10-Q 1 ibt10qmay1616.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, 2016


[ ] 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 05/16/2016: 47,807,426 Common Shares w/o par value






Part 1 – Financial Information


Item 1.  Financial Statements


INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2016 and June 30, 2015

(Stated in US Dollars)

(Unaudited)

 

 

 

 

 

 

 March 31,

June 30,

 

 

2016

2015

 

 

 

(audited)

ASSETS

 

 

 

Current

 

 

 

Cash and cash equivalents

 

$               1,089,615

$           804,452

Accounts receivable

 

513,345

405,859

Inventory - Note 4

 

503,652

640,219

Prepaid expenses and deposits

 

113,465

59,879

Total Current Assets

 

2,220,077

1,910,409

Property, plant and equipment – Note 5

 

3,223,841

3,014,476

Total Assets

 

$               5,443,918

$        4,924,885

 

 

 

 

LIABILITIES

 

 

 

Current

 

 

 

Accounts payable and accrued liabilities

 

$                  941,491

$           653,931

Obligation under capital leases

 

16,711

48,740

Deferred Revenue

 

66,901

-

Convertible debentures - Note 6

 

240,000

-

Total Current Liabilities

 

1,265,103

702,671

Convertible debentures - Note 6

 

-

240,000

Obligation under capital leases

 

26,629

40,139

 

 

 

 

Total Liabilities

 

1,291,732

982,810

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

Common Stock - Note 7

 

 

 

Authorized:

 

 

 

100,000,000 common shares without par value

 

 

 

Issued:

 

 

 

47,807,426 common shares (June 30, 2015:  47,807,426)

 

15,934,256

15,934,256

Additional paid-in capital

 

1,509,283

1,509,283

Accumulated deficit

 

(13,291,353)

(13,501,464)

 

 

 

 

Total Stockholders' Equity

 

4,152,186

3,942,075

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$                5,443,918

$        4,924,885

 


APPROVED BY THE BOARD OF DIRECTORS

 

 

 

 

 

 

 

 

 

"David Corcoran"

 

 

"Victor Yates"

 

David Corcoran

Director

 

Victor Yates

Director


SEE ACCOMPANYING NOTES









INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

for the three and nine months ended March 31, 2016 and 2015

(Stated in US Dollars)

(Unaudited)

 

 

 

 

 

 

 

 

Three months ended

Nine months ended

 

 

March 31,

March 31,

 

 

2016

2015

2016

2015

 

 

 

 

 

 

Sales - Note 8

 

$      2,618,627

$  1,964,711

$     7,030,157

$       6,268,469

License fee royalties

 

9,416

-

26,464

4,652

Cost of Sales

 

2,263,266

1,603,767

6,014,787

5,002,018

 

 

 

 

Gross Profit

 

364,777

360,944

1,041,834

1,271,103

 

 

 

 

 

 

Expenses

 

 

 

 

 

Accounting and audit fees

 

18,992

12,476

72,863

69,375

Filing Fees

 

10,670

3,353

24,369

21,355

Insurance

 

22,597

19,350

61,970

60,319

Bank charges and interest

 

83

40

152

112

Legal fees

 

5,818

9,147

52,393

60,488

Office and miscellaneous

 

13,627

13,842

54,338

56,771

Sales, marketing, and investor relations

 

7,972

15,496

26,814

37,106

Telephone

 

2,543

2,932

8,911

9,450

Transfer agent fees

 

1,153

1,966

2,926

4,563

Wages and management fees

 

170,081

117,260

504,039

338,225

 

 

 

 

 

 

Total Administrative Expenses

 

253,536

195,862

808,775

657,764

 

 

 

 

 

 

Operating Income

 

111,241

165,082

233,059

613,339

 

 

 

 

 

 

Other income

 

388

222

1,073

874

Interest on long-term obligations

 

(7,729)

(11,781)

(24,021)

(40,511)

 

 

 

 

 

 

Total Other Expense

 

(7,341)

(11,559)

(22,948)

(39,637)

 

 

 

 

 

 

Net income for the period

 

$         103,900

$    153,523

$        210,111

$          573,702

 

 

 

 

 

 

Basic and diluted income per share

 

$               0.00

$          0.00

$              0.00

$                0.01

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

47,807,426

44,554,926

47,807,426

44,554,926

 

 

 

 

 

 

Diluted

 

52,199,727

51,715,536

52,201,020

51,477,411

 

 

 

 

 

 

 


SEE ACCOMPANYING NOTES








INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the nine months ended March 31, 2016 and 2015

(Stated in US Dollars)

(Unaudited)

 

 

Nine months ended

 

 

March 31,

 

 

2016

2015

 

 

 

 

Operating Activities

 

 

 

Net income for the period

 

$                 210,111

$                 573,702

Items not involving cash:

 

 

 

Depreciation - plant and equipment

 

267,905

250,647

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

 

 

 

Accounts receivable

 

(107,486)

(204,951)

Inventory

 

136,567

(161,346)

Prepaid expenses and deposits

 

(53,586)

(5,927)

Accounts payable and accrued liabilities

 

287,560

(75,389)

Deferred Revenue

 

66,901

-

 

 

 

 

Net cash provided by operating activities

 

807,972

376,736

 

 

 

 

Cash Flows used in Financing Activities

 

 

 

Repayment of long term debt

 

-

(47,390)

Decrease in obligations under capital lease

 

(45,539)

(57,968)

Net cash used in financing activities

 

(45,539)

(105,358)

 

 

 

 

Cash Flows used in Investing Activities

 

 

 

Acquisition of equipment

 

(477,270)

(355,547)

Net cash used in investing activities

 

(477,270)

(355,547)

 

 

 

 

Change in cash and cash equivalents during the period

 

285,163

(84,169)

 

 

 

 

Cash and cash equivalents, beginning of the period

 

804,452

708,926

 

 

 

 

Cash and cash equivalents, end of the period

 

$              1,089,615

$                 624,757

 

 

 

 

Supplemental Cash Flow Information

 

 

 

Cash paid for interest

 

$                   24,021

$                   40,511

 

 

 

 

Cash paid for income taxes

 

$                     1,800

$                        800

 

 

 

 

 










SEE ACCOMPANYING NOTES





INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

for the period ended March 31, 2016

(Stated in US Dollars)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

Additional

 

 

 

 

 

Issued

 

Amount

 

Paid-in

 

Accumulated

 

 

 

Shares

 

 

 

Capital

 

Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2014

44,554,926

 

$15,478,926

 

$1,639,363

 

$(14,203,045)

 

$2,915,244

Exercise of options

3,252,500

 

325,250

 

-

 

-

 

325,250

Fair value of stock options exercised

 

 

130,080

 

(130,080)

 

-

 

-

Net income for the period

-

 

-

 

-

 

701,581

 

701,581

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2015

47,807,426

 

15,934,256

 

1,509,283

 

(13,501,464)

 

3,942,075

Net Income for the period

-

 

-

 

-

 

210,111

 

210,111

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2016

47,807,426

 

$15,934,256

 

$1,509,283

 

$(13,291,353)

 

$4,152,186

 

 

 

 

 

 

 

 

 

 

 







































INTERNATIONAL BARRIER TECHNOLOGY INC.

Notes to the Condensed Consolidated Interim Financial Statements

March 31, 2016

(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, 2015 included in the Annual Report on Form 10-K filed with the SEC on September 28, 2015.  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 March 31, 2016, and the consolidated results of operations and cash flows for the three and nine months ended March 31, 2016.  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, 2016 are not necessarily indicative of the results to be expected for the full year or any future interim periods.


Note 2

Significant Accounting Policies


a)

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 and share purchase warrants, which assumes that any proceeds received from the exercise of in-the-money stock options and share purchase warrants, 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.  


b)

Revenue Recognition


The Company recognizes revenue in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 605, “Revenue Recognition”, which requires that: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the sales price is fixed and determinable, and (iv) collection is reasonably assured. The Company recognizes revenue when the building supplies have been shipped.


Revenue for LP® FlameBlock Fire-Rated OSB Sheathing includes only the charges for treatment services, not the underlying OSB substrate or outbound freight as the customer supplies its own OSB Substrate and contracts for its own outgoing freight.









INTERNATIONAL BARRIER TECHNOLOGY INC.

Notes to the Condensed Consolidated Interim Financial Statements

March 31, 2016

(Stated in US Dollars)

(Unaudited)




Note 2

Significant Accounting Policies – (cont.)


b)

Revenue Recognition – (cont.)

The Company periodically enters into arrangements that contain multiple deliverable elements requiring an evaluation of each deliverable to determine whether it represents a separate unit of accounting. Each delivered item constitutes a separate unit of accounting when it has stand-alone value to the customer obligating the Company to determine a selling price for each deliverable.


License Fees

Revenue from up-front license fees and milestone payments is recognized as performance occurs and the respective obligations are completed. Prior to the completion of performance obligations, up-front payments are recorded as deferred revenue.  


Royalty Revenue

Royalty revenue from sales of our products is generally recognized when received or earned in accordance with the terms of the license fees agreements.


c)

Plant and Equipment, Trademark and Technology Rights and Depreciation


Plant and equipment and trademark and technology rights are recorded at cost.  Depreciation is provided as follows:


Manufacturing equipment

straight line over estimated useful

lives ranging from 5 years to 30

years.

Equipment and furniture

20%- declining balance

Computer equipment

30% - declining balance

Railway spur

4% - declining balance

Equipment under capital lease

20% - declining balance

Patent, trademark and technology

straight line over 8 years

rights


Leasehold improvements are depreciated over their estimated useful economic life.


Note 3

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.  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.








INTERNATIONAL BARRIER TECHNOLOGY INC.

Notes to the Condensed Consolidated Interim Financial Statements

March 31, 2016

(Stated in US Dollars)

(Unaudited)




Note 3

Fair Value Measurements – (cont.)


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 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, 2016, the convertible debentures had a fair value of $788,385 (June 30, 2015:  $790,630).


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 $43,340 (June 30, 2015:  $88,879).  


As at March 31, 2016, the Company has no assets or liabilities that have fair values measured using Level 3 inputs.


Note 4

Inventory


 

 March 31, 2016

 

 June 30, 2015

 

 

 

 

Raw materials

$             351,235

 

$          387,469

Finished goods

152,417

 

252,750

 

 

 

 

 

$             503,652

 

$          640,219



Note 5

Property, Plant and Equipment


 

 

Cost

 

March 31, 2016 Accumulated Depreciation

 

Net

Manufacturing Equipment

$

4,149,480

$

2,261,223

$

1,888,257

Equipment and Furniture

 

35,528

 

33,194

 

2,334

Computer Equipment

 

30,032

 

30,032

 

-

Equipment

 

93,291

 

71,662

 

21,629

Land

 

54,498

 

-

 

54,498

Building

 

2,504,914

 

1,336,949

 

1,167,965

Railroad Spur

 

94,108

 

61,999

 

32,109

Subtotal Equipment and Property

$

6,961,851

$

3,795,059

$

3,166,792

 

 

 

 

 

 

 

Assets under Capital Lease

 

 

 

 

 

 

Equipment

$

73,216

$

16,167

$

57,049

Subtotal Assets under Capital Lease

 

73,216

 

16,167

 

57,049

Total Property, Plant and Equipment

$

7,035,067

$

3,811,226

$

3,223,841













INTERNATIONAL BARRIER TECHNOLOGY INC.

Notes to the Condensed Consolidated Interim Financial Statements

March 31, 2016

(Stated in US Dollars)

(Unaudited)




Note 5

Property, Plant and Equipment – (cont.)


 

 

Cost

 

June 31, 2015 Accumulated Depreciation

 

Net

Manufacturing Equipment

$

3,806,970

$

2,093,596

$

1,713,374

Equipment and Furniture

 

33,194

 

33,194

 

-

Computer Equipment

 

30,032

 

30,032

 

-

Equipment

 

93,291

 

64,642

 

28,649

Railroad Spur

 

94,108

 

59,173

 

34,935

Subtotal Equipment and Property

$

4,057,595

$

2,280,637

$

1,776,958

 

 

 

 

 

 

 

Assets under Capital Lease

 

 

 

 

 

 

Equipment

$

73,216

$

10,692

$

62,524

Land

 

54,498

 

-

 

54,498

Building

 

2,372,488

 

1,251,992

 

1,120,496

Subtotal Assets under Capital Lease

 

2,500,202

 

1,262,684

$

1,237,518

Total Property, Plant and Equipment

$

6,557,797

$

3,543,321

$

3,014,476


Note 6  

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, 2016 the Company had received $240,000 (June 30, 2015:  $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, 2016, the Company incurred interest charges of $21,600 (nine month period ended March 31, 2015:  $21,600) on these convertible debentures.


Note 7  

Common Stock


Escrow:


At March 31, 2016, there are 48,922 (June 30, 2015 – 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, 2016 and June 30, 2015, 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, 2016, the Company has outstanding options that were granted to directors, officers, and consultants to purchase 1,077,500 common shares of the Company.










INTERNATIONAL BARRIER TECHNOLOGY INC.

Notes to the Condensed Consolidated Interim Financial Statements

March 31, 2016

(Stated in US Dollars)

(Unaudited)



Note 7  

Common Stock – (cont.)


A summary of the status of the Company’s share purchase option plan for the nine months ended March 31, 2016 is presented below:


 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Number of

 

Exercise

 

 

 

Shares

 

Price

Outstanding, June 30, 2015

 

 

1,077,500

 

 $          0.097

Outstanding, March 31, 2016

 

 

1,077,500

 

 $          0.097

Exercisable, March 31, 2016

 

 

1,077,500

 

 $          0.097

Exercisable, June 30, 2015

 

 

1,077,500

 

 $          0.097


The following summarizes information about the stock options outstanding at March 31, 2016:


Number

 

Exercise

 

 

 

Remaining

 

 

Price

 

Expiry Date

 

Contractual Life

 

 

 

 

 

 

 

1,077,500

 

$0.097

 

August 2, 2016

 

0.34 years

1,077,500

 

 

 

 

 

 




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 nine months ended March 31, 2016, two customers accounted for 100% of total sales revenue:


 

Three  months ended

 

Nine months ended

 

March 31, 2016

 

March 31, 2015

 

March 31, 2016

 

March 31, 2015

 

 

 

 

 

 

 

 

Customer #1

83%

 

77%

 

76%

 

74%

Customer #2

17%

 

23%

 

24%

 

26%



The accounts receivable from each of these customers at March 31, 2016 were $342,561 and $141,230 respectively (June 30, 2015:  $175,992 and $187,290, 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.











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 with a manufacturing plant in Minnesota and a technology license agreement for a new manufacturing line in Alabama in 2016.  In addition, Barrier has a license agreement with a major OSB producer in the European Union.  Barrier is also working to develop distribution partnerships and manufacturing technology license agreements and 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’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 March 31, 2016 was up 33% to $2,618,627 in comparison to $1,964,711 generated in the same comparable period in 2015. Year-to date sales increased 12% to $7,030,157 vs. $6,268,469.  Total sales volume, as measured by surface volume of product shipped, was 7,228,400 sq. ft. for the quarter.  This is a 37% increase from the 5,268,800 sq. ft. shipped during the same quarterly period last year and was a record quarter.  Sales for the nine months ending March 31, 2016 (fiscal year-to-date) increased 12% to 18,102,800 sq. ft. vs. 16,139,300 in the same period in 2015.  The following is a summary of changes in sales for the three and nine months ended March 31, 2016:


 

Three months ended

March 31,

Nine months ended

March 31,

 

2016

2015

2016

2015

Treatment services

$

2,222,596

$

1,567,430

$

5,571,192

$

4,810,025

Substrate

 

297,843

 

277,210

 

1,090,301

 

1,040,634

Freight and miscellaneous

 

98,188

 

120,071

 

368,664

 

417,810

 

$

2,618,627

$

1,964,711

$

7,030,157

$

6,268,469

License fees

 

-

 

-

 

-

 

-

Royalties

 

9,416

 

-

 

26,464

 

4,652

 

$

2,628,043

$

1,964,711

$

7,056,621

$

6,273,121








Shipments into the Residential Roof Deck, Wall Assembly, and Structural Insulated Panel Market Sectors (LP FlameBlock) during the quarter increased 50% over shipments in the comparable quarter last year and increased 16% during the nine month period.  Sales into the Commercial Modular Market (FR Deck Panel) decreased 6% in comparison to Q3 a year ago and increased slightly (.05%) year-to-date. Production capacity during the period was negatively impacted by Barrier’s commitment to produce fire-treated I-Joist web stock in Watkins, but efficiencies in production of that material in Watkins began to materialize with experience in manufacturing it.


The fire resistance of I-Joist is a timely and important topic in North America’s building environment at this time.  Web stock material treated at Watkins is being used to assist in the development of a committed market demand for Pyrotite® technology.  Concurrently, plans and decisions for manufacturing or licensing the production of treated I-Joist in the long-term are being developed and made.  The negative impact I-Joist R&D has on shipments has begun to diminish as production techniques improve with experience.


Barrier and LP conduct business guided by a Supply Agreement.  In August 2015, LP and Barrier negotiated some refinements to the agreement and extended it through December 31, 2019.  In addition, Barrier granted a license to LP for the manufacture and distribution of Pyrotite® products in a plant in Clarke County Alabama.  This license agreement will provide an additional revenue stream for Barrier.  LP held a ground breaking celebration in early January 2016 for the new FlameBlock OSB Sheathing Line at their Clarke County Alabama location.


Barrier’s 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 March 31, 2016 was $364,777 vs. $360,944 in the previous year quarter and $1,041,834 for the fiscal year-to-date period (vs. $1,271,103 in 2015). The gross margin, as a percentage of sales revenue, decreased from 18% to 14% for the quarterly period and decreased to 15% from 20% for the year-to-date period.  In the near term, gross margins are anticipated to improve based on continued gains in production efficiency with I-Joist and the addition of an additional partial shift. 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. Additional manufacturing capability through the addition of a FlameBlock line in Clarke County Alabama is anticipated by late 2016.


Cost of sales in the three and nine month periods increased to $2,263,266 and $6,014,787 from $1,603,767 and $5,002,018, respectively in the prior year comparable periods.  The increases are attributable to the increase in volume produced and the manufacture of fire-rated I-Joists.  Manufacturing efficiency as reflected in the three and nine month average cost per sq. ft. of production was $0.31 for the quarter and $0.33 for the year-to-date period (in comparison to $0.30 and $0.31, in 2015 respectively).


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 from $250,647 to $267,905 in the first nine months of 2016.  The expense reflects scheduled depreciation of newer manufacturing line equipment and building expansion/improvement.  


Administrative expenses for the quarter ended March 31, 2016 increased to $253,536 from $195,862 and during the nine month period to $808,775 from $657,764.  The administrative costs per sq. ft. decreased quarterly (from $0.037 to $0.035) and remained comparable year-to-date at $0.04.  The positive impact of increased sales volume reducing administrative cost per square foot shipped was captured during the quarterly reporting period and is expected to continue in future periods if sales levels remain elevated.


Accounting and Audit Fees increased to $18,992 from $12,476 for the quarterly period and to $72,863 from $69,375 year-to-date.  A significant portion of the cost for accounting services are related to the year-end audit and publishing of Barrier’s annual financials.  







Insurance costs increased for the quarterly period and remained consistent during the fiscal year-to-date periods ($22,597 vs. $19,350 in the quarter and $61,970 vs. $60,319 year-to-date).  The difference in quarterly amount was timing of billing.  


Legal fees decreased from $9,147 in Q3 2015 to $5,818 in Q3 2016 and from $60,488 to $52,393 for the nine 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.  


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®.  In addition, Barrier has a provisional patent for the process of treating I-Joists with Pyrotite®.


Sales, marketing, and investor relations expenses decreased from $15,496 to $7,972 for the current quarter and decreased from $37,106 to $26,814 for the nine month reporting period. During the reporting period, there were sales trips directly related to the expansion of product markets and potential manufacturing expansion sites.


Barrier’s cost for sales and marketing will remain at relatively low levels compared to sales volume as our partners, LP and MuleHide Products/ABC Supply Co., 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/ABC Supply Co. resulting in improved sales but also lower costs for Barrier.


Wages and management fees increased to $170,081 from $117,260 during the quarter and to $504,039 from $338,225 year-to-date.  The major increase in the fee is attributed to Board of Director remuneration for the execution of the Louisiana-Pacific Corporation Technology License Agreement and accrual of the annual $15,000 Board of Director compensation for the periods ending June 30, 2015 and June 30, 2016.


Operating Income of $111,241 being reported for the quarterly period ending March 31, 2016, whereas in the same period in 2015, income of $165,082 was reported.  Operating income of $233,059 is reported for the year-to-date period vs. income of $613,339 in the comparable period in 2015.


The decline in operating income is a result of lower efficiencies during the first test period of manufacturing I-Joist material.  There were also considerable costs associated with finding and training labor to manufacture an additional half shift of production on our second shift on the automated line.  It is Barrier’s fundamental belief that increased sales volume coupled with an intense focus on manufacturing efficiency is the best pathway to long-term profitability and expansion.  New products will be the driver for such long-term expansion in sales.  


Other items include income and costs not directly related to business operations.  Other income items reported during the quarterly and nine month periods ended March 31, 2016 include interest/other income of $388 and $1,073, respectively.  To compare, for the same reporting period(s) last year interest/other income was $222 (quarter) and $874 (nine months).  


Interest on Long Term Debt has decreased from $11,781 to $7,729 for the three-month reporting period and from $40,511 to $24,021 for the nine-month reporting period as a result of larger principal payments as long term debt ages.  During the prior quarter (Q2), the capital lease for the manufacturing plant and property was paid in full.  Barrier has received the deed to the property.


Net Income.  Net income of $103,900 is being reported for the quarter ended March 31, 2016, whereas in the same period in 2015, income of $153,523 was reported.  For the nine months ended March 31, 2016, net income was $210,111 vs. net income of $573,702 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 2016

Dec 31 2015

Sept 30 2015

Jun 30 2015

Mar 31 2015

Dec 31 2014

Sept 30 2014

Jun 30 2014

Volume shipped (MSF)

7,229

5,712

5,162

5,485

5,268

4,516

6,355

6,650

Total Revenues (000)

$2,628

$2,295

$2,134

$2,199

$1,965

$1,836

$2,472

$2,778

Operating Income(loss) (000)

$111

$141

$(19)

$162

$165

$119

$329

$520

Net income (loss) (000)

$104

$133

$(27)

$128

$154

$105

$315

$457

EPS (Loss) Per Share

$0.00

$0.00

$0.00

$0.01

$0.00

$0.00

$0.01

$0.01


Selected Annual Information


 

2015

2014

2013

Total Revenue

$8,472.0

$8,154.0

$5,995.0

Net income (loss)

$702.0

$586.0

$(58.6)

Per share

$0.02

$0.01

$0.00

Per share, fully diluted

$0.01

$0.01

$0.00

Total assets

$4,924.9

$4,317.3

$3,921.9

Total long-term financial liabilities

$328.9

$687.1

$818.1

Cash dividends declared per share

Nil

Nil

Nil


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.  


Barrier and LP continue 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.  Both Barrier and LP believe there is significant opportunity in developing EWP products that are rated for performance in a fire situation.


After successful preliminary fire testing and initial test marketing, further testing resulted in a UL certified fire-rated I-Joist listing and small scale commercial production continues.  Barrier and LP’s EWP Division will be actively pursuing these exciting opportunities during the next fiscal year.  By working together we will endeavor to develop products that will meet code requirements being developed by the International Code Council (ICC), as well as production technology and capacity.  


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.  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.  Particular interest in Barrier’s Pyrotite® technology has been expressed by parties in China, Australia, and South America.


Financial position & financings

Barrier ended the period with a working capital surplus (current assets less current liabilities) of $954,974.  Operating cash flow was $807,972 in comparison to $376,736 for the period ended March 31, 2015.


Barrier has a short term revolving line of credit ($500,000) at the local Farmers State Bank of Watkins, in Watkins, Minnesota.  As of March 31, 2016 the balance owing on the revolving line of credit was $0 leaving an additional $500,000 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 $45,539 in the current reporting period compared to a net cash outflow of $105,358 for the comparable period.  


Investing activities resulted in net cash outflow of $477,270 in the current period in comparison to a net cash outflow of $355,547 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 March 31, 2016, the current cash and cash equivalents totaled $1,089,615; there was $500,000 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 March 31, 2016 the Company had received $240,000 (2015:  $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, 2016, the Company incurred interest charges of $21,600 (2015:  $21,600) on these convertible debentures.  The convertible debentures expire January 2017.












Capitalization

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


Issued as of March 31, 2016:  47,807,426 common shares at $15,934,256

Issued as of May 16, 2016:  47,807,426 common shares at $15,934,256


Options outstanding:


The following summarizes information about the stock options outstanding at March 31, 2016:


 

Exercise

 

Number

Price

Expiry Date

 

 

 

    1,077,500

$0.097

August 2, 2016

 

 

 

1,077,500

 

 


Other Matters

As at March 31, 2016 the Company did not have any off-balance sheet arrangements to report.









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, 2016 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, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.








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, 2015, 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:       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









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 16, 2016

By: /s/ Michael Huddy

 

Michael Huddy, President/CEO/Director

 

 

Dated:  May 16, 2016

By: /s/ Melissa McElwee

 

Melissa McElwee, CFO