CRAILAR TECHNOLOGIES INC - FORM 10-K

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EX-31.2 - EXHIBIT 31.2 - CRAILAR TECHNOLOGIES INC	exhibit31-2.htm
EX-21.1 - EXHIBIT 21.1 - CRAILAR TECHNOLOGIES INC	exhibit21-1.htm
EX-23.1 - EXHIBIT 23.1 - CRAILAR TECHNOLOGIES INC	exhibit23-1.htm
EX-10.17 - EXHIBIT 10.17 - CRAILAR TECHNOLOGIES INC	exhibit10-17.htm
EX-31.1 - EXHIBIT 31.1 - CRAILAR TECHNOLOGIES INC	exhibit31-1.htm
EX-32.1 - EXHIBIT 32.1 - CRAILAR TECHNOLOGIES INC	exhibit32-1.htm
EXCEL - IDEA: XBRL DOCUMENT - CRAILAR TECHNOLOGIES INC	Financial_Report.xls

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

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE A CT OF 1934

For the fiscal year ended December 27, 2014

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

For the transition period from ______ to _______

Commission File No.:000-50367

Crailar Technologies Inc.
(Exact name of registrant in its charter)

British Columbia	98-0359306
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

Suite 305 - 4420 Chatterton Way
Victoria, British Columbia, Canada	V8X 5J2
(Address of principal executive offices)	(Zip Code)

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

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

Title of each class:	Name of each exchange on which registered:
None	N/A

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

Common Stock, without par value

(Title of Class)

Indicate by checkmark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
[ ] Yes [X] No

Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]

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

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $38,771,073.

The registrant had 66,378,003 shares of common stock outstanding as of April 9, 2015.

TABLE OF CONTENTS

PART I		4
ITEM 1.	BUSINESS	4
ITEM 1A.	RISK FACTORS	13
ITEM 1B.	UNRESOLVED STAFF COMMENTS	19
ITEM 2.	PROPERTIES	19
ITEM 3.	LEGAL PROCEEDINGS	20
ITEM 4.	MINE SAFETY DISCLOSURES	20
PART II		21
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	21
ITEM 6.	SELECTED FINANCIAL DATA	24
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS	35
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	36
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL	59
ITEM 9A.	CONTROLS AND PROCEDURES	59
ITEM 9B.	OTHER INFORMATION	59
PART III		60
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	60
ITEM 11.	EXECUTIVE COMPENSATION	65
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	71
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	72
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	73
ITEM 15.	EXHIBITS	74

Forward-Looking Statements

Statements made in this Form 10-K that are not historical or current facts are “forward-looking statements” as that term is defined in applicable securities laws. These statements often can be identified by the use of terms such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “approximate,” “potential” or “continue,” or the negative of such terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

Available Information

We file annual, quarterly, current reports, proxy statements, and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy documents referred to in this Annual Report on Form 10-K that have been filed with the SEC at the SEC’s Public Reference Room, 100 F Street, N.E., Washington, D.C., 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also obtain copies of our SEC filings by going to the SEC’s website at www.sec.gov. In addition, we post our SEC filings, including any amendments thereto, on our Internet website at www.crailar.com as soon reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

References

As used in this annual report: (i) the terms “we,” “us,” “our,” or the “Company” refer to Crailar Technologies Inc. and our subsidiaries, unless the context otherwise requires; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the United States Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.

PART I

ITEM 1. BUSINESS

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 future deployment of our CRAiLAR^®processing technologies in the cellulose pulp and composites industries. We believe that we offer two key opportunities for development:

	•	CRAiLAR^®fibers (using flax, hemp or other sustainable bast fiber) for textiles (knit, woven and non-woven constructions) available in a variety of blends, textures, colors and applications; and

	•	CRAiLAR^®technologies for processing bast fibres for use in non textile industries such as high grade dissolving pulp, packing material, reinforcing fibres, and various other industrial applications

We hold the exclusive worldwide license to the patented CRAiLAR^® technologies. We believe that fibers and yarns produced with the CRAiLAR^®process will be competitively priced relative to current natural and synthetic fibers and have the benefit of being environmentally responsible. The CRAiLAR^®patented process effectively cleans and polishes raw bast fiber, such as flax, hemp, kenaf and jute bast fibers, into fiber substantially equivalent to ginned cotton. It is our belief that the CRAiLAR^®brand has the potential to become a recognized sustainable performance brand that is valued and demanded by the market.

We believe that entering into development and supply agreements with some of the world’s largest fiber consuming companies is the best path to successful commercialization of a number of products incorporating our CRAiLAR^® technologies. In execution of this strategy, we have entered into development and supply agreements with companies such as adidas AG, Georgia-Pacific, IKEA, Lenzing and Levi Strauss & Co. Our agreements with certain customers contain category exclusivity clauses that require them to purchase, in the aggregate, approximately 8.5 million pounds of CRAiLAR^® Flax fibers in 2015 and approximately 10.1 million pounds in 2016 (when multi-year requirements are averaged to an annual amount) in order to retain their exclusive rights.

Our principal offices are located at Suite 305, 4420 Chatterton Way, Victoria, British Columbia V8X 5J2, our telephone number is (250) 658-8582, and our web site address is www.crailar.com.

Corporate Structure and Subsidiaries

We were incorporated under the laws of British Columbia, Canada, on October 6, 1998, under the name “Hemptown Clothing Inc.” We changed our name to “Naturally Advanced Technologies Inc.” effective March 21, 2006. We further changed our name to “Crailar Technologies, Inc.” effective October 31, 2012. We have six wholly-owned subsidiaries: Crailar Inc., a Nevada corporation; Crailar Fiber Technologies Inc., a British Columbia corporation; HTnaturals Apparel Corp., a British Columbia corporation; 0697872 B.C. Ltd., a British Columbia corporation; and Hemptown USA, Inc., a Nevada corporation, and Crailar Europe NV, a Belgian corporation.

Industry

With the projected increase in the global population and continued development of market economies, we expect to see a rise in the need for textile fibers worldwide. According to Gherzi, a global management consulting company focused on the textile industry, the global demand for textile fibers is expected to exceed 100 million tons by 2020.

Gherzi estimates there were 81.0 million tons of fibers produced globally in 2011 and synthetic fibers (such as polyester) accounted for 59.2% of such fibers, cotton accounted for 33.7%, cellulose-based fibers (such as viscose and rayon) accounted for 5.7% and wool accounted for 1.4%. More generally, according to Gherzi, it is estimated that the demand for textile fibers is expanding approximately 3% per year, mainly due to the following two macroeconomic trends:

	•	Ongoing population growth. UNESCO expects the global population to rise from its current total of approximately 7 billion to 7.7 billion people in 2020 when global demand for fibers is expected to exceed 100 million tons.

	•	Increase in prosperity. Increasing prosperity generates additional demand, particularly in emerging economies as they catch up with western industrialized nations.

In addition, sustainability and climate change concerns have contributed to consumers increasingly preferring products manufactured with a minimal environmental impact and use of resources.

While some of the increase in demand is likely to be filled by synthetic fibers, we believe that the consumer preference for natural fibers will continue to rise, as societal trends to live both sustainably and naturally increase. We believe that we have a unique opportunity to fill this shortfall through the production of CRAiLAR^® fiber. Mill delivered cotton is currently priced between $0.70 and $0.80 per pound and is expected to increase from population growth and increased demand from developing countries. We believe that flax is a cost-effective raw material for fiber production. We expect our fiber will be cost competitive with other fibers currently available in the fiber industry once the Company has fully optimized its production facility and has more control over feedstock supply.

The CRAiLAR Solution

We hold the exclusive worldwide license to the patented CRAiLAR^®technologies. The CRAiLAR^®patented technologies and processes effectively clean and polish raw bast fiber, such as flax, hemp, kenaf and jute bast fibers, into fiber substantially equivalent to ginned cotton. This solution is clean, sustainable, and environmentally responsible. Bast fiber plants grow abundantly and, when compared with cotton, require 97% less water and substantially less herbicides, fertilizers and pesticides. In April 2012, the USDA designated CRAiLAR as a 100% BioPreferred^® product. In December 2013, CRAiLAR^® Flax fibers were awarded a ‘B’ classification by the MADE-BY organization. This classification certifies that the benefits of CRAiLAR^® Flax far outweigh that of polyester and conventional cotton (both ranked Less Sustainable). The MADE-BY organization and environmental benchmark supports brands and manufacturers in limiting the impact of its materials on the environment and advises them on sustainable alternatives. In this benchmark, the processing of a large range of materials from raw material to yarn are compared in relation to emissions produced, their use of land space, pesticides, chemicals, water and energy.

The CRAiLAR^®fiber technology was developed in conjunction with the National Research Council of Canada (the “NRC”). Under development since 2004, this technology is now in successful production with our global partners. We anticipate that CRAiLAR^®Flax fibers will generally be used in union with cotton and all other mainstream fibers, which, when blended together, should result in a much better performing fabric than cotton or other mainstream fibers alone.

Products

CRAiLAR^®Fiber

The CRAiLAR^® fiber technology is a clean, sustainable, environmentally responsible process, which works with bast fiber feedstock. Bast fiber plants grow abundantly generally without excessive water, herbicide, fertilizer and pesticide use. As a result, CRAiLAR^®was designated as a 100% BioPreferred^®product by the USDA in April 2012. In December 2013, CRAiLAR^® Flax fibers were awarded a ‘B’ classification by the MADE-BY organization, alongside and equal to organic cotton and Lenzing Tencel.

Relative to existing bast fiber processing methods, the CRAiLAR^®fiber enzymatic process is significantly faster, produces highly consistent results, and is environmentally low impact. The resulting CRAiLAR^®fibers have characteristics that are superior to traditionally processed bast fibers for textile applications. Because the CRAiLAR^®fiber processing is very effective at cleaning bast fiber, it can be spun on traditional cotton equipment at commercially viable speeds. CRAiLAR^®Flax fibers can integrate seamlessly with cotton fibers and, when blended together, results in a superior performing fabric than cotton alone. When blended at 80% cotton and 20% CRAiLAR^® fiber, the resulting fabric takes on many of the superior characteristics of CRAiLAR^®Flax fibers, including enhanced moisture management and comfort, durability, and superior dye uptake.

CRAiLAR^®Shive and Seed Products

We are already in the process of investigating by-product opportunities utilizing seed and shive. A key CRAiLAR customer has confirmed shive suitably for use in particle board manufacturing for furnishings. We believe we have the potential ability to use the straw of the linseed flax crop, which is primarily cultivated for food and industrial applications. This straw would normally be discarded and/or burned following the seed harvest. Flax shive can be transformed into fuel pellets, animal bedding particle board, molded products and consumer goods packaging while the flax seed can be used for dietary supplements, linseed oil and feed for livestock. Making use of this waste by-product will only further enhance the CRAiLAR^®Flax fiber sustainability rating and could increase potential revenues.

Our Competitive Strengths

We believe that the following strengths differentiate our company and create the foundation for continued sales and profitable growth:

Product Performance. All of our fiber products are designed to deliver superior performance. In apparel, CRAiLAR^® Flax fibers will generally be blended with cotton, which should result in a better performing fabric than cotton alone. When blended at 80% cotton and 20% CRAiLAR^® fibers, the resulting fabric takes on the many characteristics of CRAiLAR^® Flax fibers. Key elements include:

	•	A fiber with wicking characteristics greater than unblended cotton and almost as good as high performance synthetic fibers, making fabrics breathable;

	•	Superior dye uptake resulting in a potential 10% dye reduction for same color specification; and

	•	Comparable feel of comfort to cotton.

Innovative Process. We offer high quality natural fibers that provide an alternative to cotton and high grade dissolving pulp users. We attribute our ability to develop superior products to a number of factors, including:

	•	Intellectual property and patents surrounding the CRAiLAR^®process and technologies;

	•	Close collaboration with our customers to formulate innovative and technically advanced natural fabrics; and

	•	The capital costs involved in building a commercial CRAiLAR^®fibers processing facility have been determined to be relatively modest and we believe we can utilize existing industry equipment.

Experienced Management Team. We have a proven and experienced senior management team. Many of the members of our senior management team have extensive experience in the textile industry and with leading consumer brands.

Our Business Strategy

We believe that our market presence and revenues will continue to expand with the continued development of our growers and customers, allowing the CRAiLAR^®brand to be recognized, similar to ingredient brand successes such as Gore-Tex^®and Tencel^®. We are pursuing the following several growth strategies to continue to build our business:

Further Develop Our Customer Ecosystem. We have established a strong set of relationships with other organizations in our customer ecosystem to deliver superior natural fibers to our customers. We believe these customers will enable us to increase the speed of deployment and functionality of our fibers and offer a wider range of applications to our customers. We intend to support our customers in the growth of their products, as well as increase the number of suppliers who work with our customers. We understand that in order for new initiatives to be pulled from corporate concept to market viability, support from senior management of our customers is critical. We have established relationships with large apparel manufacturers and high grade dissolving pulp users such as Hanesbrands and Georgia Pacific. As we expand the commercialization of our fibers, we expect our customers will successfully integrate our CRAiLAR^®Flax fiber within their product categories, but are also discover benefits and enhancements that are exclusive to their developments. This allows the CRAiLAR^®brand to evolve and gain greater brand recognition while servicing both the consumer and customer needs. We believe that the development of customer relationships is an important strategy and that additional relationships with consumer brands will also be important for additional branding opportunities.

Expand Penetration and Consumer Base. We intend to increase the number of consumers who buy our products by using the co-branding opportunities provided by our customers, as they communicate our sustainability and performance benefits to their consumers. We plan to further this support with grassroots marketing, social media tools and industry advertising. We believe these efforts will educate consumers about our brand and the benefits of sustainable natural fibers, creating demand for our products and, ultimately, expand our consumer base. We will continue to collaborate with our customers to formulate innovative and technically advanced fibers. We believe that our products can provide significant value to both the consumer and industrial markets. We also believe that there is a substantial opportunity for us to continue to increase the size of our customer base across a broad range of industries, given the relatively high level of performance of our products. We intend to continue to invest aggressively in our direct and indirect sales and marketing capabilities to continue to acquire new customers.

Continue Innovation and Broaden Product Offering. Our customers’ ability to deploy new products rapidly and cost-effectively will be central to our financial results. We intend to continue expanding the functionality of our products in the future. In the near term, we expect that our research and development investments will continue to be highly focused on:

	•	CRAiLAR^®fibers (using flax, hemp or other sustainable bast fiber) for textiles (knit, woven and non-woven constructions) available in a variety of blends, textures, colors and applications; and

	•	CRAiLAR^®technologies for processing bast fibres for use in non-textile industries such as high grade dissolving pulp, packing material, reinforcing fibres, and various other industrial applications.

Over the longer term, we intend to continue our investment in the development of new applications that address additional market opportunities, which may include composites manufacturing, medical, dental and feminine hygiene products. By collaborating with our customers and partners in these efforts, we intend to enable our customers to increase their performance capabilities through rapid and cost-effective deployments of products incorporating our fibers.

Expand Globally. We recognize that our patented technologies have global, multi-industry applications, and represent a significant opportunity for us. We plan to expand our sales capabilities internationally by expanding the number of mills that can supply yarns with CRAiLAR fibers and by collaborating with strategic customers and partners around the world.

Stay True to Our Values. We are a focused business with long-standing core values. We need to rapidly and positively affect the international footprint of “dirtier” fibers and processes. We continue to strive to operate in a socially responsible and environmentally sustainable manner. We believe our sustainability and performance better cultivates brand loyalty and trust with customers and helps attract consumers. We plan to work in tandem with our customers to communicate the benefits of CRAiLAR^®through co-branding, ingredient call-outs, co-op marketing efforts and in-store signage.

Invest in Infrastructure and Capabilities. We invest in our people, supply chain and systems to ensure that our business is scalable and profitable. We expect to add new employees to our sales, marketing, operations and finance teams as necessary to support our growth. Additionally, we continue to invest in our systems and technology, to create a platform for growth and to increase efficiency.

Sales and Marketing

We are pursuing a pull-through marketing model, which focuses on working directly with some of the leading consumer brands in a variety of target markets, including apparel, textiles and industrial products, to develop additional products incorporating our CRAiLAR^® fibers. In this regard, we plan to leverage our partners’ direct-to-consumer marketing programs to accelerate and expand the brand recognition for our proprietary fibers.

Strategic Relationships/Customer Developments

Because CRAiLAR^® fibers can be an ingredient in a broad range of products, we believe that entering into development and supply agreements with large, successful consumer brands is the path to successful commercialization. We believe that these relationships will allow us to leverage the considerable branding and marketing talent of these brands to increase the power of the CRAiLAR^®brand.

To grow our business and our brand, we have entered into a number of development and supply agreements including, among others:

	•	adidas AG. In December 2013, adidas AG took a shareholder position in CRAiLAR through their investment arm, Hydra Ventures BV. As one of the largest athletic brands in the world, adidas is a driving force in innovation and performance for athletes and fashionistas alike. CRAiLAR is working in close tandem with adidas to further their development and execution of sustainable production practices, with a goal of reducing the brand’s dependency on conventional cotton and petro-chemical fibers.

	•	Cone Denim LLC. On March 11, 2013, we entered into a Marketing and Development Agreement with Cone Denim LLC (“Cone”) to market and develop the use of CRAiLAR^®fiber in Cone’s denim fabric line. We are working directly with Cone and its customer, Levi Strauss & Co., for the development of certain denim products using our CRAiLAR^®Flax fiber. Subject to certain exceptions, CRAiLAR has agreed to not sell CRAiLAR^®fiber to any other denim manufacturer through December 31, 2015 without providing Cone with a right of first refusal on any denim development opportunity. We believe our relationship with Cone and Levi Strauss should expand the demand for our fiber in the denim market.

	•	Georgia Pacific Consumer Products LLC. In September 2011, we entered into a three year CRAiLAR^®fiber supply agreement with Georgia Pacific Consumer Products LLC, for the use of CRAiLAR^®fiber in formed substrates for the industrial and personal care markets provided that Georgia Pacific continues to meet annual minimum purchase requirements. In May 2014, Georgia Pacific exercised its option to extend the agreement for an additional seven years through December 2021.

	•	IKEA. In December 2013, we entered into a general supply agreement and development agreement with IKEA. The general supply agreement provides exclusivity in certain domestic textile categories as long as IKEA meets specified minimum order quantities. The agreement expires on December 31, 2016 but IKEA may extend the term up to two times for three years each by notifying us at least six months before the expiration of the then effective term. We have received orders and have begun flax fiber production at our European production facility.

•

Lenzing AG. In April 2012, we entered into a joint development agreement with Lenzing, headquartered in Austria, and one of the world’s largest suppliers of viscose, Modal and Tencel^®to the apparel, non-woven and auto industries. CRAiLAR and Lenzing are jointly developing fiber solutions in the performance apparel industries for global athletic brands as well as fashion brands.

We are currently evaluating additional opportunities for multiple product development and commercialization of our proprietary CRAiLAR^®technology for environmentally sustainable bast fiber processing and production. Exclusive international licensing rights allow us to protect our investment to date in the development of CRAiLAR^®while confidently moving forward in seeking appropriate development and commercialization relationships.

Plan of Operation

Production Plan

We believe that one of the keys to the successful adoption of CRAiLAR^® fibers into the mainstream textile market is to scale up our in-house production capabilities. In December 2013 we acquired a European fiber dyeing facility with similar equipment 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 plant allowed us to accelerate our timeline for establishing a company-controlled CRAiLAR^® processing capability. Production of CRAiLAR^® fibers at this plant commenced in January 2014. We believe the plant has a maximum capacity to produce approximately 280,000 pounds of CRAiLAR^® Flax fiber per week and can be expanded. Initially, we relied on a third party processor to perform one step of the CRAiLAR^® process, but we purchased the equipment to perform this step and during the second quarter of 2014 we installed this equipment and overhauled existing equipment so that we now perform this step internally.

The facility is located in an area of flax growing excellence and offers an abundant supply of feedstock from a by-product of the linen industry. Purchasing the by-product of the linen industry has significant working capital advantages because it is bought as needed and is processed, shipped and billed shortly after receipt. This compares with straw purchased directly from farmers for approximately the same cost, but for which a year’s supply of straw must be paid when harvested by the farmer. We have developed relationships with various European flax processors and brokers to purchase cleaned feedstock. We have also purchased equipment to clean the feedstock for CRAiLAR^® processing that will allow us to buy partially cleaned fiber, providing access to additional sources of feedstock.

We also believe that it is necessary to develop contracted acreage of flax to avoid disrupting supply and demand for byproduct of the linen industry. We believe that there are opportunities to secure farm acreage dedicated to supplying our plants. This would require a decortication capability in these growing regions. Our suppliers also believe that additional farmers would be attracted to grow flax for CRAiLAR because the farming techniques are very simple and efficient compared with traditional linen flax farming techniques. Also, the retting requirements for the CRAiLAR^® process are less stringent than for linen flax.

We commenced operations in Pamplico, South Carolina in January 2013. We encountered problems with the bale opening system and have suspended operations at that location. Given our focus on production in Europe, we will have reduced operations in the U.S. until a strategic customer will support our presence in South Carolina. Some of the assets previously used in South Carolina may be redeployed to our European facility.

In addition to the installation of our full scale processing line, CRAiLAR continues to improve upon its patented process thereby increasing efficiencies. In March 2012, we announced an improvement of our CRAiLAR^® wet process time by 40%, thereby significantly increasing anticipated volume capabilities at planned facilities. The evaluation and resulting improvements were conducted internally in conjunction with research partners. The resulting changes encompass processes, as well as the utilization of industry standard equipment.

Production Model

Note on Plan of Operation

While we expect that profitable operations will be achieved in the future, there can be no assurance that revenue, margins, or profitability will increase, or be sufficient to support operations over the long term. We expect that we will need to raise additional capital to meet short and long-term operating requirements. We may also encounter business endeavors that require significant cash commitments or unanticipated problems or expenses that could result in a requirement for additional cash. If we raise additional funds through the issuance of equity or convertible debt securities other than to current shareholders, the percentage ownership of current shareholders would be reduced, and such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, on a timely basis, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict business operations. We are continuing to pursue external financing alternatives to improve our working capital position and to grow the business to the greatest possible extent.

Raw Materials

Flax is the principal raw material used in the manufacture of our natural fibers products. Flax is a cost-effective raw material for fiber production because it is generally easy to grow with minimal use of herbicides and requires only regular rainfall for irrigation, which significantly reduces costs as compared to other natural fibers.

We have relationships with several European companies to supply feedstock to our European facility. Feedstock is a linen industry waste product or fiber unsuitable for linen due to fiber length. There are significant acres of flax under cultivation in Western Europe for the linen industry as well as in Eastern Europe and Russia, and we believe these regions represent a sufficient source of available feedstock. We have also begun negotiations with two large European farming cooperatives to grow test plots of flax and hemp in 2015. Assuming the farming economics are confirmed, we expect to contract directly with farmers for significant acreage in 2016 which will substantially reduce our feedstock costs. Direct to farmer contracting will also allow deploying farming techniques that will improve the fibers suitability for textiles.. We have developed improved planting and harvesting techniques from our agronomic experience in North America, which should allow us to increase yield per acre and facilitate faster and more cost effective harvesting of flax.

Seasonality

Our operating results are subject to some variability due to seasonality and other factors. Sales levels in any period are also impacted by customers’ decisions to increase or decrease their inventory levels in response to anticipated consumer demand.

Collaboration and Research Agreements

National Research Council of Canada

In October 2007, we entered into a joint collaboration agreement with the NRC to continue to develop a patentable enzyme technology for the processing of hemp fibers. The agreement was for three years and initially expired on May 9, 2010. On February 19, 2010, we signed an amendment to the agreement to extend the term of the agreement to May 9, 2012. While this agreement has expired, we are exploring additional work with the NRC to enhance certain aspects of the technology.

De Montfort University

In 2011, we entered into a research and development agreement with De Montfort University in Leicester, United Kingdom. De Montfort’s textile division is renowned for their work on bast fibers such as flax and hemp and specializes in their textile applications. De Montfort has been working on process optimization and works closely with CRAiLAR’s wet processing partners. In addition to processing improvements, De Montfort has experience with flax and hemp agronomics and has recommended various harvesting improvements that have been implemented into our CRAiLAR^® technologies.

Intellectual Property

Under the CRAiLAR^®technology platform, we have secured the exclusive worldwide licensing rights to the patented intellectual property arising from our collaborative research agreements with the NRC. The NRC license covers our proprietary processes and includes a license to two patents covering the extraction of hemp fibers and preparation of bast fibers. The patents have been issued or allowed in the U.S., Canada, China, Europe and certain other jurisdictions, and are based on applications filed under the Patent Cooperation Treaty. We pay an ongoing royalty of 3% of sales of products derived from the CRAiLAR^®process to the NRC with a minimum annual payment set at CAD$15,000 per year ($12,905 based on the exchange rate on December 27, 2014). Once we have reached CAD$50.0 million in CRAiLAR^® sales ($43.0 million based on the exchange rate on December 27, 2014), the royalty percentage drops to 1.5%. The license expires upon the expiration of the last patent claim covered by the license, which is currently in December 2029, but may be terminated earlier by NRC upon our breach of the license agreement or in the event we become bankrupt or insolvent.

In addition to the NRC technology, CRAiLAR has been active in generating additional IP both in conjunction with our major customers and on our own. Additional patents are expected to be filed in the near future.

We believe that our intellectual property has substantial value and has contributed significantly to the success of our business. Our primary trademark is CRAiLAR^®, which is registered with the U.S. Patent and Trademark Office, in Canada and in several other countries. We also rely on unpatented proprietary expertise, formulations, continuing innovation and other trade secrets to develop and maintain our competitive position.

Research and Development

We have invested a considerable amount of time and effort into product research and development. Research and development costs are charged to operations as incurred. Our research and development costs for our fiscal year ended December 27, 2014 (“Fiscal 2014”) and our fiscal year ended December 28, 2013 (“Fiscal 2013”) were $275,079 and $355,099, respectively, all of which were attributable to our CRAiLAR^® and related bast fiber technology development.

Competition

There are relatively few specialty natural bast fibers producers when compared with the much larger cotton and pulp commodity markets. The technical demands and patented processes of CRAiLAR^® differentiates us on the basis of our ability to meet the customer’s particular set of needs, rather than simply focusing only on pricing alone.

Employees

CRAiLAR had a total of 27 full-time and three part-time employees as of December 27, 2014, located in the United States, Canada and Europe. Employee relations are considered to be good. None of our employees are subject to a collective bargaining agreement.

Government Regulation

Trade Regulation

Our operations are subject to the effects of international treaties and regulations such as the North American Free Trade Agreement (NAFTA). We are also subject to the effects of international trade agreements and embargoes by entities such as the World Trade Organization. Generally, these international trade agreements benefit our business rather than burden it because they tend to reduce trade quotas, duties, taxes and similar impositions. However, these trade agreements may also impose restrictions that could have an adverse impact on our business, by limiting the countries from whom we can purchase our fabric or other component materials, or limiting the countries where we may market and sell our products.

Environmental Regulation

Our operations are subject to various environmental and occupational health and safety laws and regulations. We believe that we are in compliance with all applicable regulatory requirements. We will continue to make expenditures to comply with these requirements, and we do not believe that compliance will have a material adverse effect on our business. As is the case with manufacturers in general, if a release of hazardous substances occurs on or from our properties or any associated offsite disposal locations, or if contamination from prior activities is discovered at any of our properties, we may be held liable. While the amount of such liability could be material, we endeavor to conduct our operations in a manner that reduces such risks.

ITEM 1A. RISK FACTORS

An investment in our securities involves a high degree of risk. You should carefully consider the following risks and uncertainties in addition to other information in this report before purchasing our securities. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The risks described below are the risks that we believe are material that are facing our company. Additional risks not currently known to us or that we currently deem immaterial may also impair our business, prospects, financial condition and results of operations. You could lose all or part of your investment due to any of these risks.

Risks Related to Our Business

We Have a History of Operating Losses and There Can Be No Assurance We Will Be Profitable in the Future.

We have a history of operating losses, expect to continue to incur losses, may never be profitable, and must be considered to be in the development stage. Further, we have been dependent on sales of our equity securities and debt financing to meet our cash requirements. We have incurred net losses totaling $14.4 million for Fiscal 2014 and $15.2 million for Fiscal 2013. As of December 27, 2014, we had an accumulated deficit of $63.6 million. As of December 27, 2014, we had cash and cash equivalents of $1.2 million and minimal net working capital.

We Will Need to Raise Capital to Continue Our Operations.

Based upon our historical losses from operations, we anticipate we will require additional funding to fund our operations. If we cannot obtain capital through additional financings or otherwise, our ability to execute our development plans and achieve profitable operational levels will be greatly limited. Historically, we have funded our operations through the issuance of equity and convertible debentures and bank debt financing arrangements. We may not be able to obtain additional financing on favorable terms, on a timely basis, if at all. Our future cash flows and the availability of financing will be subject to a number of variables, including the demand for and market acceptance of CRAiLAR^® technologies. Further, debt financing could lead to a diversion of cash flow to satisfy debt-servicing obligations and create restrictions on business operations. If we are unable to raise additional funds on acceptable terms on a timely basis, it would have a material adverse effect upon our operations.

Our Independent Registered Public Accounting Firm Has Expressed Doubt about Our Ability to Continue as a Going Concern.

Our audited financial statements have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued a report that included an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern in light of our continuing net losses and anticipated future operating losses. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our ability to continue as a going concern is dependent upon our ability to obtain additional financings or other capital, reduce expenditures or attain further operating efficiencies and generate revenue. If adequate funds are not available to us when we need such funds, or if we are unable to generate sufficient revenues, we will be required to curtail our operations, which would, in turn, further raise substantial doubt about our ability to continue as a going concern.

We May Have Insufficient Earnings or Liquidity to Meet Our Future Debt Obligations.

We currently have outstanding convertible debentures and other debt (including a debt repayment obligation relating to our European production facility and a loan from IKEA) in the aggregate principal amount of $19.1 million. The maturity dates of such debt and convertible debentures range from 2016 to 2018. The interest payments on our outstanding debentures and loans are expected to be $1.7 million for fiscal 2015. Our inability to generate cash flow sufficient to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms, could materially and adversely affect our business. In addition, servicing these debt obligations will reduce the availability of our cash flow to fund working capital and capital expenditures to continue to expand our business and operations.

Our Success Is Dependent upon the Acceptance of CRAiLAR^® Technology.

Our success depends upon our achieving significant market acceptance of our CRAiLAR^® technology and products containing our CRAiLAR^® fiber. Acceptance of our CRAiLAR^® technology will depend on the success of our and our customers’ promotional and marketing efforts and ability to attract customers. If such efforts fail to develop an awareness of and demand for our CRAiLAR^® technology and products, we may never be able to generate any significant future revenues. Even if awareness of our CRAiLAR^® technology increases, we may not be able to timely produce enough of our fibers to meet demand.

In addition, the acceptance of our CRAiLAR^® technology may be adversely affected by decreases in the price of cotton. A decrease in the price of cotton could reduce our customers’ desire for natural fiber alternatives, and thereby reduce the demand for and acceptance of our proprietary fibers, which could have a material adverse effect on our financial results.

We Are Dependent upon Third Parties to Increase the Awareness of and Demand for Our CRAiLAR^® Fibers and Technology.

We are pursuing a pull-through marketing model, which focuses on working directly with some of the leading consumer brands in a variety of target markets to develop additional products incorporating our CRAiLAR^® fibers. To date, we have not spent significant funds on marketing and promotional efforts, but we expect our customers to spend a significant amount on promotion, marketing and advertising of the benefits of our fibers and their products containing such fibers in the future, which we believe will increase awareness of our products. However, we do not currently have any customer agreements which require any significant expenditures to be made by the customer specifically to promote our brand or our products. In addition, we have little control over the actions of our customers with respect to the specific products and quality and number of such products that our customers sell or market that include our CRAiLAR^® fibers, or the relative mix of our fibers in such products, all of which can have an effect on the perception and acceptance of our products. If our customers do not promote and market our products in the future as we expect or their products are not well-accepted in the market or do not effectively demonstrate the benefits of our products and technologies, the acceptance of our brand and products may suffer or we may be required to incur significant additional costs for promotion and marketing, which would adversely affect our financial results and condition.

An Early Termination of the NRC License Will Have a Material Adverse Effect on Our Business.

Our CRAiLAR^® technologies are based on patents and other intellectual property licensed to us from the NRC. The license agreement expires upon the expiration of the last patent claim covered by the license, which is currently in December 2029, but may be terminated earlier by the NRC upon our breach of the license agreement or in the event we become bankrupt or insolvent. An early termination of the license agreement would have an immediate and material adverse effect on our business. In addition, due to the substantial dependence of our technologies on the patents held by the NRC, our business and financial results may be adversely affected if such patents are not adequately enforced or protected.

Delays or Disruptions in Production of Our Products Could Adversely Affect Our Financial Results.

Our business operations consist primarily of, and our revenues are dependent upon, the production and sale of our CRAiLAR® fibers. Currently, we have only one wet processing facility located in Europe for the production of our products. Any delays or disruptions in production at our European facility, whether due to mechanical issues, labor disputes or otherwise, could materially and adversely impact our sales and financial results. Such delays or disruptions that result in an inability to timely meet supply requirements could also have a negative effect on our relationships with our customers and the ultimate acceptance of our products. We may also experience unforeseen quality control issues as we adjust production to meet any changes in demand for our products. In addition, although we plan to make improvements to our decortication facility in South Carolina so that we can resume production at such facility, we cannot assure you that such improvements will be made or that we will ever have full processing capabilities at that facility.

A Commercial Market Must Be Found for Our By-products.

North American markets need to be found and developed for the by-products of our decortication process. Although several opportunities for the sale of our by-products are being explored, no contracts for the off take of our by-products have been signed as of the date of this report, and we cannot assume that we will enter into any such contracts in the future or that such development will lead to usable products.

We May Be Unable to Retain Key Employees or Management Personnel.

The loss of any of our key officers and management personnel would have an adverse impact on our future development and could impair our ability to succeed. Our performance is substantially dependent upon the expertise of our Chief Innovation Officer, Mr. Jason Finnis, and other key management personnel and our ability to continue to hire and retain such personnel. It may be difficult to find sufficiently qualified individuals to replace Mr. Finnis or other key management personnel, including Ms. Lesley Hayes, our Chief Executive Officer, Mr. Ted Sanders, our Chief Financial Officer and Treasurer, Mr. Jay Nalbach, our Chief Marketing Officer, and Mr. Guy Prevost, our Corporate Controller and Compliance Officer, if we lose any one or more of them. The loss of any such persons could have a material adverse effect on our business, development, financial condition, and operating results. We do not maintain “key person” life insurance on our senior executive officers.

Our Officers and Directors May Be Subject to Conflicts of Interest.

Certain of our officers and directors may be subject to conflicts of interest. Such conflicts include deciding how much time to devote to our affairs, as well as what business opportunities should be presented to us. Certain of our directors devote part of their working time to other business endeavors, including consulting relationships with other entities, and have responsibilities to other entities. Because of these relationships, such directors may be subject to conflicts of interest. Currently, we have no policy in place to address such conflicts of interest. However, such directors have acknowledged their fiduciary duty to perform their duties in our best interest and those of our shareholders.

Government Regulation and Trade Restrictions Could Have a Negative Impact on Our Business.

Governments or special interest groups may attempt to protect existing industries through the use of duties, tariffs or public relations campaigns. These efforts may adversely affect interest in and demand for our CRAiLAR^®technology.

Moreover, any negative changes to international treaties and regulations such as NAFTA and international trade agreements, and embargoes imposed by entities such as the World Trade Organization, which could result in a rise in trade quotas, duties, taxes and similar impositions or which could limit the countries from whom we can purchase component materials, or which could limit the countries where we or our customers might market and sell products created using CRAiLAR^® technology, could have an adverse effect on our business.

The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction may be changed, applied or interpreted in a manner which will fundamentally alter our ability to carry on business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitability.

If Our Competitors Misappropriate Unpatented Proprietary Know-How and Our Trade Secrets, It May Have a Material Adverse Effect on Our Business.

The loss of or inability to enforce our CRAiLAR^®trademark and our proprietary know-how and trade secrets could adversely affect our business. We depend heavily on trade secrets and the design expertise of our employees. If any of our competitors copy or otherwise gains access to our trade secrets or develops similar technologies or processes independently, we would not be able to compete as effectively. The measures we take to protect our trade secrets and design expertise may not be adequate to prevent their unauthorized use. Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversion of resources. In addition, notwithstanding the rights we have secured in our intellectual property, other persons may bring claims against us that we have infringed on their intellectual property rights or claims that our intellectual property right interests are not valid. Any claims against us, with or without merit, could be time consuming and costly to defend or litigate and therefore could have an adverse effect on our business and financial condition.

Currency Fluctuations May Cause Translation Gains and Losses.

A significant portion of our expenses are incurred in Canadian dollars and Euros. As a result, appreciation in the value of these currencies relative to the United States dollar could adversely affect our operating results. Foreign currency translation gains and losses arising from normal business operations are credited to or charged against other income for the period incurred. Fluctuations in the value of Canadian dollars and Euros relative to United States dollars may cause currency translation gains and losses.

We May Not Successfully Identify or Complete Future Acquisitions, Which Could Have a Material Adverse Effect on Our Business, Financial Condition, Results of Operations and Cash Flow.

We may seek to expand our business partly through acquisitions. However, if any reasonable acquisition candidates were to be identified, we cannot assure you that we will succeed in:

	•	completing acquisitions;

	•	integrating acquired operations into our existing operations; or

	•	expanding into new markets.

We also cannot assure you that any current or future acquisitions will not have an adverse effect on our operating results, particularly in the fiscal quarters immediately following their completion while we integrate the operations of the acquired business. The integration of newly acquired businesses or operations may prove to be more challenging, take more time than originally anticipated and result in significant additional costs and/or operational issues, all of which could adversely affect our financial condition and result of operations. Once integrated, acquired operations may not achieve levels of revenues, profitability or productivity comparable with those achieved by our existing operations, or otherwise perform as expected.

Risks Related to Our Common Stock

Sales of a Substantial Number of Shares of Our Common Stock May Result in Significant Downward Pressure on the Price of Our Common Stock and Could Affect Your Ability to Realize the Current Trading Price of Our Common Stock.

As of December 27, 2014, there were 66,378,003 shares of our common stock issued and outstanding. Further, as of that date there were outstanding options exercisable for 6,769,294 shares of common stock at a weighted average exercise price of $1.79 per share and warrants exercisable for 22,932,373 shares of common stock at a weighted average exercise price of $0.74 per share. We completed three offerings of convertible debentures of $10.1 million (CAD$10.0 million), $4.9 million (CAD$5.0 million) and $3.4 million (CAD$3.5 million) on September 20, 2012, February 25, 2013 and July 26, 2013, respectively. Holders of the convertible debentures issued in September 2012 and February 2013 have the option to convert such notes at a price of CAD$2.90 per share of common stock ($2.50 based on the exchange rate on December 27, 2014) at any time prior to September 30, 2017. Holders of the convertible debentures issued in July 2013 have the option to convert such notes at a price of CAD$1.25 per share of common stock ($1.08 based on the exchange rate on December 27, 2014) at any time prior to July 26, 2016. Any sales in the public market of the common shares issuable upon exercise or conversion of the outstanding options, warrants and convertible debentures may dilute our stockholders’ ownership percentages and could result in a decrease in the market value of our equity securities.

In addition, any significant downward pressure on the price of our common stock as certain stockholders sell their shares of our common stock may encourage short sales. Any such short sales could place further downward pressure on the price of our common stock.

The Trading Price of Our Common Stock on the OTCQB Has Been and May Continue to Fluctuate Significantly and Stockholders May Have Difficulty Reselling Their Shares.

During Fiscal 2014, our common stock has traded as low as $0.18 and as high as $1.65. In addition to volatility associated with OTCQB securities in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock:

	•	changes in the demand for flax and other eco-friendly products;

	•	market acceptance of our products and the products that incorporate our CRAiLAR^®fiber;

	•	disappointing results from our or our customers’ marketing and sales efforts;

	•	failure to meet our revenue or profit goals or operating budget;

	•	decline in demand for our common stock;

	•	downward revisions in securities analysts’ estimates or changes in general market conditions;

	•	lack of funding generated for our operations and existing debt obligations;

	•	investor perception of our industry or our business prospects; and

	•	general economic trends.

In addition, stock markets have experienced extreme price and volume fluctuations and the market prices of securities have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common stock. As a result, investors may be unable to sell their shares at a fair price and you may lose all or part of your investment.

Additional Issuances of Equity Securities May Result in Dilution to Our Existing Stockholders.

Our Articles of Incorporation authorize the issuance of an unlimited number of shares of common stock. The Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future and the issuance of any such shares may result in a reduction of the book value or market price of the outstanding shares of our common stock. If we do issue any such additional shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other stockholders. As a result of such dilution, if you acquire shares of our common stock, your proportionate ownership interest and voting power could be decreased. Further, any such issuances could result in a change of control.

We are not authorized to issue shares of preferred stock. However, there are provisions of British Columbia law that permit a company’s board of directors, without shareholder approval, to issue shares of preferred stock with rights superior to the rights of the holders of shares of common stock. As a result, shares of preferred stock could be issued quickly and easily, adversely affecting the rights of holders of shares of common stock and could be issued with terms calculated to delay or prevent a change in control or make removal of management more difficult. Although we currently do not have any authorized preferred stock, have no plans to create authorized preferred stock, and have no present plans to issue any shares of preferred stock, any creation and issuance of preferred stock in the future could adversely affect the rights of the holders of common stock and reduce the value of the common stock.

Our Common Stock is Classified as a “Penny Stock” Under SEC Rules Which Limits the Market for Our Common Stock.

Because our stock is not traded on any national securities exchange in the U.S. and because the market price of the common stock is less than $5 per share, the common stock is classified as a “penny stock.” Our stock has never traded above $5 per share. SEC Rule 15g-9 under the Exchange Act imposes additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as an “established customer” or an “accredited investor.” This includes the requirement that a broker-dealer must make a determination that investments in penny stocks are suitable for the customer and must make special disclosures to the customers concerning the risk of penny stocks. Many broker-dealers decline to participate in penny stock transactions because of the extra requirements imposed on penny stock transactions. Application of the penny stock rules to our common stock reduces the market liquidity of our shares, which in turn affects the ability of holders of our common stock to resell the shares they purchase, and they may not be able to resell at prices at or above the prices they paid.

We Are a Canadian Company and Half of Our Directors and Several of Our Officers Are Canadian Citizens and/or Residents, Which Could Make It Difficult for Investors to Enforce Judgments Against Us in the United States.

We are a company incorporated under the laws of the Province of British Columbia, Canada and half of our directors and several of our officers reside in Canada. Therefore, it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or officers. All or a substantial portion of such persons’ assets may be located outside the United States. As a result, it may be difficult for investors to effect service of process on our directors or officers, or enforce within the United States or Canada any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, you may be effectively prevented from pursuing remedies under U.S. federal securities laws against them. In addition, investors may not be able to commence an action in a Canadian court predicated upon the civil liability provisions of the securities laws of the United States. We have been advised by our Canadian counsel that there is doubt as to the enforceability, in original actions in Canadian courts, of liability based upon the U.S. federal securities laws and as to the enforceability in Canadian courts of judgments of U.S. courts obtained in actions based upon the civil liability provisions of the U.S. federal securities laws. Therefore, it may not be possible to enforce those actions against us or any of our directors or officers.

A Decline in the Price of Our Common Stock Could Affect Our Ability to Raise Further Working Capital and Adversely Impact Our Operations.

A decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise additional capital for our operations. Because our operations to date have been principally financed through the sale of equity securities, a decline in the price of our common stock could have an adverse effect upon our liquidity and our continued operations. A reduction in our ability to raise equity capital in the future would have a material adverse effect upon our business plan and operations, including our ability to continue our current operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

As of the date of this Annual Report, there are no unresolved comments pending from either the SEC or the British Columbia Securities Commission.

ITEM 2. PROPERTIES

On June 30, 2011, we entered into a lease for our principal offices, consisting of approximately 1,571 square feet of office space in Victoria, British Columbia for a monthly basic net rent of CAD$2,749 (US$2,763 based on the exchange rate on December 31, 2012 of CAD$1.00 = US$1.0051). The lease is for a term of three years commencing on August 1, 2011 and expires on July 31, 2014 with one renewal term of three years. We signed the renewal term at the same basic monthly rent which expires on July 31, 2017. The basic monthly rent is CAD$2,749 (US$ 2,366 based on an exchange rate on December 27, 2014 of CAD $1.00 = US$0.8608).

Effective August 9, 2010, we signed a ten-month sublease of a facility at 164 County Camp Road, Kingstree, South Carolina, at a rental cost of $4,400 per month. We attained the space for use as an initial scale-up flax fiber facility to conduct the decortication process of CRAiLAR^®fibers. The property is housed near 300 acres of flax crops that we used to conduct our flax fiber growing trials. On July 1, 2011, we signed a one year lease, through June 30, 2012, for this same property and facility for a monthly rent of $3,300. Subsequent to June 30, 2012, we agreed to continue to lease the facility for a monthly rent of $3,400 until June 30, 2015.

In March 2012, we entered into a lease for a 147,000 square foot building on 52 acres outside of Pamplico, South Carolina. We plan to use this building as an integrated processing facility, however, problems with the bale opening systems have led operations to be suspended until new equipment can be built and installed. The initial term of the lease is for ten years with two additional five-year extension terms. No rent was due prior to January 1, 2014. Commencing January 1, 2014, the annual basic rent will be $146,930 per year, increasing to $220,395 per year from June 1, 2018 to May 31, 2022.

In November 2013, in connection with the acquisition of our European production facility in Ieper, Belgium, we committed to lease the building housing the facility. Pursuant to an oral agreement, the initial term of the lease commitment is ten years with the option to extend the lease for an additional ten-year term. Commencing on December 1, 2013, the annual basic rent will be $62,636 for the first year with annual rent adjustments calculated as the sum of €1,300,000 multiplied by the Belgium risk-free interest rate. After five years the building will be reappraised and the base rents will be calculated using the new appraisal value. Pursuant to the agreement, we have the option to purchase the building for its appraised value after the fifth anniversary. We are currently in the process of formalizing the foregoing oral arrangements.

ITEM 3. LEGAL PROCEEDINGS

Management is not aware of any material legal proceedings pending or contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Annual 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 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Stock

Our common stock has been quoted on the OTC Bulletin Board or the OTCQB tier of the OTC Markets Group, Inc. since March 21, 2006, initially under the symbol “NADVF” (until October 31, 2012) and now on the OTCQB under the symbol “CRLRF” (since November 1, 2012). The market for our common stock is limited, and can be volatile. The following table sets forth the high and low bid prices relating to our common stock on a quarterly basis for the periods indicated as quoted by the OTCQB. These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions.

Quarter Ended		High		Low
December 27, 2014	$	0.40	$	0.18
September 27, 2014		1.01		0.36
June 28, 2014		1.43		0.78
March 29, 2014		1.65		0.69
December 28, 2013		1.00		0.42
September 28, 2013		1.27		0.36
June 29, 2013		2.30		0.95
March 30, 2013		2.63		2.05

In addition, shares of our common stock have been listed on the TSX Venture Exchange (“TSX-V”) since July 8, 2008, initially under the symbol “NAT” (until October 30, 2012) and now under the symbol “CL” (since October 31, 2012). The following table sets forth the high and low sales prices of our common stock on a quarterly basis for the periods indicated as quoted by the TSX-V.

Quarter Ended		High		Low
December 27, 2014	CAD$	0.45	CAD$	0.21
September 27, 2014		1.07		0.40
June 28, 2014		1.45		0.86
March 29, 2014		1.83		0.73
December 28, 2013		1.10		0.48
September 28, 2013		1.30		0.38
June 29, 2013		2.30		0.99
March 30, 2013		2.76		2.05

Holders

As of April 7, 2015, there were 91 holders of record of our common stock as reported by our transfer agent, Computershare Investor Services Inc. There were also an undetermined number of holders who hold their stock in nominee or “street” name.

Dividend Policy

No dividends have ever been declared by the Board of Directors on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Securities Authorized for Issuance under Compensation Plans

We have one equity compensation plan: our 2011 Fixed Share Option Plan. As described below, the 2011 Plan adopted all options outstanding under our previous stock option plans, including our 2006 Stock Option Plan (the “2006 Plan”), our 2008 Fixed Share Option Plan (the “2008 Plan”) and our 2010 Fixed Share Option Plan (the “2010 Plan”). The table set forth below presents information relating to our equity compensation plan as of December 27, 2014.

				Number of Securities
	Number of Securities to be		Weighted-Average Exercise	Remaining Available for
	Issued Upon Exercise of		Price of Outstanding	Future Issuance Under
	Outstanding Options,		Options, Warrants and	Equity Compensation Plans
Plan Category	Warrants and Rights		Rights	(excluding column (a))

	(a)		(b)	(c)
Equity Compensation Plans Approved by Security Holders (2011 Plan Stock Options, Including Stock Options Originally Granted Under 2006 Plan, 2008 Plan and 2010 Plan)	6,769,294	$	1.79	6,516,723

Equity Compensation Plans Not Approved by Security Holders	N/A		N/A	N/A

Total	6,769,294	$	1.79	6,516,723

2011 Fixed Share Option Plan

Effective August 9, 2011, our Board of Directors authorized and approved the adoption of our 2011 Fixed Share Option Plan (the “2011 Plan”) as of such date, under which an aggregate of 8,224,240 of our shares, representing 20% of the issued and outstanding common share capital of the Company as of August 9, 2011, may be issued. Our shareholders approved the 2011 Plan at our annual general meeting held on September 15, 2011. Our shareholders approved an amendment to the 2011 Plan at our annual general meeting held on August 8, 2012, to increase the number of common shares reserved for issuance under such plan from 8,224,240 to 8,512,976. Our shareholders approved a further amendment to the 2011 Plan at our annual general meeting held on November 6, 2013, to increase the number of common shares reserved for issuance under such plan from 8,512,976 to 8,894,539 and to remove the vesting schedule attached as Schedule “B” to the 2011 Plan. Our shareholders approved a further amendment to the 2011 Plan at our annual general and special meeting of shareholders held on November 10, 2014, to increase the number of common shares reserved for issuance under such plan from 8,894,539 to 13,275,600. As described below, all options issued under our Previous Option Plan (as defined below) are covered by our 2011 Plan.

Prior to the adoption of the 2011 Plan, we had a stock option plan outstanding, the 2010 Fixed Share Option Plan (the “Previous Option Plan”). Under the Previous Option Plan, a maximum of 7,057,640 options were reserved for issuance. As of August 9, 2011, 4,499,421 options were issued and outstanding under the Previous Option Plan. All outstanding options under the Previous Option Plan were rolled into the 2011 Plan and are counted against the number of common shares available for option under the 2011 Plan.

The purpose of the 2011 Plan is to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service.

The 2011 Plan is to be administered by our Board of Directors or a committee appointed by the Board of Directors, which shall determine, among other things:

•	the persons to be granted options under the 2011 Plan;

•	the number of options to be granted; and

•	the terms and conditions of the options granted.

An option may not be exercised after the termination date of the option and may be exercised following the termination of an eligible participant’s continuous service only to the extent provided by the terms of the 2011 Plan.

Based on the terms of the individual option grants, options granted under the 2011 Plan generally expire three to ten years after the grant date (with a maximum exercise period of 10 years from grant) and become exercisable over a period of one year based on continued employment, either with monthly vesting or upon achievement of pre-determined deliverable.

Common Stock Purchase Warrants

As of December 27, 2014, there were an aggregate of 22,932,373 common stock purchase warrants issued and outstanding at a weighted average exercise price of $0.74 per share.

Recent Sales of Unregistered Securities

During our fiscal year ended December 27, 2014, we sold the following equity securities that were not registered under the Securities Act:

On January 30, 2014, we issued 181,666 common shares to Robert Edmunds, a director of our Company, at a deemed value of CAD$0.60 share pursuant to the terms of a Loan Extension and Bonus Share Agreement. We relied on the exemption from registration under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) provided by Regulation S for the issuance to Mr. Edmunds.

On March 20, 2014, we completed a private placement equity financing to thirteen purchasers. The private placement consisted of the sale of 2,515,000 units at $1.25 per unit for gross proceeds of $3,143,750. Each unit is comprised of one common share and one-half of one transferable common share purchase warrant of the Company, and each whole warrant will entitle the holder thereof to purchase one additional common share of the Company at an exercise price of $1.75 per warrant share for a period of two years from closing, that is, until March 20, 2016. We relied on exemptions from registration under the U.S. Securities Act provided by Regulation S with respect to seven of the purchasers and by Rule 506 with respect to the remaining six purchasers, in each case based on representations and warranties provided by the purchasers of the units in their respective subscription agreements entered into between us and each of the purchasers.

In addition, on March 20, 2014, we issued 176,400 common shares to two finders in conjunction with the closing of the above-referenced private placement at a deemed issuance price of $1.25 per share. We relied on exemptions from registration under the U.S. Securities Act provided by Rule 506 based on representations and warranties provided by each of the finders.

On May 23, 2014, we issued 1,724 shares upon the conversion of $4,650 (CAD$5,000) principal amount of previously issued convertible debentures at the conversion price of $2.70 (CAD$2.90) per share. This issuance of shares was exempt from the registration requirements of the U.S. Securities Act pursuant to Section 3(a)(9) of the U.S. Securities Act.

On June 2, 2014, we completed a private placement of units to thirteen creditors in settlement of debt. This private placement consisted of the issuance of 742,355 units at a deemed issuance price of $1.25 per unit in settlement of an aggregate amount of $927,944 of debt owed to such creditors. Each unit is comprised of one common share and one-half of one transferable common share purchase warrant, and each whole warrant will entitle the holder thereof to purchase one additional common share at an exercise price of $1.75 per warrant share for a period of two years from closing, that is, until June 2, 2016. We relied on exemptions from registration under the U.S. Securities Act provided by Regulation S with respect to one of the creditors and by Rule 506 with respect to twelve of the creditors, in each case based on representations and warranties provided by the creditors in their respective subscription agreements entered into between us and each of the creditors.

On June 17, 2014, we issued 4,827 shares of common stock upon the conversion of $12,929 (CAD$14,000) principal amount of previously issued convertible debentures at the conversion price of $2.68 (CAD$2.90) per share. This issuance of shares was exempt from the registration requirements of the U.S. Securities Act pursuant to Section 3(a)(9) of the U.S. Securities Act.

ITEM 6. SELECTED FINANCIAL DATA

Not required because we are a smaller reporting company.

ITEM 7. 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. The matters discussed in these sections that are not historical or current facts deal with potential future circumstances and developments. Such forward-looking statements include, but are not limited to, statement regarding our development plans, market trends, anticipated operating expenses, capital requirements and capital resources. As such, these forward-looking statements may include words such as “plans”, “intends”, “anticipates”, “should”, “estimates”, “expects”, “believes”, “indicates”, “targeting”, “suggests”, and similar expressions. The actual results may differ from these forward-looking statements and these differences may be material.

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. We believe that we offer two key opportunities for development:

	•	CRAiLAR^®fibers (using flax, hemp or other sustainable bast fiber) for textiles (knit, woven and non-woven constructions) available in a variety of blends, textures, colors and applications; and

	•	CRAiLAR^®technologies for processing cellulose-based fibers as a high grade dissolving pulp for use in the additives, ethers and performance apparel markets.

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. The facility has a maximum capacity to produce approximately 280,000 pounds of CRAiLAR^® Flax fiber per week and can be expanded.

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 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 entitles 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 at a price of $0.001 per warrant. 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 August 15, 2014, the Over –Allotment Option was exercised for the remaining 1,950,000 shares of the Company at a price of $0.499 per shares 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 30, 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 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 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 $904 (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 for the Company’s fiscal year ended December 27, 2014 include the accounts of the Company and its six wholly-owned subsidiaries as of December 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 December 27, 2014, the Company had $1.2million in cash and cash equivalents.

Inventory

The raw flax fiber feedstock, decorticated fiber and CRAiLAR^® fiber is 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.

Property and Equipment

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

Automobiles	20% declining balance
Computer equipment	30% declining balance
Computer software	100% declining balance
Equipment	30% declining balance
Furniture and fixtures	20% declining balance
Production Equipment	30% declining balance
Leasehold improvements	Term of lease
Website development	100% declining balance

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:

Trademarks	5 year straight - line
License Fee	10 year straight - line
Patent	10 year straight – line

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 functional currencies of the Company and its subsidiaries are as follows: Crailar Technologies Inc. – US$; Crailar Inc. - US$; Hemptown USA, Inc. – US$; 0697872 B.C. Ltd. – US$; Crailar Fiber Technologies Inc. – US$; HTNaturals Apparel Corp. – US$, and Crailar Europe NV – Euro.

Effective September 28, 2014 management determined that the functional currency of Crailar Technologies Inc., 0697872 B.C. Ltd. and Crailar Fiber Technologies Inc. changed from the Canadian dollar to the U.S. dollar. As a result, translation adjustments for prior periods were not removed from equity and the translated amounts for nonmonetary assets at the end of the prior period become the accounting basis for those assets in the period of the change and subsequent periods.

The Company translates its financial statements with other than US$ functional currencies 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 period 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’ deficit.

Foreign currency transaction gains and losses are included in the results of operations.

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.

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 years ended December 27, 2014 and December 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. Although the Company conducts its business principally in Canada, the majority of its purchases are made in Euros while the majority of its sales are in USD. Currently, the majority of the Company’s debt is denominated in CAD currency. A 5% fluctuation in currency rates for the Company’s Euro debt of $178,000. The Company does not currently hedge its foreign currency exposure and accordingly is at risk for foreign currency exchange fluctuations.

Credit risk. Credit risk is managed by dealing with customers whose credit standing meets internally approved policies, and by ongoing monitoring of 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. As of December 27, 2014, $2,198,688 is due from a single customer and therefore 92% of receivables are exposed to concentration of credit risk.

Interest rate risk. Approximately $277,500 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 anticipates little 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 Pronouncements.

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

RESULTS OF OPERATIONS Fiscal 2014 Compared to Fiscal 2013

		Fifty-Two Weeks Ended
		December 27, 2014			December 28, 2013
		(amounts in thousands, except per share data)
Revenues	$	4,196		$	587
					-
Cost of sales
Materials and direct production costs		3,513			470
Facility commissioning costs		675			371
Production facility overhead costs		322			366
Depreciation		525			681
Impairment loss on inventory		370			4,642
		5,405			6,530
Gross loss		(1,209	)		(5,943	)
Expenses:
Marketing and promotion		371			663
Amortization and depreciation		90			175
General and administrative		4,820			6,638
Research and development		275			355
Write down of plant and equipment		7,491			13
		(13,047	)		7,844
Loss before other items		(14,256	)		(13,787	)
Other income (expense):
Accretion expense		(534	)		(128	)
Interest		(2,198	)		(1,931	)
(Loss) on disposal of assets		(153	)		1
Gain on debt settlement		102			-
Fair value adjustment derivative liabilities		2,140			453
Bargain purchase					426
Exchange gain/loss		527			(204	)
		(115	)		(1,383	)
Loss before taxes		(14,371	)		(15,170	)
Deferred income tax recovery		199			-
Net loss after taxes		(14,172	)		(15,170	)
Exchange differences on translating to presentation currency		898			1,044
Comprehensive loss		(13,274	)		(14,126	)
Loss per share (basic and diluted)	$	(0.25	)	$	(0.34	)
Non-GAPP Financial Measures:
EBITDA ⁽¹⁾		(10,825	)		(12,256	)
Adjusted EBITDA ⁽¹⁾		(3,417	)		(5,957	)

⁽¹⁾

EBITDA and adjusted EBITDA are supplemental non-GAAP financial measures. EBITDA consists of net loss before (a) interest expense, (b) accretion expense and (c) depreciation and amortization. “Adjusted EBITDA” further adjusts EBITDA with respect to stock-based compensation expense, facility commissioning expense, fair value adjustment derivative liability’s, gain on settlement of debt, write=down of assets, rent inducement expense, exchange gain/loss, bargain purchase and deferred income tax recovery. A reconciliation of these non –GAAP financial measures to net loss is set forth in the table under “Non-GAAP Financial Measures” below.

Non-GAAP Financial Measures

	Fifty-Two Weeks Ended
	December 27, 2014		December 28, 2013
Consolidated
Net loss	(14,172	)	(15,170	)
Interest expense	2,198		1931
Accretion expense	534		128
Depreciation and amortization	615		855
EBITDA	(10,825	)	(12,256	)
Stock-based compensation	1,127		2,005
Facility commissioning expenses	675		366
Fair value adjustment derivative liabilities	(2,140	)	(453	)
Gain on settlement of debt	(102	)	-
Write down of assets	8,014		4,654
Rent inducement expense	33		152
Bargain purchase	-		(426	)
Deferred income tax recovery	(199	)	-
Adjusted EBITDA	($3,417	)	($5,957	)

Regulation G, “Conditions for Use of Non-GAAP Financial Measure,” and other provisions of 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 loss before (a) interest expense, (b) accretion expense and (c) depreciation and amortization. “Adjusted EBITDA” further adjusts EBITDA with respect to stock-based compensation expense, facility commissioning expense, fair value adjustment derivative liabilities, gain on settlement of debt, write-down of assets, rent inducement expense, exchange gain/loss, bargain purchase and deferred income tax recovery.

We believe that these non-GAAP financial measures provide important supplemental information to management and investors. These non-GAAP financial measures reflect 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 EITDA and Adjusted EBITDA as a measure of our Company’s operating performance because they assist 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 state companies. Additionally, we believe that lenders or potential lenders use EBITDA and Adjusted EBITDA to evaluate our ability to repay loans.

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 in inference that these costs are unusual, infrequent or non-recurring.

Revenue and Gross Margins

For Fiscal 2014, our revenues were $4.2 million, an increase of $3.6 million or 700% from Fiscal 2013. Our sales were derived from CRAiLAR^® fiber and other fiber (non-CRAiLAR) at our European production facility. For Fiscal 2013 our revenues were derived from CRAiLAR^®fiber, customer exclusivity payments and seed sales.

Our net loss for Fiscal 2014 was $14.2 million (2013: $15.2 million). Cost of sales is comprised of $3.5 million (2013: $0.5 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; $0.7 million (2013: $0.4 million) to temporarily outsource the final CRAiLAR process step while equipment was installed and training expenses for new employees to add more production shifts; $0.3 million (2013: $0.4 million) of facility overhead costs; $0.5 million (2013: $0.7 million) for depreciation of production equipment and an impairment loss on feedstock inventory of $0.4 million (2013:$4.6 million.)

Operating Expenses

During Fiscal 2014 we recorded operating expenses of $13.0 million compared to operating expenses of $7.8 million for Fiscal 2013, an increase of $5.2 million or approximately 67%. While there was a decrease in general and administrative expenses of $1.8 million, a reduction in marketing and promotion expenses of $0.3 million, a reduction in research and development costs of $0.1 million, there was an increase to the write down of plant and equipment of $7.5 million.

Marketing and promotion expenses comprised of marketing salaries and sales development costs were $0.4 million for Fiscal 2014, a decrease of $0.3 million or approximately 44% from $0.7 million for Fiscal 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.

General and administrative (G&A) expenses for Fiscal 2014 decreased to $4.8 million, a reduction of $1.8 million or approximately 30% from $6.6 million for Fiscal 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.

Write down of plant and equipment increased to $7.5 million as the equipment and leaseholds of the South Carolina facility were written down as the Company has no fixed date for resumption of operations.

Other Items

Interest expense increased to $2.2 million for Fiscal 2014, compared to $2.0 million for Fiscal 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 of and the amortization of the deferred debt issuance costs. Accretion expense increased to $0.6 million from the beneficial conversion feature of the promissory notes and amortization of bonus shares issued with promissory notes in Fiscal 2014, compared to $0.1 for Fiscal 2013. During Fiscal 2014 there was a gain in the settlement of debt of $0.1 million, while there was nil in Fiscal 2013. For Fiscal 2014 the fair value adjustment of derivative liabilities was a gain of $2.1 million compared to a gain of $0.5 million for Fiscal 2013. For Fiscal 2014 there was a write down of equipment of $0.2 million compared to nil in Fiscal 2013 related to capitalized finance costs of equipment in South Carolina. In Fiscal 2014 there was a write down of feedstock inventory of $0.4 million compared to a write down of $4.6 million in Fiscal 2013.

Net Loss

Our net loss for Fiscal 2014 was $14.2 million, or $0.25 per share, compared to $15.2 million, or $0.34 per share for Fiscal 2013.

For Fiscal 2014, the weighted average number of shares outstanding was 56,309,118 compared to 44,508,011 for Fiscal 2013.

LIQUIDITY AND CAPITAL RESOURCES

Fiscal 2014 Compared to Fiscal 2013

		2014			2013
		(in thousands)
Cash and cash equivalents	$	1,196		$	1,193
Working capital	$	3		$	(3,426	)
Total assets	$	16,197		$	21,490
Total liabilities	$	23,469		$	23,504
Shareholders’ equity (deficit)	$	(7,272	)	$	(2,014	)

The Company has historically relied on equity financings, and the sale of convertible debentures to fund its operations. On August 15, 2014 the Company completed a “Follow On” equity financing with gross proceeds of $1.0 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 $0.9 million 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 through bank debt, government loan programs, customer financing, lease programs, equity and debt financings, as well as cash generated from operations.

Net Cash Used in Operating Activities

Net cash flows used in operating activities for Fiscal 2014 were $9.9 million compared with $8.1 million for Fiscal 2013. Cash flows used in operations for Fiscal 2014 consisted primarily of a net loss of $14.2 million offset by the following items: amortization and depreciation of $0.6 million (2013: $0.9 million), primarily related to production equipment in Europe for 2014 and to the decortication facility in the USA in 2013; amortization of debt discount of $0.5 million (2013: $0.1 million) related to the beneficial conversion feature of the promissory notes and amortization of the bonus shares issued pursuant to the promissory note; amortization of deferred debt issuance costs of $0.4 million (2013: $0.3 million); fair value adjustment of derivative liability gain of $2.1 million (2013: $0.5 million), which gain in 2014 related to the value of warrants having an exercise price in a currency other than the Company’s functional currency falling in the period, and which gain in 2013 related to the expiration of warrants having an exercise price in a currency other than the Company’s functional currency; a loss on disposal of assets of $0.2 million related to the sale of excess processing equipment (2013: $0.0 million); rent of ($0.0 million) (2013: $0.2 million) related to the lease deferral at the South Carolina decortication facility; stock-based compensation of $1.1 million (2013: $2.0. million) was lower because of fewer options vesting in 2014 than in 2013; gain on settlement of debt of $0.1 million (2013: $0.0 million);write-down of equipment of $0.2 million (2014: $0.0 million); write-down of inventory of $0.4 (2013: $4.6 million) relating to the write down of raw feedstock and Crailar fiber to market price; write-down of plant and equipment of $7.3 million (2013: $0.0 million) related to a write-down of the leaseholds in our manufacturing facility in South Carolina as well as components of the production equipment at that facility; exchange gain of $(0.5 million) (2013: $0.0 million); deferred income tax recover of $(0.2 million) (2013: $0.0 million) and bargain purchase of $0.0 million (2013: $0.4 million) related to the acquisition of our European facility; accounts receivable of ($2.8 million) due to increased Crailar sales in Europe, (2013: $0.1 million); a decrease in inventory of $0.1 million (2013: ($2.7 million increase)); an increase in prepaid expenses of $0.1 million (2013: ($0.2 million) mostly due to the timing of insurance, financing and listing costs; a decrease in accounts payable of $0.2 million (2013: $1.0 million increase) ; an increase in unearned revenue of $0.0 million (2013: $0.2 million); and a decrease in accrued liabilities of $0.4 million (2013: $0.7 million increase) mostly related to debenture interest.

Net Cash Used in Investing Activities

Net cash flows used in investing activities for Fiscal 2014 were $1.6 million, compared to $4.0 million for Fiscal 2013. Cash flows used in investing activities primarily consisted of the acquisition of property and equipment for the European production facility of $1.6 million (compared with $3.9 million for the purchase of equipment at the U.S. decortication plant and the original acquisition of the European production facility). The Company also sold equipment for proceeds of $0.1 million. (2013: $0.0 million)

Net Cash Provided by Financing Activities

Cash flows provided by financing activities for Fiscal 2014 totaled $11.2 million compared to $10.2 million for Fiscal 2013. The Company received proceeds from equity financings of $9.1 million (2013:$1.9 million) and received proceeds from long term debt of $3.0 million (2013: $0.0 million). During Fiscal 2014, we had debt issuance costs of $0.0 million (2013: $0.9 million) and repaid promissory notes and loans in the amount of $0.7 million (2013 we received $0.6 million evidenced by promissory notes payable). During Fiscal 2013, we received proceeds of $8.3 million from the issuance of convertible debentures and$0.2 million from the issuance of stock on the exercise of options and warrants.

Effect of Exchange Rate

The effect of exchange rates on cash resulted in an unrealized gain of $113,609 for Fiscal 2014, as compared with an unrealized gain of $197,315 for Fiscal 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.

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 Fiscal Year of 2014 the Company received $2,999,983 (€2,189,569) pursuant to the loan agreement.

We entered into the following loan arrangements with each of the following directors: Jason Finnis, Kenneth Barker and Robert Edmunds:

•

Finnis. Pursuant to a convertible promissory note, dated for reference October 11, 2013, Mr. Finnis granted us a loan in the principal amount of $96,180 (CAD$100,000) bearing interest at a rate of 12% per annum and due on December 11, 2013. On November 7, 2013, we repaid to Mr. Finnis $48,326 (CAD$50,000), such that a principal amount of $47,885 (CAD$50,000) remained due and payable on the loan. Pursuant to a loan extension agreement, dated for reference December 18, 2013, Mr. Finnis and we agreed to extend the term for repayment of the loan and interest thereon until the earlier of (i) December 20, 2014 and (ii) such time as we complete our next public offering of registered securities by way of a registration statement on Form S-1 of not less than $2.8 million (CAD$3.0 million) in gross proceeds to us. We repaid this loan and interest thereon in full in April 2014.

	•	Barker. Pursuant to a convertible promissory note, dated for reference October 11, 2013, Mr. Barker granted us a loan in the principal amount of $50,000 bearing interest at a rate of 12% per annum and due and payable on December 11, 2013. Pursuant to a loan extension agreement, dated for reference December 18, 2013, Mr. Barker and we agreed to extend the term for repayment of the loan and interest thereon until the earlier of (i) December 20, 2014 and (ii) such time as we complete our next public offering of registered securities by way of a registration statement on Form S-1 of not less than $2.8 million (CAD$3.0 million) in gross proceeds to us. We repaid this loan and interest thereon in full in April 2014.

	•	Edmunds. Pursuant to demand convertible promissory notes, dated for reference October 11, 2013 and December 4, 2013, respectively, Mr. Edmunds granted us loans in the aggregate principal amount of $509,624 (CAD$545,000) bearing interest at a rate of 20% per annum. Pursuant to a loan extension agreement, dated for reference December 18, 2013, Mr. Edmunds and we agreed to extend the term for repayment of the loan and interest thereon until the earlier of (i) December 20, 2014 and (ii) such time as we complete our next public offering of registered securities by way of a registration statement on Form S-1 of not less than $2.8 million (CAD$3.0 million) in gross proceeds to us. As consideration for the extension, we issued to Mr. Edmunds 181,666 shares of our common stock at a deemed value of $0.56 (CAD$0.60) per share. We repaid this loan and interest thereon in full in April 2014.

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

2015	$	1,665
2016		1,507
2017		978
2018		15
2019		13
Total	$	4,178

Annual Leases

We are committed to current annual lease payments totaling $1.2 million for all of our premises under lease. Approximate minimum lease payments over the next five years are as follows (in thousands):

2015	$	267
2016		247
2017		232
2018		241
2019		220
Total	$	1,207

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this prospectus, 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not required because we are a smaller reporting company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as at December 27, 2014 and December 28, 2013

Consolidated Statements of Operations and Comprehensive Loss for Years Ended December 27, 2014 and December 28, 2013

Consolidated Statements of Cash Flows for the Years Ended December 27, 2014 and December 28, 2013 Consolidated Statements of Stockholders’ Equity (Deficit) Notes to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Crailar Technologies Inc:

We have audited the accompanying consolidated balance sheets of Crailar Technologies Inc. (the “Company”) as of December 27, 2014 and December 28, 2013 and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position the Company as at December 27, 2014 and December 28, 2013 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses in developing its business, and further losses are anticipated in the future. The Company requires additional funds to meet its obligations and the costs of its operations and there is no assurance that additional financing can be raised when needed. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

"DMCL"

CHARTERED ACCOUNTANTS

Vancouver, Canada
April 10, 2014

CRAiLAR TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in US Dollars)

	Notes		December 27, 2014			December 28, 2013
		$			$
ASSETS
Current assets
Cash and cash equivalents			1,196,362			1,193,365
Receivable			3,106,757			223,105
Inventory	4		448,569			945,040
Prepaid expenses and deposits			336,328			290,872
			5,088,016			2,652,382

Deferred debt issuance costs	9		967,294			1,442,023
Property and equipment, net	5		10,013,412			17,240,012
Intangible assets, net	6		128,666			155,545

TOTAL ASSETS			16,197,388			21,489,962

LIABILITIES
Current liabilities
Accounts payable			2,017,097			2,377,901
Accrued liabilities			1,224,376			2,342,153
Unearned revenue			263,901			247,655
Notes payable	8		-			476,614
Current portion of loans payable	9, 12		706,927			634,486
Derivative liabilities	7		872,205			-
			5,084,506			6,078,809

Non-current liabilities
Deferred income tax liabilities	15		-			199,131
Loans payable	12		360,815			551,190
Long term debt	9		18,023,965			16,674,686
TOTAL LIABILITIES			23,469,286			23,503,816

STOCKHOLDERS’ DEFICIT
Capital stock	10
Authorized: unlimited common shares without par value
Issued and outstanding: 66,378,003 common shares
(2013 – 47,806,031 common shares)			39,665,322			34,889,370
Additional paid-in capital			15,218,708			9,934,322
Accumulated other comprehensive income			1,483,095			585,301
Deficit			(63,639,023	)		(47,422,847	)
			(7,271,898	)		(2,013,854	)
			16,197,388			21,489,962

Nature and continuance of operations (Note 1)
Commitments (Note 13)
Subsequent events (Note 17)

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

CRAiLAR TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in US Dollars)

			Year ended

	Notes		December 27,2014			December 28, 2013
		$			$

Revenues			4,196,277			587,225

Cost of Sales
Materials and direct production costs			3,512,839			470,115
Fixed overhead			321,987			371,106
Facility commissioning costs			674,952			365,544
Depreciation			525,464			680,839
Impairment loss on inventory	4		369,590			4,642,262
			5,404,832			6,529,866

Gross loss			(1,208,555	)		(5,942,641	)

Expenses
Marketing and promotion			371,187			663,438
Amortization and depreciation			89,756			174,555
General and administrative			4,819,824			6,637,588
Research and development			275,079			355,099
Write down of plant and equipment	5		7,491,293			13,368
			(13,047,139	)		(7,844,048	)

Loss before other items			(14,255,694	)		(13,786,689	)

Other income (expenses):
Accretion expense	8, 9		(533,644	)		(127,525	)
Interest	8, 9, 12		(2,197,964	)		(1,931,213	)
Gain (loss) on disposal of assets			(153,092	)		790
Gain on debt settlement			101,648			-
Fair value adjustment derivative liabilities	7		2,140,288			452,845
Bargain purchase	12		-			425,909
Exchange gain (loss)			527,317			(204,050	)
			(115,447	)		(1,383,244	)

Loss before taxes			(14,371,141	)		(15,169,933	)

Deferred income tax recovery	15		199,131			-

Net loss after taxes			(14,172,010	)		(15,169,933	)

Other comprehensive income
Exchange differences on translating to presentation currency			897,794			1,044,337

Comprehensive loss			(13,274,216	)		(14,125,596	)

Loss per share (basic and diluted)			(0.25	)		(0.34	)
Weighted average number of common shares outstanding			56,309,118			44,508,011

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

CRAiLAR TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Expressed in US Dollars)

						Additional						Accumulated other
	Common shares					paid-			Subscription			comprehensive						``
	Number		Amount			in capital			receivable			income (loss)			Deficit			Total
		$			$			$			$			$			$
Balance at December 31, 2012	44,239,198		32,616,795			7,061,406			(64,050	)		(459,036	)		(11,485,251	)		6,902.201
Issuance of common stock for exercise of options	196,000		192,871			-			-			-			-			192,871
Transfer addition paid-in capital for options exercised in the year	-		118,239			(118,239	)		-			-			-			-
Issuance of common stock for exercise of warrants	37,500		46,875			-			-			-			-			46,875
Debenture warrants	-		-			754,829			-			-			-			754,829
Adjustment to warrant conversion price	-		-			79,931			-			-			-			79,931
Issuance costs of debenture warrants	-		-			(102,670	)		-			-			-			(102,670	)
Issuance costs of long term debt and debenture warrants broker’s warrants	-		-			66,278			-			-			-			66,278
Transfer from derivative liability warrants exercise	-		35,190			-			-			-			-			35,190
Private placement	3,333,333		1,879,400			-			-			-			-			1,879,400
Stock-based compensation	-		-			2,004,647			-			-			-			2,004,647
Beneficial conversion features on notes payable	-		-			188,140			-			-			-			188,140
Write off of subscription receivable	-		-			-			64,050			-			-			64,050
Foreign currency translation	-		-			-			-			1,044,337			-			1,044,337
Net loss	-		-			-			-			-			(15,169,933	)		(15,169,933	)
Balance at December 28, 2013	47,806,031		34,889,370			9,934,322			-			585,301			(47,422,847	)		(2,013,854	)
Shares for loan amendment	181,666		131,744			-			-			-			-			131,744
Private placement	2,515,000		3,143,750			-			-			-			-			3,143,750
Share issue costs	-		(64,508	)		-			-			-			-			(64,508	)
Finders fee shares	176,400		-			-			-			-			-			-
Fair value of warrants classified as derivatives at time of issuance	-		(5,201,885	)		-			-			-			-			(5201,885	)
Issuance of common stock on conversion of debentures	6,551		17,786			-			-			-			-			17,786
Shares for debt	742,355		766,233			-			-			-			-			766,233
Public offering	14,950,000		7,475,000			-			-			-			-			7,475,000
Offering costs	-		(1,491,168	)		-			-			-			-			(1,491,168	)
Reversal of warrant derivative liability upon change of functional currency to US$	-		-			4,157,170			-			-			-			4,157,170
To recognize conversion options and warrants as derivatives upon change in functional currency to US$	-		-			-			-			-			(2,044,166	)		(2,044,166	)
Stock-based compensation	-		-			1,127,216			-			-			-			1,127,216
Foreign currency translation	-		-			-			-			897,794			-			897,794
Net loss	-		-			-			-			-			(14,172,010	)		(14,172,010	)
Balance at December 27, 2014	66,378,003		39,665,322			15,218,708			-			1,483,095			(63,639,023	)		(7,271,898	)

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

CRAiLAR TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in US Dollars)

		Year ended
		December 27, 2014			December 28, 2013
Cash flows used in operating activities	$			$
Net loss		(14,172,010	)		(15,169,933	)
Adjustments to reconcile net loss to net cash from operating activities
Amortization and depreciation		615,220			855,394
Amortization of debt discount		533,644			127,525
Amortization of deferred debt issuance costs		428,073			346,789
Fair value adjustment of derivative liability		(2,140,288	)		(452,845	)
(Gain) loss on disposal of asset		153,091			(790	)
Rent		32,854			151,539
Stock-based compensation		1,127,216			2,004,647
Gain on settlement of debt		(101,648	)		-
Write down of equipment		200,417			13,368
Write down of inventory		369,590			4,642,262
Write down of plant and equipment		7,290,876			-
Exchange gain		(527,317	)		-
Deferred income tax recovery		(199,131	)		-
Bargain purchase		-			425,909
Changes in working capital assets and liabilities
Increase in accounts receivable		(2,883,652	)		(86,763	)
Decrease (increase) in inventory		126,881			(2,682,650	)
Increase in prepaid expenses		(82,535	)		(184,087	)
Increase (decrease) in accounts payable		(248,203	)		971,483
Increase in unearned revenue		-			247,655
Increase (decrease) in accrued liabilities		(373,246	)		709,990
Net cash used in operating activities		(9,850,168	)		(8,080,507	)

Cash flows from (used in) investing activities
Sale of equipment		113,107			35,790
Purchase of property and equipment		(1,558,432	)		(3,907,808	)
Acquisition of intangible assets		(24,335	)		(89,306	)
Net cash flows used in investing activities		(1,469,660	)		(3,961,324	)

Cash flows used in financing activities
Issuance of capital stock on exercise of options and warrants		-			239,746
Promissory notes payable		(661,452	)		621,009
Proceeds from long term debt		2,999,983			-
Loans payable		(176,354	)		-
Proceeds from private placement, net of issue costs		3,079,242			1,879,400
Proceeds from offering, net of issue costs		5,982,832			-
Proceeds from convertible debenture		-			8,307,249
Deferred issuance costs		(15,035	)		(886,733	)
Net cash flows from financing activities		11,209,216			10,160,671

Effect of exchange rate changes on cash and cash equivalents		113,609			197,315

Increase (decrease) in cash and cash equivalents		2,997			(1,683,845	)

Cash and cash equivalents, beginning		1,193,365			2,877,210

Cash and cash equivalents, ending		1,196,362			1,193,365
SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH FINANCING ACTIVITIES:
	$			$
Shares issued for debt		632,376			-
Convertible debt converted		17,786			-
Cash paid for interest		1,760,900			1,347,905
Cash paid for income taxes		-			-

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

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

1.	Nature of Operations and Basis of Presentation

CRAiLAR Technologies Inc. (the “Company”) was incorporated in the Province of British Columbia, Canada, on October 6, 1998, and is in the business of technological development and of natural sustainable fibers.

The Company’s shares of common stock trade under the symbol “CL”, on the TSX Venture Exchange (“TSX-V”) and under the symbol “CRLRF” on the OTC Bulletin Board.

Going concern

The Company’s consolidated financial statements are prepared using generally accepted accounting principles (“GAAP”) in the United States of America 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 $63,639,023 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. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.

During 2014 the Company raised $9,062,074 net of costs from equity funding for capacity expansion and working capital requirements. The Company may raise additional financing in 2015 through equity placements and debt financings for future capacity expansion and working capital. However, there can be no assurance that funding will be available or, if the capital is available, that it will be on terms acceptable to the Company.

2.	Significant Accounting Policies

a)	Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, 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 Belgium incorporated company. All inter-company transactions and account balances have been eliminated upon consolidation.

b)	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 at December 27, 2014, the Company held $12,900 (2013 - $15,000) in cash equivalents.

Inventory

The fiber is valued at the lower of average cost or market. All direct costs are capitalized to inventory. Other inventories, which consists of production consumables, are recorded al the lower of cost and replacement cost which approximates net realizable value.

d)	Use of Estimates

The preparation of 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 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 the fair value of transactions involving inventory costing and common stock, warrants, options, derivative liabilities, provision for income taxes, depreciation and financial instruments and the net realizable value of property and equipment.

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

2. Significant Accounting Policies (continued) e) Property and Equipment

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

Automobiles	20% declining balance
Computer equipment	30% declining balance
Computer software	100% declining balance
Equipment	20% declining balance
Furniture and fixtures	20% declining balance
Production Equipment	20% declining balance
Leasehold improvements	Term of lease
Website development	100% declining balance

f)	Intangible Assets

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

Trademarks	5 year straight - line
License Fee	10 year straight - line
Patent	10 year straight – line

g)	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. Sales or transfers to customers prior to these criteria being met are recorded as deferred revenue. Cash received from customers, prior to these criteria being met, is recorded as deferred revenue.

h)	Foreign Currency Translation

The Company translates its financial statements with other than US$ functional currencies to U.S. dollars using the following method:

Foreign currency transaction gains and losses are included in the results of operations.

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

2.	Significant Accounting Policies (continued)

i)	Income Taxes

The Company utilizes the liability method of accounting for income taxes. Under the liability method, future 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.

j)	Comprehensive Loss

The Company presents changes in accumulated comprehensive income in its Statement of Stockholders’ Equity (Deficit). Total comprehensive loss includes, in addition to net loss, changes in equity that are excluded from the Statement of Operations.

k)	Stock-based Compensation

l)	Loss Per Share

Basic and diluted loss per share are computed using the weighted average number of shares outstanding during the period. Common stock equivalents from stock options and convertible debt were excluded from the calculation of diluted loss per share for December 27, 2014 and December 28, 2013 as their effect is anti-dilutive.

m)	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 GAAP, primarily based on a discounted cash flow analysis.

n)	Research and Development

Research and development costs are charged to operations as incurred.

o)	Recently issued accounting pronouncements

In the year ended December 27, 2014, the Company elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage.

The Company has reviewed other recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

3.	Financial Instruments and Risk Management

The Company’s financial instruments include cash and cash equivalents, receivables, accounts payable, long term debt, amounts due to related parties, loans payable, notes payable and derivative liabilities. The Company concluded that the carrying amount of cash and cash equivalents, accounts receivable, accounts payable, and notes payable to approximate fair value because of the short maturity of these financial instruments. The Company has concluded that the carrying amount of loans payable and long term debt approximate fair value as they bear interest at market rates. The Company’s derivative liabilities are measured at fair value and are impacted by changes in interest rates, foreign exchange rates and the price of the Company’s shares.

Currency risk. Although the Company conducts its business principally in Canada, the majority of its purchases are made in Euros while the majority of its sales are in USD. Currently, the majority of the Company’s debt is denominated in CAD currency. A 5% fluctuation in currency rates would lead to a change in the Company’s CAD debt by approximately $797,000, and a 5% fluctuation in currency rates for the Company’s Euro debt would lead to a change in the Euro debt of $178,000. The Company does not currently hedge its foreign currency exposure and accordingly is at risk for foreign currency exchange fluctuations.

Credit risk. Credit risk is managed by dealing with customers whose credit standing meets internally approved policies, and by ongoing monitoring of 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. As at December 27, 2014, $2,198,688 is due from a single customer and therefore 92% of receivables are exposed to concentration of credit risk.

Interest rate risk. Approximately $277,500 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 anticipates little 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.

Fair value

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

•        Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
•         Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
•          Level 3 – Inputs that are not based on observable market data.

The Company recognizes its derivative liabilities at fair value determined using Level 3 inputs.

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

4.	Inventory

		December 27, 2014		December 28, 2013
CRAiLAR fiber	$	97,309	$	186,464
Decorticated fiber		258,679		252,263
Raw flax fiber feedstock		-		369,590
Other		92,581		136,723
	$	448,569	$	945,040

The Company wrote off the following amounts to reduce the book value to net realizable value:

		December 27, 2014		December 28, 2013
CRAiLAR fiber	$	-	$	274,297
Decorticated fiber		-		196,861
Flax seed		-		1,891,217
Raw flax fiber feedstock		369,590		2,279,887
	$	369,590	$	4,642,262

5.	Property and Equipment

								Net Book Value		Net Book Value
				Impairment /		Accumulated		December 27,		December 28,
		Cost		Write-down		Depreciation		2014		2013
Automobiles	$	58,745	$	-	$	8,876	$	49,869	$	49,867
Computer equipment		106,443		7,281		64,206		34,956		57,180
Computer software		10,386		-		8,637		1,749		-
Equipment		779,383		95,939		71,365		612,079		656,346
Equipment held for sale		70,000		32,840		-		37,160		70,000
Furniture and fixtures		37,678		-		29,262		8,416		25,421
Leasehold improvements		5,784,569		5,568,685		12,179		203,705		5,498,663
Production equipment		8,158,231		1,508,723		719,824		5,929,684		4,818,280
Production equipment in
construction		3,402,762		277,825		-		3,124,937		6,060,849
Website development costs		129,560				118,703		10,857		3,436
	$	18,537,757	$	7,491,293	$	1,033,052	$	10,013,412	$	17,240,012

During fiscal 2014, depreciation of production equipment and leasehold improvements was associated with the Company’s manufacturing facility in Belgium. The Company’s manufacturing facility in South Carolina was not in production and therefore amortization expense on those assets was not taken. As the facility was not used during the year and the Company is uncertain as to its plans for future use, the carrying value of all property and equipment in South Carolina was assessed for impairment. The leaseholds in the facility were fully impaired resulting in a charge of $5,097,000. Components of the production equipment were also impaired to their net realizable value resulting in a total write-down of $7,290,876. In addition, other equipment was written off resulting in a further write-off of $200,417 (2013 - $13,368).

6.	Intangible Assets

				Accumulated		Net Book Value		Net Book Value
		Cost		Amortization		December 27, 2014		December 28, 2013
Patents	$	176,999	$	101,654	$	75,345	$	85,482
Trademarks		117,829		93,237		24,592		28,065
License fee		61,719		32,990		28,729		41,998
	$	356,547	$	227,881	$	128,666	$	155,545

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

7.	Derivative Liabilities

Prior to September 28, 2014 derivative liabilities consist of warrants that were originally issued in private placements and public offerings which had exercise prices denominated in a currency other than the Company’s functional currency, which at that time was the Canadian dollar. During the period that the Canadian dollar was the Company’s functional currency, warrants that were exercisable in U.S. dollars are classified as derivative liabilities. Upon the change in functional currency to the U.S. dollar, these derivative liabilities were no longer classified as derivatives and an amount of $4,157,170 was reclassified to additional paid-in capital.

On September 28, 2014 the Company’s functional currency became the U.S. dollar and as a result, new derivative liabilities were recognized on warrants and debenture conversion rights that are exercisable in Canadian dollars. This resulted in a charge to deficit of $2,044,166 for the initial fair value of the derivatives. This derivative liability is a non-cash liability and the Company is not required to expend any cash to settle this liability. The fair value of the warrants and conversion rights at December 27, 2014 are as follows:

			December 27,		December 28,
	Exercise price		2014		2013
Conversion option expiring Sept 20 2017	CAD$2.90	$	136,738	$	-
Conversion option expiring Sept 30, 2017	CAD$2.90		69,839		-
Conversion option expiring July 26, 2016	CAD$1.25		201,270		-
2,828,000 warrants expiring July 26, 2016	CAD$1.25		78,639		-
3,333,333 warrants expiring Dec 18, 2018	CAD$0.70		385,719		-
		$	872,205	$	-

The fair value of these warrants and debenture convertible rights was determined using the Black-Scholes option pricing model, using the following assumptions:

Volatility	106% to 141%
Dividend yield	-
Risk-free interest rate	1.3%
Expected life	1.33 to 3.34 years

The significant assumptions used during the year to estimate the fair value included an expected term (based on the history of exercises and forfeitures) and volatility (based on the historical volatility with a look-back period equivalent to the expected term).

8.	Notes Payable

		December 27, 2014			December 28, 2013
Balance, beginning	$	476,614		$	-
Principal		-			655,804
Interest		29,384			23,781
Repayment		(661,452	)		(48,326	)
Beneficial conversion feature		-			(188,140	)
Accretion expense – beneficial conversion feature		150,372			33,495
Bonus shares issued		(131,744	)		-
Accretion expense – bonus shares issued		131,744			-
Effect of foreign exchange		(5,082	)		-
	$	-		$	476,614

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

8.	Notes Payable (continued)

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 (CAD$100,000). The promissory note was unsecured and bears interest on the principal amount at the rate of 12% per annum, which interest was payable in full on repayment of the principal amount. On November 7, 2013, the Company repaid $48,326 (CAD$50,000) of principal including interest of $441 (CAD$460). On April 1, 2014 the Company repaid $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 was unsecured and accrues interest on the principal amount at the rate of 12% per annum, which interest was payable in full on repayment of the principal amount. On April 2, 2014 the Company repaid $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 (CAD$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 (CAD$45,000). The promissory notes were unsecured and accrue interest on the principal amount at a rate of 20% per annum, which interest was 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 were amortized over the term of the loan. On April 1, 2014 the Company repaid $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 contained conversion features. Each lender had 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 was comprised of one common share and one common share purchase warrant of the Company. Each warrant entitled 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 year ended December 27, 2014, the Company amended the loans and removed the beneficial conversion feature and recognized an accretion expense of $150,372.

9.	Long-term Debt

		December 27, 2014			December 28, 2013
Convertible debentures
Balance, beginning	$	16,674,686		$	10,051,262
Convertible debentures issued		-			8,307,249
Discount on debentures		-			(754,829	)
Amendment of debentures – conversion price		-			(79,931	)
Accretion expense		251,528			94,030
Convertible debentures converted		(17,786	)		-
Effect of foreign exchange		(1,292,836	)		(943,095	)
Balance, ending		15,514,592			16,674,686

IKEA Loan
Balance, beginning		-			-
Loan issued		2,999,983			-
Effect of foreign exchange		(329,585	)		-
Balance, ending		2,670,398			-

Total long-term debt		18,184,990			16,674,686
Less: current portion		(161,025	)		-
Long-term debt – non-current portion	$	18,023,965		$	16,674,686

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

9.	Long-Term Debt (continued)

A summary of the Company’s deferred issuance costs is as follows:

		December 28, 2014			December 28, 2013
Balance, beginning	$	1,442,023		$	1,024,294
Issuance costs - cash		52,114			886,733
Issuance costs – warrants		-			66,278
Issuance costs allocated to additional paid in capital		-			(102,670	)
Amortization of issuance costs		(428,073	)		(346,789	)
Effect of foreign exchange		(98,770	)		(85,823	)
	$	967,294		$	1,442,023

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 December 27, 2014, accrued interest of $214,203 (CAD$248,841) ((2013 – $264,143) (CAD - $281,471), 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 December 27, 2014, accrued interest of $107,305 (CAD$124,658) ((2013 – 114,412 (CAD$121,918)) was included in accrued liabilities.

The Company paid a total of $427,049 (CAD$487,830) in cash issuance costs for the above debentures 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 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 exercisable in Canadian dollars only, which as of September 28, 2014 is no longer the Company’s functional currency and therefore the conversion rights have been classified as a derivative liability and recorded at fair value which was determined to be $549,060 as at September 28, 2014 and $206,577 at December 27, 2014. The fair value of conversion rights are re-measured at each balance sheet date and the change in fair value is recorded in the statement of operations and comprehensive loss. The fair value was determined using the Black-Scholes option pricing model with the following assumptions: expected dividend yield – 0; expected stock price volatility – 106%; risk-free interest rate – 1.3%; expected life – 2.73 -2.76 years.

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 initially recorded as a debt instrument.

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

9.	Long-Term Debt (continued)

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 December 27, 2014, accrued interest of $75,865 (CAD$88,133), ((2013 - $114,412), (CAD - $121,918)) 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 was CAD$2.00 per share, subsequently amended to CAD$1.25 per share. The July 26, 2013 Debentures are exercisable in Canadian dollars only, which as of September 28, 2014 is no longer the Company’s functional currency and are therefore the conversion rights are classified as a derivative liability and recorded at fair value which was determined to be $386,080 as at September 28, 2014 and $201,270 at December 27, 2014. The fair value of conversion rights are re-measured at each balance sheet date and the change in fair value is recorded in the statement of operations and comprehensive loss. The fair value was determined using the Black-Scholes option pricing model with the following assumptions: expected dividend yield – 0; expected stock price volatility – 141%; risk-free interest rate – 1.3%; expected life – 1.57 years.

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 CAD $2.00, subsequently amended to CAD$1.25, per Warrant Share until July 26, 2016. The Company determined the fair value of the Warrants on issuance 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 warrants are exercisable in Canadian dollars only, which as of September 28, 2014 is no longer the Company’s functional currency and are therefore classified as a derivative liability and recorded at fair value which was determined to be $292,577 as at September 28, 2014 and $78,639 at December 27, 2014. The fair value of warrants are re-measured at each balance sheet date and the change in fair value is recorded in the statement of operations and comprehensive loss. The fair value was determined using the Black-Scholes option pricing model with the following assumptions: expected dividend yield – 0; expected stock price volatility – 109%; risk-free interest rate – 1.3%; expected life – 1.33 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 share 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.

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

9.	Long-Term Debt (continued)

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 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 year ending December 27, 2014, the Company recorded accretion of the July 2013 Debentures debt discount in the amount of $251,528 which was included in interest expense.

During the year ended December 27, 2014, the Company recorded $407,936 (2013 - $346,789) in interest expense for the amortization of deferred issuance costs.

IKEA Supply AG Loan
During the year ended December 27, 2014, the Company received $2,999,983 (€2,189,569) 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 $13,416 (€11,000) from December 20, 2014 through June 20, 2016 with the remainder due in full on June 25, 2016. 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 December 27, 2014, accrued interest of $30,400 (€24,926) 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 year ended December 27, 2014. During the year ended December 27, 2014, the Company recorded $20,137 (2013 - $nil) in interest expense for the amortization of deferred issuance costs.

10.

Common Stock

During the year ended December 27, 2014, the Company issued shares as follows:

a.	The Company completed a private placement on March 20, 2014 of 2,515,000 units at $1.25 per unit for gross proceeds of $3,143,750. Share issuance costs of $64,508 were paid. Each unit is comprised of one common share and one-half of one transferable common share purchase warrant of the Company. Each warrant entitles the holder thereof to acquire one common share of the Company at an exercise price of $1.75 per common share for a term of 2 years. In addition, finder’s fees of an aggregate of 176,400 shares were issued to two finders in conjunction with the closing of this private placement. The warrants have exercise prices denominated in United States dollars, which differed from the Company’s functional currency at the time and were therefore classified as a derivative liability and recorded at fair value which was determined to be $826,101 on issuance. The fair value was determined using the Black-Scholes option pricing model with an expected life of two years and with the same assumptions used for stock options below. On September 28, 2014 the Company’s functional currency changed to U.S. dollars and the warrants were no longer classified as a derivative liability and their fair value was charged to share capital.

b.	The Company issued 181,666 common shares with a fair value of $131,744 as a bonus on an amendment of a promissory notes issued to one of our directors. Refer to Note 8.

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

10.

Common Stock (continued)

c.	On May 23, 2014, the Company issued 1,724 shares of common stock upon the conversion of $4,681 (CAD$5,000) principal amount of previously issued convertible debentures at the conversion price of $2.70 (CAD$2.90) per share. On June 17, 2014, the Company issued 4,827 shares of common stock upon the conversion of $13,105 (CAD$14,000) principal amount of previously issued convertible debentures at the conversion price of $2.68 (CAD$2.90) per share.

d.	The Company completed a private placement to thirteen creditors in settlement of $927,944 in debt on June 2, 2014 consisting of 742,355 units at an issuance price of $1.25 per unit. Each unit was comprised of one common share and one-half of one transferable common share purchase warrant of the Company. The fair value of the units issued was determined to be $766,233. Each whole warrant entitles the holder thereof to acquire one common share of the Company at an exercise price of $1.75 per common share for a term of 2 years. The warrants have exercise prices denominated in United States dollars, which differed from the Company’s functional currency at the time and were therefore classified as a derivative liability and recorded at fair value was determined to be $133,857 on issuance.

On September 28, 2014 the Company’s functional currency changed to U.S. dollars and the warrants were no longer classified as a derivative liability and their fair value charged to share capital.

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. Share issuance costs of $1,492,168 were paid. 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 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 entitles 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 at a price of $0.0001 per warrant. 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 Over-Allotment Option was exercised in full and the underwriters purchased 1,950,000 warrants and 1,950,000 shares for proceeds of $975,000.

The warrants on this offering have exercise prices denominated in United States dollars, which differed from the Company’s functional currency at the time and were therefore classified as a derivative liability and recorded at fair value which was determined to be $4,241,927 on issuance. On September 28, 2014 the Company’s functional currency changed to U.S. dollars and the warrants were no longer classified as a derivative liability and their fair value was recorded to share capital.

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

10.

Common Stock (continued)

During the period ended December 28, 2013, the Company issued shares of common stock as follows:

a)	The Company closed a private placement with a closing date of December 20, 2013 for 3,333,333 units for aggregate gross proceeds of $1,879,400 (CAD$2,000,000). Each unit is comprised of one common share and one common share purchase warrant of the Company. Each warrant entitles the holder thereof 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 fair value of the warrants was estimated to be $2,038,666 using the Black Scholes option pricing model, a 5 year term, an expected volatility of 91% and a risk free interest rate of 0.58%. The fair value of the warrants is included in share capital. The warrants are exercisable in Canadian dollars only, which as of September 28, 2014 is no longer the functional currency of the Company and are therefore classified as a derivative liability and recorded at fair value which was determined to be $914,422 as at September 28, 2014 and $385,718 at December 27, 2014. The fair value of the warrants are re-measured at each balance sheet date and the change in fair value is recorded in the statement of operations. The fair value was determined using the Black-Scholes option pricing model with the following assumptions: expected dividend yield – 0; expected stock price volatility – 109%; risk-free interest rate – 1.3%; expected life – 3.34 years.

b)	The Company issued a total of 196,000 common shares pursuant to the exercise of employee and consultants’ options between the exercise prices of $0.87 and $1.17 per share for gross proceeds of $192,871. Of this amount, a total of 166,000 options with total proceed of $163,020 were exercised by the directors and officers of the Company.

c)	The Company issued 37,500 common shares pursuant to the exercise of warrants with an exercise price of $1.25 per share for proceeds of $46,875.

Warrants

Stock purchase warrants outstanding at December 27, 2014 are summarized as follows:

		Weighted Average Remaining
Range of Exercise Prices	Number of Warrants	Contractual Life
$0.535 - $1.75	22,932,373	3.38 years

A summary of the Company’s stock purchase warrants are as follows:

		Weighted-
		Average
	Shares	Exercise Price ($)
Warrants outstanding at December 31, 2012	3,156,848	4.02
Warrants granted during the period	6,353,963	0.96
Warrants expired during the period	(2,585,731)	4.17
Warrants exercised during the period	(37,500)	1.25
Warrants outstanding at December 28, 2013	6,887,580	1.15
Warrants granted during the period	15,578,680	0.65
Warrants expired during the period	(533,887)	3.45
Warrants outstanding at December 27, 2014	22,932,373	0.74

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

11.

Stock Options

2011 Fixed Share Option Plan

In September 2011, the Company’s Board of Directors approved the 2011 Fixed Share Option Plan (the “2011 Plan”), a non-shareholder approved plan for grants of stock options to directors, officers, employees, eligible consultants of the Company and any related company. Based on the terms of the individual option grants, options granted under the 2011 Plan generally expire three to ten years after the grant date and become exercisable over a period of one year, based on continued employment, either with monthly vesting or upon achievement of predetermined deliverables. As amended on September 15, 2014, the 2011 Plan permits the granting of incentive stock options and nonqualified stock options up to an aggregate at any point in time of 13,275,600 common shares. The fair value of options issued during the periods ended December 27, 2014 and December 28, 2013 were determined using the Black-Scholes option pricing model with the following assumptions:

	December 28, 2013	December 27, 2014
Risk-free interest rates	0.75% to 0.90%	0.63% to 0.93%
Volatility factor	63% to 66%	73% to 88%
Expected life of options, in years	4.20	3 - 4.8
Weighted average fair value of options granted	$1.15	$1.31

During the period ended December 27, 2014, the Company granted a total of 1,688,000 (2013 – 285,000) common stock options to directors, officers, employees, eligible consultants, exercisable between $0.54 and $1.36 per share (2013 - $2.24 to $2.30) with a term of 5 years and an estimated value of $1,570,665 (2013 – $328,757).

During the period ended December 27, 2014, 1,307,231 (2013 – 2,718,762) options vested. Total expense of $1,127,216 (2013 - $2,004,647) was recorded as stock-based compensation, $1,068,445 (2013 - $1,698,045) was charged to salaries and benefits expense and $58,574 (2013 - $306,602) was charged to consulting and contract labor expense.

During the year ended December 28, 2013, the Company granted a total of 285,000 common stock options to directors, officers, employees, eligible consultants, exercisable between $2.24 to $2.30 per share, with a term of five years and an estimated fair value of $328,757.

A summary of the Company’s stock options are as follows:

		Weighted-Average
	Shares	Exercise Price ($)
Options outstanding, December 31, 2012	6,416,043	1.77
Options exercised during the period	(196,000)	0.98
Options granted during the period	285,000	2.25
Options cancelled during the period	(36,244)	2.09
Options outstanding, December 31, 2013	6,468,799	1.81
Options granted during the period	1,688,000	1.31
Options cancelled/expired during the period	(1,387,505)	1.44
Options outstanding, December 27, 2014	6,769,294	1.79

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

11.

Stock Options (continued)

December 27, 2014

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Range of

Remaining

Average

Exercise

Number

Contractual

Exercise

Number

Exercise

Prices

Outstanding

Life (yr.)

Price

Exercisable

Price

$0.54 - $3.05

6,769,294

2.43

1.76

6,328,525

1.79

December 28, 2013

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Range of

Remaining

Average

Exercise

Number

Contractual

Exercise

Number

Exercise

Prices

Outstanding

Life (yr.)

Price

Exercisable

Price

$0.87 - $3.05

6,468,799

2.46

1.81

6,301,720

1.81

12.

Business Combination

On December 1, 2013 the Company acquired the 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. 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:

Fair value of assets acquired	$	1,797,121
Fair value of debt assumed		(1,172,081	)
Deferred income tax liability		(199,131	)
Bargain purchase gain	$	425,909

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. Between December 1, 2013 and December 28, 2013, no payments were made.

At December 27, 2014 and December 28, 2013 the debt assumed consists of the following:

		2014		2013
Bank line of credit, bearing interest at 3.25%, repayable June 25, 2015	$	277,459	$	313,088
Bank term loans, bearing interest ranging from 3.1% to 4.55%, repayable between January 2015 and August 2022.		487,725		712,881
Loan payable on demand bearing interest at 4% per annum		80,553		90,897
Loan payable on demand bearing no interest		60,980		68,810
		906,717		1,185,676
Less: current portion		545,902		634,486
	$	360,815	$	551,190

All of the above debt is denominated in Euros.

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

13.	Commitments
a)	Leases

The Company is committed to lease payments totaling $931,770 for premises under lease. The minimum lease payments over the next five years are as follows:

2015	$	267,089
2016		246,689
2017		231,935
2018		240,657
2019		220,395
Total	$	1,206,765

b)	Investor Relations Agreement

On April 22, 2014, the Company signed an agreement for a third party firm to perform investor relations activities. The agreement term is one year with ninety days notice of termination by either party. The monthly fee is $7,000 with 100,000 stock options exercisable at $1.15 expiring April 24, 2019. The options were granted under the 2011 Plan and were valued at $81,043 using the Black-Scholes option pricing model with the assumptions disclosed in Note 11.

14.

Segment Information

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.

For the year ended December 27, 2014
($ thousands)	North America	Europe	Total
Sales to external customers	600	3,596	4,196
Depreciation and amortization	86	529	615
Segment net loss	(12,736)	(1,436)	(14,172)
Total assets	10,403	5,794	16,197

For the year ended December 27, 2013
($ thousands)	North America	Europe	Total
Sales to external customers	543	44	587
Depreciation and amortization	840	15	855
Segment net loss	(15,523)	353	(15,170)
Total assets	19,556	1,934	21,490

During the year ended December 27, 2014, sales to two major customers accounted for 98% of total sales (2013 - one customer accounted for 60% of total sales).

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

15.

Income Taxes

The reported income taxes differ from the amounts obtained by applying statutory rates to the loss before income taxes as follows:

		2014			2013
Loss before income taxes	$	14,371,141		$	5,169,933
Corporate tax rate		34.02%			30.67%
Expected income tax recovery		(4,888,630	)		(4,653,968	)
Increase (decrease) resulting from:
Permanent differences and others		459,916			255,649
Change in valuation allowance		2,526,805			5,155,729
Impact of foreign exchange changes		1,702,778			(564,191	)
Impact of tax rate changes		-			(223,219	)
Future income tax recovery	$	(199,131	)	$	-

The tax effects of temporary differences that give rise to the Company’s future tax asset (liability) are as follows:

		2014			2013
Property and equipment and intangible assets	$	2,214,539		$	(168,845	)
Research and development costs		196,522			999,811
Share issue costs		233,806			165,590
Other finance costs		1,883			1,883
Loss carry forwards		12,025,908			10,999,463
		14,672,688			11,997,902
Valuation allowance		(14,672,688	)		(12,197,033	)
	$	-		$	(199,131	)

As the criteria for recognizing future income tax assets have not been met due to the uncertainty of realization, a valuation allowance of 100% has been recorded for the current and prior year.

The Company’s Canadian and US non-capital losses, which can be applied to reduce future taxable income, expire as follows:

Year of Expiry		US (US$)		Canada (CAD$)
2015	$	-	$	1,193,214
2026		-		1,299,351
2027		-		1,434,483
2028		-		2,302,312
2029		-		2,924,414
2030		75,478		1,996,014
2031		594,348		3,154,227
2032		3,476,071		2,603,365
2033		9,313,156		4,765,719
3034		3,091,417		772,820
	$	16,550,470	$	22,445,919

CRAiLAR TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
(In US Dollars)

16.

Related Party Transactions

During the year ended December 27, 2014, $1,009,500 (2013 - $1,513,412) was incurred as remuneration to officers and directors of the Company. Of this amount, $1,009,500 (2013 - $1,455,282) is recorded as salaries and benefits expense.

During the year ended December 27, 2014 $755,078 (2013 - $1,382,147) was recorded as stock-based compensation to officers and directors of the Company which is recorded as salaries and benefits expense.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. 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 Annual Report. Based on that evaluation, they concluded that our disclosure controls and procedures were effective as of December 27, 2014.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) under the Exchange Act.

Management assessed the effectiveness of our internal control over financial reporting based on criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management concluded that we maintained effective internal control over financial reporting as of December 27, 2014.

This Annual Report does not include an attestation report of our registered public accounting firm regarding our internal control over financial reporting. This attestation report by our registered public accounting firm was not required pursuant to rules of the SEC that permit us to provide only our management’s report on internal control over financial reporting.

We will continue to monitor and evaluate the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and are committed to taking further action by implementing additional enhancements or improvements, or deploying additional human resources as may be deemed necessary.

Changes in Internal Control over Financial Reporting

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

ITEM 9B. OTHER INFORMATION

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

All of our directors hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified. Our officers are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.

Our directors and executive officers, their ages, positions held are as follows:

Name	Age	Position with the Company
Lesley Hayes	52	Chief Executive Officer, a Director and Chair of the Board
Jason Finnis	43	President/Chief Innovation Officer and a Director
Theodore Sanders	60	Chief Financial Officer and Treasurer
Guy Prevost	56	Corporate Controller and Compliance Officer
Jay Nalbach	43	Chief Marketing Officer
Robert Edmunds	56	Director
Jeremy Jones	60	Director
Peter C. Moore	71	Director
Klaus Flock	47	Director

The following is a brief account of the education and business experience of each director, executive officer and key employee during at least the past five years, indicating each person’s principal occupation during the period, and the name and principal business of the organization by which he or she was employed, and including other directorships held in reporting companies.

Lesley Hayes. Ms. Hayes served as a member of our Board of Directors and as our Vice President of Communications from December 15, 2000 through February 20, 2004. On November 6, 2013, Ms. Hayes was appointed as a member of the Board of Directors and as the non-executive Chairperson of our Board of Directors. On November 10, 2014, Ms. Hayes was appointed Chief Executive Officer of our Company. Ms. Hayes has been the COO of NoDramaMedia Ltd. since 2002, providing financial and mentoring services to a number of private and public companies. Ms. Hayes has founded and grown a number of private and public companies in her career, and as an owner and/or director of these firms has raised over $150 million, managed an IPO as VP Technology, and created shareholder value in a hostile takeover process. From 1999 to 2002, Ms. Hayes was Practice Manager Creative Services for Burntsand Inc. where she managed a team of 20 web interface designers. Over the past 10 years, Ms. Hayes has served as a director and audit committee member of a number of public companies including Vicom Multimedia Inc. from 1993 to 1999, Tyler Resources Inc. from 1997 to 2008 and Northern Abitibi Mining Corp. (TSX-V: NAI) from 1996 to present. Ms. Hayes’ education includes completing the Canadian Securities Course in 2002 and three masters level accounting courses, Financial Accounting, Managerial Accounting and Operations Accounting while obtaining her MBA at the University of Calgary/University of Alberta joint MBA program, which she received in May 2007. She is currently enrolled in the Ph.D. program at Athabasca University studying Entrepreneurial Leadership. Ms. Hayes is deeply involved in global entrepreneurship education, chairing the global Leadership committee for the Entrepreneur’s Organization, leading events in North and South America, Europe and Asia.

Jason Finnis. Mr. Finnis has been a member of the Board of Directors since December 15, 2000, our President since March 31, 2004 and our Chief Innovation Officer since September 7, 2011. He previously served as our Chief Operating Officer from December 7, 2005 until September 7, 2011. Mr. Finnis has been working as an entrepreneur in the natural fiber industry since 1994. In 1998, he co-founded Hemptown Clothing, which, after several name changes reflecting changing business focus, became CRAiLAR Technologies Inc. in 2012. Mr. Finnis now guides the company’s development of innovative applications for sustainable bast fiber, cellulose pulp, and their resulting byproducts. In this capacity, he works closely with CRAiLAR’s research partners, including the NRC, the U.S. Department of Agriculture’s Agricultural Research Service, and customers to identify unique applications for CRAiLAR^® Flax among a range of apparel and industrial global brands. Mr. Finnis attended the University of Victoria in the faculty of Fine Arts and possesses broad experience in textile fiber production, processing, apparel manufacturing, marketing and sales.

Theodore Sanders. Mr. Sanders was appointed our Chief Financial Officer on March 1, 2013 and was appointed our Treasurer on November 6, 2013. Mr. Sanders brings 20 years of financial management experience in publicly traded and private businesses from start-ups to multi-billion dollar global companies. Mr. Sanders brings to our executive management team a proven track record of success, most recently as Chief Financial Officer of U.S. Auto Parts Network, Inc. (NASDAQ: PRTS), an internet provider of aftermarket auto parts, from February 2009 to January 2012, where revenues doubled during his three-year tenure to more than $325 million through organic growth and acquisition, and as Chief Financial Officer at PCM Inc. (NASDAQ: PCMI) from May 1997 to June 2007, where he oversaw revenues of $1.2 billion, acquisitions and subsidiary IPOs with a team of 60 during his ten year tenure. Mr. Sanders received a Bachelor of Science, Business Administration from Nichols College (Massachusetts) and is a Certified Public Accountant.

Guy Prevost. Mr. Prevost was a member of our Board of Directors from November 2005 to November 6, 2013. Since March 1, 2013, he has been our Corporate Controller and Compliance Officer. Previously, from May 2, 2005 to March 1, 2013, he served as our Chief Financial Officer. Mr. Prevost has over twenty-five years of public market experience in accounting, finance and corporate governance. Mr. Prevost’s duties and responsibilities on our behalf will generally entail financial reporting and establishing internal procedures and controls. Mr. Prevost is a member of the Certified General Accountants Association of British Columbia and Canada.

Jay Nalbach. Mr. Nalbach has been our Chief Marketing Officer since August 31, 2011. Mr. Nalbach has more than 16 years of experience in the sports and fashion industries, mostly recently serving as Brand Director at adidas Group Japan KK from February 2009 to January 2011 leading the execution of subsidiary brand Reebok’s first ever 360-degree product and marketing campaigns in Japan. Before this, he was Global Head of Men’s Lifestyle Footwear for Reebok International from July 2006 to February 2009 during the critical period of Reebok post-acquisition by adidas. Mr. Nalbach has also held senior roles with adidas AG in Portland, Oregon, U.S.A. from 1995 to 1997, Amsterdam, Netherlands from 1997 to 2000 and London, England from 2000 to 2003, including key work with Reebok, adidas Originals, Foot Locker Europe, in footwear, apparel, supply chain and account management. Mr. Nalbach also worked as European Key Account Director with Fila Spa from 2003 to 2006 in London, England, where he was responsible for developing the firm’s world-class management team and increasing its market share in the athletic footwear and apparel category. Mr. Nalbach graduated from Boston University in 1993 with a B.A. degree in Pure and Applied Mathematics and German.

Robert Edmunds. Mr. Edmunds has been a member of the Board of Directors since December 15, 2000 and previously our Chief Financial Officer until his resignation effective April 27, 2005. Mr. Edmunds received a Chartered Accountant designation in 1992. He worked as the proprietor of a public practice from 1992 through 1998. Since 1998, Mr. Edmunds has been an independent consultant with No Drama Media Corporation, providing Chief Financial Officer services, as well as business strategy, financial planning and accounting services for various clients in the entertainment and E-commerce industries.

Jeremy Jones. Mr. Jones has been one of our directors since August 5, 2009 and was on our Advisory Board from March 2009 to August 2009. Since August 2009, Mr. Jones has been Chairman and Chief Executive Officer of Nitride Solutions Inc., a company he founded that is commercializing a low-cost, high volume manufacturing process for Aluminum Nitride, an enabling material for next generation LEDs, communication and power electronic. Prior to Nitride Solutions Inc., Mr. Jones was Vice President of Koch Genesis, the venture arm of Koch Industries, Inc. (“Koch”), from 2007 through 2009. At Koch, he was responsible for deal sourcing, diligence and structuring in areas such as renewable fuels, biopolymers, medical textiles and advanced fibers for Koch’s operating businesses INVESTA, Georgia-Pacific and Flint Hills Resources. Prior to Koch, Mr. Jones was in leadership and corporate officer roles in Fortune 500 companies such as Polaroid, Motorola and Cabot Microelectronics, where he built several businesses in optical and electronic materials, as well as in start-ups such as Crosslink, a St. Louis company commercializing conductive polymer materials. Mr. Jones holds a Bachelor’s Degree in Mechanical Engineering and a Master’s Degree in Materials Engineering from Worcester Polytechnic Institute and an MBA from Babson College’s F.W. Olin Graduate School of Business.

Peter C. Moore. Mr. Moore has been one of our directors since July 11, 2006, and was on our Advisory Board from October 2004 to July 2006. Mr. Moore has been the President of What’a Ya Think Inc? (“WYTI”) since 2008. WYTI is a design firm specializing in brand image work including symbols. They have been retained by adidas A.G. and have done work for several brands within the adidas Group, including the Taylor Made brand and the Reebok brand as well as working on image and direction for brands including Rogue Ales, and Specialized bicycles. We believe Mr. Moore is generally considered one of the top branding and design experts in the industry. He has over twenty years of footwear and apparel experience, including design and development, involving Nike, adidas and several other prominent brands and concepts in sportswear history. His roles have included creative director at Nike (Air Jordan, Nike Air). Mr. Moore was one of two individuals responsible for creation of the Air Jordan concept during the mid-1980s after which he subsequently left with a colleague to form Sports Inc., a sports marketing company in Portland, Oregon. Mr. Moore was also previously the Chief Executive Officer of adidas North America and Worldwide Creative Director of adidas AG.

Klaus Flock. Mr. Flock joined our Board of Directors on June 23, 2014. Mr. Flock is an 18-year veteran with adidas Group AG, where he has held numerous executive level positions throughout Europe, Asia and North America. Upon returning from Indonesia in 2006, where he was Managing Director of adidas Indonesia, he was appointed Chief Financial Officer of TaylorMade-adidas Golf until late 2011. Since that time, he has held the position of Chief Financial Officer for adidas Group America, based in Portland, Oregon. Mr. Flock is a graduate of the Universität Stuttgart with a Diplom-Kfm in accounting and finance.

Family Relationships

Ms. Hayes and Mr. Edmunds are married to each other. Otherwise, there are no family relationships among our directors or executive officers.

Involvement in Certain Legal Proceedings

Except as disclosed in this annual report, during the past ten years none of the following events have occurred with respect to any of our directors or executive officers:

A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before thetime of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

2.	Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

3.	Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

	i.	Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

	ii.	Engaging in any type of business practice; or

	iii.	Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

4.	Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3)(i) above, or to be associated with persons engaged in any such activity;

5.	Such person was found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;

6.	Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

7.	Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

	i.	Any Federal or State securities or commodities law or regulation; or

	ii.	Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

	iii.	Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

There are currently no legal proceedings to which any of our directors or officers is a party adverse to us or in which any of our directors or officers has a material interest adverse to us.

Significant Employees

The Company does not have any significant employees other than the officers disclosed above.

Audit Committee

Messrs. Edmunds, Jones and Flock are the members of our audit committee. The Board of Directors has determined that all of the audit committee members qualify as independent audit committee members under the listing standards of the NYSE MKT. The Board of Directors has determined that Mr. Robert Edmunds, C.A., chairman of the audit committee, qualifies as a financial expert.

The audit committee operates under a written charter adopted by the board of directors on February 28, 2008. The audit committee’s primary function is to provide advice with respect to our financial matters and to assist the Board of Directors in fulfilling its oversight responsibilities regarding finance, accounting, and legal compliance. The audit committee’s primary duties and responsibilities will be to:

•	serve as an independent and objective party to monitor our financial reporting process and internal control system;

•	review and appraise the audit efforts of our independent accountants;

•	evaluate our quarterly financial performance as well as our compliance with laws and regulations;

•	oversee management’s establishment and enforcement of financial policies and business practices; and

•	provide an open avenue of communication among the independent accountants, management and the Board of Directors.

Code of Ethics

Our Board of Directors has adopted a code of ethics applicable to all our employees and directors (the “Code of Ethics”). The Code of Ethics is intended to describe our core values and beliefs and to provide the foundation for all business conduct. The Code of Ethics is further intended to focus our Board of Directors and each director, officer and employee on areas of ethical risk, provide guidance to our directors, officers and employees to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help foster a culture of honesty and accountability. Our guidelines for conducting business are consistent with the highest standards of business ethics. Each director, officer and employee must comply with the letter and spirit of this Code of Ethics.

We have posted the text of the Code of Ethics on our Internet website at www.crailar.com Furthermore, upon request, we shall provide to any person without charge a copy of the Code of Ethics. Any such requests should be directed to Ms. Larisa Harrison, Corporate Administrative Officer and Corporate Secretary, Suite 305, 4420 Chatterton Way, Victoria, British Columbia, Canada V8X 5J2.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires the executive officers and directors, and persons who beneficially own more than ten percent of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Based solely on the reports received by us and on the representations of the reporting persons, we believe that all such reports were timely filed during the fiscal year ended December 27, 2014, except as follows:

Name	Number of Late Reports	Number of Transactions Not Reported on Timely Basis
Name	Number of Late Reports	Number of Transactions Not Reported on Timely Basis
Lesley Hayes	3	5
Jason Finnis	2	5
Theodore Sanders	1	1
Guy Prevost	1	1
Jay Nalbach	1	1
Robert Edmunds	2	4
Jeremy Jones	1	1
Peter Moore	1	1
Kenneth Barker ⁽¹⁾	1	1
Hydra Ventures BV	1	1
Marxe Austin W. & Greenhouse David M.	3	5

⁽¹⁾	Mr. Barker resigned as an officer and director of the Company on November 10, 2014.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The Compensation Committee of our Board of Directors is responsible for the development and supervision of our approach to compensation for directors, officers and senior management as well as bonuses and any increases in compensation to employees or staff that would have a material impact on our expenses. The Compensation Committee reviews and makes recommendations regarding compensation issues, in particular:

	•	compensation philosophy and policies;

	•	competitive positioning;

	•	annually review the performance of the CEO, the COO and the CFO on behalf of the Board;

	•	make recommendations to the Board for payment and awards to Senior Officers under the Company’s salary and incentive plans;

	•	make recommendations to the Board for annual aggregate incentive compensation payouts to management, including security based compensation arrangements, and profit sharing to employees; and

	•	make recommendations to the Board regarding Director compensation.

The Board assumes responsibility for reviewing and monitoring the long-range compensation strategy for our senior management although the Compensation Committee guides it in this role. Our Compensation Committee receives independent competitive market information on compensation levels for executives. It uses salary data of comparable private and public companies as a benchmark for setting executive compensation. This data is obtained from various sources including online research and market surveys.

Philosophy and Objectives

The compensation program for our senior management is designed to ensure that the level and form of compensation achieves certain objectives, including:

	•	attracting and retaining talented, qualified and effective executives;

	•	motivating the short and long-term performance of these executives; and

	•	better aligning their interests with those of our shareholders.

In compensating our senior management, we have employed a combination of base salary, bonus compensation and equity participation through its stock option plan.

Base Salary

In the Board’s view, paying base salaries which are competitive in the markets in which we operate is a first step to attracting and retaining talented, qualified and effective executives. Competitive salary information on comparable companies within the industry is compiled from a variety of sources, including surveys conducted by independent consultants and national and international publications.

Bonus Incentive Compensation

Our objective is to achieve certain strategic objectives and milestones. The Board will consider executive bonus compensation dependent upon our meeting those strategic objectives and milestones and sufficient cash resources being available for the granting of bonuses. The Board approves executive bonus compensation dependent upon compensation levels based on recommendations of the Compensation Committee, and such recommendations are generally based on survey data provided by independent consultants. Each Named Executive Officer (as defined below) receives a base salary and is also eligible for an annual bonus. Annual bonuses are calculated and approved by the Company’s compensation committee on a discretionary basis and can range from 25% to 125% of a Named Executive Officer’s base salary.

Equity Participation

We believe that encouraging our executives and employees to become shareholders is the best way of aligning their interests with those of our shareholders. Equity participation is accomplished through our 2011 Fixed Share Option Plan. Stock options are granted to executives and employees taking into account a number of factors, including the amount and term of options previously granted, base salary and bonuses and competitive factors. The amounts and terms of options granted are determined by the Compensation Committee. Given the evolving nature of our business, the Board continues to review and redesign the overall compensation plan for senior management so as to continue to address the objectives identified above.

Compensation of Named Executive Officers

The following table sets forth the compensation paid for Fiscal 2014 and Fiscal 2013 to (i) those persons who served as our Chief Executive Officer during Fiscal 2014, (ii) our Chief Financial Officer and (iii) those other executive officers that earned in excess of $100,000 for the fiscal year ended December 27, 2014 (collectively, the “Named Executive Officers”):

Summary Compensation Table

Name and Principal							Option
Position(s)	Year		Salary		Bonus		Awards ⁽¹⁾		Total
Lesley Hayes,	2014	$	-	$	-	$	47,850	$	47,850
Chief Executive Officer⁽²⁾	2013		-		-		-		-

Kenneth Barker	2014		262,500		-		320,595		583,095
Former Chief Executive Officer⁽³⁾	2013		300,000		-		-		300,000

Theodore Sanders,	2014		225,000		-		382,800		607,800
Chief Financial Officer and Treasurer ⁽⁴⁾	2013		187,500		-		229,319		416,819

Jason Finnis,	2014		158,760		-		177,045		335,805
President & Chief Innovation Officer	2013		174,812		-		-		174,812

Guy Prevost,	2014		158,760		-		71,775		230,535
(former CFO) Corporate Controller and Compliance	2013		174,812		-		-		174,812
Officer ⁽⁵⁾

Jay Nalbach,	2014		180,000		-		143,550		323,550
Chief Marketing Officer	2013		180,000		-		-		180,000

⁽¹⁾	Amounts presented in this column represent the fair value as of the grant date of such stock options determined in accordance with Financial Accounting Standards Board Accounting Standards Codification 718 Compensation— Stock Compensation (“FASB ASC 718”). For a discussion of valuation assumptions used in the calculations, see Note 2 to our consolidated financial statements included elsewhere in this report. See also our discussion of stock- based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

⁽²⁾	Ms. Hayes was appointed as Chief Executive Officer on November 10, 2014.

⁽³⁾	Mr. Barker resigned as an officer and director of the Company on November 10, 2014.

⁽⁴⁾	Mr. Sanders was appointed as Chief Financial Officer on March 1, 2013 and as Treasurer on November 6, 2013.

⁽⁵⁾	Mr. Prevost served as our Chief Financial Officer until March 1, 2013 but has served as Corporate Controller and Compliance Officer since March 1, 2013.

Stock Option Grants

We granted options to purchase shares of our common stock to the Named Executive Officers in the fiscal year ended December 27, 2014 as set out in the table below. The options vest over a twelve-month period with 1/12^thof the aggregate amount vesting monthly on the last day of each month from the date of grant.

Grants of Plan-Based Awards

		Number of				Grant
		Securities				Date Fair
		Underlying		Exercise		Value of
Name	Grant Date	Options		Price		Option
Lesley Hayes	March 27, 2014	50,000	$	1.36	$	47,850
Kenneth Barker	March 27, 2014	335,000	$	1.36	$	320,595
Theodore Sanders	March 27, 2014	400,000	$	1.36	$	382,800
Jason Finnis	March 27, 2014	185,000	$	1.36	$	177,045
Guy Prevost	March 27, 2014	75,000	$	1.36	$	71,775
Jay Nalbach	March 27, 2014	150,000	$	1.36	$	143,550

Outstanding Equity Awards Held by Named Executive Officers at Fiscal Year End

The following table sets forth information as of December 27, 2014, relating to outstanding equity awards held by each Named Executive Officer:

					Option
					Awards
					Equity
					Incentive
					Plan
					Awards:
	Number of		Number of		Number of
	Securities		Securities		Securities
	Underlying		Underlying		Underlying
	Unexercised		Unexercised		Unexercised	Option	Option
	Options		Options		Unearned	Exercise	Expiration
	Exercisable		Unexercisable		Options	Price	Date
Name	(#)		(#)		(#)	($)	(mm/dd/yyyy)
Lesley Hayes	10,000		-		-	0.87	11/25/2015
	37,502	⁽¹⁾	12,498	⁽¹⁾	-	1.36	03/27/2019

Kenneth Barker	250,000		-		-	0.96	08/26/2015
	500,000		-		-	0.87	11/25/2015
	125,000		-		-	1.55	04/08/2016
	325,000		-		-	2.77	08/19/2016
	425,000		-		-	2.23	10/11/2017
	251,252	⁽¹⁾	83,748	⁽¹⁾	-	1.36	03/27/2019

Theodore Sanders	200,000		-		-	2.24	03/01/2018
	300,001	⁽¹⁾	99,999	⁽¹⁾	-	1.36	03/27/2019

Jason Finnis	119,939		-		-	1.02	08/09/2015
	125,000		-		-	0.87	11/25/2015
	100,000		-		-	1.55	04/08/2016
	125,000		-		-	2.77	08/19/2016
	180,000		-		-	2.23	10/11/2017
	138,752	⁽¹⁾	46,248	⁽¹⁾	-	1.36	03/27/2019

Guy Prevost	175,000		-		-	1.55	04/08/2016
	125,000		-		-	2.77	08/19/2016
	175,000		-		-	2.23	10/11/2017
	56,250	⁽¹⁾	18,750	⁽¹⁾	-	1.36	03/27/2019

Jay Nalbach	100,000		-		-	2.77	08/19/2016
	150,000		-		-	2.23	10/11/2017
	112,500	⁽¹⁾	37,500	⁽¹⁾	-	1.36	03/27/2019

⁽¹⁾	The options granted on March 27, 2014 vest over a twelve-month period with 1/12^thof the aggregate amount vesting monthly commencing one month from the date of grant.

Option Exercises

The following table sets forth information regarding the exercise of stock options by each Named Executive Officer on an aggregated basis during the year ended December 27, 2014:

	Number of
	Shares		Value
	Acquired on		Realized on
	Exercise		Exercise
Name	(#)		($)
Lesley Hayes	-	$	-
Kenneth Barker	-		-
Theodore Sanders	-		-
Jason Finnis	-		-
Guy Prevost	-		-
Jay Nalbach	-		-

Executive Services Agreements

Senior Executive Employment Agreement with Jason Finnis

On April 2, 2012, we entered into a Senior Executive Employment Agreement with Jason Finnis, with an initial term of five years, commencing on July 1, 2011. Pursuant to the terms of the agreement, Mr. Finnis is to provide services as Chief Innovation Officer of the Company. In consideration therefor, he is to receive a base salary of CAD$150,000 per year. In the event that the Company terminates the agreement without just cause, or in the event of termination upon a change in control, the Company is required to pay Mr. Finnis: (i) 24 months of his then base salary, (ii) the portion of any then declared and/or earned bonus (prorated to the end of the six-month period from the effective date of the termination) and (iii) any outstanding vacation pay and expenses as of the effective date of the termination. In addition, the Company is obligated to (i) maintain the group medical services plan and management employee benefits programs Mr. Finnis is entitled to under the terms of the agreement for a period of one year from the effective date of the termination, and (ii) subject to the Company’s then stock option plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over the Company, allow for Mr. Finnis to exercise any unexercised and fully vested portion of his stock options on the effective date of the termination at any time during 12 months from the effective date of the termination.

Senior Executive Employment Agreement with Guy Prevost

On April 2, 2012, we entered into a Senior Executive Employment Agreement with Guy Prevost, with an initial term of five years, commencing on July 1, 2011. Pursuant to the terms of the agreement, Mr. Prevost is to provide services as Chief Financial Officer of the Company. In consideration therefor, he is to receive a base salary of CAD$150,000 per year. In the event that the Company terminates the agreement without just cause, or in the event of termination upon a change in control, the Company is required to pay Mr. Prevost: (i) 24 months of his then base salary, (ii) the portion of any then declared and/or earned bonus (prorated to the end of the six-month period from the effective date of the termination) and (iii) any outstanding vacation pay and expenses as of the effective date of the termination. In addition, the Company is obligated to (i) maintain the group medical services plan and management employee benefits programs Mr. Prevost is entitled to under the terms of the agreement for a period of one year from the effective date of the termination, and (ii) subject to the Company’s then stock option plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over the Company, allow for Mr. Prevost to exercise any unexercised and fully vested portion of his stock options on the effective date of the termination at any time during 12 months from the effective date of the termination.

Mr. Prevost resigned as Chief Financial Officer on March 1, 2013, but he continues to provide services as Corporate Controller and Compliance Officer pursuant to the terms of this agreement.

Senior Executive Employment Agreement with Jay Nalbach

On April 24, 2012, we entered into a Senior Executive Employment Agreement with Jay Nalbach, with an initial term of five years, commencing on August 1, 2011. Pursuant to the terms of the agreement, Mr. Nalbach is to provide services as Chief Marketing Officer of the Company. In consideration therefore, he is to receive a base salary of $150,000 per year. In the event that the Company terminates the agreement without just cause, the Company is required to pay Mr. Nalbach: (i) six months of his then base salary, less any required statutory deductions, if any, if the termination takes place within 24 months of the effective date of the agreement or 12 months of the then base salary, less any required statutory deductions, if any, thereafter, (ii) the portion of any then declared and/or earned bonus (prorated to the end of the six-month period from the effective date of the termination) and (iii) any outstanding vacation pay and expenses as of the effective date of the termination. In addition, the Company is obligated to (i) maintain the group medical services plan and management employee benefits programs Mr. Nalbach is entitled to under the terms of the agreement for a period of six months from the effective date of the termination if the termination takes places within 24 months of the effective date of the agreement or 12 months from the effective date of the termination if the termination take place more than 24 months after the effective date of the agreement, and (ii) subject to the Company’s then stock option plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over the Company, allow for Mr. Nalbach to exercise any unexercised and fully vested portion of his stock options on the effective date of the termination at any time during 12 months from the effective date of the termination.

Senior Executive Employment Agreement with Theodore Sanders

On April 16, 2014, we entered into a Senior Executive Employment Agreement with Theodore Sanders, effective retroactively to March 1, 2013, with an initial term of five years. Pursuant to the terms of the agreement, Mr. Sanders is to provide services as Chief Financial Officer of the Company. In consideration therefor, he is to receive a base salary of $225,000 per year. In the event that the Company terminates the agreement without just cause, or in the event of termination upon a change in control, the Company is required to pay Mr. Sanders: (i) 24 months of his then base salary, (ii) the portion of any then declared and/or earned bonus (prorated to the end of the six-month period from the effective date of the termination) and (iii) any outstanding vacation pay and expenses as of the effective date of the termination. In addition, the Company is obligated to (i) maintain the group medical services plan and management employee benefits programs Mr. Sanders is entitled to under the terms of the agreement for a period of one year from the effective date of the termination, and (ii) subject to the Company’s then stock option plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over the Company, allow for Mr. Sanders to exercise any unexercised and fully vested portion of his stock options on the effective date of the termination at any time during 12 months from the effective date of the termination.

Director Compensation

No compensation was paid to our directors in our fiscal year ended December 27, 2014 for their service as directors during such year. Our directors do not have specific compensation arrangements based on attendance at board or committee meetings or serving as a committee chair. From time to time directors may receive bonus payments or options, which are granted on a discretionary basis. The amount of any bonus payments or the number of options granted is based on the experience of the director, time spent on our matters and the compensation paid to other directors of companies in the industry. Our directors who are also Named Executive Officers do not receive any additional compensation for service as directors beyond what is disclosed above in relation to their service as officers.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information, as of April 9, 2015, with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers. Each person has sole voting and investment power with respect to the shares of common stock indicated below opposite such person’s name, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. As of April 9, 2015, there were 66,378,003 shares of common stock issued and outstanding.

	Amount and Nature of	Percentage of
Name and Address of Beneficial Owner ⁽¹⁾	Beneficial Ownership⁽²⁾	Beneficial Ownership
*Directors and Officers:*
Jason Finnis	3,008,670⁽³⁾	4.4%
Theodore Sanders	471,800⁽⁴⁾	(*)
Guy Prevost	557,500⁽⁵⁾	(*)
Jay Nalbach	401,500⁽⁶⁾	(*)
Robert Edmunds and Lesley Hayes ⁽⁷⁾	2,649,807⁽⁸⁾	4.0%
Jeremy Jones	115,000⁽⁹⁾	(*)
Peter Moore	185,000⁽¹⁰⁾	(*)
Klaus Flock	35,000⁽¹¹⁾	(*)
All Officers and Directors as a Group (9 individuals)	7,424,277⁽¹²⁾	10.6%

*5% or Greater Beneficial Owners*
Dennis Howitt Trust
1221 Pinecrest SE,
Grand Rapids, Michigan, U.S.A., 49506	3,487,275⁽¹³⁾	5.3%

Hydra Ventures B.V.
Hoogoorddreef 9a
1101 BA Amsterdam South East
The Netherlands	6,666,666⁽¹⁴⁾	9.6%

AWM Investment Company, Inc.
c/o Special Situations Funds
527 Madison Avenue, Suite 2600
New York, New York, U.S.A. 10022	6,410,123⁽¹⁵⁾	9.6%⁽¹⁵⁾

Wolverine Asset Management, LLC
175 West Jackson Boulevard, Suite 340
Chicago, Illinois, U.S.A. 60604	5,132,879⁽¹⁶⁾	7.5%

(*)	Less than 1%.
⁽¹⁾	The address for each director and officer is Suite 305, 4420 Chatterton Way, Victoria, British Columbia, Canada, V8X 5J2.
⁽²⁾	Shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power.

⁽³⁾	This figure consists of (i) 1,598,793 shares of common stock and (ii) options to purchase 1,409,877 shares of common stock.
⁽⁴⁾	This figure consists of: (i) 71,800 shares of common stock and (ii) options to purchase 400,000 shares of common stock.
⁽⁵⁾	This figure consists of: (i) 7,500 shares of common stock; and (ii) options to purchase 550,000 shares of common stock.
⁽⁶⁾	This figure consists of: (i) 1,500 shares of common stock; and (ii) options to purchase 400,000 shares of common stock.
⁽⁷⁾	Robert Edmunds and Lesley Hayes are married.
⁽⁸⁾	This figure consists of: (i) 2,269,807 shares of common stock; (ii) options to purchase 220,000 shares of common stock; (iii) 10% convertible secured debenture of $100,000 convertible into 80,000 shares of common stock before July 26, 2016; and (iv) warrants to purchase 80,000 shares of common stock.
⁽⁹⁾	This figure consists of: (i) 5,000 shares of common stock and (ii) options to purchase 110,000 shares of common stock.
⁽¹⁰⁾	This figure consists of: (i) 75,000 shares of common stock and (ii) options to purchase 110,000 shares of common stock.
⁽¹¹⁾	This figure consists of options to purchase 35,000 shares of common stock.
⁽¹²⁾	This figure consists of: (i) 4,029,400 shares of common stock; (ii) options to purchase 3,234,877 shares of common stock; (iii) 10% convertible secured debenture of $100,000 convertible into 80,000 shares of common stock before July 26, 2016; and (iv) warrants to purchase 80,000 shares of common stock.
⁽¹³⁾	This figure consists of 3,487,275 shares of common stock.
⁽¹⁴⁾	This figure consists of: (i) 3,333,333 shares of common stock and (ii) warrants to purchase 3,333,333 shares of common stock.
⁽¹⁵⁾	This figure consists of 6,410,123 shares of common stock held by Special Situations Fund III QP, L.P. (SSFQP), Special Situations Cayman Fund, LP (Cayman) and Special Situations Private Equity Fund, L.P. (PE). SSFQP, Cayman and PE also hold warrants to purchase an aggregate of 6,000,000 shares of common stock, which may be exercised to the extent that the total number of shares of common stock beneficially owned does not exceed 9.99% of the Company’s issued and outstanding shares.
⁽¹⁶⁾	This figure consists of: (i) 5,132,879 shares of common stock and (ii) warrants to 2,500,000 shares of common stock.

Changes in Control

We are unaware of any contract, or other arrangement or provision, the operation of which may at a subsequent date result in a change of control of our Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Since January 1, 2013, except for the transactions described below and the transactions described in “Executive Compensation” above, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years and in which any director, executive officer or holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.

Effective on October 11, 2013 and December 4, 2013, we issued original Demand Convertible Promissory Notes (collectively, the “Original Edmunds Promissory Notes”) to Mr. Robert Edmunds, one of our directors, pursuant to loans to us in the aggregate principal amount of $523,521 (CAD$545,000) (collectively, the “Edmunds Loan”) bearing interest at a rate of 20% per annum. The Original Edmunds Promissory Notes provided that the Edmunds Loan and the interest thereunder must be repaid by us to Mr. Edmunds on demand. Pursuant to a Loan Extension and Bonus Share Agreement, dated for reference effective on December 18, 2013 (the “Loan Extension”; which together with the Original Edmunds Promissory Notes being, collectively, the “Underlying Edmunds Agreements”), and as a then condition precedent to the completion by us of a private placement with Hydra Ventures BV, which closed on December 20, 2013 (the “Private Placement”) Mr. Edmunds agreed to extend the term for repayment of the Edmunds Loan and the interest under the Original Edmunds Promissory Notes until the earlier of (i) one year from the completion of the Private Placement, and (ii) such time as we complete our next public offering of registered securities by way of a registration statement on Form S-1 of not less than $2.8 million (CAD$3.0 million) in gross proceeds to us (the “New Term of the Edmunds Loan”) and, as additional consideration thereof, subject to TSX-V approval, allot and issue to Mr. Edmunds, as fully paid and non-assessable shares, an aggregate of up to 187,878 shares of our common stock (each a “Bonus Share”), representing a deemed value of 20% of the outstanding balance of the Loan and interest based on an agreed value and deemed issuance price of $0.56 (CAD$0.60) per Bonus Share (the “Bonus Share Issuance”). By letter dated January 20, 2014, the TSX-V approved the final Bonus Share Issuance by us to Mr. Edmunds of 181,666 shares of our common stock at a deemed value of $0.56 (CAD$0.60) per Bonus Share (the “TSX-V Approval”), which shares were issued on January 30, 2014. As a consequence of each of the completion by us of the Private Placement, effective on December 20, 2013, and the receipt of TSX-V Approval to the above-referenced Bonus Share Issuance, the parties agreed to provide for a new Amended And Restated Promissory Note, dated for reference January 21, 2014 (the “Edmunds Amended Promissory Note”), which bears interest at a rate of 20% per annum, and which amended and replaced in their entirety, each of the Underlying Edmunds Agreements. We repaid the Edmunds Loan in full in April 2014.

Our Board of Directors reviews any proposed transactions involving related parties and considerers whether such transactions are fair and reasonable and in our best interests.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Dale Matheson Carr-Hilton LaBonte LLP served as our independent registered public accounting firm and audited our financial statements for the fiscal years ended December 27, 2014 and December 28, 2013. Aggregate fees for professional services rendered to us by our auditor are set forth below:

		Year Ended		Year Ended
		December 27, 2014		December 28, 2013
Audit Fees	$	95,000	$	120,000
Audit-Related Fees	$	81,000	$	38,500
Tax Fees	$	9,000	$	7,000
All Other Fees	$	Nil	$	Nil
Total	$	185,000	$	165,500

Audit Fees

Audit fees are the aggregate fees billed for professional services rendered by our independent auditors for the audit of our annual financial statements, the review of the financial statements included in each of our quarterly reports and services provided in connection with statutory and regulatory filings or engagements.

Audit Related Fees

Audit related fees are the aggregate fees billed by our independent auditors for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not described in the preceding category.

Tax Fees

Tax fees are billed by our independent auditors for tax compliance, tax advice and tax planning.

All Other Fees

All other fees include fees billed by our independent auditors for products or services other than as described in the immediately preceding three categories.

Policy on Pre-Approval of Services Performed by Independent Auditors

It is our audit committee’s policy to pre-approve all audit and permissible non-audit services performed by the independent auditors. We approved all services that our independent accountants provided to us in the past two fiscal years.

ITEM 15. EXHIBITS

The following exhibits are filed as part of this Annual Report.

Exhibit	Document
No.
3.1	Notice of Articles (23)
3.2	Articles, as amended (23)
4.1	Convertible Debenture Indenture among CRAiLAR Technologies Inc. and Computershare Trust Company of Canada, dated September 20, 2012 (18)
4.2	Convertible Debenture Indenture among CRAiLAR Technologies Inc. and Computershare Trust Company of Canada, dated February 25, 2013 (16)
4.3	Form of Subscription Agreement for Secured Subordinated Convertible Debentures (February 25, 2013) (16)
4.4	Convertible Debenture Indenture among CRAiLAR Technologies Inc. and Computershare Trust Company of Canada, dated July 26, 2013 (19)
4.5	Form of Subscription Agreement for Secured Convertible Debentures (July 26, 2013) (19)
4.6	Form of Warrant (July 26, 2013) (19)
4.7	Amended and Restated Convertible Debenture Indenture among Crailar Technologies Inc. and Computershare Trust Company of Canada, dated December 23, 2013 (21)
4.8	Form of Subscription Agreement for December 20, 2013 private placement (21)
4.9	Form of Warrant for December 20, 2013 private placement (21)
4.10	Form of Warrant for August 6, 2014 public offering (26)
10.1	Collaboration Agreement dated effective May 7, 2004 between Hemptown Clothing, Inc., and the National Research Council of Canada (1)
10.2	Renewed Collaboration Agreement dated effective December 7, 2007 between CRAiLAR Fiber Technologies Inc., and the National Research Council of Canada (1)
10.3	Amendment to the Renewed Collaboration Agreement dated effective February 19, 2010 between Naturally Advanced Technologies Inc. and the National Research Council of Canada (1)
10.4	Master Agreement for Technology Development between Alberta Research Council and CRAiLAR Fiber Technologies dated January 1, 2007 (2)
10.5	CEO Executive Services Agreement between Naturally Advanced Technologies Inc. and Meriwether Accelerators LLC dated November 27, 2007 with effective date of August 24, 2007 (3)
10.6	2006 Stock Option Plan (4)
10.7	Letter Agreement dated September 2, 2008 between Naturally Advanced Technologies Inc. and Lipper/Heilshorn & Associates, Inc. (5)
10.8	Renewal of CEO Executive Services Agreement between Naturally Advanced Technologies Inc. and Meriwether Accelerators LLC dated October 14, 2008 (6)
10.9	2008 Fixed Share Stock Option Plan (7)
10.10	CEO Executive Services Agreement between Naturally Advanced Technologies Inc. and Kenneth Barker, dated for reference August 24, 2009 (9)
10.11	Service Agreement between Naturally Advanced Technologies Inc. and OrganicWorks Marketing LLC dated November 25, 2010 (9)
10.12	Equipment Lease and Location Sublease dated August 9, 2010 between Naturally Advanced Technologies Inc. and Eastern Flax of South Carolina, LLC. (10)
10.13	2010 Fixed Share Option Plan (11)
10.14	Lease Agreement, dated June 30, 2011 between 0702311 BC Ltd. and Naturally Advanced Technologies Inc. (13)
10.15	Office Lease Agreement dated August 8, 2011 between Naturally Advanced Technologies Inc. and MDW Properties, LLC. (13)

10.16	Lease Agreement dated July 1, 2011 between Naturally Advanced Technologies Inc. and Jessie Dale McCollough. (13)
10.17	2011 Fixed Share Option Plan, as amended *
10.18	Lease Agreement dated March 14, 2012 between Colony Square Investment Company, LLC and Naturally Advanced Technologies US Inc. (13)
10.19	Supply Agreement among CRAiLAR Technologies Inc. and Kowa Company Ltd., dated January 10, 2013 (14)
10.20	Development Agreement among CRAiLAR Technologies Inc. and Cotswold Industries Inc., dated February 10, 2013 (15)
10.21	Senior Executive Employment Agreement between the Company and Kenneth Barker, dated April 2, 2012 (18)
10.22	Senior Executive Employment Agreement between the Company and Guy Prevost, dated April 2, 2012 (18)
10.23	Senior Executive Employment Agreement between the Company and Jason Finnis, dated April 2, 2012 (18)
10.24	Senior Executive Employment Agreement between the Company and Larisa Harrison, dated April 2, 2012 (18)
10.25	Senior Executive Employment Agreement between the Company and Jay Nalbach, dated April 24, 2012 (18)
10.26	Senior Executive Employment Agreement between the Company and Tom Robinson dated June 18, 2012 (18)
10.27	Marketing and Development Agreement among CRAiLAR Technologies Inc. and Cone Denim LLC., dated March 11, 2013 (17)
10.28	Demand Convertible Promissory Note from CRAiLAR Technologies Inc. to Robert Edmunds, dated October 11, 2013 (20)
10.29	Asset Purchase Agreement between Schrurs NV, CRAiLAR Technologies Inc. and Mr. Serge Schrurs, dated November 6, 2013 (24) (†)
10.30	Loan Agreement between Crailar Technologies Inc. and IKEA Supply AG, dated November 29, 2013 (24) (†)
10.31	General Supply Agreement between Crailar Technologies Inc. and IKEA Supply AG, dated December 9, 2013 (22) (†)
10.32	Asset Purchase Agreement between Schrurs NV, CRAiLAR Technologies Inc. and Mr. Serge Schrurs, dated December 13, 2013 (22) (†)
10.33	Framework Agreement Development Work between IKEA Supply AG, Crailar Technologies Inc. and Schrurs NV, dated December 13, 2013 (22) (†)
10.34	Tripartite Agreement between National Research Council of Canada, CRAiLAR Technologies Inc. and IKEA Supply AG, dated December 18, 2013 (21)
10.35	Amended and Restated Promissory Note from Crailar Technologies Inc. to Jason Finnis, dated January 21, 2014 (21)
10.36	Amended and Restated Promissory Note from Crailar Technologies Inc. to Kenneth Barker, dated January 21, 2014 (21)
10.37	Amended and Restated Promissory Note from Crailar Technologies Inc. to Robert Edmunds, dated January 21, 2014 (21)
10.38	Senior Executive Employment Agreement between Crailar Technologies Inc. and Ted Sanders dated April 16, 2014 (25)
10.39	Consulting Services Agreement between Crailar Technologies Inc. and Kenneth C. Barker, dated November 10, 2014 (27)
14.1	Code of Ethics (8)
21.1	Subsidiaries *
23.1	Auditor Consent Letter *
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act *

31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act *
32.1	Certification of Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
101.INS	XBRL Instance Document *
101.SCH	XBRL Taxonomy Extension Schema *
101.CAL	XBRL Taxonomy Extension Calculation Linkbase *
101.DEF	XBRL Taxonomy Extension Definition Linkbase *
101.LAB	XBRL Taxonomy Extension Label Linkbase *
101.PRE	XBRL Taxonomy Extension Presentation Linkbase *

(*)	Filed herewith.
(1)	Filed as an exhibit to our Form 8-K as filed with the SEC on March 8, 2010.
(2)	Filed as an exhibit to our Form 8-K as filed with the SEC on June 25, 2007.
(3)	Filed as an exhibit to our Form 8-K as filed with the SEC on December 21, 2007.
(4)	Filed as an exhibit to our Form 10-KSB for fiscal year ended December 31, 2006 as filed with the SEC Commission on March 31, 2007.
(5)	Filed as an exhibit to our Form 8-K as filed with the SEC on September 8, 2008.
(6)	Filed as an exhibit to our Form 8-K as filed with the SEC on October 28, 2008.
(7)	Filed as an exhibit to our Form S-8 as filed with the SEC on October 10, 2008.
(8)	Filed as an exhibit to our Form 10-KSB for fiscal year ended December 31, 2007 as filed with the SEC on April 11, 2008
(9)	Filed as an exhibit to our Form 10-K for the fiscal year ended December 31, 2010, as filed with the SEC on April 13, 2010.
(10)	Filed as an exhibit to our Form 8-K as filed with the SEC on August 12, 2010.
(11)	Filed as an exhibit to our Form 10-Q for the quarter ended September 30, 2010, as filed with the SEC on November 15, 2011.
(12)	Filed as an exhibit to our Form S-8 as filed with the SEC on February 16, 2012.
(13)	Filed as an exhibit to our Form 10-Q for the quarter ended March 31, 2012, as filed with the SEC on May 11, 2012.
(14)	Filed as an exhibit to our Form 8-K as filed with the SEC on January 16, 2013.
(15)	Filed as an exhibit to our Form 8-K as filed with the SEC on February 14, 2013.
(16)	Filed as an exhibit to our Form 8-K as filed with the SEC on February 26, 2013.
(17)	Filed as an exhibit to our Form 8-K as filed with the SEC on March 14, 2013.
(18)	Filed as an exhibit to our Form 10-K as filed with the SEC on March 18, 2013.
(19)	Filed as an exhibit to our Form 8-K as filed with the SEC on July 31, 2013.
(20)	Filed as an exhibit to our Form 10-Q as filed with the SEC on November 7, 2013.
(21)	Filed as an exhibit to our Form 8-K as filed with the SEC on February 5, 2014.
(22)	Filed as an exhibit to our Form 8-K/A as filed with the SEC on February 21, 2014.
(23)	Filed as an exhibit to our Form 10-K for the fiscal year ended December 28, 2013, as filed with the SEC on March 28, 2014.
(24)	Filed as an exhibit to our Form 8-K/A as field with the SEC on May 6, 2014.
(25)	Filed as an exhibit to our Form 10-Q for the quarter ended March 29, 2014, as filed with the SEC on May 19, 2014.
(26)	Filed as an exhibit to our registration statement on Form S-1 (Amendment No. 1) as filed with the SEC on July 7, 2014.
(27)	Filed as an exhibit to our Form 8-K as field with the SEC on November 17, 2014.
(†)	Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CRAILAR TECHNOLOGIES INC.

Dated: April 13, 2015	By: /s/ Lesley Hayes
	Lesley Hayes, Chief Executive Officer, Chair of the Board and a
	director
	(Principal Executive Officer)

Dated: April 13, 2015	By: /s/ Theodore Sanders
	Theodore Sanders, Chief Financial Officer and Treasurer
	(Principal Financial Officer)

Dated: April 13, 2015	By: /s/ Guy Prevost
	Guy Prevost, Corporate Controller and Compliance Officer
	(Controller)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons no behalf of the registrant and in the capacities and on the dates indicated.

Dated: April 13, 2015	By: /s/ Lesley Hayes
	Lesley Hayes, Chief Executive Officer, Chair of the Board and a
	director

Dated: April 13, 2015	By: /s/ Jason Finnis
	Jason Finnis, President, Chief Innovation Officer and a director

Dated: April 13, 2015	By: /s/ Theodore Sanders
	Theodore Sanders, Chief Financial Officer and Treasurer

Dated: April 13, 2015	By: /s/ Guy Prevost
	Guy Prevost, Corporate Controller and Compliance Officer

Dated: April 13, 2015	By: /s/ Robert Edmunds
	Robert Edmunds, Director

Dated: April 13, 2015	By: /s/ Jeremy Jones
	Jeremy Jones, Director

Dated: April 13, 2015	By: /s/ Peter C. Moore
	Peter C. Moore, Director

Dated: April 13, 2015	By: /s/ Klaus Flock
	Klaus Flock, Director

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