10-Q 1 ibt10qfeb1115v3.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 December 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 02/13/2015: 44,554,926 Common Shares w/o par value







1






Part 1 – Financial Information


Item 1.  Financial Statements


INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2014 and June 30, 2014

(Stated in US Dollars)

(Unaudited)

 

 

 

 

 

 

December 31,

June 30,

 

 

2014

2014

 

 

 

(audited)

ASSETS

 

 

 

Current

 

 

 

Cash and cash equivalents

 

$                   767,350

$            708,926

Accounts receivable

 

3,662

235,714

Inventory - Note 3

 

638,712

448,490

Prepaid expenses and deposits

 

81,796

46,655

Total Current Assets

 

1,491,520

1,439,785

Property, plant and equipment

 

3,044,671

2,877,530

Total Assets

 

$                4,536,191

$         4,317,315

 

 

 

 

LIABILITIES

 

 

 

Current

 

 

 

Accounts payable and accrued liabilities

 

$                   549,256

$            714,994

Current portion of long term debt - Note 4

 

65,700

63,650

Obligation under capital leases

 

83,560

75,494

Total Current Liabilities

 

698,516

854,138

Long-term debt - Note 4

 

215,064

248,460

Convertible debentures - Note 5

 

240,000

240,000

Obligation under capital leases

 

47,186

59,473

 

 

 

 

Total Liabilities

 

1,200,766

1,402,071

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

Common Stock - Note 6

 

 

 

Authorized:

 

 

 

100,000,000 common shares without par value

 

 

 

Issued:

 

 

 

44,554,926 common shares (June 30, 2014:  44,554,926)

 

15,478,926

15,478,926

Additional paid-in capital

 

1,639,363

1,639,363

Accumulated deficit

 

(13,782,864)

(14,203,045)

 

 

 

 

Total Stockholders' Equity

 

3,335,425

2,915,244

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$                4,536,191

$         4,317,315

 

 

 

 

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 six months ended December 31, 2014 and 2013

(Stated in US Dollars)

(Unaudited)

 

 

 

 

 

 

 

 

Three months ended

Six months ended

 

 

December 31,

December 31,

 

 

2014

2013

2014

2013

 

 

 

 

 

 

Sales - Note 8

 

$      1,836,032

$        1,393,637

$       4,308,410

$      3,675,790

 

 

 

 

 

 

Cost of Sales

 

1,490,405

1,228,941

3,398,251

3,089,483

 

 

 

 

Gross Profit

 

345,627

164,696

910,159

586,307

 

 

 

 

 

 

Expenses

 

 

 

 

 

Accounting and audit fees

 

10,040

14,566

56,899

61,732

Filing Fees

 

14,371

13,630

18,002

19,021

Insurance

 

19,062

15,375

40,969

33,791

Bank charges and interest

 

32

-

72

17

Legal fees

 

32,098

6,510

51,341

35,497

Office and miscellaneous

 

22,235

17,344

42,928

40,016

Sales, marketing, and investor relations

 

9,556

4,413

21,610

11,678

Telephone

 

3,148

3,050

6,518

5,966

Transfer agent fees

 

1,194

3,519

2,597

4,556

Wages and management fees

 

114,711

115,129

220,965

283,181

 

 

 

 

 

 

Total Administrative Expenses

 

226,447

193,536

461,901

495,455

 

 

 

 

 

 

Operating Income (loss)

 

119,180

(28,840)

448,258

90,852

 

 

 

 

 

 

Foreign exchange gain (loss) and other income

 

346

174

653

(2,054)

Interest on long-term obligations

 

(14,758)

(15,943)

(28,730)

(31,787)

 

 

 

 

 

 

Total Other Expense

 

(14,412)

(15,769)

(28,077)

(33,841)

 

 

 

 

 

 

Net income (loss) for the period

 

$          104,768

$          (44,609)

$          420,181

$            57,011

 

 

 

 

 

 

Basic and diluted income (loss) per share

 

$                0.00

$              (0.00)

$                0.01

$                 0.00

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

44,554,926

44,454,926

44,554,926

44,454,926

 

 

 

 

 

 

Diluted

 

47,910,641

44,454,926

47,783,658

45,804,219


See accompanying notes.




3








INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the six months ended December 31, 2014 and 2013

(Stated in US Dollars)

(Unaudited)

 

 

Six months ended

 

 

December 31,

 

 

2014

2013

 

 

 

 

Operating Activities

 

 

 

Net income for the period

 

$                 420,181

$                   57,011

Items not involving cash:

 

 

 

Depreciation - plant and equipment

 

165,855

157,633

Stock-based compensation - consulting

 

-

2,220

Stock-based compensation - wages

 

-

63,139

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

 

 

 

Accounts receivable

 

232,052

(6,758)

Inventory

 

(190,222)

(62,773)

Prepaid expenses and deposits

 

(35,141)

55,798

Accounts payable and accrued liabilities

 

(165,738)

(215,561)

Deferred Revenue

 

-

50,000

 

 

 

 

Net cash provided by operating activities

 

426,987

100,709

 

 

 

 

Cash Flows used in Financing Activities

 

 

 

Repayment on long term debt

 

(31,346)

(29,439)

Repayment of obligations under capital lease

 

(37,744)

(35,107)

Net cash used in financing activities

 

(69,090)

(64,546)

 

 

 

 

Cash Flows used in Investing Activities

 

 

 

Acquisition of equipment

 

(299,473)

(88,020)

Net cash used in investing activities

 

(299,473)

(88,020)

 

 

 

 

Increase (decrease) in cash and cash equivalents during the period

 

58,424

(51,857)

 

 

 

 

Cash and cash equivalents, beginning of the period

 

708,926

179,578

 

 

 

 

Cash and cash equivalents, end of the period

 

$                 767,350

$                 127,721

 

 

 

 

Supplemental Cash Flow Information

 

 

 

Cash paid for interest

 

$                   28,730

$                   31,787

 

 

 

 

Cash paid for income taxes

 

$                        800

$                     1,300


Supplemental Cash Flow Information – Note 7


See accompanying notes.




4







INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

for the period ended December 31, 2014

(Stated in US Dollars)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

Additional

 

 

 

 

 

Issued

 

Amount

 

Paid-in

 

Accumulated

 

 

 

Shares

 

 

 

Capital

 

Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

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

-

 

-

 

-

 

585,948

 

585,948

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2014

44,554,926

 

15,478,926

 

1,639,363

 

(14,203,045)

 

2,915,244

Net Income for the period

-

 

-

 

-

 

420,181

 

420,181

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2014

44,554,926

 

$ 15,478,926

 

$      1,639,363

 

$(13,782,864)

 

$  3,335,425








See accompanying notes.





5



INTERNATIONAL BARRIER TECHNOLOGY INC.

Notes to the Condensed Consolidated Interim Financial Statements

December 31, 2014

(Stated in US Dollars)

(Unaudited)



Note 1

Basis of Presentation


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, 2014 included in the Annual Report on Form 10-K filed with the SEC on September 29, 2014.  The unaudited condensed consolidated interim 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 December 31, 2014, and the consolidated results of operations and cash flows for the three and six months ended December 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 six months ended December 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.  





6



INTERNATIONAL BARRIER TECHNOLOGY INC.

Notes to the Condensed Consolidated Interim Financial Statements

December 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 $280,764 (June 30, 2014:  $312,110).


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 December 31, 2014, the convertible debentures had a fair value of $1,109,706 (June 30, 2014:  $779,196).


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 $130,746 (June 30, 2014:  $134,967).  


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



Note 3

Inventory


 

 December 31, 2014

 

 June 30, 2014

 

 

 

 

Raw materials

$            359,117

 

$          365,414

Finished goods

279,595

 

83,076

 

 

 

 

 

$            638,712

 

$          448,490






7



INTERNATIONAL BARRIER TECHNOLOGY INC.

Notes to the Condensed Consolidated Interim Financial Statements

December 31, 2014

(Stated in US Dollars)

(Unaudited)



Note 4

Long-term Debt



 

 December 31, 2014

 

 June 30, 2014

 

 

 

 

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

280,764

 

312,110

 

 

 

 

 

280,764

 

312,110

Less: current portion

(65,700)

 

(63,650)

 

 

 

 

 

$                      215,064

 

$                   248,460


The Company has a $200,000 revolving credit facility with terms that include an interest rate of 6.25% per annum and a maturity date of June 13, 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 December 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 six month period ended December 31, 2014, the Company incurred interest charges of $14,400 (2013:  $14,400) on these convertible debentures.



8



INTERNATIONAL BARRIER TECHNOLOGY INC.

Notes to the Condensed Consolidated Interim Financial Statements

December 31, 2014

(Stated in US Dollars)

(Unaudited)



Note 6  

Common Stock


Escrow:


At December 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 December 31, 2014 and June 30, 2014, all of these shares held in escrow are issuable but the Company has yet to request their release.  


Commitments:


Stock-based Compensation Plan


At December 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.


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


 

 

 

 

Weighted

 

 

 

 

Average

 

 

Number of

 

Exercise

 

 

Shares

 

Price

 

 

 

 

 

Outstanding, June 30, 2014

 

4,330,000

 

$          0.099

 

 

 

 

 

Outstanding, December 31, 2014

 

4,330,000

 

$          0.099

 

 

 

 

 

Exercisable, December 31, 2014

 

4,330,000

 

$          0.099

 

 

 

 

 

Exercisable, June 30, 2014

 

4,330,000

 

$          0.099


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


Number

 

Exercise

 

 

 

Remaining

 

 

Price

 

Expiry Date

 

Contractual Life

 

 

 

 

 

 

 

3,252,500

 

$0.10

 

May 15, 2015

 

0.37 years

1,077,500

 

$0.097

 

August 2, 2016

 

1.59 years

4,330,000

 

 

 

 

 

 




9



INTERNATIONAL BARRIER TECHNOLOGY INC.

Notes to the Condensed Consolidated Interim Financial Statements

December 31, 2014

(Stated in US Dollars)

(Unaudited)



Note 6  

Common Stock – (cont’d)


Commitments – (cont’d)


Stock-based Compensation Plan – (cont’d)


During the six month period ended December 31, 2013, 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 six month period ended December 31, 2014 are classified in the Company’s Statement of Operations as follows:


 

December 31, 2014

 

December 31, 2013

 

 

 

 

Wages and Management Fees

$                          -

 

$                      63,139

Consulting

-

 

2,220

 

 

 

 

Total Stock Based Compensation

$                          -

 

$                      65,359


Note 7

Non Cash Transactions


Investing and financing activities that affect recognized assets or liabilities but that do not result in cash receipts or cash payments are excluded from the consolidated statements of cash flows.  During the six months ended December 31, 2014, the Company acquired equipment totaling $33,523 by way of a capital lease  


During the six months ended December 31, 2013, there were no non-cash investing and financing activities excluded from the condensed consolidated statement of cash flows.



Note 8

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 six months ended December 31, 2014, two customers accounted for 100% of total sales revenue:


 

Three  months ended

 

Six months ended

 

December 31, 2014

 

December 31, 2013

 

December 31, 2014

 

December 31, 2013

 

 

 

 

 

 

 

 

Customer #1

71%

 

72%

 

73%

 

74%

Customer #2

29%

 

28%

 

27%

 

26%


The accounts receivable from each of these customers at December 31, 2014 were $0 and $0, respectively (2013:  $99,447 and $84,289, 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 also has a license agreement with a major OSB producer in the European Union.  In addition, Barrier is working to develop distribution partnerships and manufacturing technology license agreements is successfully 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 reviewed 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 reported for the quarter ended December 31, 2014 was up 32% to $1,836,032 in comparison to $1,393,637 generated in the same comparable period in 2013. Year-to date sales increased 17% to $4,308,410 vs. $3,675,790.  Total sales volume, as measured by surface volume of product shipped, was 4,515,500 sq. ft. for the quarter.  This is a 34% increase from the 3,371,300 sq. ft. shipped during the same quarterly period last year.  Sales for the six months ending December 31, 2014 (fiscal year-to-date) are up 22% to 10,870,600 sq. ft. from 8,931,800 in the same period in 2013.


Shipments into the Residential Roof Deck, Wall Assembly, and Structural Insulated Panel Market Sectors (LP FlameBlock) during the quarter increased 29% over shipments in the comparable quarter last year and 19% during the six month period.  Sales into the Commercial Modular Market (FR Deck Panel) increased 48% in comparison to Q2 a year ago and 30% 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.


While Supply Agreement modifications are being discussed, relative to the inherent changes required for future possible expansion, Barrier and LP have agreed to continue operating with  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 as possible.



11





The relationship with LP has contributed to an increase in sales volume to record levels and Barrier anticipates that sales will continue to grow substantially through the sustained 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, 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.


Gross profit for the quarterly period ended December 31, 2014 was $345,627 vs. $164,696 in the previous year quarter and $910,159 for the fiscal year-to-date period (vs. $586,307 in 2013). The gross margin, as a percentage of sales revenue, increased to 19% from 12% for the quarterly period and increased to 21% from 16% for the year-to-date period.  In the near term, gross margins are anticipated to remain relatively flat or perhaps to improve slightly based on continued gains in production efficiency. Capacity limitations at the current manufacturing facility in Watkins Minnesota, however, are being approached and further non-marginal improvement in scale efficiency will be delayed until additional production capacity is added. The development of additional manufacturing capability is anticipated by late 2015/early 2016.


Cost of sales in the three and six month periods increased to $1,490,405 and $3,398,251 from $1,228,941 and $3,089,483, respectively in the prior year comparable periods.  The increases are attributable to the increase in volume produced.  Barrier created gains in manufacturing efficiency as reflected in the three and six month average cost per sq. ft. of production which decreased from $0.36 to $0.33 for the quarter and from $0.35 to $0.31 for the six months.


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 from $157,633 to $165,855 in the first six months of 2014.  The expense reflects scheduled depreciation of the newer manufacturing line equipment and building expansion.  


Administrative expenses for the quarter ended December 31, 2014 increased to $226,444 from $193,536 and decreased during the six month period to $461,901 from $495,455.  The administrative costs per sq. ft. decreased quarterly (from $0.06 to $0.05) and year-to-date (from $0.06 to $0.04).  The positive impact of increased sales volume reducing administrative cost per square foot shipped was captured during this reporting period.


Accounting and Audit Fees decreased to $10,040 from $14,566 for the quarterly period and decreased to $56,899 from $61,732 year-to-date.  A significant portion of the cost for accounting services are related to the year-end and audited review and publishing of Barrier’s annual financials.  


Insurance costs have increased for the quarter and the fiscal year-to-date periods (to $19,062 from $15,375 in the quarter and $40,969 from $33,791 year-to-date).  The difference is due to annually adjusted premiums based on larger sales volume.


Legal fees increased from $6,510 in Q2 2014 to $32,098 in Q2 2015 and from $35,497 to $51,341 for the six month period.  Legal fees the past two years were expended on activities in support of developing strategic partners and technology licensees, the year-end Annual General Meeting, as well as in monitoring and protecting Pyrotite® patents and trademarks.  Additional costs were incurred during the period as Barrier applied for and received a provisional patent from the US Patent Office for the process of treating I-Joists with Pyrotite®


Barrier has four issued patents, two in the US, 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 increased from $4,413 to $9,556 for the current quarter and from $11,678 to $21,610 for the six month reporting period. During the reporting period, there were sales trips directly related to the expansion of product markets and potential manufacturing expansion sites.



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Barrier’s cost for sales and marketing will remain at relatively low levels compared to sales volume as our partners, LP and MuleHide Products, perform the majority of those functions themselves. Barrier remains active in a support role by providing necessary technical sales support but most of the day to day market and sales development activities are already being performed by the capable sales and marketing staff of LP and MuleHide Products resulting in improved sales but also lower costs for Barrier.


Wages and management fees decreased to $114,711 from $115,129 during the quarter and to $220,965 from $283,181 year-to-date.  The major decrease in the fee is attributed to the non-cash valuation of options granted during the prior year reporting period.  


Operating Income of $119,180 is being reported for the quarterly period ending December 31, 2014, whereas in the same period in 2013, a net loss of $28,840 was reported.  Operating income of $448,258 is reported for the year-to-date period vs. income of $90,852 in the comparable period in 2013.


The significant improvement in operating income is a result of increased sales volumes and focus on manufacturing efficiency. It is Barrier’s fundamental belief that sustained increased sales volume coupled with an intense focus on manufacturing efficiency is the best pathway to long-term profitability.


Other items include income and costs not directly related to business operations.  Other income items reported during the quarterly and six month periods ended December 31, 2014 include interest/other income of $346 and $653, respectively.  To compare, for the same reporting periods last year there was interest/other income of $174 (quarter) and foreign exchange/other income loss of $2,054 (six months).  


Interest on Long Term Debt has decreased from $15,943 to $14,758 for the 3-month reporting period and from $31,787 to $28,730 for the 6-month reporting period as a result of larger principal payments as long term debt ages.


Net Income.  Net income of $104,768 is being reported for the quarter ended December 31, 2014, whereas in the same period in 2013, a net loss of $44,609 was reported.  For the six months ended December 31, 2014, net income is $420,181 vs. net income of $57,011 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:


 

Dec 31 2014

Sept 30 2014

Jun 30 2014

Mar 31 2014

Dec 31 2013

Sept 30 2013

Jun 30 2013

Mar 31 2013

Volume shipped (MSF)

4,516

6,355

6,650

4,169

3,371

5,561

5,162

3,625

Total Revenues (000)

$1,836

$2,472

$2,778

$1,700

$1,394

$2,282

$2,426

$1,695

Operating Income(loss) (000)

$119

$329

$520

$85

($29)

$120

$218

$50

Net income (loss) (000)

$105

$315

$457

$72

($45)

$102

$201

$36

EPS (Loss) Per Share

$0.00

$0.01

$0.01

$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:


 

2014

2013

2012

Total Revenue

$8,154.0

$5,995.0

$4,144.8

Net income (loss)

$586.0

$(58.6)

$(139.7)

Per share

$0.01

$0.00

$0.00

Per share, fully diluted

$0.01

$0.00

$0.00

Total assets

$4,317.3

$3,921.9

$3,708.0

Total long-term financial liabilities

$687.1

$818.1

$900.0

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 a number of new product and market development initiatives including activity directed specifically toward applications in geographic areas where wildfires are prevalent and where building code development is becoming more restrictive with respect to designing for improved fire resistance. Focus has continued on developing products engineered to meet requirements established for Wildland/Urban Interface (WUI) zones. WUI zones are primarily located in the western US, and are areas where special building codes have been developed to help save homes if a brush fire should occur.


Enhanced focus has been made over this past year on developing products used in multifamily residential projects since the multifamily market is strong and is expected to stay vibrant over the next few years. In particular, Barrier and LP’s introduction of a UL certified 2-hr exterior load bearing wall designed for use in wood-frame buildings of Type III construction is being well received by architects, building code professionals and builders alike. 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.


Most recently, Barrier and LP have begun exploring opportunities related to emerging code requirements for Engineered Wood Products (EWP) such as I-Joist and RimBoard.  I-Joist and Rimboard produced using oriented strand board (OSB) technology are widely used in the building industry but have only recently been put under intense scrutiny for structural performance in a fire.  Barrier and LP believe there is significant opportunity in developing EWP products that are rated for performance in a fire situation.


Preliminary fire tests have already provided positive results and have elicited increased enthusiasm for these projects.  Pyrotite technology seems to provide EWP with sufficient improvement in fire resistance and structural integrity.  Barrier and LP’s EWP Division will be actively researching these exciting opportunities in the ensuing fiscal year and will endeavor to develop products that will meet code requirements being developed by the International Code Council (ICC).


Global licensing opportunities

Barrier continues to explore manufacturing and distribution opportunities for Pyrotite® technology in geographies outside of the US.  During the fiscal year ended June 30, 2014, Barrier announced a licensing agreement for the manufacture and distribution of Pyrotite® products in the European Union and Russia.  Kronospan, a world-wide leader in OSB manufacturing, has officially added “OSB Pyrotite ECO” (a fire-resistant OSB panel) to their family of products.  Barrier provided technical assistance in the design of their first manufacturing line, the transfer of production process technology, and material acquisition criteria.  The manufacturing line is now fully operational.  The license agreement provides for a payment made quarterly to Barrier by the Licensee of a royalty based on the volume of product produced. A minimum annual royalty fee was established along with an “up-front” license fee which was paid pursuant to the execution of the license agreement earlier in the year.  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 $793,004.  Operating cash flow was $426,987 in comparison to $100,709 for the period ended December 31, 2013.


Barrier has a short term revolving line of credit ($200,000) at the local Farmers State Bank of Watkins, in Watkins, Minnesota.  As of December 31, 2014 the balance owing on the revolving line of credit was $0 leaving an additional $200,000 available for use.  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.


Financing activities resulted in net cash outflow of $69,090 in the current reporting period compared to a net cash outflow of $64,546 for the comparable period.  




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Investing activities resulted in net cash outflow of $299,473 in the current period in comparison to a net cash outflow of $88,020 in the prior year.  The cash outflow was the result of the acquisition of plant and equipment capital improvements.


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.


Current and Future Financing Needs

At December 31, 2014, the current cash and cash equivalents totaled $767,350; there was $200,000 in available funds to draw on the revolving credit facility, and an additional $60,000 available from the convertible debentures.  


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 December 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 six month period ended December 31, 2014, the Company incurred interest charges of $14,400 (2013:  $14,400) on these convertible debentures.


Capitalization

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


Issued as of December 31, 2014:  44,554,926 common shares at $15,478,926

Issued as of February13, 2014:  44,554,926 common shares at $15,478,926


Options outstanding:


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

          1.  Form 8K dated 12/9/2014 regarding submission of matters to a vote of security holders.

      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:      XBRL Instance Document

101.SCH:     XBRL Taxonomy Extension Schema Document

101.CAL:     XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF:     XBRL Taxonomy Extension Definition Linkbase Document

101.LAB:     XBRL Taxonomy Extension Label Linkbase Document

101.PRE:      XBRL Taxonomy Extension Presentation Linkbase Document





17






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: February 17, 2015

By: /s/ Michael Huddy

 

Michael Huddy, President/CEO/Director

 

 

Dated:  February 17, 2015

By: /s/ Melissa McElwee

 

Melissa McElwee, CFO







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