Crailar Technologies Inc., a development stage company that has raised money from Adidas venture capital fund to develop environmentally friendly fibers from flax, reported much lower losses on higher sales in the third quarter ended Sept. 27.

The Victoria, BC-based company also announced Ken Barker has resigned after nine years serving as the company’s CEO and a director. Barker has agreed to continue on as a consultant with the title of Chief Strategic Advisor for one year, during which he will continue to work with the company’s executive team.

Lesley Hayes, Chair of the Board of Directors has been appointed the interim Chief Executive Officer of the company. Jason Finnis, President and Chief Innovation Officer will assume the additional responsibility for plant operations and Ted Sanders, Chief Financial Officer and Treasurer will assume responsibility for Sales and Marketing. The company has initiated a search for a fulltime CEO to replace  Barker.

“On behalf of the company and our Board, we are extremely appreciative of the many years of selfless hard work that Ken brought as Crailar’s leader,” said Hayes. “We are grateful that Ken has agreed to work with the Crailar team and be available to advise and smoothly transition his responsibilities.”

Financial results
Crailar reported sales of $1.2 million and a net loss of $1.5 million or $0.02 per share for the third quarter ended  Sept. 27, 2014 which includes a non-cash derivative liability gain of $0.7 million. This compares with nil sales and a net loss of $5.7 million or $0.13 per share for the third quarter 2013, which includes a non-cash inventory impairment charge of $2.5 million . The company’s Adjusted EBITDA for the Quarter was a loss of $0.9 million, a reduction of $0.5 million from third quarter 2013’s Adjusted EBITDA loss of $1.4 million.

Sales for third quarter 2014 increased 71 percent from second quarter 2014 despite the quarter being shortened by a government-mandated three-week summer vacation in Belgium . Variable margin was 11 percent but was impacted by labor inefficiencies and rework caused by equipment downtime. General and administrative spending for the quarter declined by $0.4 million or 25 percent from the same period last year.

Cash and cash equivalents and investments at Sept 27, 2014 were $4.8 million up from $1.2 million at Dec. 31, 2013. Cash at the end of the third quarter does not include collection of $1 million of third quarter billings from a large customer. We have since developed a billing and payment procedure with that customer to remove this bottleneck going forward. The increase in cash equivalents of $3.6 million resulted from $6.4 million of cash used in operations and $1.1 million of cash invested in property and equipment offset by $11.1 million of cash from financing activities from the sale of equity of $9.1 million and a $3.0 million from the IKEA working capital and equipment financing loan partially offset by loan pay-downs of $0.8 million and deferred issuance costs of $0.1 million.

Production expansion, set backs
During the second half of Q-3 the company launched projects to increase production capacity, including hiring additional employees; upgrading kiers; installing a second dryer; installing a chemical delivery system; and installing a heat exchanger. When completed, these projects will allow the company to boost plant capacity and reduce conversion costs.

Also during the quarter the company’s 40-year-old plant experienced equipment failures as production was increased, some of which was caused by lack of preventative maintenance. The company has hired a new plant manager and a fulltime mechanic to operate the facility in a proactive manner.  The mechanic is performing break-fix repairs and instituted a preventive maintenance regime and gradually the plant is experiencing fewer disruptions. Commissioning of the second dryer this month will also alleviate a production choke and add important redundancy.

The company also co-developed two technology breakthroughs to bleach and lighten flax fibers. Bleaching, desired by many customers, increases production time by 50 percent and conversion costs by over 40 percent. Both co-developed bleaching technologies when implemented will significantly reduce cycle time, chemicals, water and cost; creating a substantial competitive barrier. Finally, the company had separate production planning sessions with two large customers, which evolved into dedicated facility discussions. The company is encouraged by interest in dedicated facilities, but these discussions, while very promising, are in the early stages.

Crailar Technologies Inc. is focused on bringing cost-effective, 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.  The company’s business operations consist primarily of the production of its natural and proprietary Crailar Flax fibers targeted at the natural yarn and textile industries, as well as the deployment of its Crailar processing technologies in the cellulose pulp and composites industries.