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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549


FORM 10-K


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


Fiscal Year Ended June 30, 2011


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

For the transition period from __________ to ________


Commission File Number: 000-20412


INTERNATIONAL BARRIER TECHNOLOGY INC.

(Name of registrant as specified in its charter)


         British Columbia, Canada                                       N/A         

(State or Incorporation or Organization)                       (IRS Employer ID No.)


510 4th Street North, Watkins, Minnesota, USA  55389

(Address of principal executive offices)


Issuer’s Telephone Number, 320-764-5797


Securities to be registered pursuant to Section 12(b) of the Act:   None


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

Common Shares without par value.

(Title of Class)


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


Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  [ ] Yes    [X] No


Indicate by check mark whether the registrant (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.

                                                                        [X] Yes    [ ] No


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [ ] 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    [X] No


State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days (OTCBB).  August 31, 2011 = $2,667,296


Common Shares outstanding at August 31, 2011                            44,454,926 shares


Page 1 of 65

Index to Exhibits on Page 64



1





TABLE OF CONTENTS



INTRODUCTION

3

PART I

4

ITEM 1A.  RISK FACTORS

8

ITEM 1B.  UNRESOLVED STAFF COMMENTS

13

ITEM 2.   DESCRIPTION OF PROPERTY

13

ITEM 3.   LEGAL PROCEEDINGS

14

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

14

PART II

14

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

14

ITEM 6.   SELECTED FINANCIAL DATA

15

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

16

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

24

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

25

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

FINANCIAL DISCLOSURE

47

ITEM 9A.  CONTROLS AND PROCEDURES

47

ITEM 9B.  OTHER INFORMATION

48

PART III

49

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE

49

ITEM 11.  EXECUTIVE COMPENSATION

54

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

58

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

63

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

64

ITEM 15.  EXHIBITS

64

SIGNATURE PAGE

65





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INTRODUCTION

International Barrier Technology Inc. is organized under the laws of British Columbia, Canada.  In this Annual Report, the “Company”, “Barrier”, “we”, “our” and “us” refer to International Barrier Technology Inc. and its subsidiaries (unless the context otherwise requires).  We refer you to the actual corporate documents for more complete information than may be contained in this Annual Report.  Our principal corporate offices are located at 510 4th Street North, Watkins, Minnesota, USA  55389.  Our telephone number is 320-764-5797.



BUSINESS OF INTERNATIONAL BARRIER TECHNOLOGY INC.

International Barrier Technology Inc. develops, manufactures, and markets proprietary fire resistant building materials designed to help protect people and property from the destruction of fire.  The Company uses a patented, non-combustible, non-toxic Pyrotite® formulation that is used to coat wood panels and has potential application to engineered wood products, paint, plastics, and expanded polystyrene.  Sales have been US$3.3 million and US$2.6 million during Fiscal 2011 and 2010, respectively.



FINANCIAL AND OTHER INFORMATION

In this Annual Report, unless otherwise specified, all dollar amounts are expressed in U.S. Dollars (“$”).



FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements, principally in ITEM #1, “Business” and ITEM #7, “Management's Discussion and Analysis or Plan of Operation”.  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, property exploration, mineral prices, future performance or results of current or anticipated mineral production, interest rates, foreign exchange rates, and the outcome of contingencies, such as acquisitions 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 Annual 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.



3



PART I


ITEM 1.  BUSINESS


1.A.  General Development of Business


Introduction

International Barrier Technology Inc. and its subsidiaries are collectively hereinafter referred to as the “Company”.


Incorporated in July 1986, pursuant to agreements, the Company acquired the rights to the Pyrotite Technology for Canada in July 1986 and for the United States in March 1992.  The Canadian rights and the US rights under the 1992 agreement were voluntarily terminated in January 1996 due to marketing conflict with a corporation which acquired the licensor’s rights to the technology.  A new agreement for the rights in the United States was signed in January 1996 and revised in March 1996.  The Company acquired the world-wide rights to the Pyrotite technology, including: US patents; foreign patent filings; manufacturing know-how; trade secrets, and trademarks pursuant to a March 2004 agreement.  The Company completed construction of a new manufacturing facility in Minnesota, USA in December 1995; the facility was upgraded to include substantial automation, increased capacity and product quality in April/May 2000; as Barrier continued to achieve double digit growth year after year, it decided the current manufacturing facility needed to be expanded.  The planning and development of a higher volume and more fully automated facility began in 2004; the first phase that included the building addition was complete in March 2005.  The second phase of the new line development was complete in August 2005 and the first commercial production run was in March 2006.  The final phase of equipment installation, shake down improvements, and training was complete in late 2006 at which time full commercial production began.


The Company has been involved in the development and manufacturing/marketing of fire-rated building products since 1986, including current products: Pyrotite, a fire-barrier material comprised of the patented formulation reinforced with chopped fiberglass strands and applied adhered directly to structural sheathing (OSB – oriented strand board or plywood) designed to prevent ignition and inhibit the spread of flames.  The products are currently marketed through exclusive supply agreements as LP® FlameBlock® Fire-Rated OSB Sheathing into Residential Roof Deck, Wall Assembly, Wildland Urban Interface Zones, and Structurally Insulated Panel market; and MuleHide FR Deck Panel into the commercial modular market.  On January 18, 2011, LP and Barrier extended their existing Supply Agreement through December 31, 2013. LP is the largest producer of Oriented Strand Board (OSB) in the world and believes that Barrier’s Pyrotite® Technology will help them achieve their strategy of providing a number of value added OSB products to the building community. The agreement gives LP the exclusive right to sell Pyrotite® treated panel products in North America, in all markets other than commercial modular (MuleHide Products, Inc.), under their brand name LP® FlameBlock® Fire-Rated OSB Sheathing.


The Company’s executive office is located at:

 510 4th Street North, Watkins, Minnesota, USA  55389

 Telephone: (320) 764-5797

 Telephone: (800) 638-4570

 Facsimile: (320) 764-5799

 e-mail:  info@intlbarrier.com

 website: www.intlbarrier.com


The Company’s registered office is located at:

 1750, 750 West Pender St., Vancouver, BC, Canada  V6C 2T8

 Telephone: (604) 681-1194; and

 Facsimile: (604) 681-9652.


The contact person is:

  David Corcoran, C.A.; Chief Financial Officer/Director.


The Company's fiscal year ends June 30th.


The Company's common shares trade in Canada on the TSX Venture Exchange under the symbol “IBH” and in the United States on the OTC Bulletin Board under the symbol “IBTGF.OB”.



4




The Company has 100,000,000 no par common shares authorized.  At 6/30/2011, the end of the Company's most recent fiscal year, there were 44,454,926 common shares issued and outstanding.


History and Development


Incorporation and Name Changes.  The Company was incorporated in British Columbia under the British Columbia Company Act on 7/10/86 under the name “Barrier Technology Inc.”; the name was changed to “International Barrier Technology Inc.” on 3/11/1996.  The Company adopted new By-Laws on 12/09/2004 to comply with the new British Columbia Corporation Act enacted on 3/29/2004.


Subsidiaries.  The Company has two wholly-owned subsidiaries:

a) Pyrotite Coatings of Canada Inc.

   incorporated in British Columbia on 7/10/1986

b) Barrier Technology Corporation

   incorporated in Minnesota, USA on 5/8/1996


Existing Marketing/Licensing Agreements:

1.

Mulehide Products, Inc., Commercial Modular Building Industry

2.

LP® Building Products, Multi-family Residential Roof Deck, Wall Assembly, and Structural Insulated Panel Markets.


SEC Filing Status.  After Fiscal 2005 year end, the Company ceased being a “foreign private issuer” eligible to file its Fiscal 2006 Annual Report on Form 20-F; beginning Calendar 2006, the Company began filing Form 10-QSB and Form 10-KSB as its primary disclosure documents.  As a “smaller reporting company”, the Company has transitioned to using the Form 10-K Annual Report.


Financings.  The Company has financed its operations through borrowings and/or private issuance of common shares:


Fiscal 2009:  None

Fiscal 2010:  15,000,000 units at US$0.10 per unit = US$1,482,974 (CDN$1,500,000)

Fiscal 2011:  40,000 units at US$0.09 per unit = US$3,600

Fiscal 2012-to-date:  None



Capital Expenditures

Fiscal 2009:          $ 14,196, purchase of plant and equipment

Fiscal 2010:          $ 23,068, purchase of plant and equipment

Fiscal 2011:          $ 74,857, purchase of plant and equipment



1.B.  Financial Information About Segments

Refer to the audited financial statements for Fiscal 2010 ended June 30th (footnote #13, “Segmented Information and Sales Concentration”) for this information.


1.C.  Narrative Description of Business

International Barrier Technology Inc. (Barrier) manufactures and sells fire-rated building materials primarily in the United States.  Barrier has a patented fire protective material (Pyrotite) that is applied to building materials to greatly improve their respective fire resistant properties. Coated wood panel products are sold to builders through building product distribution companies all over the United States.  Many of the top multifamily homebuilders in the US utilize Barrier’s fire-rated structural panel manufactured with Pyrotite in areas where the building code requires the use of a fire-rated building panel.



5




Seasonality

The building products industry in the United States does experience seasonality with housing starts generally depressed in winter months.  Barriers Pyrotite products, however, is sold in housing markets that have excellent winter business, including the states of Florida and California.  Also, much of the modular housing, including the foam core panel market, performs a considerable amount of their required construction inside factories. Since the work is done within protected environments they tend to be less impacted by the winter season than typical building projects.  Seasonality, therefore, is not considered to be a major impediment to Barrier’s success in the US market place.


Dependency upon Patents/Licenses/Processes

Pursuant to an agreement for sale of technology dated 3/1/2004 (“original agreement”), between the Company and Pyrotite Corporation, the Company acquired the rights (previously licensed) to certain fire retardant technology and trademarks for $1,000,000.  These rights and technology included all of the patents that deal with “surface applied” Pyrotite technology. The agreement further acknowledged that Pyrotite Corporation retained ownership of “integral” OSB technology (IPOSB) but the parties agreed that Pyrotite would share revenues with the Company for: gross sales of any IPOSB products or substances manufactured in or sold into the US, by or on the behalf of, Pyrotite Corporation; or, for certain rights or license fees received by Pyrotite Corporation for use of the technology.


A dispute ensued between the parties as to the correct amounts owed to the Company by Pyrotite pursuant to the revenue sharing clause of the original agreement.  As a result, the parties, through a mediator, reached a settlement on March 23, 2010 whereby Pyrotite agreed to pay the Company $90,000 in full settlement of prior amounts in dispute.  In addition, Pyrotite agreed to convey all of its right, title and interest in IPOSB technology to the Company. There was no value attributed to the IPOSB technology in the Company’s consolidated financial statements.


Barrier utilizes patented manufacturing technology, as well as manufacturing know-how and trade secrets that have been developed and are closely protected by Barrier.


The manufacturing process for the Pyrotite® products is protected by trade secrets and patent pending status on an improved technology.  International Barrier Technology, Inc. and Barrier Technology Corporation are, in that regard, totally dependent upon these for success in the business.


All employees are required to sign a Confidentiality Agreement that incorporates a “do not compete clause”.  As these clauses pertain to Barrier’s employees at the US operations, they have been drafted to conform to the strictest interpretation under Minnesota law.


Employees

As of 8/31/2011, the Company had 17 full-time employees, one full time Executive Officer and two part-time Executive Officers.  As of 6/30/2011, the Company had 15 full-time employees, one full-time Executive Officer and two part-time Executive Officers. As of 6/30/2010, the Company had 15 full-time employees, one full-time Executive Officer and two part-time Executive Officers.


Dependency upon Customers


Fiscal 2011

During Fiscal 2011, the company’s largest customer was MuleHide Products, Inc. “Mulehide”.  Mulehide is a company that services the commercial roofing market including selling Pyrotite® products to the commercial modular roof deck market.  MuleHide purchased 56% of the 6,962,264 sq. ft. of Pyrotite® products shipped in Fiscal 2011.  Product shipped to MuleHide Products is through an exclusive supply agreement and private labeled MuleHide FR Deck Panel.  



6




The largest market for Pyrotite® products (after accounting for FR Deck Panel) in Fiscal 2011 remained roof deck applications in multifamily residential roof deck construction, wall assemblies and structural insulated panels (SIPs).  On January 18, 2011, LP and Barrier extended their existing Supply Agreement through December 31, 2013.  LP is the largest producer of Oriented Strand Board (OSB) in the world and believes that Barrier’s Pyrotite® Technology will help them achieve their strategy of providing a number of value added OSB products to the building community.  The agreement gives LP the exclusive right to sell Pyrotite® treated panel products in North America, in all markets other than the commercial modular (MuleHide Products, Inc.), under their brand name LP® FlameBlock® Fire-Rated OSB Sheathing.  Barrier will provide technical support. Barrier will continue to supply MuleHide FR panel to MuleHide Products, Inc. under the existing Supply Agreement executed between Barrier and MuleHide in 2004.


Multifamily residential roof deck, wall assembly, and structural insulated panel markets accounted for 44% of total shipments in 2011.  Sales into these markets are now made as LP® FlameBlock® through LP® Building Products and wholesale distribution companies such as ProBuild, BFS Building Supply, Biewer Lumber, Logan Lumber Company, Taiga Building Products, Vandermeer Forest Products, Boise, Curtis Lumber, and Universal Forest Products.  The Western Region market (CA-WA) was the strongest region in these markets with 28.5% of total sales into these markets.  Other regions in these markets include Florida, the Midwest, and the MidAtlantic).  The building products distribution companies mentioned have a presence in all of these areas and are Barrier’s consistent customer throughout these geographies.



Fiscal 2010

During Fiscal 2010, the company’s largest customer was MuleHide Products, Inc. “Mulehide”.  Mulehide is a company that services the commercial roofing market including selling Pyrotite® products to the commercial modular roof deck market.  MuleHide purchased 60.7% of the 5,002,688 sq. ft. of Pyrotite® products shipped in Fiscal 2010.  Product shipped to MuleHide Products is through an exclusive supply agreement and private labeled MuleHide FR Deck Panel.


The largest market for Pyrotite® products (after accounting for FR Deck Panel) in Fiscal 2010 remained roof deck applications in multifamily residential roof deck construction, wall assemblies and structural insulated panels (SIPs).  On January 19, 2010, Barrier and Louisiana Pacific Corporation (LP) executed a 1-year Supply Agreement where Barrier has agreed to provide exclusive fire treatment services for LP on their oriented strand board panel product (OSB). LP is the largest producer of OSB in the world. LP will market and sell the fire treated OSB in North America under their own trade name LP® FlameBlock® Fire-Rated OSB Sheathing. Barrier has agreed not to market or sell Pyrotite® technology coated wood products under the registered trademark Blazeguard® for as long as the agreement is in place. Current Blazeguard customers, as of January 19, will be referred to LP customer service when they wish to place orders or arrange for shipping schedules. Barrier will provide technical support. Barrier will continue to supply MuleHide FR panel to MuleHide Products, Inc. under the existing Supply Agreement executed between Barrier and MuleHide in 2004.


Multifamily residential roof deck, wall assembly, and structural insulated panel markets accounted for 39.3% of total shipments in 2010.  Sales into these markets are now made as LP® FlameBlock® through LP® Building Products and wholesale distribution companies such as Stock Building Supply, Inc., BFS Building Supply, 84 Lumber, Inc., Logan Lumber Company, Taiga Building Products, Vandermeer Forest Products, Boise, Curtis Lumber, and Lake States Lumber.  The Mid-Atlantic market (Maryland south through North Carolina and the northeastern US - New Jersey and Pennsylvania) was the strongest region in these markets with 904,200 sq. ft. of sales (18.1% of total sales).  Other regions in these markets include Florida, the Midwest, and the West).  The building products distribution companies mentioned have a presence in all of these areas and are Barrier’s consistent customer throughout these geographies.



7




1.D.  Financial Information About Geographic Areas

During Fiscal 2011 and 2010, all sales were in the United States.


At 6/30/2011 and 6/30/2010: $3,688,347 and $3,966,994 of the assets were located in the United States and $313,888 and $1,035,262 were located in Canada, respectively.


1.E.  Available Information

      Not applicable


1.F.  Reports to Security Holders

We file reports and other information with the Securities and Exchange Commission located at 100 F Street N.E., Washington, D.C. 20549; you may obtain copies of our filings with the SEC by accessing their website located at www.sec.gov.  Further, we also files reports under Canadian regulatory requirements on SEDAR; you may access our reports filed on SEDAR by accessing their website at www.sedar.com.  Finally, we also make Canadian and USA reports available on the Company’s website: www.intlbarrier.com.


1.G.  Enforceability of Civil Liabilities

We are a British Columbia, Canada corporation.  While our principal operational office and our manufacturing facility are located in the United States, our principal executive office and many of our assets are located outside of the United States.  Additionally, a number of our directors and executive officers are residents of Canada.  It might not be possible for investors in the United States to collect judgments obtained in United States courts predicated on the civil liability provisions of U.S. securities legislation.  It could also be difficult to effect service of process in connection with any action brought in the United States upon such directors or executive officers. Execution by United States courts of any judgment obtained against us, or any of the directors, executive officers or experts identified in this prospectus or documents incorporated by reference herein, in United States courts would be limited to the assets, or the assets of such persons or corporations, as the case might be, in the United States.  The enforceability in Canada of United States judgments or liabilities in original actions in Canadian courts predicated solely upon the civil liability provisions of the federal securities laws of the United States is doubtful.


ITEM 1A.  RISK FACTORS

In addition to the other information presented in this Annual Report, the following should be considered carefully in evaluating the Company and its business.  This Annual Report contains forward-looking statements that involve risks and uncertainties.  The Company's actual results may differ materially from results discussed in the forward-looking statements.  Factors that might cause such a difference include those discussed below and elsewhere in this Annual Report.



General Corporate Risks


Investors may be disadvantaged because the Company is incorporated in Canada, which has different laws.

The articles/by-laws and the laws of Canada are different from those typical in the United States.  The typical rights of investors in Canadian companies differ modestly from those in the United States; refer to the relevant sections which are discussed in Section 9.A.5 and Section 10.B of this Annual Report.  Such differences may cause investors legal difficulties.




8



U.S. investors may not be able to enforce their civil liabilities against the Company or its directors, controlling persons and officers.

It may be difficult to bring and enforce suits against the Company.  The Company is a corporation incorporated under the laws of the British Columbia, Canada.  A majority of the Company's directors are resident outside the United States, and all or substantial portions of their assets are located outside of the United States.  As a result, it may be difficult for U.S. holders of the Company’s common shares to effect service of process on these persons within the United States or to realize in the United States upon judgments rendered against them.  In addition, a shareholder should not assume that the courts of Canada (i) would enforce judgments of U.S. courts obtained in actions against the Company or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States, or (ii) would enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal securities laws or other laws of the United States.


Passive Foreign Investment Company (“PFIC”) designation could lead to an adverse tax situation for U.S. investors.

U.S. investors in the Company could be subject to U.S. taxation at possibly adverse or higher rates and under a system that might be more complicated and unfamiliar to them.  For example, a U.S investor might be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition (including a pledge) of that holder's shares.  Distributions a U.S. investor receives in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or the holder's holding period for the shares will be treated as excess distributions.  For example, under certain circumstances, a U.S. investor who is an individual might be subject to information reporting requirements and backup withholding, currently at a 28% rate, on dividends received on common shares.  If a U.S. Holder holds shares in any year in which the Company is a PFIC, that holder might be required to file Internal Revenue Service Form 8621.



Risks Relating to Financial Condition


The Company has accumulated losses since inception.

Since inception through June 30, 2011, the Company has incurred aggregate losses of ($14,360,735).  Our earnings (losses) from operations for years ended 6/30/2011 and 6/30/2010 were $895,811 and ($2,329,567), respectively; our cash used in operations for years ended 6/30/2011 and 6/30/2010 were $329,065 and $366,392, respectively.  These factors cast substantial doubt about the Company’s ability to continue as a going concern.  There is no assurance that we will operate profitably or will generate positive cash flow in the future.  The Company’s financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and discharge its obligations and commitments in the normal course of operations.  Realization values maybe substantially different from carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.  In addition, our 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. Consequently, the Company expects to incur operating losses and negative cash flow until our products gain market acceptance sufficient to generate a commercially viable and sustainable level of sales, and/or additional products are developed and commercially released and sales of such products made so that we are operating in a profitable manner.




9



The Company’s history of operating losses is likely to lead to the need for additional, potentially unavailable, financings and related problems.

The Company has a history of losses: $895,811 [“profit” result of non-cash flow “change in fair value of derivative liability] and ($2,329,567) in FY2011 and FY2010.  Despite recent capital infusions, the Company will require significant additional funding to meet its long-term business objectives, unless the trend of losses is reversed.  Capital will be needed to help maintain and to expand marketing of the Company’s products.  The Company may not be able to obtain additional financing on reasonable terms, or at all.  If equity financing is required, then such financings could result in significant dilution to existing shareholders.  If the Company is unable to obtain sufficient financing, the Company might have to dramatically slow marketing efforts and/or lose control of its products.  The Company has historically obtained the preponderance of its financing through the issuance of equity.  There is a limit of 100,000,000 authorized common shares.  The Company has no current plans to obtain financing through means other than equity financing and/or loans.  Such losses and the resulting need for external financings could result in losses of investment value.


The Company’s need for additional financing to expand production and conduct marketing efforts could lead to the Company’s inability to continue generating material sales revenue.  

The Company develops, manufactures, and markets proprietary fire resistant building materials designed to help protect people and property from the destruction of fire. Additional amounts of financing may be required to facilitate corporate operational growth and to expand marketing efforts on a short-term basis.  Conventional bank financing was originally established at a local bank for up to $1,000,000 in the form of a revolving line of credit. In July 2008, the terms of the existing revolving bank facility of $1,000,000 were modified to be comprised of a $500,000 capital loan being amortized by the bank over a 10-year period and which is secured by building, property and equipment and a $500,000 credit facility as an operating line of credit at 7.5%.    In August 2010, the line of credit was amended to include a reduced limit of $250,000, and was extended until September 1, 2011 at a reduced interest rate of 6.75%.  At June 30, 2011, the capital loan balance was $234,398 and the line of credit balance was $181,723.  In September 2011, the repayment term on the line of credit was extended until September 1, 2012.


The Company competes with other building materials companies that have similar operations, and many such competitor companies have operations and financial resources and industry experience far greater than those of the Company.

Even if the Company maintains a successful marketing program, the Company will still be subject to competition from much larger and financially stronger competitors and such competition may materially adversely affect the Company’s financial performance.  Also, the Company’s need to acquire inventory will require additional financial resources.



Risks Relating to Management and Specific Operations


The Company’s Articles/By-Laws contain provisions indemnifying its officers and directors against all costs, charges and expenses incurred by them.

The Company’s Articles/By-Laws contain provisions that state, subject to applicable law, the Company shall indemnify every director or officer of the Company, subject to the limitations of the British Columbia Corporations Act, against all losses or liabilities that the Company’s director or officer may sustain or incur in the execution of their duties.  The Company’s Articles/By-Laws further state that no director of officer shall be liable for any loss, damage or misfortune that may happen to, or be incurred by the Company in the execution of their duties if they acted honestly and in good faith with a view to the best interests of the Company.  Such limitations on liability may reduce the likelihood of litigation against the Company’s officers and directors and may discourage or deter its shareholders from suing the Company’s officers and directors based upon breaches of their duties to the Company, though such an action, if successful, might otherwise benefit the Company and its shareholders.




10



Key management employees may fail to properly carry out their duties or may leave which could negatively impact corporate operations and/or stock pricing.

While developing, manufacturing, and marketing proprietary fire resistant building materials designed to help protect people and property from the destruction of fire, the nature of the Company’s business, its ability to develop a successful sales force, and to develop a competitive edge in the marketplace, depends, in large part, on its ability to attract and maintain qualified key management personnel.  Competition for such personnel is intense and the Company may not be able to attract and retain such personnel.  The Company’s growth will depend on the efforts of its Directors (David Corcoran, Michael Huddy, Victor Yates and Craig Roberts) and its Senior Management (President/CEO/Director, Michael Huddy; and CFO/Director, David Corcoran; and Corporate Secretary, Lindsey Nauen).  David Corcoran and Lindsey Nauen work for the Company on a part-time basis while Michael Huddy works for the Company on a full-time basis.   The Company has no key-man life insurance and there are no written agreements with them.


Operational Risks

Barrier’s business is based on the premise that building projects occasionally require fire resistive performance.  Whether based on a requirement of a national or local building code, the possibility for lower insurance rates, or simply the desire for safety by a building owner, Barrier’s health as a manufacturing company is based on a demand for resistive building products.  Any factor that could mitigate the demand for fire resistive construction could have a negative impact on Barrier.


Barrier suffers a larger risk in the possibility that a new generation of technology that will impart fire resistance to building products may be developed.  New technology may serve to decrease the demand for Barrier’s Pyrotite® products if the new technology proved to impart either better characteristics of fire performance or was found to be less expensive to produce and market than Blazeguard.  Barrier’s management team makes a concerted effort to stay abreast of new technologies as they are being developed.  Barrier does this by staying in close contact with the industry via trade associations (e.g. The National Association of Home Builders, NAHB) and the independent research laboratories that are asked to test these new technologies and products as they are developed.  However, there is no guarantee that the Company is able to adopt and utilize the new technology.  New technologies require years of testing, not only in development but in use, before they are accepted and “evaluated for use” by the major building code agencies such as The International Code Council (ICC).


Barrier’s business is directly related to housing/building starts in the United States.  Any factor resulting in a slowdown of economic activity, especially those that result in an increase in interest rates will have a negative impact on Barrier’s business.  New housing starts in the U.S. continue to decline, though the rate of decline appears to be slowing.  The U.S. Census Bureau reported 571,000 new housing starts in August 2011 (adjusted on an annual basis). August's numbers were 5.0 percent lower than the July 2011 estimate of 601,000 and 5.8 percent lower than the August 2010 annually adjusted rate of 606,000.  Barrier is somewhat protected in minor housing market declines because growth is dependent upon increased market share in geographic areas we are currently not selling in such as Southern California, the Pacific Northwest and Texas.  The potential for growth in sales due to improved market share is very high relative to the negative impact of a percentage decrease in housing starts.


Barrier presumes that corporate growth will be funded from positive cash flow, conventional bank loans, and from the occasional sale of equity to generate needed capital.  The business plan, however, anticipates a few years of very rapid sales volume increases.  Companies experiencing rapid growth depend upon solid support both in the market place and in the manufacturing facilities themselves.  Ensuring that capital is available to increase production capacity and to provide support materials and training in the market place is essential to success.


Barrier is relatively “thin” in its management and sales team.  As a “start-up” company, Barrier has intentionally kept the number of middle and upper management and sales people at a minimum in an effort to conserve financial resources.  As the company grows it will be essential to have new talent emerging to help provide leadership in the factories of production and in the market place to introduce the products to new markets:  both in geography and in use.  As long as the management/sales team is thin, the impact of losing a key player is very large.




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Barrier relies on key relationships with industry leaders to maintain its position in the market place.  Barrier is dependent upon suppliers to provide key elements of production at critical times at reasonable prices.  While the majority of these materials are readily available and abundant, without quality suppliers providing reasonable terms of sales, Barrier would not be able to stay in business: there would be no operating or working goods of production to use in the manufacturing process.



Risks Relating to the Company’s Common Stock


Principal stockholders, officers and directors have substantial control regarding stock ownership; this concentration could lead to conflicts of interest and difficulties in the “public” investors effecting corporate changes, and could adversely affect the Company’s stock prices.

The Company’s Senior Management, Directors and greater-than-five-percent stockholders (and their affiliates), acting together, hold approximately 25.4% of the shares of the Company, on a diluted basis, and have the ability to control substantially all matters submitted to the Company’s stockholders for approval (including the election and removal of directors and any merger, consolidation or sale of all or substantially all of the Company’s assets) and to control the Company’s management and affairs.  Accordingly, this concentration of ownership may have the effect of delaying, deferring or preventing a change in control of the Company, impeding a merger, consolidation, takeover or other business combination involving the Company or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could materially adversely affect the market price of the Company’s stock.


Employee/Director/Consultant stock options could lead to greater concentration of stock ownership among insiders and could lead to dilution of stock ownership which could lead to depressed stock prices.

Because the success of the Company is highly dependent upon its respective employees, the Company has granted to some or all of its key employees, Directors and consultants options to purchase common shares as non-cash incentives.  To the extent that significant numbers of such options may be granted and exercised, the interests of the other stockholders of the Company may be diluted causing possible loss of investment value.


The Company has never declared or paid cash dividends on its common shares and does not anticipate doing so in the foreseeable future.

There can be no assurance that the Company’s Board of Directors will ever declare cash dividends, which action is exclusively within its discretion.  Investors cannot expect to receive a dividend on the Company’s common shares in the foreseeable future, if at all.


Low stock market prices and volume volatility for the Company’s common shares create a risk that investors might not be able to effect purchases/sales at prices that accurately reflect corporate value.

The market for the common shares of the Company on the OTC Bulletin Board in the United States may be highly volatile for reasons both related to the performance of the Company or events pertaining to the industry (i.e., price fluctuation/technological change/new competitor) as well as factors unrelated to the Company or its industry.  The Company’s common shares can be expected to be subject to volatility in both price and volume arising from market expectations.  Stockholders of the Company may be unable to sell significant quantities of common shares in the public trading markets without a significant reduction in the price of the common shares.


Broker-Dealers may be discouraged from effecting transactions in the Company’s common shares because they are subject to the penny stock rules.

Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended, impose sales practice and disclosure requirements on NASD broker-dealers who make a market in “penny stock”.  A penny stock generally includes any non-NASDAQ equity security that has a market price of less than $5.00 per share.  The Company’s shares are quoted on the OTC Bulletin Board in the United States and the TSX Venture Exchange in Canada.  The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in the Company’s shares, which could severely limit the market



12



liquidity of the shares and impede the sale of the Company’s shares in the secondary market.


Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt.


In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the US SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt.  A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities.  Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.



ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.



ITEM 2.  DESCRIPTION OF PROPERTY

The Company’s operating and manufacturing facilities, along with executive offices, are located in leased premises at 510 Fourth Street North, Watkins, Minnesota.  The Company entered into a 20-year “capital lease” beginning 6/1/1995.  The lease allows the Company to purchase the facility for a small “transfer fee” once the 20-year lease is up and the industrial development bonds the City of Watkins issued to fund the project are paid in full.


The Company’s manufacturing complex consists of two manufacturing lines housed in the main building.  A 2,500 square-foot office is located in the front of this building.  To the immediate east of the main drive, a storage building (40’ x 60’) allows for short-term storage of untreated sheathing.


The earlier of the two production lines, our spray technology line, is housed nearest the offices and occupies approximately 22,000 sq. ft. of space.  This line is primarily used for panels larger than 4’ x 8’ or for production not suited for the highly automated standard production line, including plywood.  The mix for this line is produced in batches and fed through a reciprocating spray apparatus on to the panels.  The fiberglass is supplied as roving and automatically chopped as it is applied to the panels.  An infra-red oven supplies the energy to accelerate the cure of the coating; space is provided for the panels to be stacked.  Specialty panels can be stacked in custom designed racks if required. The designed capacity from this line is 10MM board feet per shift.


The newer of the two lines, our automated line, is housed in the extension added to the main building in 2004.  This portion of the building is 15,000 sq. feet and houses a completely separate line.  This line runs at 20 feet per minute and is capable of producing over 20MM board feet per shift annually when running at 100% efficiency.  We currently need to operate this line one shift only, but could quickly increase our capacity to meet market demand by adding shift(s).  Automation efficiencies on this line cover: unstacking and restacking of panels; use of automated Pyrotite coating equipment, a computer controlled mixing area; automatic panel weight information fed back continuously to the operators; and a custom panel curing system.  This line produces panels of much higher, consistent quality than the older line, at a much more marketable cost point.


Future growth plans may include plants modeled after this new line, placed strategically near markets of prime opportunity; built either by Barrier or with licensed partners.


Regardless of which line is used, the production process for the Pyrotite technology contains no hazardous or controlled substances that could raise environmental concerns.   The majority of materials used in the production of Pyrotite are



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naturally occurring and are therefore accepted at local land-fills.  Use and handling instructions for the Company’s finished products are no more stringent than those required for handling other natural wood based building products.



ITEM 3.  LEGAL PROCEEDINGS  

The Directors and the management of the Company know of no other 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 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No Disclosure Necessary



PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


Market Information

The Company's common shares began trading on the TSX Venture Exchange (formerly the Canadian Venture Exchange) in Toronto, Ontario, Canada, under its former name Barrier Technology Inc. in September 1986.  The current stock symbol is “IBH”.  The CUSIP number is #458968-10-4.


The Company’s common shares began trading on the OTC Bulletin Board in August 2002 under the symbol IBTGF.OB.


The following table lists the volume of trading and high, low and closing sales prices on the TSX Venture Exchange for the Company's common shares for the last eight fiscal quarters.


Table No. 1

TSX Venture Exchange

Common Shares Trading Activity

Canadian Dollars

______________________________________________________________________________

______________________________________________________________________________

                                                                     - Sales -

Period                                                        Canadian Dollars

Ended                                 Volume          High       Low   Closing

Quarterly

 6/30/2011                           570,800      CDN$0.11  CDN$0.05  CDN$0.10

 3/31/2011                         2,954,500          0.13      0.09      0.11

12/31/2010                           975,200          0.18      0.11      0.12

 9/30/2010                           856,500          0.25      0.16      0.18

 6/30/2010                           651,900          0.26      0.20      0.24

 3/31/2010                         2,074,600          0.25      0.08      0.21

12/31/2009                           448,600          0.13      0.06      0.08

 9/30/2009                           344,900          0.15      0.06      0.11

______________________________________________________________________________

______________________________________________________________________________


Table No. 2 lists the volume of trading and high, low and closing sales prices on the OTC Bulletin Board for the Company's common shares for: the last eight fiscal quarters.



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Table No. 2

OTC Bulletin Board

Common Shares Trading Activity

US Dollars

______________________________________________________________________________

______________________________________________________________________________

                                                                     - Sales -

    Period                                                          US Dollars

     Ended                           Volume           High      Low    Closing

Quarterly

 6/30/2011                          675,800        US$0.12  US$0.06    US$0.06

 3/31/2011                        2,204,500           0.13     0.09       0.11

12/31/2010                          787,700           0.18     0.11       0.12

 9/30/2010                          640,100           0.24     0.13       0.18

 6/30/2010                          467,400           0.26     0.18       0.19

 3/31/2010                        3,599,900           0.25     0.06       0.20

12/31/2009                        1,402,000           0.12     0.04       0.10

 9/30/2009                        1,623,500           0.16     0.06       0.12

______________________________________________________________________________

______________________________________________________________________________


Holders

The Company's common shares are issued in registered form and the following information is taken from the records of Pacific Corporate Trust Company (located in Vancouver, British Columbia, Canada), the registrar and transfer agent for the common shares.


On 10/15/2010, the Company’s shareholders’ list showed 44,414,926 common shares outstanding and 157 registered shareholders with: 8,093,106 shares owned by 54 registered shareholders/depositories resident in Canada, 18% of the total; 36,321,720 shares owned by 102 registered shareholders/depositories resident in the United States; and 100 shares owned by 1 shareholder in one other country.


Based on this research and other research into the indirect holdings of other financial institutions, the Company believes that it has approximately 6000 beneficial owners of its common shares.


Dividends

The Company has not declared any dividends since incorporation and does not anticipate that it will do so in the foreseeable future.  The present policy of the Company is to retain future earnings for use in its operations and expansion of its business.  There are no restrictions that limit the ability of the Company to pay dividends on common equity or that are likely to do so in the future.


Securities Authorized For Issuance Under Equity Compensation Plans

None


Use of Proceeds From Sales of Securities is for working capital

Recent Sales of Unregistered Securities

The Company relied on the exemptions from registration under Regulation S for the following private placements of securities to only Canadian residents:

Fiscal 2009: None

Fiscal 2010: 15,000,000 units at CDN$0.10 per unit = US$1,482,974 (CDN$1,500,0000)

Fiscal 2011: 40,000 units at US$0.09 per unit = US$3,600

Fiscal 2012-to-date: None



ITEM 6.  SELECTED FINANCIAL DATA


Selected financial data as shown in the following table for the Company for Fiscal 2011/2010 Ended June 30th was derived from the consolidated financial statements of the Company that have been audited by BDO Canada LLP, Chartered Accountants, as indicated in their auditor’s report included elsewhere in this Annual Report.  Selected financial data as shown in the following table for the Company for Fiscal 2009/2008/2007 is derived from the Company's audited consolidated financial statements, not included herein.




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The information presented below should be read in conjunction with following “Management’s Discussion and Analysis or Plan of Operations” and with the consolidated financial statements and other financial data included elsewhere in this Annual Report.


The Company has not declared any dividends since incorporation and does not anticipate that it will do so in the near future.



Table No. 3

Selected Financial Data

($ in 000’s, except per share data)

_________________________________________________________________________________

_________________________________________________________________________________

                                Year       Year       Year       Year       Year

                               Ended      Ended      Ended      Ended      Ended

                           6/30/2011  6/30/2010  6/30/2009  6/30/2008  6/30/2007

Sales Revenue                 $3,256     $2,606     $4,092     $4,878     $6,130

Net Income (Loss)             $  896    ($2,330)     ($719)     ($808)     ($491)

Income (Loss) per Share       $ 0.02     ($0.07)    ($0.02)    ($0.03)    ($0.02)

Dividends Per Share              Nil        Nil        Nil        Nil        Nil

                                                                                

Wtg. Avg. Shares (000)        44,427     34,018     29,415     29,415     28,648

Period-end Shares O/S         44,455     44,415     29,415     29,415     29,415

--------------------------------------------------------------------------------

Working Capital                ($702)   ($1,743)      $271       $433       $845

Long-Term Debt                  $416       $556       $921       $750       $290

Capital Lease Obligations       $290       $344       $398       $462       $529

                                                                                

Capital Stock                $15,464    $15,458    $15,079    $15,079    $15,079

Shareholders’ Equity          $2,134     $1,213     $3,164     $3,873     $4,634

Total Assets                  $4,002     $5,002     $4,849     $5,738     $5,888

---------------------------------------------------------------------------------

(1) Cumulative Net Loss since incorporation to 6/30/2011 was ($14,360,735).

_________________________________________________________________________________

_________________________________________________________________________________



ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


The SEC defines critical accounting policies as those that are, in management's view, important to the portrayal of the Company’s financial condition and results of operations and require management's judgment.  The discussion and analysis of the financial condition and results of operations is based on the audited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").  The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses.  Management bases its estimates on experience and on various assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from those estimates.  The Company’s critical accounting policies include:


Revenue Recognition

The Company recognizes revenue in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin 104, “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) collectibility is reasonably assured. The Company recognizes revenue when the building supplies have been shipped.


The Company also recognizes revenue on a “bill-and-hold” basis in accordance with the authoritative guidance. Under the Company’s “bill-and-hold” arrangements, at the request of the customer, finished inventory is segregated for future delivery at the customer’s discretion.  Title and risk of loss of the inventory has passed to the



16



customer upon transfer at which time, the Company receives payment from the customer and recognizes revenue thereon.


Impairment of Long-Lived Assets

The Company reviews the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  The estimated future cash flows are based upon, among other things, assumptions about future operating performance, and may differ from actual cash flows.  Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.  If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value in the period in which the determination is made.



Stock-based Compensation

The Company accounts for all stock-based payments and awards under the fair value based method.


Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable.  The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity based instruments.  The cost of the stock-based payments to non-employees that is fully vested and non-forfeitable as at the grant date is measured and recognized at that date.


The Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant.  The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional capital surplus.  Upon exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized in additional paid-in capital is recorded as an increase to share capital.


The Company uses the binomial option pricing model to determine the fair value of all stock based awards classified as liabilities and the Black-Scholes option pricing model to calculate the fair value of share purchase options.  Option pricing models require the input of highly subjective assumptions, including the expected price volatility.  Changes in these assumptions can materially affect the fair value estimate.


Derivative Liabilities

The Company’s free standing warrants issued in a conjunction with a private placement and share purchase options granted during the year were classified as liabilities. These liabilities are required to be measured at fair value. These instruments are adjusted to reflect fair value at each period end. Any increase or decrease in the fair value are recorded in results of operations as change in fair value of derivative liabilities except for changes in the fair value of employee stock options classified as liabilities being recorded in wages and management fees.  In determining the appropriate fair value, the Company used the Black Scholes pricing model.


Recent Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, Multiple-Deliverable Revenue Arrangements. The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE or third-party evidence is available. ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.




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In January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about Fair Value Measurements," which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements.  This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements.  Since this new accounting standard only required additional disclosure, the adoption of the standard in the first quarter of 2010 did not impact the Company's consolidated financial statements.  Additionally, effective for annual periods beginning after December 15, 2010 and interim periods within those fiscal years, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount.


In April 2010, the FASB issued ASU No. 2010-13, "Compensation - Stock Compensation," or ASU 2010-13, which amends ASC Topic 718 to address the classification of an employee share-based payment award with an exercise price denominated in a currency of a market in which the underlying security trades.  Specifically, an employee share-based payment award denominated in a currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance of service condition and therefore would not classify the award as a liability if it otherwise qualifies as equity.  This update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.  The Company has adopted this guidance effective July 1, 2011 at which time the fair value of the employee share purchase options previously classified as a liability was reclassified to additional paid-in capital


MANAGEMENT’S DISCUSSION AND ANALYSIS


Equity Financing Timeline

Fiscal 2009:  None

Fiscal 2010:  15,000,000 units at CDN$0.10 per unit = $1,482,974 (CDN$1,500,000)

Fiscal 2011:  40,000 units at US$0.09 per unit = US$3,600

Fiscal 2012-to-date: None


Fiscal 2011 Ended 6/30/2011

International Barrier Technology Inc. (Barrier) manufactures and sells fire-rated building materials. Barrier’s primary business is in the United States but through distribution partnerships is endeavoring to enter building products markets in Australia, Europe, and South America. Barrier has a patented fire resistive material (Pyrotite®) and manufacturing process that is applied to building materials to greatly improve their respective fire resistant properties.  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 introduced a fire rated OSB trademarked LP® Flameblock® Fire-Rated OSB Sheathing (LP® FlameBlock®) and MuleHide has been selling MuleHide FR Deck Panel (FR Deck Panel) to commercial modular building manufacturers since 2004.


Barriers 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 fiscal period ending June 30, 2011 was up 25% to $3,256,019 in comparison to $2,606,254 generated in the same fiscal period in 2010. Total sales volume, as measured by surface volume of product shipped, was 6,962,264 sq. ft.  This is a 39% increase from the 5,002,688 sq. ft. shipped during the previous year.  


Shipments into the Commercial Modular Market (FR Deck panel) during the fiscal year were 3,918,500 sq. ft. (a 29% increase over shipments of 3,034,100 sq. ft. in 2010)



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Sales into the Residential Roof Deck, Wall Assembly, and Structural Insulated Panel Market Sector (LP Flameblock) were 3,043,700 sq. ft. (a 55% increase over the 1,968,600 sq. ft. in the previous year). Flameblock sales were split between the West at 868,100 sq. ft., the Mid-Atlantic region at 795,800 sq. ft., the South at 507,200 sq. ft., the Midwest at 538,900 sq. ft., the Southeast at 46,100 sq. ft., and a special project in Alaska at 113,100 sq. ft. There were 174,500 sq. ft. of shipments of Flameblock into the Structural Insulated Panel market during this period.


On January 18, 2011, LP and Barrier extended their existing Supply Agreement through December 31, 2013. LP is the largest producer of Oriented Strand Board (OSB) in the world and believes that Barrier’s Pyrotite Technology will help them achieve their strategy of providing a number of value added OSB products to the building community. The agreement gives LP the exclusive right to sell Pyrotite® treated panel products in North America, in all markets other than commercial modular (MuleHide Products, Inc.), under their brand name LP® FlameBlock® Fire-Rated OSB Sheathing.


Barrier anticipates the relationship with LP may significantly increase sales volume. Reported sales revenue for LP products, however, will only include the charges for treatment services, not the underlying OSB substrate as LP will supply its own OSB substrate. This pass through treatment of OSB will serve to lower reported “top line” sales revenue, but not necessarily gross profits since margins on substrate have historically been restricted to handling costs only to help keep prices competitive.  Prior to the original LP agreement on January 1, 2010, Barrier purchased OSB from local distributors and invoiced the cost of the substrate to its customer, therefore the cost of the substrate was included in sales revenue. Barrier’s margin for LP FlameBlock is based on the treatment of the OSB only and does not include substrate costs.


Gross profit for the fiscal period was $110,088 vs. $75,622 in the previous year. The gross margin, as a percentage of sales revenue, was the same as last year at 3%.  Improvements in gross margin are anticipated with gains in manufacturing efficiencies provided by improved production technology and efficiencies created by steady and increased sales volumes. Overhead costs will be spread across a larger manufacturing/sales volume base.  Barrier is intently focused on improving gross margins through the next fiscal year and beyond.


Cost of sales increased to $3,145,931 from $2,530,632 in Fiscal 2010.  The increase is attributable to the increase in volume produced.  A sizeable gain in manufacturing efficiency is reflected in the decreased year-to-date average cost per sq.ft. of production of $0.45 in comparison to $0.51 in the comparable period.  The decrease in cost of sales was offset this fiscal year by a decrease in selling price (sales revenue) as a result of the supply agreement with LP.  Therefore, the gross margin remained unchanged.  Prices were lowered in an effort to allow LP to compete directly on a price level to competitive products in the building industry.  As shipment volumes continue to increase, we expect the fixed costs included in Cost of Sales will continue to decrease as revenues increase, thus greatly improving gross margins.   


Substrate cost and materials/labor were the major expenses in this category.  Substrate accounted for $850,852 for the fiscal year versus $744,065 in the same period last year. Materials and labor accounted for an additional $1,350,400 in the twelve month period in 2011 versus $953,068 in 2010.


R&D expenses and activity has generally been limited to those areas allowing LP to introduce LP® FlameBlock® into targeted markets such as the Wildland Urban Interface (WUI) zoned properties in California and for fire rated wall assemblies in wood framed commercial buildings. Barrier’s International Code Council Evaluations Services Report (ICC-ES 1365) has been updated and it now includes LP Building Products, Inc. as an “additional listee”. This allows LP to sell their LP® FlameBlock® product in any application originally certified for Blazeguard®, Barrier’s original fire rated sheathing product.


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 year-to-date from $264,101 in 2010 to $272,105.  The expense reflects scheduled depreciation of the new manufacturing line equipment and building



19



expansion.  Amortization, another non-cash category of reporting, of the worldwide Pyrotite technology (including patents, technical know-how, and trademarks) began when Barrier purchased it in 2004 and will continue at existing rates until it is fully depreciated.   


Administrative expenses for Fiscal 2011 decreased to $660,196 from $1,402,270 in the prior year.  The administrative costs per sq. ft. was $0.09 year-to-date in comparison to $0.28 in Fiscal 2010. While changes in derivative value (see Note 6) affected administrative costs significantly in this reporting period, Barrier continues to focus on how increased sales volume will help reduce admin cost per square foot shipped. As volumes continue to increase, a continued trend for overall reduction in the average cost of administrative expense per sq.ft. will be manifest. Barrier expects the reduction in the average cost of administration to have a significant impact on bottom line performance in future reporting periods.  


Accounting and Audit Fees increased slightly to $86,575 from $84,173.   


Insurance costs have increased from $71,936 to $85,121.  The difference is due to annually adjusted premiums based on larger sales volume as well as rising insurance premium rates.


Legal fees decreased to $62,979 for the annual period ending June 30, 2010.  For the same period in the prior year, legal fees were $80,422.  Legal fees were expended on activities in support of protecting Pyrotite® patents and trademark registration as well as for help in the drafting and review of certain business correspondence.  Barrier believes protecting its technology and trademarks is an important step in positioning itself to develop strategic partners and potential technology licensees.


Barrier now has two recently issued US patents protecting the manufacturing technology utilized in the production of fire-rated sheathing products utilizing Pyrotite. Barrier has patent pending status on a related patent application in Australia.


Sales, marketing, and investor relations expenses increased from $88,269 to $208,944 year-to-date. The major reason for the increase in expense under this category was an enhanced effort placed on investor relations. Barrier contracted with an external investor relations and media firm, The Investor Relations Group “IRG,” from July through November 30, 2010.  The partnership fit into a strategy of increasing investor awareness of Barrier’s improving business to the investment community.


In addition to the utilization of IRG, Barrier also contracted with an independent Investor Relations professional to conduct dialogue with current and prospective investors during the time period of October 2010 through April 2011. Barrier is committed to maintaining strong relationships with our investors through active communication on an ongoing basis.


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


Loss Before Other items of ($550,108) is being reported for the fiscal period ending June 30, 2011, whereas in the same period in 2010, a net loss of ($1,326,648) was reported.




20



Barrier anticipated a slower start as the Flamebock brand enters the market and gains strength.  Losses early in the LP relationship were anticipated. LP and Barrier targeted a market based price that is more competitive to past product pricing and at a level that will support improved market share. As sales continue to increase, gross margins and profits are expected to improve.


Other items include income and costs not directly related to business operations.  Other income items reported during the period herein includes a foreign exchange gain of $37,919 and interest/other income of $4,296.  To compare, for the same reporting period last year there was a foreign exchange loss of ($30,615) and interest/other income of $93,017.  The decrease in interest and other income as compared to the prior year is attributable to $90,000 received during the year ended June 30, 2010 from Pyrotite Corporation as final mediated settlement of a dispute over a royalty agreement.  


In March, 2010, Barrier issued, and sold in a private placement, 15 million shares of stock at the price of $0.10 CDN per share. In addition, the purchasers of the shares were awarded the right to buy an additional share (warrant) at $0.15 CDN. As well, Barrier granted options that were exercisable in Canadian currency whereas the functional currency of the company is the US dollar. As a result of these transactions, Barrier is required to record these instruments as derivative liabilities which are re-measured to their fair value each reporting period. During the fiscal year, the Company reported a fair value gain of $1,453,238 vs. ($927,000) in Fiscal 2010.


Interest on Long Term Debt has decreased from $79,921 to $49,534 for the 12-month reporting period.


Net Income.  A net income of $895,811 is being reported for the fiscal period ending June 30, 2011, whereas in the same period in 2010, a net loss of ($2,329,567) was reported.  Barrier remains focused on cutting costs and improving efficiencies wherever it can.  This includes operating the manufacturing line with maximum efficiency, as the economy remains unsettled and residential construction slowly begins to recover.  Keeping a vigilant handle on costs will help keep operational costs as low as possible and enable recovery to occur sooner and at lower volumes than previously possible.


 

June 30 2011

Mar 31 2011

Dec 31 2010

Sept 30 2010

June 30 2010

Mar 31 2010

Dec 31 2009

Sept 30 2009

Jun 30 2009

Volume shipped (MSF)

1,861

1,573

1,754

1,774

1,496

1,261

1,343

903

1,011

Total Revenues (000)

$765

$735

$877

$879

$574

$660

$791

$581

$618

Operating Income (000)

($175)

($176)

($30)

($169)

($370)

($652)

($101)

($195)

($277)

Net income (loss) (000)

$31

$11

$808

$46

($117)

($1,883)

($124)

($206)

($346)

EPS (Loss) Per Share

$0.00

$0.00

$0.02

$0.00

($0.00)

($0.06)

($0.00)

($0.01)

($0.00)


Selected Annual Information


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


 


2011


2010


2009

Total Revenue

$3,256.0

$2,606.3

$4,092.0

Net income (loss)

895.8

(2,330.0)

(719.0)

Per share

0.02

(0.07)

(0.02)

Per share, fully diluted

0.02

(0.07)

(0.02)

Total assets

4,002.2

5,002.0

4,849.0

Total long-term financial liabilities

571.6

774.0

1,205.0

Cash dividends declared per share

Nil

Nil

Nil




21




New product and market development


Barrier successfully certified and listed a fire-rated return air plenum product with the International Code Council (ICC-ES) during this fiscal year. In addition, new product labels were approved, enabling the FlameBlock product to be better marketed and utilized in Canada. Prior to this fiscal quarter, the thinnest FlameBlock panel marketed was a 15/32 performance grade panel. During this quarter LP and Barrier worked closely together to successfully certify, list, and launch a 7/16 performance grade panel which has proven to be a more competitive match to FRT plywood than the 15/32 panel in many market geographies.  


Barrier continues to provide support to LP for new product and market development activity directed specifically toward the Wildland Urban Interface (WUI) zoned properties in California. To date, FlameBlock has been successfully specified and used in these zones as not only an exterior, sheer wall assembly, but also as a soffit material. Thereby, FlameBlock is currently being used to protect an important area identified by the Office of the State Fire Marshall as critical to prevent from igniting during a wildfire.  In June, FlameBlock was approved by CAL FIRE for use in WUI zones as exterior wall sheathing behind LP SmartSide lap and panel siding, as well as cedar shingles and lap siding, providing additional application uses.


Global licensing opportunities

Barrier continues to explore opportunities for both Pyrotite technology licensing and distribution of US manufactured products as a part of the LP® Building Products agreement. LP is active internationally and has offered to potentially extend their influence in Europe, Australia, and South America if the opportunity seems mutually beneficial. In addition, Barrier continues to explore the opportunity for developing fire resistive panels for the emerging Structural Insulated Panel (SIP) market in Australia with an American company currently doing SIP business there. More information will be presented on these opportunities in subsequent reports as it develops.  


Financial position & financings

Barrier ended the period with a working capital deficiency (current assets less current liabilities) of ($701,934).  The negative operating cash flow was ($329,065) in comparison to ($366,392) for the fiscal period ended June 30, 2010.  The net operating cash outflow is derived primarily by reducing the net operating income of $895,811 by the change in fair value of derivative liability of ($1,453,238) and the non-cash items (stock-based compensation) of ($304,086) and amortization/depreciation of $398,121. Other items included in the calculation of operating cash flow include such items as the change in the year to year, Y/E value of inventory, accounts receivable, prepaid items, and accounts payable.  


The Company expects to fund short-term cash flow requirements with remaining cash reserves and positive operating cash flow anticipated with increasing sales volume over the next fiscal year. Barrier has also maintained a short term revolving line of credit ($250,000) at the local Cold Spring National Bank in Cold Spring, Minnesota. As of June 30, 2011 the balance owing on the revolving line of credit was $181,723 leaving an additional $68,277 available to fund short term cash flow requirements.   


Investing activities resulted in net cash outflow of ($74,857) in the current period in comparison to a net cash outflow of ($23,068) in the prior year.  The cash outflow was the result of the acquisition of plant and equipment capital improvements.


Financing activities resulted in net cash outflow of ($190,457) in the current period compared to a net cash inflow of $1,041,858 for the same period last year.  The cash outflow resulted from repayments on long-term debt and obligations under capital lease whereas in the previous period a private placement of issued stock resulted in the cash inflow.

 



22



There is no unqualified 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.  These factors cast substantial doubt about the Company’s ability to continue as a going concern.  The Company’s ability to continue as a going concern is dependent upon the Company’s ability to generate profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities as they come due.  The Company’s independent auditors included an explanatory regarding substantial doubt about the Company’s ability to continue as a going concern in their report on the Company’s annual financial statements for the fiscal year ended June 30, 2011.


Although management believes that revenues will increase, management also expects an increase in operating costs. Consequently, the Company expects to incur short term operating losses and negative cash flow until our products gain market acceptance sufficient to generate a commercially viable and sustainable level of sales, and/or additional products are developed and commercially released and sales of such products made so that we are operating in a profitable manner.


Current and Future Financing Needs

At June 30, 2011, the current cash and cash equivalents totaled $268,742 and there were $68,277 in available funds to draw on the revolving credit facility.  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 twelve months ended June 30, 2011 the Company incurred wages and management fees to the directors and officers of the company of ($78,682) of which $186,793 was wages and management fees and ($265,475) was share-based compensation with directors of the Company and companies with common directors.  The Company paid $594,064 in wages and management fees for the same prior year-to-date ($181,064 in wages and management fees and $413,000 in share-based compensation).


Capitalization

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


Issued as of June 30, 2011:  44,454,926 common shares at $15,463,675

Issued as of Sept 27, 2011:  44,454,926 common shares at $15,463,675


Options outstanding:


The following summarizes information about the stock options outstanding at June 30, 2011:


 

Exercise

 

Number

Price

Expiry Date

 

 

 

3,540,000

$0.12 CDN

March 18, 2012

350,000

$0.15 CDN

October 29, 2012

40,000

$0.064 CDN

June 10, 2013

3,930,000

 

 




23



At June 30, 2011, the following share purchase warrants were outstanding entitling the holder to purchase one common share for each warrant held as follows:


 

Exercise

 

Number

Price

Expiry Date

 

 

 

15,000,000

$0.15 CDN

March 18, 2012

15,000,000

 

 



Other Matters

As at June 30, 2011 the Company did not have any off-balance sheet arrangements to report.


On January 18, 2011, Barrier and LP® Building Products (LP) extended their exclusive Supply Agreement where Barrier has agreed to provide exclusive fire treatment services for LP on their oriented strand board panel product (OSB) through December 31, 2013. LP is the largest producer of OSB in the world. LP will market and sell the fire treated OSB in North America under their own trade name LP® FlameBlock® Fire-Rated OSB Sheathing. Barrier has agreed not to market or sell Pyrotite® technology coated wood products under the registered trademark Blazeguard® for as long as the agreement is in place. Barrier will provide technical support. Barrier will continue to supply MuleHide FR Deck Panel to MuleHide Products, Inc. under the existing Supply Agreement executed between Barrier and MuleHide in 2004.


LP studied available fire retardant technology for OSB for some time and after an exhaustive review of available technologies, selected Pyrotite®, Barrier’s proprietary and patent protected technology. The Barrier/LP partnership is particularly powerful in that it links the raw manufacturing of the OSB substrate with the company that actually mixes and produces the fire retardant slurry. Barrier and LP believe that not only will LP® FlameBlock® be recognized as the premier fire rated sheathing in the marketplace; it will be priced competitively to alternative products. LP has a strong sales and distribution network all over North America and will be able to leverage this substantial support network in a way that Barrier was never able to do successfully with its relatively small size.


More descriptive details relating to the long-term relationship of LP and Barrier will be reported as they are developed. Presently, however, Barrier and LP agree that moving quickly to establish both a customer base of support and recognition of the product in the builder community is the number one priority. Establishing market share now, while the overall building market is slow, will enable LP® FlameBlock® sales to grow exponentially as the economy improves.


LP’s number one market development priority will be roof and exterior wall applications in the wildfire prone areas of California. LP® FlameBlock®’s inherent attributes of strength enhancement coupled with superior fire protection will help position it as the premier choice for residential and commercial wood framed construction because along the west coast designing for both fire and earthquake protection is required.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


None



24






ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
























INTERNATIONAL BARRIER TECHNOLOGY INC.

CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



25




[ibt10koct1211ev2final002.gif]

Tel: 604  688 5421

Fax: 604  688 5132

www.bdo.ca

BDO Canada LLP

600 Cathedral Place

925 West Georgia Street

Vancouver BC  V6C 3L2  Canada



Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

International Barrier Technology Inc.

We have audited the accompanying consolidated balance sheets of International Barrier Technology Inc. as of June 30, 2011 and 2010 and the related statements of operations, cash flows and changes in stockholders’ equity for the years then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Barrier Technology Inc. at June 30, 2011 and 2010 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company had an accumulated deficit of $14,360,735 at June 30, 2011 and had a working capital deficit of $701,934.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



Chartered Accountants

Vancouver, Canada

October 11, 2011



BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.



26





INTERNATIONAL BARRIER TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

June 30, 2011 and 2010

(Stated in US Dollars)

 

 

 

 

June 30, 2011

June 30, 2010

 

 

 

ASSETS

 

 

Current

 

 

Cash and cash equivalents

$          268,742

$      863,121

Accounts receivable

49,825

102,098

Inventory (Note 3)

230,226

255,830

Prepaid expenses and deposits

46,359

50,860

Total Current Assets

595,152

1,271,909

Property, plant and equipment (Note 4)

3,387,810

3,585,058

Patent, trademark, and technology rights (Note 5)

19,273

145,289

Total Assets

$        4,002,235

$    5,002,256

 

 

 

LIABILITIES

 

 

Current

 

 

Accounts payable and accrued liabilities

$           401,562

$       369,457

Customer deposits

19,844

-

Derivative liability (Notes 6 and 9)

741,357

2,519,600

Current portion of long term debt (Note 7)

76,412

71,225

Obligation under capital leases (Note 8)

57,911

54,593

Total Current Liabilities

1,297,086

3,014,875

Long-term debt (Note 7)

339,709

484,360

Obligation under capital leases (Note 8)

231,907

289,818

Total Liabilities

 

 

 

1,868,702

3,789,053

 

 

 

STOCKHOLDERS' EQUITY

 

 

Authorized:

100,000,000 common shares without par value

44,454,926 common shares (2010:  44,414,926) (Note 9)

Issued:

15,463,675

15,457,697

Additional paid-in capital

1,030,593

1,012,052

Accumulated deficit

(14,360,735)

(15,256,546)

 

 

 

Total Stockholders’ Equity

2,133,533

1,213,203

 

 

 

Total Liabilities and Stockholders’ Equity

$        4,002,235

$    5,002,256



APPROVED BY THE BOARD OF DIRECTORS

 

 

 

 

 

 

 

 

 

"David Corcoran"

 

 

"Victor Yates"

 

David Corcoran

Director

 

Victor Yates

Director


See accompanying notes.



27





INTERNATIONAL BARRIER TECHNOLOGY, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

June 30, 2011 and 2010

(Stated in US Dollars)

 

 

 

 

2011

2010

 

 

 

Sales

$       3,256,019

$       2,606,254

 

 

 

Cost of Sales

3,145,931

2,530,632

 

 

Gross Profit

110,088

75,622

 

 

 

Expenses

 

 

Accounting and audit fees

86,575

84,173

Filing Fees

22,537

26,303

Insurance

85,121

71,936

Interest and bank charges

441

459

Legal fees

62,979

80,422

Office and miscellaneous

52,382

48,619

Sales, marketing, and investor relations (Note 9)

208,944

88,269

Telephone

11,011

10,850

Transfer agent fees

8,539

8,480

Wages and management fees (Notes 9 and 11)

121,667

982,759

 

 

 

Total Administrative Expenses

660,196

1,402,270

 

 

 

Loss before other income

(550,108)

(1,326,648)

 

 

 

Foreign exchange gain (loss)

37,919

(30,615)

Interest and other income (Note 14)

4,296

93,017

Interest and penalties

-

(58,400)

Change in fair value of derivative liability (Note 6)

1,453,238

(927,000)

Interest on long-term obligations

(49,534)

(79,921)

 

 

 

Total Other Income

1,445,919

(1,002,919)

 

 

 

Net income (loss) for the year

$          895,811

$      (2,329,567)

 

 

 

Basic and diluted income (loss) per share

$                0.02

$              (0.07)

 

 

 

Weighted average number of shares outstanding

44,426,542

34,017,665

Diluted weighted average number of shares outstanding

44,837,955

34,017,665



See accompanying notes.



28




INTERNATIONAL BARRIER TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

June 30, 2011 and 2010

(Stated in US Dollars)

 

 

 

 

2011

2010

 

 

 

Operating Activities

 

 

Net income (loss) for the year

$          895,811

$    (2,329,567)

Items not involving cash:

 

 

Depreciation - plant and equipment

272,105

264,101

Amortization - patent, trademark and technology rights

126,016

126,816

Stock-based compensation - investor relations

27,090

8,700

Stock-based compensation - wages

(331,176)

500,900

Change in fair value of derivative liability

(1,453,238)

927,000

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

 

 

Accounts receivable

52,273

77,680

Inventory

25,604

58,172

Prepaid expenses and deposits

4,501

(4,442)

Accounts payable and accrued liabilities

32,105

4,248

Customer deposits

19,844

-

 

 

 

Net cash used in operating activities

(329,065)

(366,392)

 

 

 

Cash Flows provided by Financing Activities

 

 

Issuance of common shares, net of share issue costs

3,600

1,461,626

Repayments on long-term debt

(71,187)

(365,875)

Decrease in obligations under capital lease

(54,593)

(53,893)

Advances on bank loan facility

250,000

-

Repayment of bank loan facility

(318,277)

-

Net cash provided by (used in) financing activities

(190,457)

1,041,858

 

 

 

Cash Flows used in Investing Activities

 

 

Acquisition of equipment

(74,857)

(23,068)

Net cash used in investing activities

(74,857)

(23,068)

 

 

 

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

(594,379)

652,398

 

 

 

Cash and cash equivalents, beginning of the year

863,121

210,723

 

 

 

Cash and cash equivalents, end of the year

$          268,742

$          863,121

 

 

 

Supplemental Cash Flow Information

 

 

Cash paid for interest

$            49,534

$            79,921

 

 

 

Cash paid for income taxes

$                     -

$                     -




See accompanying notes.




29







INTERNATIONAL BARRIER TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

June 30, 2011 and 2010

(Stated in US Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

Additional

 

 

 

Issued

Amount

Paid-in

Accumulated

 

 

Shares

 

Capital

Deficit

Total

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2009

29,414,926

15,079,071

1,012,052

(12,926,979)

3,164,144

Issued for cash pursuant to private placement - at $0.0988

15,000,000

1,482,974

-

-

1,482,974

Less:  Proceeds allocated to warrants

-

(1,083,000)

-

-

(1,083,000)

Less:  Share Issue costs

-

(21,348)

-

-

(21,348)

Net loss for the year

-

-

-

(2,329,567)

(2,329,567)

 

 

 

 

 

 

Balance, June 30, 2010

44,414,926

15,457,697

1,012,052

(15,256,546)

1,213,203

Reclassification of derivative liability on cancellation of stock options

-

-

20,405

-

20,405

Stock-based compensation

-

-

514

-

514

Issued for exercise of stock options - at $0.09

40,000

3,600

-

-

3,600

Transferred to additional paid in capital for the exercise of stock options

 

2,378

(2,378)

 

-

Net income for the year

-

-

-

895,811

895,811

 

 

 

 

 

 

Balance, June 30, 2011

44,454,926

15,463,675

1,030,593

(14,360,735)

2,133,533























See accompanying notes.




30





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



Note 1

Nature of Operations and Ability to Continue as a Going Concern


The Company develops, manufactures and markets proprietary fire resistant building materials branded as Blazeguard in the United States of America and, as well, the Company owns the exclusive U.S. and international rights to the Pyrotite fire retardant technology.


These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its obligations and commitments in the normal course of operations. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.  At June 30, 2011, the Company had not yet achieved profitable operations, had an accumulated deficit of $14,360,735 since its inception and had a working capital deficiency of $701,934, which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company expects to fund short-term cash flow requirements with remaining cash reserves and positive operating cash flow anticipated with increasing sales volume over the next fiscal year.While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds for operations.


The Company was incorporated under the British Columbia Company Act and is publicly traded on the TSX Venture Exchange in Canada (“TSX-V”) and the OTC Bulletin Board in the United States of America. During the years ended June 30, 2011 and June 30, 2010, the Company had assets in each of Canada and the United States of America and generated sales primarily in the United States of America.


Note 2

Significant Accounting Policies


The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to deferred income tax asset valuations, asset impairment, derivative liability, stock based compensation and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.


The financial statements have, in management’s opinion, been properly prepared within the framework of the significant accounting policies summarized below:


a)

Principles of Consolidation


These consolidated financial statements include the accounts of International Barrier Technology Inc. and its wholly-owned subsidiaries, Pyrotite Coatings of Canada Inc., a Canadian company and Barrier Technology Corporation, a US company.  All inter-company transactions and balances have been eliminated.




31





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)




Note 2

Significant Accounting Policies – (cont’d)


b)

Cash and Cash Equivalents


Cash and cash equivalents consist of cash and short-term term deposits, with original maturity dates of less than 90 days and/or with original maturity dates over 90 days but redeemable on demand without penalty.  The Company places its cash with institutions of high-credit worthiness.


c)

Inventory


Inventory is valued by management at the lower of FIFO (first-in, first-out) and net realizable value.  In addition, items such as abnormal amounts of idle facility expense, freight, handling and wasted material are recognized as current period charges rather than inventory value.  


d)

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

Building under capital lease

straight line over 20 years

Patent, trademark and technology rights

straight line over 8 years


Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful economic life.


e)

Impairment of Long-Lived Assets


 The Company reviews the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The estimated future cash flows are based upon, among other things, assumptions about future operating performance, and may differ from actual cash flows. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value in the period in which the determination is made.

 

f)

Leases


Leases are classified as capital or operating leases.  A lease that transfers substantially all benefits and risks incidental to the ownership of property is classified as a capital lease.  At the inception of a capital lease, an asset and an obligation are recorded at an amount equal to the lesser of the present value of the minimum lease payments and the property’s fair value at the beginning of the lease.  All other leases are accounted for as operating leases wherein rental payments are expensed as incurred.



32





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



Note 2

Significant Accounting Policies – (cont’d)


g)

Foreign Currency Translation


The functional currency for the Company’s operations is the US dollar. Monetary assets and liabilities denominated in Canadian dollars are translated into U.S. dollars at the exchange rate prevailing at the end of the year.  Non-monetary assets and liabilities are translated at the exchange rate prevailing at the respective transaction dates while revenues and expenses are translated at the average exchange rate during the year.  Exchange gains and losses are recognized in the statement of operations.


h)

Research and Development Costs


Research and development costs are expensed in the year in which they are incurred.


i)

Basic and Diluted Income (Loss) per Share

       

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period.  Diluted net income (loss) per common share includes both the weighted-average number of common shares outstanding for the period plus the potentially dilutive securities from stock options and warrants outstanding.  The number of shares potentially issuable at June 30, 2011 and 2010 upon exercise or conversion totaled 18,930,000 and 19,330,000 respectively.  Of the total, 15,000,000 warrants and Nil share purchase options (2010: 15,000,000 warrants and 4,330,000 share purchase options) were excluded from the calculation of diluted earnings per share because their effect is anti-dilutive.


j)

Fair Value Measurements


The book value of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximate their fair values due to the immediate or 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.


The Company had certain liabilities required to be recorded at fair value on a recurring basis in accordance with generally accepted accounting June 30, 2011 and 2010 were Level 3 liabilities.











33





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



Note 2

Significant Accounting Policies – (cont’d)


As at June 30, 2011, the Company’s Level 3 liabilities consisted of the warrants issued in connection with the Company’s offering of equity units in a private placement (Note 6) as well as the transfer in and issuance of share purchase options granted to non-employees during the year (Note 9). The resulting Level 3 liabilities have no active market and are required to be measured at their fair value each reporting period based on information that is unobservable. A summary of the Company’s Level 3 liabilities for the years ended June 31, 2011 and 2010 is as follows:


j)

Fair Value Measurements – (cont’d)


Warrants

 

Year ended

 

June 30, 2011

June 30, 2010

Beginning Fair Value

$    2,010,000

$               -

Issuance

-

1,083,000

Change in Fair Value

(1,453,238)

927,000

Ending Fair Value

$       556,762

$   2,010,000

 

 

 

Non-employee options

Year ended

 

June 30, 2011

June 30, 2010

Beginning Fair Value

$         40,600

$               -

Issuance

10,745

31,900

Transfers In

27,031

-

Transfers Out

(20,405)

-

Change in Fair Value

(38,815)

8,700

Ending Fair Value

$         19,156

$        40,600

 

 

 

Total Level 3 Liabilities

$       575,918

$   2,050,600


k)

Accounts Receivable and Concentrations of Credit Risk


The Company grants credit to its customers in the normal course of business. Trade receivables are typically non-interest bearing and are initially recorded at cost. Sales to the Company’s recurring customers are generally made on open account terms. Past due status of customer accounts is determined based on how recently payments have been received in relation to payment terms granted. Credit is generally extended based upon an evaluation of each customer’s financial condition, with terms consistent in the industry and no collateral required. Losses from credit sales are provided for in the financial statements and consistently have been within the allowance provided. The allowance is an estimate of the uncollectibility of accounts receivable based on an evaluation of specific customer risks along with additional reserves based on historical and probable bad debt experience. Amounts are written off against the allowance in the period the Company determines that the receivable is uncollectible. The Company has not recorded an allowance for doubtful accounts against its accounts receivable in each of the years ended June 30, 2011 or June 30, 2010.


Currency Risk


The Company holds cash of $276,225 (2010 $858,156) in Canadian dollars exposing it to a foreign currency exchange risk. During the year ended June 30, 2011 the Company realized a foreign exchange gain of $37,919 (2010: $(30,615)) as a result of the Company holding cash in Canadian dollars.







34





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



Note 2

Significant Accounting Policies – (cont’d)


l)

Revenue Recognition


The Company recognizes revenue in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin 104, “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) collectability is reasonably assured. The Company recognizes revenue when the building supplies have been shipped. The Company has not disclosed revenues by individual products and services as it impracticable to do.


The Company also recognizes revenue on a “bill-and-hold” basis in accordance with the authoritative guidance. Under the Company’s “bill-and-hold” arrangements, at the request of the customer, finished inventory is segregated for future delivery at the customer’s discretion.  Title and risk of loss of the inventory has passed to the customer upon transfer at which time, the Company receives payment from the customer and recognizes revenue thereon.


m)

Income Taxes


The Company follows the liability method of accounting for income taxes.  Under this method, current income taxes are recognized for the estimated income taxes payable for the current year.  Deferred income tax assets and liabilities are recognized in the current year for temporary differences between the tax and accounting basis of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes.  Deferred income tax assets and liabilities are measured using tax rates and laws expected to apply in the years in which those temporary differences are expected to be recovered or settled.  The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in operations in the year of change.  A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.


n)

Stock-based Compensation


The Company accounts for all stock-based payments and awards under the fair value based method.


Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity based instruments. The cost of the stock-based payments to non-employees that is fully vested and non-forfeitable as at the grant date is measured and recognized at that date.


The Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant.  The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional capital surplus.  Upon exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized in additional paid-in capital is recorded as an increase to share capital. Share purchase options granted to employees are accounted for as liabilities when they contain conditions or other features that are indexed to other than a market, performance or service condition.  









35





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



Note 2

Significant Accounting Policies – (cont’d)


The Company uses the binomial option pricing model to determine the fair value of all stock-based awards classified as liabilities and the Black-Scholes option pricing model to determine the fair value of stock option awards classified as equity.  Option pricing models require the input of highly subjective assumptions, including expected price volatility. Changes in these assumptions could materially affect the fair value estimate.

o)

Derivative Liabilities


Free standing warrants and share purchase options are classified as liabilities and are measured at fair value. These instruments are adjusted to reflect fair value at each period end. Any increase or decrease in the fair value are recorded in results of operations as change in fair value of derivative liabilities except for changes in the fair value of employee stock options classified as liabilities being recorded in wages and management fees.

In determining the appropriate fair value, the Company used the binomial pricing model.


p)

Recent Accounting Pronouncements


In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, Multiple-Deliverable Revenue Arrangements. The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE or third-party evidence is available. ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.


In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements. Since this new accounting standard only required additional disclosure, the adoption of the standard in the first quarter of 2010 did not impact the Company’s consolidated financial statements. Additionally, effective for annual periods beginning after December 15, 2010 and interim periods within those fiscal years, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount.


In April 2010, the FASB issued ASU No. 2010-13, “Compensation – Stock Compensation,” or ASU 2010-13, which amends ASC Topic 718 to address the classification of an employee share-based payment award with an exercise price denominated in a currency of a market in which the underlying security trades. Specifically, an employee share-based payment award denominated in a currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance or service condition and therefore would not classify the award as a liability if it otherwise qualifies as equity. This update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.  The Company has adopted this guidance effective July 1, 2011 at which time the fair value of the employee share purchase options previously classified as a liability was reclassified to additional paid-in capital.



   



36





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



Note 2

Significant Accounting Policies – (cont’d)


p)

Comparative Figures


Certain of the comparative figures have been reclassified to conform to the current year’s presentation.


Note 3

Inventory


 

2011

2010

Raw Materials

$    153,369

$    179,105

Finished Goods

76,857

76,725

 

$    230,226

$    255,830



Note 4

Property, Plant and Equipment


 

 

2011

 

 

 

Accumulated

 

 

Cost

Depreciation

Net

Manufacturing equipment

$    3,518,136

$    1,252,225

$    2,265,911

Equipment and furniture

33,194

32,768

426

Computer equipment

30,032

29,570

462

 

3,581,362

1,314,563

2,266,799

 

 

 

 

 

 

2011

 

 

 

Accumulated

 

 

Cost

Depreciation

Net

Assets under capital lease

 

 

 

Equipment

69,696

38,237

31,459

Land

54,498

-

54,498

Building

1,877,801

889,893

987,908

Railroad Spur

94,108

46,962

47,146

 

2,096,103

975,092

1,121,011

 

$      5,677,465

$      2,289,655

$      3,387,810

 

 

 

 

 

 

2010

 

 

 

Accumulated

 

 

Cost

Depreciation

Net

Manufacturing equipment

$      3,444,695

$      1,075,803

$      2,368,892

Equipment and furniture

33,194

31,100

2,094

Computer equipment

30,032

27,823

2,209

 

3,507,921

1,134,726

2,373,195

 

 

 

 

 

 

2010

 

 

 

Accumulated

 

 

Cost

Depreciation

Net

Assets under capital lease

 

 

 

Equipment

69,696

31,277

38,419

Land

54,498

-

54,498

Building

1,877,801

809,769

1,068,032

Railroad Spur

94,108

43,194

50,914

 

2,096,103

884,240

1,211,863

 

$      5,604,024

$      2,018,966

$      3,585,058



37





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)




Note 4

Property, Plant and Equipment – (cont’d)


During the year ended June 30, 2011, the Company recorded depreciation expense of $272,105 (2010: $264,101) on its property, plant and equipment. This amount is included in cost of sales in the Statement of Operations


Depreciation of assets under capital leases included in amortization expense for the year ended June 30, 2011 was $90,852 (2010:  $90,852).


Note 5

Patent, Trademark and Technology Rights


 

2011

2010

Trademark and technology rights - at cost

$      1,000,000

$      1,000,000

Patent - at cost

24,104

24,104

 

$      1,024,104

$      1,024,104

Less: Accumulated amortization

(891,085)

(765,069)

Impairment provision

(113,746)

(113,746)

 

$           19,273

$         145,289


Note 6

Warrant Liability


During the year ended June 30, 2010, the Company sold 15,000,000 units at $ 0.10 CDN per unit for total proceeds of $1,482,974 ($1,500,000 CDN). Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $CDN 0.15 for a period of two years. Upon the adoption of the guidance in ASC 815-40-15 which became effective for the fiscal year that commenced July 1, 2009, the Company recorded the warrants issued as derivative liabilities due to their exercise price being denominated in a currency other than the Company’s US dollar functional currency.

The warrant liability is accounted for at its respective fair values as follows:

 

2011

2010

Beginning Fair Value

$    2,010,000

$                     -

Issuance of warrant liability

 

1,083,000

Change in fair value

(1,453,238)

927,000

Ending Fair Value

$       556,762

$      2,010,000

The Company used the binomial option pricing model to estimate the fair value of the warrants with the following assumptions:


 

At June 30, 2011

At June 30, 2010

At issuance

 

 

 

 

Expected life (years)

0.72

1.69

2.00

Risk-free interest rate

0.19%

0.46%

0.92%

Expected volatility

146.29%

145.84%

145.84%

Expected dividend yield

0.00%

0.00%

0.00%






38





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)




Note 6

Warrant Liability – (cont’d)


The warrant liability will be revalued at the end of each reporting period with the change in fair value of the derivative liability recorded as a gain or loss in the Company’s Consolidated Statements of Operations. The fair value of the warrants will continue to be classified as a liability until such time as they are exercised, expire or there is an amendment to the respective agreements that renders these financial instruments to be no longer classified as a liability.



Note 7

Long-term Debt



 

2011

2010

Revolving bank loan facility in the amount of $250,000 bearing interest at 6.75% per annum and secured 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 balance is due on September 1, 2012 with accrued interest paid monthly.

$      181,723

$   250,000

 

 

 

Term bank loan facility in the amount of $500,000 bearing interest at 7% per annum and secured by a second charge over the real estate.  The facility is being amortized over 7 years with fixed monthly blended payments of principal and interest totaling $7,550 and has a balloon payment due July 1, 2012.

234,398

305,585

 

416,121

555,585

Less:  Current portion

(76,412)

(71,225)

 

$      339,709

$   484,360



Future principal payments required on long-term debt are as follows:


2012

$   76,412

2013

339,709

 

$ 416,121




39





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



Note 8

Obligation under Capital Leases


Future minimum annual lease payments on the obligation under capital leases are as follows:



2012

$     73,621

2013

73,621

2014

73,621

2015

73,621

2016

36,812

Thereafter

-

 

331,296

Less:  amount representing interest

(41,478)

 

289,818

Less:  current portion

(57,911)

Long-term portion

$   231,907


The capital leases bear interest at various rates from 4.75% to 6% per annum.


Interest on capital leases included in interest on long-term debt for the year ended June 30, 2011 was $16,996 (2010:  $22,161).


Note 9

Common Stock


a)

Escrow:


At June 30, 2011, there are 48,922 (2010 – 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 June 30, 2011, all of these shares held in escrow are issuable but the Company has yet to request their release.  These shares have been included in the computation of net loss per share.


b)

Commitments:


Stock-based Compensation Plan


In November 2005, the Company continued its rolling stock option plan (“the 2005 Rolling Plan”).  The 2005 Rolling Plan provides for the granting of stock options to selected directors, officers, employees or consultants in an aggregate amount of up to 10% of the issued and outstanding common shares of the Company.  Under the 2005 Rolling Plan, the granting of stock options, exercise prices and terms are determined by the Company's Board of Directors. Options granted to non-executive employees and consultants typically vest in stages over various periods of time while options granted to Directors and executive employees vest immediately upon their grant. The exercise price shall not be less than the Discounted Market Price, which is defined as the last closing price of the common shares before the date of the grant less an applicable discount, as allowed by the regulatory authorities. Options granted under the 2005 Rolling Plan may not exceed  a term of 5 years unless the Company achieves classification as a “Tier 1 “ issuer in accordance with the policies of the TSX, in which case, the options may be granted for a maximum term of 10 years.





40





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



Note 9

Common Stock – (cont’d)


b)

Commitments: - (cont’d)


Stock-based Compensation Plan – (cont’d)


A summary of the status of the Company’s share purchase option plan as of June 30, 2011 and 2010 and changes during the years ending on those dates is presented below:



 

 

 Weighted

 

 

 

Average

Aggregate

 

Number of

Exercise

Intrinsic

 

Shares

Price

Value

 

 

 

 

Outstanding, June 30, 2009

1,941,750

$0.56

$                 -

 

 

 

 

Granted

4,040,000

$0.12 CDN

-

Expired

(1,601,750)

$0.65

-

Forfeited

(50,000)

$0.45

-

Outstanding, June 30, 2010

4,330,000

$0.12

$         293,553

 

 

 

 

Granted

390,000

$0.14 CDN

-

Exercised

(40,000)

$0.09

-

Expired

(250,000)

$0.55

-

Forfeited

(500,000)

$0.14 CDN

 

Outstanding, June 30, 2011

3,930,000

$0.12 CDN

$                   -

 

 

 

 

Exercisable, June 30, 2011

3,890,000

$0.12 CDN

 

 

 

 

 

Exercisable, June 30, 2010

3,920,000

$0.14

 


The following summarizes information about share purchase options outstanding as at June 30, 2011:


 

Exercise

 

Remaining

Number

Price

Expiry Date

Contractual Life

 

 

 

 

3,540,000

 $0.12 CDN

March 18, 2012

0.72 years

350,000

 $0.15 CDN

October 29, 2012

1.33 years

40,000

 $0.064 CDN

June 10, 2013

1.95 years

3,930,000

 

 

 


The weighted-average grant date fair value of options granted during the years 2011 and 2010 was $0.10 and $0.11 respectively.





41





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



Note 9

Common Stock – (cont’d)


b)

Commitments: - (cont’d)


Stock-based Compensation Plan – (cont’d)


Non-Employee Share Purchase Options


In accordance with the guidance of ASC 815-40-15, stock options granted to non-employees that are exercisable in Canadian dollars are required to be accounted for as derivative liabilities because they are considered not to be indexed to the Company’s stock due to their exercise price being denominated in a currency other than the Company’s US dollar functional currency.


The non-employee share purchase option liabilities are accounted for at their respective fair values and are summarized as follows:


 

2011

2010

Fair value of non-employee options, at beginning of the year

$         40,600

$                 -

Fair value of non-employee options, at issuance

10,745

31,900

Fair value of non-employee options vesting during the year

27,031

-

Reclassification of cancelled non-employee stock options to additional paid in capital

(20,405)

-

Change in fair value of non-employee options for the period

(38,815)

8,700

Fair value of non-employee options at end of the year

$         19,156

$         40,600


The non-employee options are required to be re-valued with the change in fair value of the liability recorded as a gain or loss on the change of fair value of derivative liability and included in other items in the Company’s Consolidated Statements of Operations at the end of each reporting period. The fair value of the options will continue to be classified as a liability until such time as they are exercised, expire or there is an amendment to the respective agreements that renders these financial instruments to be no longer classified as a liability.


Employee Share Purchase Options


Share options granted to employees that are exercisable in Canadian dollars are accounted for as liabilities because these option awards contain a condition that is other than a market, performance or service condition.

The share purchase option liabilities are accounted for at their respective fair values and are summarized as follows:

 

2011

2010

Fair value of employee options, at beginning of the year

$       469,000

$                 -

Fair value of employee options, at issuance

26,864

368,500

Change in fair value of employee options for the period

(330,425)

100,500

Fair value of employee options at end of the year

$       165,439

$       469,000




42





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



Note 9

Common Stock – (cont’d)


b)

Commitments: - (cont’d)


Stock-based Compensation Plan – (cont’d)


Employee Share Purchase Options – (cont’d)


The employee share options that are classified as liabilities are required to be revalued with the change in fair value of the liability included in Wages and Management fees in the Company’s Consolidated Statements of Operations at the end of each reporting period. The fair value of the options will continue to be classified as a liability until such time as they are exercised, expire or there is an amendment to the respective agreements that renders these financial instruments to be no longer classified as a liability.



Stock-based compensation charges have been determined under the using the following weighted average assumptions:


 

2011

2010

 

 

 

Expected dividend yield

0.00%

0.00%

Expected volatility

151.61%

145.84%

Risk-free interest rate

0.35%

0.41%

Expected term in years

2.00

1.95


Stock-based compensation amounts are classified in the Company’s Statement of Operations as follows:


 

2011

2010

Wages and management fees

$         (331,176)

$        500,900

Investor relations

27,090

-

 

$         (304,086)

$        500,900



A summary of changes in the Company’s unvested stock options for the years ended June 30, 2011 and 2010 is presented below:


 

2011

2010

 

 

Weighted

 

Weighted

 

 

Average

 

Average

 

Number of

Grant Date

Number of

Grant Date

 

Options

Fair Value

Options

Fair Value

 

 

 

 

 

Outstanding, beginning of year

410,000

$0.13

102,500

$0.09

Granted

390,000

$0.10

4,040,000

$0.11

Expired

(200,000)

$0.13

(60,000)

$0.09

Forfeited

-

 

(12,500)

$0.09

Vested

(560,000)

$0.12

(3,660,000)

$0.11

 

 

 

 

 

Outstanding, end of year

40,000

$0.08

410,000

$0.13




43





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)




Note 9

Common Stock – (cont’d)


b)

Commitments: - (cont’d)


Stock-based Compensation Plan – (cont’d)


Warrants


At June 30, 2011 and 2010, the following share purchase warrants were outstanding entitling the holder to purchase one common share for each warrant held as follows:


 

Exercise

 

Number

Price

Expiry Date

 

 

 

15,000,000

 $0.15 CDN

March 18, 2012



Note 10

Research and Development Costs


Research and development expense, included in cost of sales, consists of the following for the years ended June 30, 2011 and 2010.


 

2011

2010

Testing services

 

$       30,962

$       35,901


Note 11

Related Party Transactions


The Company was charged the following amounts by directors or private companies with common directors during the years ended June 30, 2011 and 2010:


 

2011

2010

Wages and management fees

$   186,793

$   181,064

Share-based compensation

(265,475)

413,000

 

$   (78,682)

$   594,064


Note 12

Income Taxes


The tax effects of the temporary differences that give rise to the Company's estimated deferred tax assets and liabilities are as follows:


 

2011

2010

 

 

 

Net operating losses

$  1,885,000

$  1,566,000

Property, plant and equipment

(52,000)

(113,000)

Stock option deduction

-

45,000

Expenses not currently deductible

26,000

10,000

Valuation allowance

(1,859,000)

(1,508,000)

Net deferred tax assets

$                -

$                -




44





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)





Note 12

Income Taxes – (cont’d)


The provision for income taxes differ from the amount established using the statutory income tax rate as follows:


 

June 30, 2011

June 30, 2010

 

 

 

Income tax benefit at statutory rate

$     246,000

$   (676,000)

Foreign income taxed at foreign statutory rate

(43,000)

(35,000)

Expiry of losses

 

9,000

Change in fair value of derivative liability

(400,000)

271,000

Stock-based compensation

(82,000)

87,000

Effect of foreign exchange and other

(79,000)

(18,000)

Effect of reduction in tax rates

7,000

31,000

Increase (decrease) in valuation allowance

351,000

331,000

Deferred income tax recovery

 

$                -

$                -


The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and this causes a change in management’s judgment about the recoverability of future tax assets, the impact of the change on the valuation allowance is reflected in current income. As management of the Company does not currently believe that it is more likely than not that the Company will receive the benefit of this asset, a valuation allowance equal to the future tax asset has been established at both June 30, 2011 and June 30, 2010.


As at June 30, 2011, the Company had estimated net operating loss carry-forwards available to reduce taxable income in future years, which were incurred in the United States and Canada as follows:


 

United States

Canada

Total

 

 

 

 

2014

$                -

$       88,000

$       88,000

2015

-

174,000

174,000

 

 

 

 

2017

277,000

-

277,000

2018

259,000

-

259,000

2019

194,000

-

194,000

2020

146,000

-

146,000

2021

208,000

-

208,000

2022

134,000

-

134,000

2023

32,000

-

32,000

2024

134,000

-

134,000

 

 

 

 

2026

-

188,000

188,000

2027

331,000

226,000

557,000

2028

848,000

191,000

1,039,000

2029

493,000

193,000

686,000

2030

819,000

280,000

1,099,000

2031

566,000

162,000

728,000

 

$   4,441,000

$  1,502,000

$  5,943,000



45





INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

(Stated in US Dollars)



Note 12

Income Taxes – (cont’d)


Uncertain Tax Positions


The Company makes an assessment of its income tax positions for all years subject to examination based upon an evaluation of the facts, circumstances and information available at the reporting date.  For all tax positions where there is a more than 50% likelihood that a tax benefit will be sustained by a tax authority with full knowledge of all relevant information, the Company fully recognizes the tax position taken.  For income tax positions where there is a 50% or less likelihood the tax benefit would be sustained, no tax benefit is recognized in the financial statements.


The Company files income tax returns in the U.S. federal jurisdiction, various state and foreign jurisdictions.  The Company’s tax returns are subject to tax examinations by U.S. federal and state tax authorities, or examinations by foreign tax authorities until respective statute of limitation.  The Company currently has no tax years under examination. The Company is subject to tax examinations by tax authorities for all taxation years commencing after 2004.


At June 30, 2011, the Company does not have an accrual relating to uncertain tax positions. It is not anticipated that unrecognized tax benefits would significantly increase or decrease within 12 months of the reporting date.


Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries. Such earnings have been and will continue to be reinvested but could become subject to additional tax if they were remitted as dividends, or were loaned to the Company affiliate. It is not practicable to determine the amount of additional tax, if any, that might be payable on the undistributed foreign earnings.


Note 13

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 year ended June 30, 2011, two customers accounted for 98% of total revenues (each representing 72% and 26% respectively) (2010: two customers accounted for 87% of total revenues (each representing 71% and 16% respectively).  The amounts receivable from each of these customers at June 30, 2011 is $Nil and $43,261 respectively (2010: $15,444 and $48,420 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.


Note 14

Interest and Other Income


Interest and other income in 2010 includes an amount of $90,000 in respect of funds received from Pyrotite Corporation (“Pyrotite”) as final mediated settlement of a dispute over an agreement between Pyrotite and the Company to share revenues earned from the sale of products utilizing a fire retardant technology. In addition to the payment, Pyrotite agreed to convey all of its right, title and interest in the technology to the Company.

Note 15

Contingencies


In the ordinary course of business, the Company is subject to potential warranty claims. Accruals are made to offset potential claims where such liabilities can be reasonably estimated. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, the Company does not believe that the ultimate outcome of these matters will have a material impact on its consolidated financial position.





46







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

None


ITEM 9A.  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 annual report on Form 10-K, under the direction of the Chief Executive Officer, the Company has evaluated its disclosure controls and procedures as of June 30, 2011, and has concluded the disclosure controls and procedures were ineffective as discussed in greater detail below.  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)  Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our management evaluated, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of its internal control over financial reporting as of June 30, 2011.


Based on its evaluation under the framework in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission, management with the participation of our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s internal control over financial reporting was not effective as of June 30, 2011, due to the existence of a significant deficiency constituting a material weakness, as described in greater detail below.  A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.  


In light of this material weakness, the Company performed additional post-closing procedures and analyses in order to prepare the consolidated financial statements included in this report. As a result of these procedures, the Company believes its consolidated financial statements included in this report present fairly, in all material respects, the financial position, results of operations and cash flows for the year ended June 30, 2011.  



Limitations on Effectiveness of Controls

The Company’s Chief Executive Officer does not expect that disclosure controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake.  Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.




47







Material Weaknesses Identified  

In connection with the preparation of the consolidated financial statements for the year ended June 30, 2011, management identified the following material weakness in internal control:


 

Our company’s accounting staff does not have sufficient technical accounting knowledge relating to accounting for income taxes and complex US GAAP matters.  


Plan for Remediation of Material Weaknesses

We intend to take appropriate and reasonable steps to make the necessary improvements to remediate this deficiency as resources to do so become available.  We intend to consider the results of our remediation efforts and related testing as part of our year-end 2012 assessment of the effectiveness of our internal control over financial reporting.


Such remediation would entail enhancing the training and oversight of the accounting personnel responsible for non-routine transactions involving complex accounting matters and engaging the services of an independent consultant with sufficient expertise in income tax and complex US GAAP matters to assist us in the preparation of our financial statements.


(c)  Changes in Internal Controls  

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of our fiscal year ended June 30, 2011 that have materially affected or are reasonably likely to materially affect, the internal control over financial reporting.



ITEM 9B.  OTHER INFORMATION


None



48







PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE


The following table lists the names of the Directors and Executive Officers of the Company.  The Directors have served in their respective capacities since their election and/or appointment and will serve until the next Annual Shareholders’ Meeting or until a successor is duly elected, unless the office is vacated in accordance with the Articles/By-Laws of the Company.  The Executive Officers serve at the pleasure of the Board of Directors.



Table No. 4

Directors and Executive Officers

August 31, 2011

_______________________________________________________________________________

_______________________________________________________________________________

                                                                        Date of

                                                                          First

                                                                    Election or

Name                       Position                        Age      Appointment

David J. Corcoran (1)(2)(6)CFO/Director                     63        July 1986

Michael D. Huddy (3)       President/CEO/Director           59    February 1993

Lindsey Nauen (4)          Corporate Secretary              59    December 2003

Craig Roberts (1)(5)(6)    Director                         38      August 2006

Victor A. Yates (1)        Director                         65    November 1987

-------------------------------------------------------------------------------

(1)  Member of Audit Committee.


(2)  He spends over half of his time on the affairs of the Company.

     Business Address: c/o International Barrier Technology Inc.

                           510 44t Street North, Watkins, Minnesota, USA  55389


(3)  Business Address: c/o Barrier Technology Inc.

                           510 4th Street North, Watkins, Minnesota, USA  55389

     He spends full time on the affairs of the Company.


(4)  Business Address: c/o Barrier Technology Corp.

                           510 4th Street North, Watkins, Minnesota, USA  55389

     She spends less than 10% of her time on the affairs of the Company.


(5)  Business Address: c/o Barrier Technology Inc.

                           510 4th Street North, Watkins, Minnesota, USA  55389

(6) Member of the Compensation Committee

_______________________________________________________________________________

_______________________________________________________________________________


David J. Corcoran, Administrator, Chief Financial Officer, and Director, is a Chartered Accountant and a member of the Institute of Chartered Accountants in British Columbia, Canada, with over twenty-five years of experience in industry and commerce.  Prior to 1976, Mr. Corcoran spent over five years gaining experience in marketing, sales and product distribution while he worked in sales with several major companies including Scott Paper and Bristol Myers.  His career in accounting began in 1976 when he joined Touche Ross and Company.  In 1979, he founded Corcoran and Company, Chartered Accountants.  From 1979 to 1990, his firm secured a wide variety of business clients whom he advised regarding their management and business planning.  In 1991, he joined the management of the Company on a full-time basis.  Mr. Corcoran brings to the organization specific business experience in both sales and public finance.  He has been an officer and director of the Company since it inception in 1986.




49





Michael D. Huddy, President/CEO and Director, joined the Company in February 1993 as President of the newly-formed US Subsidiary, Barrier Technology Corporation.  Dr. Huddy was elected President/CEO of the Company and a Director in July 1994.  Dr. Huddy had been in charge of marketing and sales of Blazeguardâ with Citadel and Weyerhaeuser.  He was part of Weyerhaeuser’s research/development team established to develop the Blazeguardâ product.  Dr. Huddy brings sales, marketing and general management experience.  He joined Weyerhaeuser’s Architectural Products Group in 1988, after two years as General Manager of Weyerhaeuser’s Northwest Hardwoods operations in Wisconsin.  Before joining Weyerhaeuser, Dr. Huddy worked for Crown Zellerbach Corporation for seven years.  Dr. Huddy holds a Bachelor of Science degree in Biological Sciences with a minor in Chemistry from Lake Superior State College; a Masters of Science degree in Resource Administration; and a Ph.D. in Natural Resource Economics with a minor in Business Management from Michigan State University.


Lindsey Nauen, Corporate Secretary, received her MBA from the University of Minnesota in 1988.  She also received a B.A. in psychology in 1971 and a M.A. in Library Science in 1974.  For the last eleven years she has been the owner of Nauen Mobil Accounting, providing accounting and business consulting services to small businesses.  In that capacity, she has been providing accounting services to the Company since 1999.


Craig Roberts, Director, is the Director Professional Services of Reed Construction Data, a division of Reed Business Information.  Mr. Roberts was formerly a Senior Director of Ingenium Technologies.


Victor A. Yates, Director, is a self-employed businessman involved in real estate, construction of multi-family and commercial developments.  He holds a degree in Real Estate Appraisal and is a Licensed Real Estate Agent.  He 25 years experience in operating a variety of business ventures brings to the Board an entrepreneurial and construction and financial perspective.


The Directors have served in their respective capacities since their election and/or appointment and will serve until the next Annual General Meeting or until a successor is duly elected, unless the office is vacated in accordance with the Articles/By-Laws of the Company.


The Executive Officers serve at the pleasure of the Board of Directors with management service contracts but without term of office.


Despite the Company’s Secretary/Administrator spending material portions of this time on businesses other than the Company, the Company believes that he devotes sufficient time to the Company to properly carry out his duties.


No Director and/or Executive Officer has been the subject of any order, judgment, or decree of any governmental agency or administrator or of any court or competent jurisdiction, revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he is a Director and/or Executive Officer, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he is an officer or director from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business or of theft or of any felony.


There are no arrangements or understandings between any two or more Directors or Executive Officers, pursuant to which he was selected as a Director or Executive Officer.  There are no family relationships between any two or more Directors or Executive Officers.



50






Board of Director Practices

All directors hold office until the next meeting of the shareholders of the Company unless they resign or are removed in accordance with the Company’s Articles.  Officers are appointed to serve at the discretion of the Board of Directors.  The Board of Directors and Committees of the Board schedule regular meetings over the course of the year.


The fundamental objective of the Board is to ensure that it operates in a fashion that maximizes shareholder value over the long term.  The Board’s duties and responsibilities are all carried out in a manner consistent with that fundamental objective.  The principal duty and responsibility of the Board is to oversee the management and operations of the Company, with the day-to-day management of the business and affairs of the Company delegated by the Board to the CEO and other Executive Officers.


The Board’s responsibilities include overseeing the conduct of the Company’s business, providing leadership and direction to its management, and setting policies.  Strategic direction for the Company is developed through the Board’s annual planning process.  Through this process, the Board adopts the operating plan for the coming year, and monitors management’s progress relative to that plan through a regular reporting and review process.


The Board has delegated to the President/Chief Executive Officer and the Executive Officers responsibility for the day-to-day management of the business of the Company.  Matters of policy and issues outside the normal course of business are brought before the Board for its review and approval, along with all matters dictated by statute and legislation requiring Board review and approval.  The President/CEO and the Executive Officers review the Company’s progress in relation to the current operating plan at in-person Board meetings.  The Board meets on a regular basis with and without management present.  Financial, operational and strategic issues facing the Company are reviewed, monitored and approved at the Board meetings.


Compliance with Section 16(a) of the Exchange Act  

The Board of Directors, all Officers, and major shareholders of 10% or more of International Barrier Technology Inc. are in compliance with all reporting requirements of the exchange act.  Craig Roberts, a director, late filed one Form 4 during Fiscal 2011, related to the grant of stock options replacing expired options.


Code of Ethics  

The Company has not adopted a written “code of ethics” that meets the new United States' Sarbanes-Oxley standards; the Board of Directors believes that existing Canadian standards and procedures is adequate for its purposes.  The Company has not seen any need to adopt a written code of ethics on the basis that its corporate culture effectively deters wrongdoing and promotes honest and ethical conduct, full, fair and accurate, timely, and understandable disclosure in reports and documents, the compliance with applicable governmental laws, rules and regulations; the prompt internal reporting of violations of the code; and accountability for adherence to the code.


Corporate Governance


Director Independence

Pursuant to Item 407(a)(1)(ii) of Regulation S-K of the Securities Act, our Board of Directors has adopted standards for determining whether a director is independent from management.  The Board reviews, consistent with the Company’s corporate governance guidelines, whether a director has any material relationship with the Company that would impair the director’s independent judgment.  In summary, an independent director means a person other than an executive officer or employee or any other individual having a relationship which, in the opinion of our directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and includes any director who accepts compensation from us exceeding $200,000 during any period of twelve consecutive months within the three past fiscal years.  Owning shares of our common stock does not preclude a director from being



51





independent.  In applying this definition, our board determined that Craig Roberts and Victor Yates are independent.


Our board adopted and applied the same definition of independent director to the members of our audit committee.  In applying this definition, our board determined that Craig Roberts and Victor Yates qualify as an independent director for purposes of Section 10A(m)(3) of the Securities Exchange Act.



Board Meetings and Committees; Annual Meeting Attendance

During Fiscal 2011, the Board of Directors held six regularly scheduled meetings, and six special and telephone meetings.  For various reasons, Board members may not be able to attend a Board meeting; all Board members are provided information related to each of the agenda items before each meeting, and, therefore, can provide counsel outside the confines of regularly scheduled meetings.  No director attended fewer than 75% of the aggregate of: (1) the total number of meetings of the Board of Directors, while he was a Director; and (2) the total number of meetings of committees of the Board of Directors on which the director served.  Directors are encouraged to attend annual meetings of our stockholder; three of the directors physically attended the November 2010 annual shareholders meeting and one director attended via teleconference.


The attendance records of our Board members during Fiscal 2011 were:


Name

Board of Director Meetings

Audit Committee Meetings

David Corcoran

6 of 6

12 of 12

Michael Huddy

6 of 6

 

Craig Roberts

5 of 6

12 of 12

Victor Yates

6 of 6

12 of 12


Nominating Committee and Compensation Committee

The Company does not have a Nominating Committee.  The entire Board of Directors is responsible for screening potential director candidates and recommending qualified candidates for nomination as members of the Board of Directors. In evaluating potential director candidates, the Board of Directors considers recommendations of potential candidates from incumbent directors, management and stockholders.  Any recommendation submitted by a stockholder to the Board of Directors must include the same information concerning the potential candidate and the stockholder, and must be received in the time frame described herein for the Calendar 2011 Annual meeting.


The Company has a Compensation Committee.  The committee consists of David Corcoran, Craig Roberts and Martin Lizt.  The committee is responsible for the compensation of the Company’s executive officers and to administer all incentive compensation plans and equity-based plans of the Company, including the plans under which Company securities may be acquired by directors, executive officers, employees and consultants.


Audit Committee

The Company has an Audit Committee, which recommends to the Board of Directors the engagement of the independent auditors of the Company and reviews with the independent auditors the scope and results of the Company’s audits, the Company’s internal accounting controls, and the professional services furnished by the independent auditors to the Company.  The current members of the Audit Committee are: David Corcoran, Craig Roberts (independent) and Victor Yates (independent).  The Audit Committee met monthly in Fiscal 2011 and has met three times during Fiscal 2012-to-date.


The Company does not have an “audit committee financial expert” serving on its Audit Committee.  The Company’s Audit Committee consists of two independent directors and the Company’s Chief Financial Officer, all of whom are both financially literate and very knowledgeable about the Company’s affairs.  Because the Company’s structure and operations are straightforward, the Company does not find it necessary to augment its Board with a financial expert.




52





The audit committee has:

a. reviewed and discussed the audited financial statements with management;

b. discussed with the independent auditors the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards , Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T;

c. received the written disclosures and the letter from the independent accountants required by as adopted by the Public Company Accounting Oversight Board in Rule 3526, and has discussed with the independent accountant the independent accountant's independence; and

d. recommended to the board of directors that the audited financial statements be included in the Company's annual report on Form 10–K for the last fiscal year for filing with the SEC.


The Audit Committee recommends to the Board of Directors the engagement of the independent auditors of the Company and reviews with the independent auditors the scope and results of the Company’s audits, the Company’s internal accounting controls, and the professional services furnished by the independent auditors to the Company.


The audit committee is directly responsible for the appointment, compensation and oversight of auditors; the audit committee has in place procedures for receiving complaints and concerns about accounting and auditing matters; and has the authority and the funding to engage independent counsel and other outside advisors.


The Audit Committee may delegate to one or more designated members of the Audit Committee the authority to grant pre-approvals required by this policy and procedure.  The decisions of any Audit Committee member to whom authority is delegated to pre-approve a service shall be presented to the full Audit Committee at its next scheduled meeting.


In accordance with the requirements of the US Sarbanes-Oxley Act of 2002 and rules issued by the Securities and Exchange Commission, we introduced a procedure for the review and pre-approval of any services performed by BDO Dunwoody including audit services, audit related services, tax services and other services.  The procedure requires that all proposed engagements of DBO Dunwoody LLP for audit and permitted non-audit services are submitted to the audit committee for approval prior to the beginning of any such services.


Shareholder Communications With the Board

Historically, the Company has adopted an informal process for stockholder communications with the Board by providing an email address and toll-free phone number available on the website: www.intlbarrier.com.  Every effort has been made to ensure that the views of stockholders are heard by the Board, or individual directors as applicable, and that appropriate responses are provided to the stockholder in a timely manner.  Stockholders wishing to communicate at any time with the Board of Directors, or a specific member of the Board, may do so by writing the Board or a specific member of the Board by delivering correspondence in person or by mail to: The Board of Directors, c/o Lindsey Nauen, Corporate Secretary, 510 4th Street North, Watkins, Minnesota  55389.  Communication(s) directed to the Board or a specific Board member will be relayed unopened to the intended Board member(s).


Further, Directors’ attendance at Annual Meetings can provide shareholders with an opportunity to communicate with Directors about issues affecting the Company.  The Company does not have a policy regarding director attendance, but all Directors are encouraged to attend the Annual Meeting of Shareholders.  All of our directors attended our Annual Meeting in November 2010.



53






ITEM 11.  EXECUTIVE COMPENSATION


Director Compensation

The Company compensates Directors for their service in their capacity as Directors, $750 per physical meeting.  Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the Board of Directors.  The Board of Directors may award special remuneration to any Director undertaking any special services on behalf of the Company other than services ordinarily required of a Director.  During Fiscal 2011/2010/2009, Directors were paid $17,250, $13,500, and $6,795 for attending meetings, respectively. During the year ended June 30, 2011, Craig Roberts was granted 250,000 common share purchase options.  The options granted to the director are exercisable in Canadian currency that requires them to be recorded as liabilities due to their exercise price being denominated in a currency other than the functional currency of the Company.


Executive Officer Compensation

The following table sets forth the summary of compensation earned during Fiscal 2010 and Fiscal 2011 by the Company’s Chief Executive Officer and its other named Executive Officers.  The following table excludes Directors’ Fees paid to Executive Officers who are also Directors; refer to Table No. 6.


Table No. 5

Summary Compensation Table

Executive Officers

Name and Principal

 Positions

Fiscal

 Year

Salary

Bonus

Stock

 Awards

Option

 Awards

(1)

Non-Equity

 Incentive

 Plan

Compensation

Change In

 Pension

 Value and

Nonqualified

 Deferred

Compensation

 Earnings

All

 Other

 Comp.

TOTAL

Michael Huddy

President/CEO

2011

2010

$120,250

$124,500

Nil

Nil

Nil

Nil

$Nil

$88,000

Nil

Nil

Nil

Nil

Nil

Nil

$120,250

$212,500

David Corcoran

Administrator/CFO

2011

2010

$50,000

$50,000

Nil

Nil

Nil

Nil

$Nil

$88,000

Nil

Nil

Nil

Nil

Nil

Nil

$50,000

$138,000

Lindsey Nauen

Corporate Secretary

2011

2010

Nil

Nil

Nil

Nil

Nil

Nil

$Nil

$Nil

Nil

Nil

Nil

Nil

Nil

Nil

$Nil

$Nil

 

 

 

 

 

 

 

 

 

 

(1) The determination of value of option awards is based upon the grant date fair value determined using either the binomial or Black-Scholes Option pricing model, details and assumptions of which are set out in Notes 2 and 9 to the consolidated financial statements included in this Annual Report.


_________________________________________________________________________________________

_________________________________________________________________________________________




54





Director Compensation

The following table sets forth the summary of compensation earned during Fiscal 2010 through Fiscal 2011 by the Company’s Directors.  For Executive Officers who are also Directors, this table includes only Directors Fees; refer to Table No. 5 for all other compensation for them.


Table No. 6

Summary Compensation Table

Directors

Director

Name

Fiscal

Year

Fees

Earned

or Paid

In Cash

Stock


Awards

Option

Awards(2)

Non-Equity

Incentive

Plan

Compensation

Change In

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

All

Other

Comp.

TOTAL

David Corcoran

2011

2010

$4,750

$3,750

Nil

Nil

Nil

$88,000

Nil

Nil

Nil

Nil

Nil

Nil

$4,750

$91,750

Michael Huddy (1)

2011

2010

$4,750

$5,250

Nil

Nil

Nil

$88,000

Nil

Nil

Nil

Nil

Nil

Nil

$4,750

$93,250

Craig Roberts

2011

2010

$4,000

$2,250

Nil

Nil

$26,862

$60,500

Nil

Nil

Nil

Nil

Nil

Nil

$30,862

$62,750

Victor Yates

2011

2010

$4,750

$3,750

Nil

Nil

Nil

$88,000

Nil

Nil

Nil

Nil

Nil

Nil

$4,750

$91,750

 (1) $1,500 of Director’s Fees paid in Fiscal 2010 to Michael Huddy were earned, but not paid in the previous year.

 (2) The determination of value of option awards is based upon the grant date fair value determined by either binomial or Black-Scholes Option pricing model, details and assumptions of which are set out in Notes 2 and 9 to the consolidated financial statements included in this Annual Report.

_________________________________________________________________________________________

_________________________________________________________________________________________





55






Stock Options

The Company grants stock options to Directors, Executive Officers and employees/consultants; refer to ITEM #11, “Stock Options” and Tables 5/6/7/8/9.


Stock Options Granted/Expired During The Most Recently Completed Fiscal Year

During the most recently completed fiscal year, the 390,000 incentive stock options were granted to Executive Officers, Directors, employees/consultants.  The Company has no equity or non-equity incentive plans.  250,000 stock options previously granted to Executive Officers and Directors were cancelled, forfeited, or expired un-exercised; and 500,000 stock options previously granted to employees and/or consultants were cancelled, forfeited, or expired un-exercised.


Table No. 7

Grants of Plan-Based Awards During Fiscal 2011 Ended 6/30/2011

Name

Grant

 date

All other

 Stock awards:

 Number of

 shares of

 stock or units

(#)

All other

Option awards:

Number of

Securities

Underlying

Options

(#)

Exercise

 or base

 price of

 option

 awards

($/Sh)

Grant date

Fair value of

 stock and

 option awards

Directors

10/29/2010

Nil

250,000

CDN$0.15

CDN$0.15

Consultant

10/29/2010

Nil

100,000

CDN$0.15

CDN$0.15

Consultant

6/10/2011

Nil

40,000

CDN$0.064

CDN$0.09

Columns (c) through (h) have been omitted since the Company has no equity or non-equity incentive plans.

_______________________________________________________________________________

_______________________________________________________________________________



Outstanding Equity Awards at Fiscal Year-End

The following table gives certain information concerning unexercised stock options; common stock that has not vested; and equity incentive plan awards for Executive Officers, Directors, Employees/Consultants outstanding as of the end of Fiscal 2011 Ended 6/30/2011.


Table No. 8

Outstanding Equity Awards at Fiscal Year-End

Name

Number of

securities

underlying

unexercised

options
(#)

exercisable

Number of

securities

underlying

unexercised

options
(#)

unexercisable

Equity

incentive

plan awards:

number of

securities

underlying

unexercised

unearned options
(#)

Option

exercise

price
($)

Option

expiration

date

Michael Huddy

800,000

Nil

Nil

CDN$0.12

3/18/2012

David Corcoran

800,000

Nil

Nil

CDN$0.12

3/18/2012

Victor Yates

800,000

Nil

Nil

CDN$0.12

3/18/2012

Craig Roberts

550,000

Nil

Nil

CDN$0.12

3/18/2012

Craig Roberts

250,000

Nil

Nil

CDN$0.15

10/29/2012

Employee/Consultants

590,000

Nil

Nil

CDN$0.12

3/18/2012

Consultant

100,000

Nil

Nil

CDN$0.15

10/29/2012

Consultant

Nil

40,000

Nil

CDN$0.064

6/10/2013

Columns (g) through (j) have been omitted since the Company has not granted any stock awards.

_____________________________________________________________________________________________________

_____________________________________________________________________________________________________




56






Option Exercises and Stock Vested

During Fiscal 2011 ended 6/30/2011, there were exercises of 40,000 stock options, grants of 390,000 stock options, and the Company made no stock awards.


Michael Huddy, President/CEO; Written Management Agreement

Michael Huddy provides his services pursuant to a management agreement dated 2/13/1993; the terms of the agreement have been revised although no new formal agreement has been signed.  The current terms require that Mr. Huddy provide full-time service to Barrier in an executive capacity (CEO) and to be fully responsible for Barrier’s activities in the USA.  The original agreement was for a term of four years but was to renew automatically ever two years unless written notice of the intent to terminate was given by either party to the other.  Terms of compensation are to be given prior to any renewal period.


The employment agreement specifies employer termination provisions including: material breach of any provision of the contract; inability to perform the duties under the agreement; fraud or serious neglect or misconduct; personal bankruptcy.


The duties are complete as to those of a Chief Executive Officer (President) and include: Administration of the day to day affairs of the Employer Development of Financial, manufacturing, and marketing plans; Communication with Employer and Shareholders on a timely basis; and, Formulation and execution of a proposed budget approved by the Employer.  The Employment Agreement contains a Confidentiality Provision that precludes the sharing of confidential information to third parties not requiring the information to conduct business with Barrier.  The confidentiality provision extends beyond the time limit of the agreement until the information or knowledge becomes part of the public domain.


Change of Control Remuneration

The Company has no plans or arrangements in respect of remuneration received or that may be received by Executive Officers of the Company in Fiscal 2011 to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $100,000 per Executive Officer.


Other Compensation

No Executive Officer/Director received “other compensation” in excess of the lesser of $25,000 or 10% of such officer's cash compensation, and all Executive Officers/Directors as a group did not receive other compensation which exceeded $25,000 times the number of persons in the group or 10% of the compensation.


Bonus/Profit Sharing/Non-Cash Compensation

Except for the stock option program discussed in ITEM #6.E., the Company has no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to the Company's Directors or Executive Officers.


Pension/Retirement Benefits

No funds were set aside or accrued by the Company during Fiscal 2011 to provide pension, retirement or similar benefits for Directors or Executive Officers.





57






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


Securities authorized for issuance under equity compensation plans


We have no long-term incentive plans.


The following table summarizes certain information regarding our equity compensation plan as at June 30, 2011:

Plan Category

Number of Securities to
be Issued Upon Exercise
of Outstanding Options

Weighted-Average
Exercise Price of
Outstanding Options

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (A)

Equity compensation plans approved by security holders

3,930,000

CDN$0.12

515,493


Plan Category

Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights

Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column)

Equity compensation plans not approved by security holders

Nil

Nil

Nil

Total

3,930,000

CDN$0.12

 


The Company has adopted a rolling stock option plan (“the 2005 Rolling Plan”).  The 2005 Rolling Plan provides for the granting of stock options to selected directors, officers, employees or consultants in an aggregate amount of up to 10% of the issued and outstanding common shares of the Company.  Under the 2005 Rolling Plan, the granting of stock options, exercise prices and terms are determined by the Company's Board of Directors. Options granted to non-executive employees and consultants typically vest in stages over various periods of time while options granted to Directors and executive employees vest immediately upon their grant. The exercise price shall not be less than the Discounted Market Price, which is defined as the last closing price of the common shares before the date of the grant less an applicable discount, as allowed by the regulatory authorities. Options granted under the 2005 Rolling Plan may not exceed a term of 5 years unless the Company achieves classification as a “Tier 1” issuer in accordance with the policies of the TSX, in which case, the options may be granted for a maximum term of 10 years.




58






The following table lists all persons/companies the Company is aware of as being the beneficial owner of 5% or more of the common shares of the Company.   It also lists all Directors and Executive Officers who beneficially own the Company's voting securities and the amount of the Company's voting securities owned by the Directors and Executive Officers as a group.


______________________________________________________________________________

Table No. 9

Shareholdings of 5% Shareholders

Shareholdings of Directors and Executive Officers

August 31, 2011

______________________________________________________________________________

Title                                              Amount and Nature   Percent

   of                                                  of Beneficial        of

Class    Name/Address of Beneficial Owner                  Ownership   Class #

------------------------------------------------------------------------------

Common   Carl Marks Group (1)                              8,615,695     19.1%

------------------------------------------------------------------------------

Common   Michael Huddy (2)                                 2,730,260      6.0%

Common   David Corcoran (3)                                1,935,685      4.3%

Common   Victor Yates (4)                                  1,229,772      2.7%

Common   Craig Roberts (5)                                 1,600,000      3.5%

Common   Lindsay Nauen                                             0      0.0%

Total Directors/Officers                                   7,495,717     15.5%


TOTAL 5% and Directors/Officers                           16,111,412     32.9%

------------------------------------------------------------------------------

(1) Carl Marks IB LLC, Carl Marks & Co. Inc., and Martin Lizt are collectively deemed to be

    a “Group” within the meaning of Section 13(g)(3) of the Securities Exchange Act of

    1934, as amended.  Carl Marks IB LLC is a partnership of Carl Marks & Co. LP and Martin

    Lizt. Andrew M. Boas and Robert Speer of New York, Limited Partners in Carl Marks & Co.

    LP, exercise direction/control over Carl Marks IB LLC.  Carl Marks & Co. LP is a

    limited partnership of 18 partners.  Carolyn Marks Blackwood and Linda Marks Katz are

    the two greater than 10% holders of the partnership.  Included for Martin Lizt are 300,000

    currently exercisable warrants and 250,000 currently exercisable stock options.

(2) 800,000 represent currently exercisable stock options and 350,000 represent currently

    exercisable warrants.

(3) 800,000 represent currently exercisable stock options.

    429,772 shares/options (above) held indirectly through Corcoran

    Enterprises Ltd., a private company controlled by Mr. Corcoran.

    42,807 shares are escrowed and contingently cancelable where release is controlled by

    Canadian regulatory authorities. The escrow shares are currently eligible for to be

    released to Mr. Corcoran but the Company has yet to request this release.

    Excludes 1,986,434 shares owned by family members, where he disavows

    beneficial interest and does not have voting or disposition control.

(4) 800,000 represent currently exercisable stock options.

    429,772 shares/options (above) held indirectly through Continental Appraisal Ltd., a

    private company controlled by Mr. Yates.

      6,115 shares are escrowed and contingently cancelable where release is controlled by

    Canadian regulatory authorities

    Excludes 1,751,551 shares owned by family members, where he disavows beneficial interest

    and does not have voting or disposition control.

(5) Included are 400,000 currently exercisable warrants and 800,000 currently exercisable stock

    options.  Excludes 600,000 shares owned by family members, where he disavows beneficial interest

    and does not have voting or disposition control.


# Based on 44,454,926 shares outstanding as of 8/31/2011.

______________________________________________________________________________

______________________________________________________________________________

 





59







Escrowed Common Shares

On 5/15/1987, the Company issued 296,500 shares of “Principal Escrow” common stock at CDN$0.01 per share.  Effective 11/24/2004, 124,530 of these shares were cancelled and returned to the treasury.  48,922 of these shares are still escrowed and outstanding.  On 8/31/2011, these are held:

Continental Appraisals Ltd....................................   6,115 shares

Corcoran Enterprises Ltd......................................  42,807 shares


Pursuant to a performance escrow agreement dated 2/24/1992 between the Company and certain escrow Shareholders (the “Escrow Agreement”), 48,922 common shares of the Company (the “Escrow Shares”) are held in escrow with Pacific Corporate Trust Company of Vancouver, British Columbia.  The Escrow Shares are held by Corcoran Enterprises Ltd. (“Corcoran”), a private company owned by David Corcoran, a director of the Company and Continental Appraisals Ltd. (“Continental”), a private company owned by Victor Yates, a director of the Company.


Pursuant to the terms of the Escrow Agreement, the Escrow Shares were to have been surrendered for cancellation on 2/24/2002; however, the Escrow Shares have not been cancelled.  The Company has received acceptance in principle from the TSX Venture Exchange (“TSX”) to cancel the Escrow Shares not held by Officers/Director, and have the shares held by Officers/Directors reinstated and made subject to a TSX Tier 2 Surplus Escrow Agreement (the “New Escrow Agreement”) with a six-year time release formula (described below).  Conversion of performance escrow shares to time release escrow shares, as contemplated, is permitted under TSX and British Columbia Securities Commission (“BCSC”) policies relating to escrow shares held under previous escrow regimes such as the BCSC’s Local Policy Statement 3-07.


Final approval of the conversion to a time-release formula is, in the Company’s case, subject to the Company obtaining shareholder approval for the reinstatement and conversion to time-release escrow and complying with all other applicable TSXV and BCSC policies related to the reinstatement and conversion.


Following approval by the Company’s shareholders, the TSXV (12/9/2004), and the BCSC, the Company and the escrow shareholders entered into the New Escrow Agreement.  Under the terms of the New Escrow Agreement, the Escrow Shares and will be released as follows:

  5% (1/20 of total Escrow Shares) six months from date of TSXV Acceptance

  5% (1/19 of remaining Escrow Shares) 12 months from TSXV Acceptance

  5% (1/18 of remaining Escrow Shares) 18 months from TSXV Acceptance

  5% (1/17 of remaining Escrow Shares) 24 months from TSXV Acceptance

 10% (1/8 of remaining Escrow Shares)  30 months from TSXV Acceptance

 10% (1/7 of remaining Escrow Shares)  36 months from TSXV Acceptance

 10% (1/6 of remaining Escrow Shares)  42 months from TSXV Acceptance

 10% (1/5 of remaining Escrow Shares)  48 months from TSXV Acceptance

 10% (1/4 of remaining Escrow Shares)  54 months from TSXV Acceptance

 10% (1/3 of remaining Escrow Shares)  60 months from TSXV Acceptance

 10% (1/2 of remaining Escrow Shares)  66 months from TSXV Acceptance

 10% (all remaining Escrow Shares)     72 months from TSXV Acceptance


If the Company becomes a Tier 1 issuer under the policies of the TSXV prior to the expiration of the 72-month release period set out above, the release schedule set out above will be amended to comply with the applicable Tier 1 release schedule, resulting in an accelerated release of any securities remaining in escrow, with such securities being released as if the Company had originally been classified as Tier 1 issuer.  The securities of Tier 1 issuers held under surplus security escrow agreements are released over a three-year period, with 10% of the securities being released on TSX acceptance and 15% being released every six months thereafter.



60







Unless otherwise expressly permitted in the New Escrow Agreement, the Escrow Shares may not be sold, transferred, assigned, mortgaged or otherwise dealt with in any way.  Pursuant to the terms of the New Escrow Agreement, the Escrow Shares may be transferred within escrow to an individual who is a director or senior officer of the Company or of a material operating subsidiary of the Company, subject to the approval of the Company’s board of directors, or to a person or company that before the proposed transfer holds more than 20% of the voting rights attached to the Company’s outstanding securities, or to a person or company that after the proposed transfer will hold more than 10% of the voting rights attached to the Company’s outstanding securities and that has the right to elect or appoint one or more directors or senior officers of the Company or of any of its material operating subsidiaries.  The Escrow Shares may also be pledged, mortgaged or charged to a financial institution as collateral for a loan.  No Escrow Shares may be transferred or delivered to the financial institution for this purpose and the loan agreement must provide that the Escrow Securities will remain in escrow if the lender realizes on the security to satisfy the loan.


Pursuant to the terms of the New Escrow Agreement, upon the bankruptcy of an escrow shareholder, the Escrow Shares of that shareholder held in escrow may be transferred within escrow to the trustee in bankruptcy or other person legally entitled to such securities.  Upon the death of an escrow shareholder, all securities of the deceased holder will be released from escrow to the deceased holder’s legal representative.


Subject to certain limited exceptions, escrow shareholders retain all voting rights attached to their Escrow Shares.  The New Escrow Agreement provides that the Escrow Shares will be cancelled if the asset, property or business in consideration of which the Escrow Shares were issued is lost or abandoned, or the operations or development of such asset, property or business is discontinued.


At the Annual Shareholders’ Meeting, 12/9/2004, disinterested shareholders approved an ordinary resolution authorizing the reinstatement of the Escrow Shares and the adoption of the New Escrow Agreement by the Company and the escrow shareholders.  Disinterested shareholders for the purpose of voting on the resolution include all shareholders of the Company other than David Corcoran and Victor Yates, and their affiliates and associates.  A total of 3,449,253 shares held by David Corcoran, Victor Yates, and their affiliates and associates, were therefore not be counted for the purpose of determining whether the required level of shareholder approval has been obtained.


Securities authorized for issuance under equity compensation plans.

 --- No Disclosure Necessary ---


Stock Options

The terms of incentive options granted by the Company are done in accordance with the rules and policies of the TSX Venture Exchange, including the number of common shares under option, the exercise price and expiry date of such options, and any amendments thereto.  The Company adopted a formal written stock option plan (the “Plan”) on 12/12/2003.


Such “terms and conditions”, including the pricing of the options, expiry and the eligibility of personnel for such stock options; and are described below.


Number of Shares Reserved.  The number of common shares that may be issued pursuant to options granted under the Plan may not exceed 10% of the issued and outstanding shares of the Company from time to time at the date of granting of options (including all options granted by the Company under the Plan).


Maximum Term of Options.  The term of any options granted under the Plan is fixed by the Board of Directors and may not exceed five years from the date of grant, or ten years if the Company is classified as a “Tier 1” issuer under the policies of the TSX Venture Exchange.  The options are non-assignable and non-transferable.




61





Exercise Price.  The exercise price of options granted under the Plan is determined by the Board of Directors, provided that it is not less than the discounted market price, as that term is defined in the TSX Venture Exchange policy manual or such other minimum price as is permitted by the TSX Venture Exchange in accordance with the policies from time to time, or, if the shares are no longer listed on the TSX Venture Exchange, then such other exchange or quotation system on which the shares are listed or quoted for trading.


Reduction of Exercise Price.  The exercise price of stock options granted to insiders may not be decreased without disinterested shareholder approval, as described below.


Termination.  Any options granted pursuant to the Plan will terminate generally within 90 days of the option holder ceasing to act as a director, officer, or employee of the Company or any of its affiliates, and within generally 30 days of the option holder ceasing to act as an employee engaged in investor relations activities, unless such cessation is on account of death.  If such cessation is on account of death, the options terminate on the first anniversary of such cessation.  If such cessation is on account of cause, or terminated by regulatory sanction or by reason of judicial order, the options terminate immediately.  Options that have been cancelled or that have expired without having been exercised shall continue to be issuable under the Plan.  The Plan also provides for adjustments to outstanding options in the event of any consolidation, subdivision, conversion or exchange of Company’s shares.


Administration. The Plan is administered by the Board of Directors of the Company or senior officer or employee to which such authority is delegated by the Board from time to time.


Board Discretion. The Plan provides that, generally, the number of shares subject to each option, the exercise price, the expiry time, the extent to which such option is exercisable, including vesting schedules, and other terms and conditions relating to such options shall be determined by the Board of Directors of the Company or senior officer or employee to which such authority is delegated by the Board from time to time and in accordance with TSX Venture Exchange policies.  The number of option grants, in any twelve-month period, may not result in the issuance to any one optionee which exceed 5% of the outstanding common shares of the Company (unless the Company is a Tier 1 issuer and has obtained the requisite disinterested shareholder approval), or the issuance to a consultant or an employee engaged in investor relations activities which exceed 2% of the outstanding common shares of the Company.  Disinterested shareholder approval will be sought in respect of any material amendment to the Plan.


The names of the Directors/Senior Management/employees/consultants of the Company to whom outstanding stock options have been granted and the number of common shares subject to such options are set forth in the following table, as well as the total number of options outstanding.



62







Table No. 10

Stock Options Outstanding

August 31, 2011

_____________________________________________________________________________

                            Number of Shares of    CDN$

                                         Common    Exer.       Grant  Expir’n

Name                                      Stock    Price        Date     Date

-----------------------------------------------------------------------------

David Corcoran                          800,000    $0.12CDN  3/18/10  3/18/12

Victor Yates                            800,000    $0.12CDN  3/18/10  3/18/12

Michael Huddy                           800,000    $0.12CDN  3/18/10  3/18/12

Craig Roberts                           550,000    $0.12CDN  3/18/10  3/18/12

Craig Roberts                           250,000    $0.15CDN 10/29/10 10/29/12

Subtotal Officers/Directors           3,200,000


Consultant                              100,000    $0.15CDN 10/29/10 10/29/12

Employees/Consultants                   590,000    $0.12CDN  3/18/10  3/18/12

Consultant (1)                           40,000    $0.064CDN 6/10/11  6/10/13


Total Officers/Directors/Employees    3,930,000

-----------------------------------------------------------------------------

(1)

25% of the options vest every six months following grant date.

_____________________________________________________________________________

_____________________________________________________________________________

 



Share Purchase Warrants

As of 8/31/2011, 15,000,000 share purchase warrants at CDN0.15 were outstanding with an expiry date of 3/15/2012.



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


David Corcoran, Administrator/CFO/Director

Mr. Corcoran is compensated for his managerial services to the Company indirectly through Corcoran Enterprises Ltd., a private company controlled by Mr. Corcoran.  During Fiscal 2011/2010, $50,000 and $50,000 were paid/accrued to Corcoran Enterprises Ltd., respectively.


Other than described above, there have been no transactions since 6/30/2011, or proposed transactions, which have materially affected or will materially affect the Company in which any Director, Executive Officer, or beneficial holder of more than 10% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates has had or will have any direct or material indirect interest.




63







ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES


Professional accounting services were rendered by BDO Dunwoody LLP for Fiscal 2011 and Fiscal 2010.


Audit Fees

The aggregate fees billed for professional services rendered by the Company’s principal accountant for the audit of the Company’s annual financial statements incurred in the fiscal years ended 6/30/2011 and 6/30/2010 were $72,822 and $74,492, respectively.


Audit Related Fees

The Company incurred no fees during fiscal years ended 6/30/2010 and 6/30/2009.


Tax Fees

The Company incurred tax fees of $Nil and $2,392 during fiscal years ended 6/30/2011 and 6/30/2010 for professional services rendered by the Company’s principal accountant for tax compliance, tax advice and tax planning.


All Other Fees

The Company incurred no other fees during the last two fiscal years for services rendered by the Company’s principal accountant.



ITEM 15.  EXHIBITS


 2.  Plan of acquisition, reorganization, arrangement,

     liquidation, or succession:  No Disclosure Necessary

 3.  Articles of Incorporation/By-Laws:

       Incorporated by reference to Form 20-FR Registration Statement, as amended

        and Form 6-K’s.

 4.  Instruments defining the rights of holders, incl. indentures

     --- Refer to Exhibit #3 ---

 9.  Voting Trust Agreements:  No Disclosure Necessary.

10.  Material Contracts:

     Incorporated by reference to Form 20-FR Registration Statement, as amended

       and Form 6-K’s.

11.  Statement re Computation of Per Share Earnings:  No Disclosure Necessary

13.  Annual or quarterly reports, Form 10-Q:  No Disclosure Necessary

14.  Code of Ethics:  No Disclosure Necessary

16.  Letter on Change of Certifying Accountant: No Disclosure Necessary

18.  Letter on change in accounting principles:  No Disclosure Necessary

20.  Other documents or statements to security holders: No Disclosure Necessary

21.  Subsidiaries of the Registrant:  No Disclosure Necessary.  Refer to ITEM #1.

22.  Published report regarding matters submitted to vote: No Disclosure Necessary

23.  Consent of Experts and Counsel:

     Consent of Auditor: BDO Canada LLP, dated 10/12/2011

24.  Power of Attorney: No Disclosure Necessary

31.  Rule 13a/15d-14(a) Certifications – attached.

32.  Section 1350 Certifications – attached.

99.  Additional Exhibits:  No Disclosure Necessary

100.  XBRL Related Documents:  No Disclosure Necessary




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SIGNATURE PAGE



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


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

Registrant




 

Dated: October 12, 2011   By /s/ Michael Huddy                   

                               Michael Huddy, President/CEO/Director

 

 

Dated: October 12, 2011   By /s/ David Corcoran                  

                               David Corcoran, CFO/Director

 





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