10-Q 1 ibt10qmay1414sec.htm INTERNATIONAL BARRIER TECHNOLOGY, INC. FORM 10-Q International Barrier Technology Inc



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the quarterly period ended March 31, 2014


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

For the transition period from ________ to ________


Commission file number: 000-20412



International Barrier Technology Inc.

(Exact name of registrant as specified in its charter)



British Columbia, Canada

 

N/A

(State or other jurisdiction of incorporation  or organization)

 

(I.R.S. Employer Identification No.)


510 4th Street North, Watkins, Minnesota, USA

 

55389

(Address of principal executive offices)

 

(Zip Code)



Issuer’s Telephone Number, 320-764-5797


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

YES x      NO   ¨


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).   YES   x      NO   ¨


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


Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨     No x


Indicate the number of shares outstanding of each of the issuer's classes of common stock as of 5/14/2014: 44,554,926 Common Shares w/o par value







1






Part 1 – Financial Information


Item 1.  Financial Statements


INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2014 and June 30, 2013

(Stated in US Dollars)

(Unaudited)

 

 March 31,

June 30,

 

2014

2013

 

 

(audited)

ASSETS

 

 

Current

 

 

Cash and cash equivalents

$              331,531

$        179,578

Accounts receivable

162,216

182,041

Inventory - Note 3

523,382

410,900

Prepaid expenses and deposits

35,756

89,128

Total Current Assets

1,052,885

861,647

Property, plant and equipment

2,919,520

3,060,268

Total Assets

$           3,972,405

$      3,921,915

 

 

 

LIABILITIES

 

 

Current

 

 

Accounts payable and accrued liabilities

$              691,553

$        849,537

Deferred Revenue

100,000

-

Current portion of long term debt - Note 4

62,645

59,752

Obligation under capital leases

66,709

64,575

Total Current Liabilities

920,907

973,864

Long-term debt - Note 4

264,777

312,174

Convertible debentures - Note 5

240,000

240,000

Obligation under capital leases

88,140

141,640

Total Liabilities

1,513,824

1,667,678

 

 

 

STOCKHOLDERS' EQUITY

 

 

Common Stock - Note 6

 

 

Authorized:

 

 

100,000,000 common shares without par value

 

 

Issued:

 

 

44,554,926 common shares (June 30, 2013:  44,454,926)

15,478,926

15,463,675

Additional paid-in capital

1,639,363

1,579,555

Accumulated deficit

(14,659,708)

(14,788,993)

Total Stockholders' Equity

2,458,581

2,254,237

Total Liabilities and Stockholders' Equity

$           3,972,405

$      3,921,915

 

 

 

APPROVED BY THE BOARD OF DIRECTORS

 

 

 

 

 

"David Corcoran"

 

 

"Victor Yates"

 

David Corcoran

Director

 

Victor Yates

Director

 

 

 

 

 

 

 

 

 

 

 

 

SEE ACCOMPANYING NOTES





2






INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

for the three and nine months ended March 31,  2014 and 2013

(Stated in US Dollars)

(Unaudited)

 

 

 

 

 

 

 

 

Three months ended

Nine months ended

 

 

March 31,

March 31,

 

 

 

 

 

 

 

 

2014

2013

2014

2013

 

 

 

 

 

 

Sales - Note 7

 

$       1,700,170

$       1,695,166

$       5,375,960

$    3,569,263

 

 

 

 

 

 

Cost of Sales

 

1,437,571

1,492,382

4,527,054

3,234,520

 

 

 

 

Gross Profit

 

262,599

202,784

848,906

334,743

 

 

 

 

 

 

Expenses

 

 

 

 

 

Accounting and audit fees

 

14,763

14,235

76,495

81,238

Filing Fees

 

1,396

486

20,417

18,556

Insurance

 

17,875

16,260

51,666

49,027

Bank charges and interest

 

40

(168)

57

276

Legal fees

 

8,830

9,715

44,327

29,732

Office and miscellaneous

 

16,446

11,541

56,462

44,799

Sales, marketing, and investor relations

 

4,315

5,319

15,993

27,892

Telephone

 

3,197

2,433

9,163

7,518

Transfer agent fees

 

2,444

1,046

7,000

3,055

Wages and management fees

 

107,856

91,393

391,037

290,736

 

 

 

 

 

 

Total Administrative Expenses

 

177,162

152,260

672,617

552,829

 

 

 

 

 

 

Operating Income (loss)

 

85,437

50,524

176,289

(218,086)

 

 

 

 

 

 

Foreign exchange gain (loss) and other income

 

1,622

1,815

(432)

8,885

Interest on long-term obligations

 

(14,785)

(16,522)

(46,572)

(50,611)

 

 

 

 

 

 

Total Other Expense

 

(13,163)

(14,707)

(47,004)

(41,726)

 

 

 

 

 

 

Net income (loss) for the period

 

$            72,274

$            35,817

$          129,285

$      (259,812)

 

 

 

 

 

 

Basic and diluted income (loss) per share

 

$                0.00

$                0.00

$                0.00

$            (0.01)

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

 

44,554,926

44,454,926

44,486,676

44,454,926

 

 

 

 

 

 

Diluted

 

48,893,996

44,454,926

48,530,747

44,454,926

 

 

 

 

 

 

 

 

 

 

 

 

SEE ACCOMPANYING NOTES





3






INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the nine months ended March, 2014 and 2013

(Stated in US Dollars)

(Unaudited)

 

 

Nine months ended

 

 

March 31,

 

 

2014

2013

 

 

 

 

Operating Activities

 

 

 

Net income (loss) for the year

 

$          129,285

$         (259,812)

Items not involving cash:

 

 

 

Depreciation - plant and equipment

 

236,826

230,416

Stock-based compensation - consulting

 

2,220

-

Stock-based compensation - wages

 

63,139

-

Changes in non-cash working capital balances related to operations:

 

 

 

Accounts receivable

 

19,825

(68,947)

Inventory

 

(112,482)

(153,313)

Prepaid expenses and deposits

 

53,372

6,165

Accounts payable and accrued liabilities

 

(157,984)

411,439

Deferred Revenue

 

100,000

-

 

 

 

 

Net cash provided by operating activities

 

334,201

165,948

 

 

 

 

Cash Flows provided by Financing Activities

 

 

 

Issuance of Common Shares

 

9,700

 

Issuance of Convertible Debentures

 

-

40,000

Repayment on long term debt

 

(44,504)

(81,776)

Decrease in obligations under capital lease

 

(51,366)

(44,153)

Net cash used in financing activities

 

(86,170)

(85,929)

 

 

 

 

Cash Flows used in Investing Activities

 

 

 

Acquisition of equipment

 

(96,078)

(57,290)

Net cash used in investing activities

 

(96,078)

(57,290)

 

 

 

 

Increase in cash and cash equivalents during the period

 

151,953

22,729

 

 

 

 

Cash and cash equivalents, beginning of the period

 

179,578

101,523

 

 

 

 

Cash and cash equivalents, end of the period

 

$          331,531

$          124,252

 

 

 

 

Supplemental Cash Flow Information

 

 

 

Cash paid for interest

 

$            46,572

$            50,611

 

 

 

 

Cash paid for income taxes

 

 

$                     -

 

 

 

 

SEE ACCOMPANYING NOTES




4






INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

for the period ended March 31, 2014

(Stated in US Dollars)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional

 

 

 

 

 

Issued

 

Amount

 

Paid-in

 

Accumulated

 

 

 

Shares

 

 

 

Capital

 

Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2012

44,454,926

 

15,463,675

 

1,579,555

 

(14,730,354)

 

2,312,876

Net loss for the year

-

 

-

 

-

 

(58,639)

 

(58,639)

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2013

44,454,926

 

15,463,675

 

1,579,555

 

(14,788,993)

 

2,254,237

Stock Based Compensation

-

 

-

 

65,359

 

-

 

65,359

Exercise of options

100,000

 

9,700

 

-

 

-

 

9,700

Fair value of stock options exercised

 

 

5,551

 

(5,551)

 

-

 

-

Net income for the period

-

 

-

 

-

 

129,285

 

129,285

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2014

44,554,926

 

15,478,926

 

1,639,363

 

(14,659,708)

 

2,458,581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SEE ACCOMPANYING NOTES






5



INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

(Stated in US Dollars)

(Unaudited)





Note 1

Basis of Presentation and Significant Accounting Policies


The accompanying unaudited condensed financial statements of International Barrier Technology Inc. (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of the Securities and Exchange Commission (“SEC”) Regulation S-X.  Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2013 included in the Annual Report on Form 10-K filed with the SEC on September 30, 2013.  The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company at March 31, 2014, and the consolidated results of operations for the three and nine months ended March 31, 2014 and the consolidated cash flows for the nine months ended March 31, 2014.  All intercompany accounts and transactions have been eliminated.  It should be understood that accounting measures at interim dates inherently involve greater reliance on estimates than at year end.  The results of operations for the three and nine months ended March 31, 2014 are not necessarily indicative of the results to be expected for the full year or any future interim periods.


Earnings per Share


Basic and diluted earnings per share (“EPS”) is computed using the weighted-average number of common shares outstanding during the period.  Basic EPS is calculated by dividing the net income or loss by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents.  Diluted EPS is computed by dividing the net income or loss by the weighted-average number of common shares, plus the dilutive effect of common stock equivalents outstanding for the period.


The treasury stock method is used in calculating diluted EPS for potentially dilutive stock options which assumes that any proceeds received from the exercise of in-the-money stock options would be used to purchase common shares at the average market price for the period.


EPS for convertible debt is calculated under the “if-converted” method.  Under the “if converted” method, EPS is calculated as the more dilutive of EPS (i) including all interest (both cash interest and non-cash discount amortization) and excluding all shares underlying the convertible debt or; (ii) excluding all interest (both cash interest and non-cash discount amortization) and including all shares underlying the convertible debt.  


Potentially dilutive securities have been excluded for the calculation of diluted net income per common share for the three and nine months ended March 31, 2014 and the three months ended March 31, 2013; along with being excluded for the calculation of the diluted net loss per common share for the nine months ended March 31, 2013 because the inclusion of such securities would be anti-dilutive.  As of March 31, 2014, an aggregate of 6,730,000 potentially dilutive common shares, respectively, related to the outstanding stock options and convertible debentures were excluded from the diluted income/loss per share for the three months then ended.  





6



INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

(Stated in US Dollars)

(Unaudited)



Note 2

Fair Value Measurements


The book value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short term maturity of those instruments.  Based on borrowing rates currently available to the Company under similar terms, the book value of long term debt and capital lease obligations approximate their fair values. The fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:


Level 1-   quoted prices (unadjusted) in active markets for identical assets or liabilities;


Level 2 -  

observable inputs other than Level I, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and


Level 3 -

assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.


Certain of the Company’s cash equivalents, consisting of short-term term deposits, are based on Level 2 inputs in the ASC 820 fair value hierarchy.


The Company’s long-term debt is based on Level 2 inputs in the ASC 820 fair value hierarchy.  Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of the long-term debt is $327,422 (June 30, 2013:  $371,926).


The Company’s convertible debentures are based on Level 2 inputs in the ASC 820 fair value hierarchy.  The Company calculated the fair value of these instruments by discounting future cash flows using rates representative of current borrowing rates.  At March 31, 2014, the convertible debentures had a fair value of $638,136 (June 30, 2013:  $431,022).


The Company’s capital lease obligations are based on Level 2 inputs in the ASC 820 fair value hierarchy.  The fair value of the capital lease obligations is $154,849 (June 30, 2013:  $206,215).  


As at March 31, 2014, the Company has no assets or liabilities that have fair values measured using Level 3 inputs.



Note 3

Inventory


 

 

 

 

 

 March 31, 2014

 

 June 30, 2013

 

 

 

 

Raw materials

$          354,789

 

$        320,338

Finished goods

168,593

 

90,562

 

 

 

 

Total inventory

$          523,382

 

$        410,900

 

 

 

 




7



INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

(Stated in US Dollars)

(Unaudited)



Note 4

Long-term Debt


 

 March 31, 2014

 

 June 30, 2013

 

 

 

 

Term bank loan facility in the amount of $450,000 bearing interest at 6.25% and collateralized by a security interest in inventory, accounts receivable, equipment and all intangibles of the Company as well as an assignment of the building lease. The facility is being amortized over 4 years with fixed monthly blended payments of principal and interest totaling $6,800 with a balloon payment due on January 1, 2016

$              327,422

 

$             371,926

 

 

 

 

Long-term debt

327,422

 

371,926

Less: current portion

(62,645)

 

(59,752)

 

 

 

 

Long-term debt, net

$               264,777

 

$              312,174


The Company had a $100,000 revolving credit facility which matured on March 1, 2014.  Subsequent to March 31, 2014, this facility was renewed with terms that included a maximum amount that can be drawn of $100,000, an interest rate of 6.25% per annum and a maturity date of May 1, 2015. The Company has not drawn any funds on this facility.    



Note 5  

Convertible Debt


During the year ended June 30, 2012, the Company approved the issuance of two convertible debentures to a director and a company controlled by a director in the amount of $300,000.  The debentures are being issued in tranches from $10,000-$50,000 and as at March 31, 2014 the Company had received $240,000 (2013:  $240,000) in respect of these debentures.  The debentures bear interest at 12% per annum, payable quarterly, and are collateralized by a third charge over the Company’s plant and equipment as well as a charge against the Company’s patents.  At any time, the notes are convertible into units of the Company at a price of $0.10 per unit.  Each unit will consist of one common share and one common share purchase warrant entitling the holder the right to purchase one additional share for $0.10 for a period of two years from the conversion date. During the nine month period ended March 31, 2014, the Company incurred interest charges of $21,600 (2013:  $19,972) on these convertible debentures.


Note 6  

Common Stock


Escrow:


At March 31, 2014, there are 48,922 (2013 – 48,922) common shares held in escrow by the Company’s transfer agent, the release which is subject to the approval of the regulatory authorities. As at March 31, 2014 and June 30, 2013, all of these shares held in escrow are issuable but the Company has yet to request their release.  


Commitments:


Stock-based Compensation Plan


At March 31, 2014, the Company has outstanding options that were granted to directors, officers, and consultants to purchase 4,330,000 common shares of the Company.



8



INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

(Stated in US Dollars)

(Unaudited)




A summary of the status of the Company’s share purchase option plan for the nine months ended March 31, 2014 is presented below:


 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

Number of

 

Exercise

 

 

 

 

Shares

 

Price

 

 

 

 

 

 

 

Outstanding, June 30, 2013

 

 

 

3,252,500

 

$         0.100

Granted

 

 

 

1,177,500

 

$         0.097

Exercised

 

 

 

(100,000)

 

$         0.097

 

 

 

 

 

 

 

Outstanding March 31, 2014

 

 

 

4,330,000

 

$         0.099

 

 

 

 

 

 

 

Exercisable March 31, 2014

 

 

 

4,330,000

 

$         0.099

 

 

 

 

 

 

 

Exercisable, June 30, 2013

 

 

 

3,252,500

 

$         0.100

 

 

 

 

 

 

 


The following summarizes information about the stock options outstanding at March 31, 2014:


Number

 

Exercise

 

 

 

Remaining

 

 

 

Price

 

Expiry Date

 

Contractual Life

 

 

 

 

 

 

 

 

 

3,252,500

 

$0.10

 

May 15, 2015

 

1.12 years

1,077,500

 

$0.097

 

August 2, 2016

 

2.34 years

4,330,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


During the nine month period ended March 31, 2014, the Company granted 1,177,500 fully vested share purchase options having a fair value of $65,359.  The fair value of options was calculated using the Black-Scholes option pricing model using the following weighted average assumptions:  stock price - $0.058; exercise price - $0.097; expected life – 3.0 yrs; volatility – 246.16%; risk free discount rate – 0.59%; dividend rate 0.00%.


Stock-based compensation amounts for the nine month period ended March 31, 2014 are classified in the Company’s Statement of Operations as follows:


 

2014

 

2013

 

 

 

 

Wages and management fees

$        63,139

 

$             -

Consulting

2,220

 

-

 

 

 

 

Total stock-based compensation

$        65,359

 

$             -







9



INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

(Stated in US Dollars)

(Unaudited)




Note 7

Segmented Information and Sales Concentration


The Company operates in one industry segment being the manufacturing and marketing of fire resistant building materials. Substantially all of the Company’s revenues and long-term assets are located in the United States.


During the three and nine months ended March 31, 2014, two customers accounted for 99% of total sales revenue:


 

 

 

 

 

 

 

Three months ended

Nine months ended

 

 

March 31,

March 31,

 

 

 

 

 

 

 

 

2014

2013

 

2014

2013

 

 

 

 

 

 

Customer #1

70%

74%

 

72%

71%

Customer #2

30%

26%

 

27%

29%



The accounts receivable from each of these customers at March 31, 2014 were $126,742 and $32,352, respectively (2013:  $160,615 and $22,410, respectively).


The loss of either of these customers or the curtailment of purchases by such customers could have material adverse effects on the Company’s financial condition and results of operations.




















10





ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

                 CONDITION AND RESULTS OF OPERATIONS


This Quarterly Report on Form 10-Q contains forward-looking statements.  These statements may be identified by the use of words like “plan”, “expect”, “aim”, “believe”, “project”, “anticipate”, “intend”, “estimate”, “will”, “should”, “could” and similar expressions in connection with any discussion, expectation, or projection of future operating or financial performance, events or trends.  In particular, these include statements about the Company’s strategy for growth, marketing expectations, product prices, future performance or results of current or anticipated product sales, interest rates, foreign exchange rates, and the outcome of contingencies, such as potential joint ventures and/or legal proceedings.


Forward-looking statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties.  Actual future results and trends may differ materially from historical results or those projected in any such forward-looking statements depending on a variety of factors, including, among other things, the factors discussed in this Quarterly Report and factors described in documents that we may furnish from time to time to the Securities and Exchange Commission.  We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise.


Description of Business

International Barrier Technology Inc. (Barrier) manufactures and sells fire-rated building materials. Barrier’s primary business is in the United States but through developing distribution partnerships is endeavoring to enter building products markets in Australia, Europe, and South America. Barrier possesses a proprietary fire resistive material technology (Pyrotite®) and a patented manufacturing process that when applied to building materials their respective fire resistant properties are significantly enhanced.  Many of the top multifamily and wood frame commercial builders in the United States utilize Barrier’s fire-rated structural panels in areas where the building code requires the use of a fire-rated building panel.


Barrier manufactures a private label fire rated sheathing product under contract for both LP® Building Products, Inc. (LP) and MuleHide Products, Inc. (MuleHide).  LP has been marketing a fire rated OSB trademarked LP® Flameblock® Fire-Rated OSB Sheathing (LP FlameBlock) since 2010 and MuleHide has been selling MuleHide FR Deck Panel (FR Deck Panel) to commercial modular building manufacturers since 2004.


Barrier’s financial statements are filed with both the SEC (USA) and SEDAR (Canada) and are disclosed in US dollars utilizing US generally accepted accounting principles.  Barrier’s filings with the SEC consist of quarterly reviews financial statements on Form 10-Q and annual audited financial statements on Form 10-K.  Barrier continues to file the above financial statements with SEDAR in Canada.


Sales revenue for the quarter ending March 31, 2014 was relatively flat to $1,700,170 in comparison to $1,695,166 generated in the same quarterly period in 2013. Year-to-date sales increased 50.6% to $5,375,960 vs. $3,569,263 last year.  


Total sales volume for the three moth period ending March 31, 2014, as measured by surface volume of product shipped, was 4,169,200 sq. ft.  This is a 15% increase from the 3,624,700 sq. ft. shipped during the same period in the previous year.  Sales for the nine months ending March 31, 2014 (fiscal year-to-date) are up 62% to 13,101,000 sq. ft. vs. 8,082,200 sq. ft. in the same period in 2013.  


Shipments into the Residential Roof Deck, Wall Assembly, and Structural Insulated Panel Market Sectors (LP FlameBlock) increased 7% year-over-year during the three month period and 65% during the nine month period


Sales into the Commercial Modular Market (FR Deck Panel) increased 38% in comparison to the previous year quarterly period and 54% year-to-date.  


Barrier and LP conduct business guided by a Supply Agreement that had a term ending on December 31, 2013.  The Agreement contains a provision to extend the term annually, upon mutual agreement of both parties.  As 2013 came to a close, it was clear that further discussions were warranted to determine how best to strategize future production capacity expansion plans in the US while protecting LP Corporation and Barrier’s respective business interests.







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While Supply Agreement modifications are being discussed, relative to the inherent changes required for future possible expansion, Barrier and LP have agreed to execute short term (30 – 90 day) extensions of the existing Agreement, as needed, to enable purposeful discussions to continue long enough to insure both parties interests have been discussed and accommodated as best possible.


The relationship with LP has increased sales volume to historical levels and Barrier anticipates that sales will continue to grow substantially through the efforts of LP’s sales and marketing team.  Reported sales revenue for LP products, include only the charges for treatment services, not the underlying OSB substrate or outbound freight as LP supplies its own OSB substrate and contracts for its own outgoing freight.  


The “pass through” of the OSB substrate and freight serves to lower reported “top line” sales revenue, but not gross profits since margins on substrate and freight have historically been restricted to handling costs only to help keep prices competitive.  For the Commercial Modular market (MuleHide Products), Barrier purchases OSB from local distributors and invoices the cost of the substrate and outgoing freight to the customer, therefore the cost of the substrate and freight is included in revenue for Commercial Modular shipments.


Cost of sales in the three month period decreased slightly to $1,437,571 from $1,492,382 and increased from $3,234,520 to $4,527,054 for the nine month period.  The increase in the nine month period is in direct relation to the increase in volume produced.  Barrier captured significant gains in manufacturing efficiency as reflected in both the three and nine month average cost per sq.ft. of production which decreased from $0.41 and $0.40 (three and nine month periods in 2013) to $0.34 and $0.35 for the current periods ending March 31, 2014.


R&D activity continues to focus on improving existing 1 and 2-hr certified wall assemblies but has expanded into activity targeted on the exploration of developing fire-rated engineered wood products (EWP), including I-joist and Rimboard.  With the expanded use of EWP in building applications as an alternative to solid sawn lumber, the importance of evaluating their performance during a fire has escalated tremendously.  Efforts to develop fire-rated EWP is at an early stage, however, largely because building code requirements and the acceptance criteria for evaluating performance and suitability are still being developed.  Barrier feels there is great opportunity here, and will continue to pursue techniques to fire treat EWP with our Pyrotite® Technology as the year progresses.


Depreciation on plant and equipment is included in cost of sales category. Depreciation, which has non-cash impact on Barrier’s actual cash flow, increased slightly to $236,826 in the first nine months of Fiscal 2014 from $230,416.  The expense reflects scheduled depreciation of manufacturing line equipment and building improvements.  


Gross profit for the quarter ended March 31, 2014 was $262,599 vs. $202,784 in the prior year quarter and $848,906 for the fiscal year-to-date period vs. $334,743 in 2013.


Gross margin, as a percentage of sales revenue, increased to 15% from 12% for the quarterly period and increased to 16% from 9% for the year-to-date period.  Substantial improvements in gross margin were captured with gains in manufacturing efficiencies provided by improved production technology and efficiencies created by steady and increased sales volumes. Overhead costs are spread across a larger manufacturing/sales volume base.  Barrier is intently focused on continued strong gross margins.


Administrative expenses in the reported three and nine month period increased from $152,260 and $552,829 to $177,162 and $672,617.  The administrative costs per sq. ft. remained consistent quarterly (at $0.04) and decreased year-to-date (from $0.07 to $0.05). The positive impact of increased sales volume reducing administrative cost per square foot shipped was captured during this reporting period. As volumes continue to increase, the trend for overall reduction in the average cost of administrative expense per sq.ft. is expected to continue.


Accounting and Audit Fees increased slightly in the quarter ending March 31, 2104 vs. the same time period last year ($14,763 vs. $14,235) and decreased year-to-date ($76,495 vs. $81,238).  A significant portion of the cost for accounting services is involved with the year-end audited review and publishing of Barrier’s annual financials.  


Insurance costs have remained stable at $17,875 vs. $16,260 for the quarter and $51,666 vs. $49,027 for the nine-month period.  




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Legal fees for the quarterly period decreased to $8,830 and increased to $44,327 for the nine months ending March 31, 2014.  For the same periods in the prior year, legal fees were $9,715 and $29,732 respectively.  Legal fees were expended on activities in support of developing strategic partners and technology licensees as well as in monitoring and protecting Trademarks.


Barrier has two US patents, a patent in Australia, and a patent in Canada. These patents protect the manufacturing and process technology utilized in the production of fire-rated sheathing products utilizing Pyrotite®.


Sales, marketing, and investor relations expenses decreased from $5,319 to $4,315 during the quarter and from $27,892 to $15,993 year-to-date. During the period, there were sales trips directly related to the expansion of product markets.


Barrier’s cost for sales and marketing will continue to decline relative to sales volume as our partners, LP and MuleHide Products, continue to perform more and more of those functions themselves. Barrier remains active in a support role by providing necessary technical sales support but more and more of the day to day market and sales development activities are performed by the capable sales and marketing staff of LP and MuleHide Products resulting in improved sales but also lower costs for Barrier.


Operating income of $85,437 is being reported for the quarter ending March 31, 2014, whereas in the same period in 2013, a net income of $50,524 was reported. An operating income of $176,289 is reported for the year-to-date period vs. a loss of $218,086 in the comparable year-to-date period in 2013.


Other items include income and costs not directly related to business operations.  Other income items reported during the quarterly period herein includes a foreign exchange gain and interest income of $1,622.  To compare, for the same reporting period last year there was a foreign exchange/interest income gain of $1,815.  Year-to-date, the foreign exchange/interest income loss was $432 vs. a gain of $8,885 in the prior year.

  

Interest on Long Term Debt was $14,785 vs. $16,522 for the quarterly reporting period and decreased from $50,611 to $46,572 year-to-date.


Net Income  A net income of $72,274 is being reported for the quarter ending March 31, 2014, whereas in the same period in the prior year, net income of $35,817 was reported. For the nine months ending March 31, 2014, net income is $129,285 vs. a net loss of $259,812 in the prior year.


Barrier remains focused on cutting costs and improving efficiencies wherever it can.  This includes operating the manufacturing line with maximum efficiency. Keeping a vigilant handle on costs will help keep operational costs as low as possible and enable financial improvements to continue and at lower volumes than previously possible.


Summary of Quarterly Results.  The following is a summary of the Company’s financial results for the nine most recently completed quarters:


 

Mar 31 2014

Dec 31 2013

Sept 30 2013

Jun 30 2013

Mar 31 2013

Dec 31 2012

Sept 30 2012

June 30 2012

Mar 31 2012

Volume shipped (MSF)

4,169

3,371

5,561

5,162

3,625

2,506

1,951

2,531

2,619

Total Revenues (000)

$1,700

$1,394

$2,282

$2,426

$1,695

$977

$897

$1,029

$1,023

Operating Income(loss) (000)

$85

($29)

$120

$218

$50

($125)

($143)

($270)

($103)

Net income (loss) (000)

$72

($45)

$102

$201

$36

($135)

($161)

($291)

($65)

EPS (Loss) Per Share

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00


Selected Annual Information


The following financial data is for the three most recent years ended June 30:

2013

2012

2011

Total Revenue

$5,995.0

$4,144.8

$3,256.0

Net income (loss)

(58.6)

$(139.7)

$895.8

Per share

0.00

$0.00

$0.02

Per share, fully diluted

0.00

$0.00

$0.02

Total assets

3,921.9

$3,708.0

$4,002.2

Total long-term financial liabilities

818.1

$900.0

$705.9

Cash dividends declared per share

Nil

$Nil

$Nil



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New product and market development


Barrier continues to provide support to LP for new product and market development in activity directed specifically toward applications in areas where wildfires are prevalent. Wildland/ Urban Interface (WUI) zones, which are primarily located in the western US, are areas where special building codes have been developed to help save homes if a brush fire should occur. Becoming certified for use in these applications requires additional product development, including fire testing specific and unique to these fire hazard zones. In addition to these WUI applications, which are primarily associated with limiting the ignition of the exterior of the building, Barrier and LP are cooperating on the development of new, more cost effective, designs of 1 and 2 hour exterior wall systems designed to be used when houses are built in close proximity all over the US.


Barrier and LP have now successfully designed, tested, and UL certified a 2-hr exterior load bearing wall being currently being used in wood-frame commercial/residential buildings of Type III construction. As more architects and specifying engineers become aware of this new design Barrier and LP are confident that considerable sales will result for these projects.


Global licensing opportunities

Barrier continues to explore manufacturing and distribution opportunities for Pyrotite® technology in geographies outside of the US.  During the reporting period, Barrier announced a licensing agreement for the manufacture and distribution of Pyrotite® products in the European Union and Russia.  Barrier will provide technical assistance in the design of the first manufacturing line, the transfer of production process technology, and material acquisition criteria.  The license agreement provides for the payment to Barrier by the Licensee of a minimum annual royalty during the term of the agreement with an advance royalty payment on execution.  The agreement contemplates the Licensee developing additional production facilities over the term of the license and making additional royalty payments to Barrier based on these plants production.  The license agreement follows standard licensing protocol, which allows for the audit of manufacturing process and financial revenue information.  


The selection of Pyrotite® technology by the licensor after extensive research and testing of several other fire-resistant technologies adds additional credibility to our Pyrotite® technology and could lead to potential interest in other geographies.


Financial position & financings


Barrier ended the period with a working capital surplus (current assets less current liabilities) of $131,978.  Positive operating cash flow for the period ended March 31, 2014 was $334,201 in comparison to $165,948 for the comparable period ended March 31, 2013.


Barrier has a short term revolving line of credit ($100,000) at the local Farmers State Bank of Watkins, in Watkins, Minnesota.  As of March 1, 2014 the balance owing on the revolving line of credit was $0 and the note matured.  On May 7, 2014 the revolving line of credit was reissued leaving an additional $100,000 available for to be drawn until May 1, 2015.  In addition, two convertible debentures in the amount of $150,000 each were established in December 2011.  To date, $240,000 has been used on these debentures with an additional $60,000 available for cash flow if needed.


Investing activities resulted in net cash outflow of $96,078 the current period in comparison to a net cash outflow of $57,290 in the prior year.  The cash outflow was the result of the acquisition of plant and equipment capital improvements.


Financing activities resulted in net cash outflow of $86,170 in the current period compared to a net cash outflow of $85,929 for the same period last year.  The cash outflow resulted from the repayments on long-term debt and obligations under capital lease.  

 

There is no assurance that Barrier will operate profitably or will generate positive cash flow in the future. In addition, Barrier’s operating results in the future may be subject to significant fluctuations due to many factors not within our control, such as the unpredictability of when customers will order products, the size of customers' orders, the demand for our products, the level of competition or general economic conditions.



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Current and Future Financing Needs

At March 31, 2014, the current cash and cash equivalents totaled $331,531 and an additional $60,000 available from the convertible debentures.  At May 7, 2014 there was $100,000 in available fund to draw on the revolving credit facility.  Management believes that the current resources available together with the cash it expects to generate from operations will be sufficient to meet its future cash requirements.    


The Company bases its estimate of future cash requirements on assumptions that may prove to be wrong and the requirements for cash are subject to factors, some of which are not within the control of the Company, including:


·

Increased costs of general and administrative expenses

·

Increased costs of raw materials and freight

·

Costs associated with the research and development activities

·

Costs associated with maintaining property, plant and equipment and intellectual property


Related Party Transactions

During the year ended June 30, 2012, the Company approved the issuance of two convertible debentures to a director and a company controlled by a director in the amount of $300,000.  The debentures are being issued in tranches from $10,000 - $50,000 and as at March 31, 2014 the Company had received $240,000 (2013:  $240,000) in respect of these debentures.  The debentures bear interest at 12% per annum, payable quarterly, and are collateralized by a third charge over the Company’s plant and equipment as well as a charge against the Company’s patents.  At any time, the notes are convertible into units of the Company at a price of $0.10 per unit.  Each unit will consist of one common share and one common share purchase warrant entitling the holder the right to purchase one additional share for $0.10 for a period of two years from the conversion date.  During the nine month period ended March 31, 2014, the Company incurred interest charges of $21,600 (2013:  $19,972) on these convertible debentures.


Capitalization

Authorized:  100,000,000 common shares without par value.


Issued as of June 30, 2013:  44,454,926 common shares at $15,463,675

Issued as of May 14, 2014:  44,554,926 common shares at $15,478,926


Options outstanding:


The following summarizes information about the stock options outstanding at March 31, 2014:


 

Exercise

 

Number

Price

Expiry Date

 

 

 

3,252,500

$0.10

May 15, 2015

1,077,500

$0.097

August 2, 2016

4,330,000

 

 


Other Matters

As at March 31, 2014 the Company did not have any off-balance sheet arrangements to report.




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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         No Disclosure Necessary



ITEM 4.  CONTROLS AND PROCEDURES


a.  Evaluation of Disclosure Controls and Procedures

As required by Rule 13(a)-15 under the Exchange Act, in connection with this interim report on Form 10-Q, under the direction of the Chief Executive Officer, the Company has evaluated its disclosure controls and procedures as of March 31, 2014 and has concluded the disclosure controls and procedures were ineffective.  As of the date of this filing, the Company is still in the process of remediating such material weaknesses in its internal controls and procedures.


b.  Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.




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PART II

OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

The Directors and the management of the Company know of no material, active or pending, legal proceedings against them; nor is the Company involved as a plaintiff in any material proceeding or pending litigation.  The Directors and the management of the Company know of no active or pending proceedings against anyone that might materially adversely affect an interest of the Company.


ITEM 1A.  RISK FACTORS

There have been no material changes to the risk factors identified in the Annual Report on Form 10-K for the year ended June 30, 2013, in response to Item 1A, Risk Factors, to Part I of the Annual Report.


ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         a.  No Disclosure Necessary

         b.  No Disclosure Necessary

         c.  No Disclosure Necessary


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         No Disclosure Necessary


ITEM 4.  MINE SAFETY DISCLOSURES

         No Disclosure Necessary


ITEM 5.  OTHER INFORMATION

      a. Reports on Form 8-K:

          No Disclosure Necessary

      b. Information required by Item 407(C)(3) of Regulation S-K:

          No Disclosure Necessary


ITEM 6.  EXHIBITS


Exhibit 31.1:  Certification required by Rule 13a-14(a) or Rule 15d-14(a) Certification executed by Michael Huddy, President/CEO/Director


Exhibit 31.2:  Certification required by Rule 13a-14(a) or Rule 15d-14(a) Certification executed by Melissa McElwee, CFO


Exhibit 32.1:  Certification Required by Rule 13a-14(b) or Rule 15d-14(b) and section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 Certification executed by Michael Huddy, President/CEO/Director


Exhibit 32.2:  Certification Required by Rule 13a-14(b) or Rule 15d-14(b) and section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350  Certification executed by Melissa McElwee, CFO


101.INS(1):      XBRL Instance Document

101.SCH(1):     XBRL Taxonomy Extension Schema Document

101.CAL(1):     XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF(1):     XBRL Taxonomy Extension Definition Linkbase Document

101.LAB(1):     XBRL Taxonomy Extension Label Linkbase Document

101.PRE(1):      XBRL Taxonomy Extension Presentation Linkbase Document


(1) Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.




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SIGNATURE PAGE



Pursuant to the requirements of Section 12g of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 10-Q and has duly caused this Interim Report to be signed on its behalf by the undersigned, thereunto duly authorized.


International Barrier Technology Inc. --– SEC File #000-20412

Registrant



Dated: May 14, 2014

By: /s/ Michael Huddy

 

Michael Huddy, President/CEO/Director

 

 

Dated: May 14, 2014

By: /s/ Melissa McElwee

 

Melissa McElwee, CFO







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