) with an effective date of November 29, 2013. The loan bears an interest rate of 1.9% per annum and is payable in monthly installments of $15,118 (€11,000) from December 20, 2014 through June 20, 2016 with the remainder due in full on June 25, 2016. IKEA agreed to loan the Company a total of $3,028,300 (€2,190,000) which was fully drawn during the second quarter. The loan is secured by assets purchased with the proceeds, as well as a portion of the secured assets used to secure the July 2013 Debentures. As at September 27, 2014, accrued interest of $32,524 (€25,554) was included in accrued liabilities.

The Company incurred a total of $52,114 in issuance costs related to the IKEA loan. This included $37,079 in costs paid during the year ended December 28, 2013 and $15,034 paid during the thirty-nine week period ended September 27, 2014. During the thirty-nine week period ended September 27, 2014, the Company recorded $15,067 (2013 - $nil) in interest expense for the amortization of deferred issuance costs.

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CRAiLAR Technologies Inc.
Notes to Consolidated Financial Statements
September 27, 2014
(Unaudited)

On October 11, 2013, the Company issued a convertible promissory note in favor of Mr. Jason Finnis, an officer and director, in the principal amount of $96,180 (CDN$100,000). The promissory note is unsecured and bears interest on the principal amount at the rate of 12% per annum, which interest is payable in full on repayment of the principal amount. On November 7, 2013, the company repaid Mr. Finnis $48,326 (CDN$50,000) of principal including interest of $441 (CDN$460). On April 1, 2014 the Company repaid Mr. Finnis $49,427 (CAD $52,807) for the remaining balance of the note and interest.

On October 11, 2013, the Company issued a convertible promissory note in favor of Mr. Kenneth Barker, an officer and director, in the principal amount of $50,000. The promissory note is unsecured and accrues interest on the principal amount at the rate of 12% per annum, which interest is payable in full on repayment of the principal amount. On April 2, 2014 the Company repaid Mr. Barker $52,751 for the outstanding balance of the note including interest.

On October 11, 2013, the Company issued a demand convertible promissory note in favor of Mr. Robert Edmunds, a director, in the principal amount of $467,369 (CDN$500,000). On December 4, 2013, the Company issued an additional demand convertible promissory note in favor of Mr. Edmunds, pursuant to a loan from Mr. Edmunds to the Company in the principal amount of $42,255 (CDN$45,000). The promissory notes are unsecured and accrue interest on the principal amount at a rate of 20% per annum, which interest is payable in full on repayment of the principal amount. In connection with the amendment of such convertible promissory notes, 181,666 bonus common shares of the Company were issued to Mr. Edmunds on January 30, 2014 with a fair value of $131,744. The value of the shares will be amortized over the term of the loan. During the thirty-nine week period ended September 27, 2014, the Company recorded $131,744 in interest expense relating to the amortization of the value of the bonus shares. On April 1, 2014 the Company repaid Mr. Edmunds $559,274 for the outstanding balance of the note including interest.

The promissory notes issued to our officers and directors during the year ended December 28, 2013 contain conversion features. Each lender has the right to convert any portion of the outstanding principal and interest payable for units at a conversion price of $0.60 per unit. Each unit is comprised of one common share and one common share purchase warrant of the Company. Each warrant entitles the holder to acquire one common share of the Company at an exercise price of CAD$0.70 per common share for a term of five years. The Company recognized a beneficial conversion feature of $188,140 (CAD$200,000) based on the excess of the fair value of the common stock over the conversion price. During the thirty-nine week period ended September 27, 2014, the Company amended the loans and removed the beneficial conversion feature. The Company incurred an accretion expense of $150,372 during the thirty-nine week period ended September 27, 2014, reducing the value of the beneficial conversion feature to a balance of $nil.

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CRAiLAR Technologies Inc.
Notes to Consolidated Financial Statements
September 27, 2014
(Unaudited)

During the thirty-nine week period ended September 27, 2014, the Company issued shares as follows:

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CRAiLAR Technologies Inc.
Notes to Consolidated Financial Statements
September 27, 2014
(Unaudited)

Share purchase warrants outstanding as at September 27, 2014 are:

The weighted average remaining contractual life of outstanding warrants at September 27, 2014, is 4.12 years.

Stock options outstanding as at September 27, 2014 are:

Stock options outstanding at September 27, 2014, are summarized as follows:

During the thirty-nine week period ended September 27, 2014, options to purchase 895,522 (2013 – 1,393,844) common shares vested under the Company’s amended 2011 Fixed Share Option Plan. A total expense of $841,067 (2013 - $1,642,532) was recorded as stock-based compensation, of which $33,729 (2013 - $214,398) was included in consulting and contract labour expense and $807,368 (2013 - $1,428,134) was included in salaries and benefits expense.

The fair value of options granted during the thirty-nine week period ended September 27, 2014 was determined using the Black-Scholes option pricing model with the following assumptions:

The weighted average fair value of the options granted during the thirty-nine week period ended September 27, 2014 is $1.31.

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CRAiLAR Technologies Inc.
Notes to Consolidated Financial Statements
September 27, 2014
(Unaudited)

On December 1, 2013, the Company acquired certain assets of Schrurs NV, a textile company located in Ieper, Belgium, by means of an asset purchase agreement. The assets purchased include all of the production equipment, computer equipment and the rights to all of the employee contracts related to a production facility in Ieper, Belgium. The purchase price of the assets of Schrurs NV was settled by the Company assuming outstanding debt of $1,172,081 (€861,551). The general decline in the textile business in Europe had left assets available at a favorable price for the Company. This acquisition resulted in a bargain purchase gain of $425,909 as follows:

Under the terms of the asset purchase agreement, for a term of five years from the closing date of December 1, 2013, the repayment of the debt assumed by the Company shall be made in accordance with the terms of such debts and / or the repayment terms agreed upon between the seller and the respective creditors of the seller’s debts. On the fifth anniversary of the closing date, the aggregate outstanding amount under the seller’s debts at that point in time shall be repaid in whole by the Company to the respective creditors of the seller’s debts. During the thirty-nine week period ended September 27, 2014, the Company made repayments of $157,864 and accrued interest of $17,545.

At September 27, 2014 the debt assumed consists of the following,

The Company currently has production facilities in North America and Europe. Operations at the North American facilities are currently suspended until the Company decides to install the necessary additional equipment to improve capacity or moves the equipment elsewhere for production.

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CRAiLAR Technologies Inc.
Notes to Consolidated Financial Statements
September 27, 2014
(Unaudited)

During the thirty-nine week period ended September 27, 2014, sales to two major customers accounted for 85% of revenue (2013 - 60%).

During the thirty-nine week period ended September 27, 2014, $793,370 (2013 - $1,104,489) was incurred for remuneration to officers and directors of the Company.

Refer to Note 6.

The Company is committed to lease payments totaling approximately $1,058,000 for premises under lease. The minimum lease payments over the next five years are as follows:

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

The following discussion and analysis of our results of operations and financial position should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report. Our consolidated financial statements are prepared in accordance with U.S. GAAP. All references to dollar amounts in this section are in U.S. dollars unless expressly stated otherwise.

Overview

We are focused on bringing sustainable bast fiber-based products to market that are environmentally friendly natural fiber alternatives with equivalent or superior performance characteristics to cotton, wood or fossil-fuel based fibers. Our business operations consist primarily of the production of our natural and proprietary CRAiLAR® Flax fibers targeted at the natural yarn and textile industries, as well as the deployment of our CRAiLAR® processing technologies in the cellulose pulp and composites industries. We believe that we offer two key opportunities for development:

Effective in Fiscal 2013, we began to report our first, second, third and fourth quarters on a 4-4-5 basis, with each quarter ending on the Saturday closest to the last day of each third month.

Acquisition of Production Facility

We commenced production of the first stage of the CRAiLAR® flax fiber process in the first quarter of Fiscal 2013 out of our decortication facility in Pamplico, South Carolina. Following the decortication process, the fibers were converted into Crailar® Flax fiber at a third party wet processing facility with initial fiber sales beginning in the second quarter of Fiscal 2013. We suspended operations at the South Carolina facility in third quarter of 2013 until improvements have been built and installed to the front end of the production line. In December 2013, we acquired a European fiber dyeing facility with equipment similar to that used to produce CRAiLAR® Flax fiber. The acquisition was made pursuant to an Asset Purchase Agreement dated November 6, 2013, which was amended and restated on December 13, 2013. The new facility allowed us to accelerate our timeline for establishing a company-controlled CRAiLAR® wet processing capability. Production of CRAiLAR® fibers at this facility commenced in January 2014. We believe the facility has the capacity to produce over 280,000 pounds of CRAiLAR® Flax fiber per week with space to expand the capacity to over 560,000 pounds per week.

Completion of Public Offering

On August 6, 2014, the Company completed the public offering of 13,000,000 units of the Company at a price of $0.50 per unit for gross proceeds of $6,500,000. Each unit is comprised of one common share and one common share purchase warrant of the Company. Each warrant entitles the holder to acquire one common share of the Company at an exercise price of $0.535 per common share at any time prior to August 6, 2019. The warrants have exercise prices denominated in United States dollars, which differs from the Company’s functional currency and are therefore classified as a derivative liability and recorded at fair value which was determined to be $3,927,000 on issuance and $3,509,000 at September 27, 2014. The fair value of warrants is re-measured at each balance sheet date and the change in fair value is recorded in the statement of loss. The fair value was determined using the Black-Scholes option pricing model. The Company paid 7% of gross proceeds of the offering to the underwriters and granted them an option (the “Over-Allotment Option”), exercisable in whole or in part at any time up to 30 days following the closing of the offering. The Over-Allotment Option allowed the underwriters to purchase an additional 15% of the offering solely to cover over-allotments, if any, and for market stabilization purposes. The Over-Allotment Option entitled the underwriters to purchase a maximum of 1,950,000 units at a price of $0.50 per unit or 1,950,000 common shares at a price of $0.499 per share and/or 1,950,000 warrants. Each warrant entitles the holder to acquire one common share of the Company at an exercise price of $0.535 per common share at any time prior to August 6, 2019. On August 6, 2014, the Over-Allotment Option was partially exercised and the underwriters purchased 1,950,000 warrants at $0.001 per warrant for proceeds of $1,950. On

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August 15, 2014, the Over-Allotment Option completed for 1,950,000 shares of the Company at a price of $0.499 per unit for gross proceeds of $973,050. The Company paid 7% of the gross proceeds of the Over-Allotment Option to the underwriters.

Debentures

On September 20, 2012, we completed the offering of $10.1 million (CAD$10.0 million) worth of convertible debentures (the “September 2012 Debentures”), which bear interest at a rate of 10% per year, payable semi-annually on March 31 and September 30 of each year and mature on September 20, 2017. The holders of the September 2012 Debentures have the option to convert the September 2012 Debentures into shares of our common stock at a price of $2.85 (CAD$2.90) per share for each $972 (CAD$1,000) of principal amount at any time prior to the maturity date. On February 25, 2013, we completed another offering of $4.9 million (CAD$5.0 million) convertible debentures (the “February 2013 Debentures”) with essentially the same terms as the previously mentioned offering. Furthermore, on July 26, 2013, we completed a third offering of $3.4 million (CAD$3.5 million) worth of convertible debentures (the “July 2013 Debentures”) with an interest rate of 10% payable semi-annually on March 31 and September 30 of each year, which mature on July 26, 2016. Originally, the holders of the July 2013 Debentures had the option to convert such debentures into shares of our common stock at a price of $1.94 (CAD$2.00) per share for each $972 (CAD$1,000) of principal amount of debentures at any time prior to the maturity date. However, pursuant to the Amended and Restated Convertible Debenture Indenture dated December 23, 2013, the conversion price for the July 2013 Debentures has been reduced to $1.21 (CAD$1.25) per share of common stock. The holders of the July 2013 Debentures also each received warrants to purchase 800 shares of our common stock at an exercise price of $1.21 (CAD$1.25) per share for each $972 (CAD$1,000) of principal amount of July 2013 Debentures purchased, which warrants are exercisable at any time prior to the maturity date of the debentures.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its six wholly-owned subsidiaries as of September 27, 2014: Crailar Inc., a Nevada incorporated company; Hemptown USA, Inc., a Nevada incorporated company; 0697872 B.C. Ltd., a British Columbia incorporated company; Crailar Fiber Technologies Inc., a British Columbia incorporated company; HTnaturals Apparel Corp, a British Columbia incorporated company; and Crailar Europe NV, a Belgian corporation. All intercompany transactions and account balances have been eliminated upon consolidation.

Cash and Cash Equivalents

Cash equivalents consist of cash on deposit and term deposits with original maturities of one year or less at the time of issuance. As of September 27, 2014, the Company had $4.8 million in cash and cash equivalents.

Inventory

The raw flax fiber feedstock, decorticated fiber and CRAiLAR® fiber are valued at the lower of cost and market. All direct costs are capitalized to raw flax fiber inventory, decorticated fiber inventory and CRAiLAR® fiber. Seed inventory is valued at the lower of average cost and market. Cost represents the cost to purchase seed and/or growing cost plus any related shipping costs. Other inventories, which primarily consist of production consumables, are recorded at the lower of cost and replacement cost, which approximates net realizable value.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant areas requiring management’s estimates and assumptions are inventory costing and net realizable value, the expected future use and other impairment considerations of property and equipment, fair value of warrants, options, derivative liabilities, provision for income taxes, depreciation and financial instruments.

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Property and Equipment

Property and equipment are stated at cost and are depreciated as follows:

Depreciation is claimed at one-half of the regular rate in the year of addition. No depreciation is claimed in the year of disposal.

Intangible Assets

Intangible assets are stated at cost and are amortized as follows:

Revenue Recognition

Revenue is recognized when there is persuasive evidence of a sale arrangement, delivery to the customer has occurred, the fee is fixed and determinable, and collectability is considered probable.

Foreign Currency Translation

The Company’s functional currency is Canadian dollars. The Company translates its financial statements to U.S. dollars using the following method: All assets and liabilities are translated into U.S. dollars at the exchange rate in effect at the period-end. Revenues and expenses are translated throughout the year at the weighted average exchange rate. Exchange gains or losses from such translations are included in accumulated comprehensive income (loss), as a separate component of stockholders’ equity. Foreign currency transaction gains and losses are included in the statement of operations and comprehensive loss.

Income Taxes

The Company utilizes the liability method of accounting for deferred income taxes. Under the liability method, deferred income taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. A valuation allowance is recorded when it is more likely than not that potential the future tax assets will not be realized.

Comprehensive Loss

Comprehensive loss is the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners. Other comprehensive income (loss) includes items of income and expense that are not recognized in net loss as required or permitted by U.S. GAAP.

Stock-based Compensation

The Company accounts for stock-based payment transactions in which an enterprise receives services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The Company uses the Black-Scholes option-pricing model to establish the fair-value of stock-based awards.

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Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share are computed using the weighted average number of shares outstanding during the year. Common stock equivalents from stock options and warrants were excluded from the calculation of net loss per share for the periods ended September 27, 2014 and September 28, 2013 as their effect is anti-dilutive.

Long-Lived Asset Impairment

Long-lived assets of the Company are reviewed when changes in circumstances suggest their carrying value has become impaired. Management considers assets to be impaired if the carrying value exceeds the estimated discounted future projected cash flows to result from the use of the asset and its eventual disposition. If impairment is deemed to exist, the assets will be written down to fair value. Fair value is generally determined using a hierarchy of fair value methodologies under U.S. GAAP, primarily based on a discounted cash flow analysis.

Risk Management

Currency risk. The Company is exposed to currency risk to the extent that certain inventory and equipment is purchased from Europe. The purchase price for such inventory and equipment is generally in Euros. The Company does not currently hedge its foreign currency exposure and, accordingly, is at risk for foreign currency exchange fluctuations. The Company and its subsidiaries do not have significant transactions or hold significant cash denominated in currencies other than their functional currencies.

Credit risk. The risk in cash accounts is managed through the use of a major financial institution, which has high credit quality as determined by the rating agencies. Receivables are managed through the use of Letters of Credit and therefore credit risk is minimal.

Interest rate risk. Approximately $340,000 of the Company’s debt bears interest at fluctuating rates. Consequentially the Company is exposed to interest rate fluctuations. The Company does not currently hedge its exposure to interest rate risk.

Commodity price risk. Commodity price risk is the risk that the fair value of future cash flows will fluctuate because of changes in the market prices of commodities. The Company is exposed to commodity price risk as it purchases fiber feedstock from the flax producers in Europe. The Company purchases the short fiber waste product called “tow” and the price fluctuates based on supply. The Company has relationships with several short fiber producers and does not currently anticipate any issue in obtaining sufficient fiber for its needs. The Company does not currently enter into futures contracts or otherwise hedge its exposure to commodity price risk.

Research and Development

Research and development costs are charged to operations as incurred.

Recent Accounting Pronouncements.

There are no recent accounting pronouncements that are applicable to the Company.

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RESULTS OF OPERATIONS

Non-GAAP Financial Measures

The table below reconciles net loss to Adjusted EBITDA for the periods presented (in thousands):

Regulation G, “Conditions for Use of Non-GAAP Financial Measures,” and other provisions of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) define and prescribe the conditions for use of certain non-GAAP financial information. We provide “EBITDA,” which is a non-GAAP financial measure that consists of net income (loss) before (a) interest expense, (b) accretion expense, and (c) depreciation and amortization. “Adjusted EBITDA” further adjusts EBITDA to exclude stock-based compensation expense, facility commissioning expense, fair value adjustment derivative liabilities, gain on settlement of debt, gain on disposal of assets, impairment loss and rent inducement expense.

We believe that these non-GAAP financial measures provide important supplemental information to management and investors. These non-GAAP financial measures reflects an additional way of viewing aspects of our operations that, when viewed with the U.S. GAAP results and the accompanying reconciliation to corresponding U.S. GAAP financial measures, provides a more complete understanding of factors and trends affecting our business and results of operations.

Our management uses EBITDA and Adjusted EBITDA as a measure of our Company’s operating performance because it assists in comparing our operating performance on a consistent basis by removing the impact of items not directly resulting from core operations. Internally, these non-GAAP measures are also used by management for planning purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; for evaluating the effectiveness of operational strategies; and for evaluating our capacity to fund capital expenditures and expand our business. We also believe that analysts and investors use these measures as supplemental measures to evaluate the overall operating performance of development stage companies. Additionally, we believe that lenders or potential lenders use EBITDA and Adjusted EBITDA to evaluate our ability to repay loans.

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These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with U.S. GAAP and should not be relied upon to the exclusion of U.S. GAAP financial measures. Management strongly encourages investors to review our consolidated financial statements in their entirety and to not rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. In addition, we expect to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP measures should not be construed as an inference that these costs are unusual, infrequent or non-recurring.

Thirteen-Week Period Ended September 27, 2014 Compared to Thirteen-Week Period Ended September 28, 2013

Revenue and Gross Margins

For the thirteen week period ended September 27, 2014 (“Third Quarter 2014”) our revenues were derived from sales of CRAiLAR® fiber and other fiber (non-CRAiLAR) produced mainly at our new European production facility. For the thirteen week period ended September 28, 2013 (“Third Quarter 2013”) our revenues were derived from CRAiLAR® fiber.

Our gross loss for the Third Quarter 2014 was $0.2 million (2013: $3.1 million). Our variable margin was 11% and was impacted negatively by labor inefficiencies and product re-work caused by equipment downtime. Cost of sales is comprised of $1.0 million (2013: $0.02 million) for flax feedstock, utilities, labor, chemicals and water directly related to sales of CRAiLAR Flax fiber and the non-CRAiLAR legacy fiber dyeing business; $0.1 million (2013: $0.2 million) to temporarily outsource the final CRAiLAR process until equipment is installed and training expenses for new employees to add more production shifts; $0.1 million (2013: $0.2 million) of facility overhead costs and $0.1 million (2013: $0.2 million) for depreciation of production equipment. (In the Third Quarter 2013 there was an impairment loss on inventory of $2.5 million.)

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Operating Expenses

During the Third Quarter 2014 we recorded operating expenses of $1.3 million compared to operating expenses of $1.8 million for the Third Quarter 2013, a decrease of $0.5 million or approximately 22%. Causes for the reduction are a decrease in general and administrative expenses of $0.4 million and a reduction in marketing and promotion expense of $0.1 million.

Marketing and promotion expenses, comprised of marketing salaries and sales development costs, were $0.1 million for the Third Quarter 2014, a decrease of $0.1 million or approximately 40% from $0.2 million for the Third Quarter 2013. The decrease was driven by a $0.1 million reduction in investor relations and public relations expenses.

General and administrative (G&A) expenses for the Third Quarter 2014 decreased to $1.2 million, a reduction of $0.4 million or approximately 25% from $1.6 million for the Third Quarter 2013. The decrease was primarily caused by a $0.2 million reduction in salaries and consultants expense, a $0.2 million reduction in stock-based compensation, and a reduction in general office costs and travel of $0.2 million, which reductions were partially offset by a $0.1 million cost increase associated with the South Carolina facility and an increase of $0.1 million in professional fees.

Other Items

Interest expense was $0.6 million for the Third Quarter 2014, approximately the same as the Third Quarter 2013. Interest expense is attributable to the convertible debenture interest, European facility loan interest, IKEA loan interest and the amortization of the deferred debt issuance costs of $0.1 million. Accretion expense was $0.1 million from the amortization of bonus shares issued with promissory notes. There was no accretion expense in the Third Quarter 2013. For Third Quarter 2014 compared to the Third Quarter 2013, research and development costs decreased by $0.1million while the fair value adjustment of derivative liabilities was a gain of $0.6 million compared to $0 in 2013.

Net Loss

Our net loss for the Third Quarter 2014 was $1.5 million, or $0.02 per share, compared to $5.7 million, or $0.11 per share for the Third Quarter 2013. The reduction in loss was primarily attributable to the reduction in general and administration expenses of $0.4 million, a reduction in marketing and promotion expenses of $0.1 million, a reduction of research and development costs of $0.1 million and a reduction in gross margin loss of $3.0 million. Included in the gross margin expense for the Third Quarter of 2013 was an impairment charge on inventory of $2.5 million.

For the period ended September 27, 2014, the weighted average number of shares outstanding was 59,778,003 compared to 44,472,698 for the period ended September 28, 2013.

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First Three Quarters 2014 Compared to First Three Quarters 2013

Revenue and Gross Margins

For the thirty-nine week period ended September 27, 2014 (the “First Three Quarters of 2014”), our revenues were derived from sales of CRAiLAR® fiber and other fiber (non-CRAiLAR) at our new European production facility. For the thirty-nine week period ended September 28, 2013 (the “First Three Quarters of 2013”) our revenues were derived from CRAiLAR® fiber.

Our gross loss for the First Three Quarters of 2014 was $0.9 million (2013: $4.6 million). Cost of sales is comprised of $2.0 million (2013: $0.2 million) for flax feedstock, utilities, labor, chemicals and water directly related to sales of CRAiLAR Flax fiber and the non-CRAiLAR legacy fiber dyeing business; $0.6 million (2013: $0.4 million) to temporarily outsource the final CRAiLAR process until equipment is installed and training expenses for new employees to add more production shifts; $0.2 million (2013: $0.4 million) of facility overhead costs and $0.4 million (2013: $0.5 million) for depreciation of production equipment. (In the First Three Quarters of 2013 there was an impairment loss on inventory of $3.4 million.)

Operating Expenses

During the First Three Quarters of 2014 we recorded operating expenses of $3.9 million compared to operating expenses of $6.1 million for the First Three Quarters of 2013, a decrease of $2.2 million or approximately 35%. Causes for the reduction are a decrease in general and administrative expenses of $1.8 million and a reduction in marketing and promotion expense of $0.3 million.

Marketing and promotion expenses comprised of marketing salaries and sales development costs were $0.3 million for the First Three Quarters of 2014, a decrease of $0.3 million or approximately 50% from $0.6 million for the First Three Quarters of 2013. The decrease was primarily driven by a $0.1 million reduction in product development costs and investor relations and public relations expenses of $0.2 million.

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General and administrative (G&A) expenses for the First Three Quarters of 2014 decreased to $3.6 million, a reduction of $1.8 million or approximately 33% from $5.4 million for the First Three Quarters of 2013. The decrease was primarily caused by a $0.4 million reduction in salaries and consultants expense, a decrease in professional fees of $0.2 million, a $0.8 million reduction in stock-based compensation, and a reduction of $0.4 million in general office and other administration costs.

Other Items

Interest expense increased to $1.6 million for the First Three Quarters of 2014, compared to $1.4 million for the First Three Quarters of 2013, an increase of $0.2 million, resulting from interest on the convertible debentures, amortization of deferred debt issuance cost and debt discount. Interest expense is attributable to the convertible debenture interest, European facility loan interest, IKEA loan interest and note payable interest, and the amortization of the deferred debt issuance costs. Accretion expense increased to $0.5 million from the beneficial conversion feature of the promissory notes and amortization of bonus shares issued with promissory notes in the First Three Quarters of 2014, compared to $0 for the First Three Quarters of 2013. During the First Three Quarters of 2014 there was a gain in the settlement of debt of $0.2 million, compared to $0 in the First Three Quarters of 2013. For the First Three Quarters of 2014 compared to the First Three Quarters of 2013, the fair value adjustment of derivative liabilities was a gain of $0.9 million compared to a gain of $0.5 million.

Net Loss

Our net loss for the First Three Quarters of 2014 was $6.0 million, or $0.11 per share, compared to $11.9 million, or $0.27 per share for the First Three Quarters of 2013.

For the First Three Quarters of 2014, the weighted average number of shares outstanding was 52,952,822 compared to 44,421,148 for the First Three Quarters of 2013.

LIQUIDITY AND CAPITAL RESOURCES

First Three Quarters 2014 Compared to Fiscal Year Ended December 28, 2013

The Company has historically relied on equity financings, and more recently on sales of convertible debentures, to fund its operations. On August 15, 2014 the Company completed a “Follow On” equity financing with gross proceeds of $1 million. On August 6, 2014 the Company completed an equity financing with gross proceeds of $6.5 million. On June 2, 2014 the Company completed an equity financing for settlement of $927,944 in debts. On March 20, 2014, the Company completed an equity financing with gross proceeds of $3.1 million. On December 20, 2013, the Company completed an equity financing with gross proceeds of $1.9 million (CAD$2.0 million). On December 19, 2013, but having an effective date of November 29, 2013, we entered into a loan agreement to borrow up to $2.9 million (€2.2 million, approximately CAD$3.2 million). The Company has drawn on the loan $2.9 million (€2.2 million), which was used for capital expenditures for the European processing facility and general working capital. In February 2013, the Company completed a convertible debt financing for gross proceeds of $4.9 million (CAD$5.0 million). In July 2013, the Company completed an additional convertible debt financing for gross proceeds of $3.4 million (CAD$3.5 million). In September 2012, the Company completed a convertible debt financing for gross proceeds of $10.1 million (CAD$10.0 million). The Company expects to fund future operations and expansion from its current cash position, through bank debt, government loan programs, customer financing, lease programs, additional equity and debt financings, as well as through cash generated from operations.

Net Cash Used in Operating Activities

Net cash flows used in operating activities for the First Three Quarters of 2014 were $6.4 million compared with $7.5 million for the First Three Quarters of 2013. Cash flows used in operations for the First Three Quarters of 2014 consisted primarily of a net loss of $6.1 million offset by the following items: amortization and depreciation of $0.4 million (2013: $0.9 million), primarily related to production equipment in Europe for 2014 and to the decortication facility in the USA in 2013; accretion of debt and amortization of deferred debt issuance costs of $0.8 million (2013: $0.3 million), which includes expenses related to the beneficial conversion feature of the promissory notes and amortization of the bonus shares issued pursuant to the promissory note; fair value adjustment of derivative liability of $(0.9 million) (2013: $(0.5 million)), the gain in 2013 related to the expiration of warrants having an exercise price in a currency other than the Company’s functional currency; rent of $0.0 million (2013: $0.1 million) related to the lease deferral at the South Carolina decortication facility; stock-based compensation of $0.8 million (2013; $1.6 million) was lower because of fewer options vesting in 2014 than in 2013; gain on settlement of debt $(0.2 million) (2013:$0); impairment of inventory of $0 (2013: $3.4 million) relating to the write down of raw feedstock and Crailar fiber to market price; (increase) in accounts receivable of $(1.3 million) due to increased Crailar sales in Europe (2013: $0.0 million); a decrease in inventory of $0.1 million (2013: $(2.9 million)); a decrease in prepaid expenses of $0.1 million (2013: $(0.2 million) mostly due to the timing of insurance, financing and listing costs; an increase in accounts payable of $(0.3 million) (2013: $0.6 million); and an increase in accrued liabilities of $0.1 million (2013: $1.0 million) mostly related to debenture interest.

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Net Cash Used in Investing Activities

Net cash flows used in investing activities for the First Three Quarters of 2014 were $1.1 million, compared to $2.8 million for the First Three Quarters of 2013. Cash flows used in investing activities consisted primarily of the acquisition of property and equipment for the European production facility of $1.1 million (compared with $2.7 million for the purchase of equipment at the U.S. decortication plant in 2013).

Net Cash Provided by Financing Activities

Cash flows provided by financing activities for the First Three Quarters of 2014 totaled $11.2 million compared to $7.5 million during for the First Three Quarters of 2013. The Company received proceeds from equity financings of $9.1 million (2013: $0.2 million) and received proceeds from long term debt of $3.0 million (2013: $0) and had debt issuance costs of $0.1 million (2013: $0.9 million). The Company also repaid promissory notes and loans $0.8 million (2013: $0). During the First Three Quarters of 2013, we received proceeds of $8.1 million from the issuance of convertible debentures.

Effect of Exchange Rate

The effect of exchange rates on cash resulted in an unrealized loss of $84,275 for the First Three Quarters of 2014, as compared with an unrealized gain of $280,247 for the First Three Quarters of 2013.

MATERIAL COMMITMENTS

Debt Offerings

We completed the following three convertible debt offerings in 2012 and 2013: (i) the September 2012 Debentures with gross proceeds of $10.1 million (CAD$10.0 million) on September 20, 2012; (ii) the February 2013 Debentures with gross proceeds of $4.9 million (CAD$5.0 million) on February 25, 2013; and (iii) the July 2013 Debentures with gross proceeds of $3.4 million (CAD$3.5 million) on July 26, 2013. The September 2012 Debentures mature on September 30, 2017 and bear interest at a rate of 10% per year, payable semi-annually on March 31 and September 30 of each year, starting March 31, 2013. The February 2013 Debentures mature on September 30, 2017 and bear interest at a rate of 10% per year, payable semi-annually on March 31 and September 30 of each year, starting on September 30, 2013. The February 2013 Debentures are ranked subordinate to the September 2012 Debentures. Non-Canadian resident holders of the February 2013 Debentures will receive additional interest equal to the amount of the withholding taxes paid by us for Canadian tax purposes. The July 2013 Debentures mature on July 26, 2016 and bear interest at a rate of 10% per year, payable semi-annually on March 31 and September 30 of each year, commencing on September 30, 2013. The July 2013 Debentures are secured by production equipment and fixtures located at our South Carolina facility that are different from the production equipment and fixtures at the South Carolina facility that were used to secure the September 2012 Debentures and the February 2013 Debentures. In the event we complete one or more equity financings between July 26, 2013 and July 26, 2016 with gross proceeds of at least an aggregate of $19.4 million (CAD$20.0 million), we must, subject to providing no less than 60 days prior notice to each holder of the July 2013 Debentures, redeem the July 2013 Debentures in whole at face value plus all accrued and unpaid interest thereon. The initial conversion rates of each of the September 2012 Debentures, the February 2013 Debentures and the July 2013 Debentures were $2.85 (CAD$2.90), $2.85 (CAD$2.90) and $1.94 (CAD$2.00), respectively, and are subject to anti-dilution provisions.

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Holders of the September 2012 Debentures and the February 2013 Debentures have the option to convert their debentures into common stock at a price of $2.85 (CAD$2.90) per share of common stock at any time prior to their respective maturity date. We may redeem the September 2012 Debentures and the February 2013 Debentures after September 30, 2015 provided that the market price at the time of the redemption notice is not less than 125% of the conversion price.

In accordance with the conditions of the IKEA Loan (defined below), we approached the debenture holders (the “Debentureholders”) of the July 2013 Debentures about releasing their security over certain assets held by our subsidiary, CRAiLAR Inc., having an acquisition cost of $1.3 million, which form a portion of the assets securing the July 2013 Debentures pursuant to the Guaranty and Security Agreement (the “Guaranty”) between CRAiLAR Inc. (the “Guarantor”) and Computershare Trust Company of Canada (the “Trustee”), dated July 26, 2013, as set forth in Schedule “A” to the Guaranty, to be used as separate security for the IKEA Loan to us. As consideration for such alteration to the secured assets, the conversion price of the July 2013 Debentures was reduced from $1.94 (CAD$2.00) per share to $1.21 (CAD$1.25) per share. On December 23, 2013, the Trustee and us entered into an Amended and Restated Convertible Debenture Indenture which reflects the modification and alteration of the rights of the Debentureholders and the Trustee against us with respect to (i) the secured assets to now only include those specific assets held by the Guarantor as set forth in Schedule “F” to the Amended and Restated Convertible Debenture Indenture having an acquisition cost of $3.9 million, and (ii) the reduction of the conversion price of the July 2013 Debentures from $1.94 (CAD$2.00) per share to $1.21 (CAD$1.25) per share. In addition, on the same date, the Guarantor and the Trustee entered into an Amended and Restated Guaranty and Security Agreement, which reflects the modification and alteration with respect to the secured assets as discussed above.

Debt

On December 1, 2013, we purchased certain assets of a European fiber dyeing facility. We acquired these assets by assuming an aggregate of $1.2 million of the seller’s debts, which we have agreed to repay on the earlier of their respective due dates and December 1, 2018. On December 13, 2013, we entered into an amended asset purchase agreement for such assets, which replaced the initial asset purchase agreement and provides that the title to and economic risk in respect of the environmental permit and the employees passed to us on December 1, 2013, however, the title to the equipment at the facility shall only pass to us upon full payment of the foregoing assumed indebtedness of the seller, notwithstanding the fact that physical possession and economic risk of all assets of the acquired facility passed to us on December 1, 2013. We have reached an oral agreement with the seller to lease the real property for the facility and are in the process of formalizing that oral agreement.

On December 19, 2013, but having an effective date of November 29, 2013, we entered into a loan agreement (the “Loan Agreement”) with IKEA Supply AG (“IKEA”), whereby IKEA agreed to loan us $3.0 million (€2.2 million, approximately CAD$3.2 million) (the “IKEA Loan”) having a term until June 25, 2016 and bearing interest at a rate of 1.9% per annum. As security for the IKEA Loan, IKEA required that the IKEA Loan be secured by assets purchased with the proceeds of the IKEA Loan, as well as a portion of the secured assets used to secure the July 2013 Debentures. The proceeds from the IKEA Loan are designated for the installation of equipment to support and expand our European production facility and for working capital to fulfill IKEA orders. During the First Three Quarters of 2014 the Company received $2,906,985 (€2,200,000) pursuant to the loan agreement.

We repaid the following loan arrangements with each of the following directors: Jason Finnis, Kenneth Barker and Robert Edmunds during the First Three Quarters of 2014:

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We are committed to annual debt and debenture interest payments over the next five years as follows (in thousands):

Annual Leases

We are committed to current annual lease payments totaling $1.1 million for all of our premises under lease. Approximate minimum lease payments over the next five years are as follows (in thousands):

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this report, we do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest; or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

SUBSEQUENT EVENT

On November 10, 2014, subsequent to the Company’s Annual General and Special Meeting of Shareholders on that date, Kenneth Barker (the Chief Executive Officer and a director of the Company) resigned as an officer and director of the Company, and Lesley Hayes (a director of the Company and Chair of the Board) was appointed interim Chief Executive Officer of the Company.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Lesley Hayes, our Chief Executive Officer, and Theodore Sanders, our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, they concluded that our disclosure controls and procedures were effective as of September 27, 2014.

No Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended September 27, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Management is not aware of any material legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Report, no director, officer or affiliate is a party adverse to us in any legal proceeding, or has an adverse interest to us in any legal proceedings. Management is not aware of any other material legal proceedings pending or that have been threatened against us or our properties.

Item 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During our fiscal quarter ended September 27, 2014, we did not sell any equity securities that were not registered under the U.S. Securities Act of 1933, as amended.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable

Item 6. Exhibits

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SIGNATURES

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

CRAILAR TECHNOLOGIES INC.