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EX-31 - CERTIFICATION - INTERNATIONAL BARRIER TECHNOLOGY INCexhibit312.htm
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EX-31 - CERTIFICATION - INTERNATIONAL BARRIER TECHNOLOGY INCexhibit311.htm
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EXCEL - IDEA: XBRL DOCUMENT - INTERNATIONAL BARRIER TECHNOLOGY INCFinancial_Report.xls



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)

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

For the quarterly period ended September 30, 2013


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

For the transition period from ________ to ________


Commission file number: 000-20412



International Barrier Technology Inc.

(Exact name of registrant as specified in its charter)



British Columbia, Canada

 

N/A

(State or other jurisdiction of incorporation  or organization)

 

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


510 4th Street North, Watkins, Minnesota, USA

 

55389

(Address of principal executive offices)

 

(Zip Code)



Issuer’s Telephone Number, 320-764-5797


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

YES x      NO   ¨


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES   x      NO   ¨


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


Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x


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


Indicate the number of shares outstanding of each of the issuer's classes of common stock as of 11/14/2013: 44,454,926 Common Shares w/o par value











Part 1 – Financial Information


Item 1.  Financial Statements


INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2013 and June 30, 2013

(Stated in US Dollars)

(Unaudited)

 

 

 

 

 

 

 Sept 30,

June 30,

 

 

2013

2013

ASSETS

 

 

 

Current

 

 

 

Cash and cash equivalents

 

$                  205,243

$           179,578

Accounts receivable

 

170,445

182,041

Inventory - Note 3

 

536,112

410,900

Prepaid expenses and deposits

 

58,190

89,128

Total Current Assets

 

969,990

861,647

Property, plant and equipment

 

3,008,058

3,060,268

Total Assets

 

$               3,978,048

$        3,921,915

 

 

 

 

LIABILITIES

 

 

 

Current

 

 

 

Accounts payable and accrued liabilities

 

$                  719,028

$           849,537

Deferred revenue

 

50,000

-

Current portion of long term debt - Note 4

 

60,711

59,752

Obligation under capital leases

 

65,516

64,575

Total Current Liabilities

 

895,255

973,864

Long-term debt - Note 4

 

296,672

312,174

Convertible debentures - Note 5

 

240,000

240,000

Obligation under capital leases

 

124,905

141,640

 

 

 

 

Total Liabilities

 

1,556,832

1,667,678

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

Common Stock - Note 6

 

 

 

Authorized:

 

 

 

100,000,000 common shares without par value

 

 

 

Issued:

 

 

 

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

 

15,463,675

15,463,675

Additional paid-in capital

 

1,644,914

1,579,555

Accumulated deficit

 

(14,687,373)

(14,788,993)

 

 

 

 

Total Stockholders' Equity

 

2,421,216

2,254,237

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$               3,978,048

$        3,921,915

 

 

 

 

APPROVED BY THE BOARD OF DIRECTORS

 

 

 

 

 

 

 

 

 

"David Corcoran"

 

 

"Victor Yates"

 

David Corcoran

Director

 

Victor Yates

Director

 

 

 

 

 

 

 

 

 

 

 

 

SEE ACCOMPANYING NOTES

 

 

 

 

 

 








INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

for the three months ended September 30,  2013 and 2012

(Stated in US Dollars)

(Unaudited)

 

 

 

 

 

 

Three months ended

 

 

September 30,

 

 

 

 

 

 

2013

2012

 

 

 

 

Sales - Note 7

 

$          2,282,153

$         896,533

 

 

 

 

Cost of Sales

 

1,860,542

832,799

 

 

 

Gross Profit

 

421,611

63,734

 

 

 

 

Expenses

 

 

 

Accounting and audit fees

 

47,166

52,432

Filing Fees

 

5,391

5,542

Insurance

 

18,416

18,464

Bank charges and interest

 

17

36

Legal fees

 

28,987

5,079

Office and miscellaneous

 

22,672

15,595

Sales, marketing, and investor relations

 

7,265

6,554

Telephone

 

2,916

2,426

Transfer agent fees

 

1,037

2,009

Wages and management fees - Note 6

 

168,052

98,871

 

 

 

 

Total Administrative Expenses

 

301,919

207,008

 

 

 

 

Operating Income (loss)

 

119,692

(143,274)

 

 

 

 

Foreign exchange gain (loss) and other income

 

(2,228)

2,236

Interest on long-term obligations

 

(15,844)

(19,727)

 

 

 

 

Total Other Income

 

(18,072)

(17,491)

 

 

 

 

Net income (loss) for the period

 

$             101,620

$      (160,765)

 

 

 

 

Basic and diluted income (loss) per share

 

$                   0.00

$            (0.00)

 

 

 

 

Weighted average number of shares outstanding

 

44,454,926

44,454,926

 

 

 

 

 

 

 

 

 

 

 

 

SEE ACCOMPANYING NOTES

 

 

 

 










INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the three months ended September, 2013 and 2012

(Stated in US Dollars)

(Unaudited)

 

 

Three months ended

 

 

Sept 30,

 

 

 

 

 

 

2013

2012

 

 

 

 

Operating Activities

 

 

 

Net income (loss) for the year

 

$           101,620

$         (160,765)

Items not involving cash:

 

 

 

Depreciation - plant and equipment

 

78,544

74,559

Stock-based compensation - consulting

 

2,220

-

Stock-based compensation - wages

 

63,139

-

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

 

 

Accounts receivable

 

11,596

100,420

Inventory

 

(125,212)

(146)

Prepaid expenses and deposits

 

30,938

13,673

Accounts payable and accrued liabilities

 

(130,509)

(24,191)

Deferred revenue

 

50,000

-

 

 

 

 

Net cash provided by operating activities

 

82,336

3,550

 

 

 

 

Cash Flows provided by Financing Activities

 

 

 

Repayment on long term debt

 

(14,543)

(13,420)

Decrease in obligations under capital lease

 

(15,794)

(13,484)

Net cash provided by (used in) financing activities

 

(30,337)

(26,904)

 

 

 

 

Cash Flows used in Investing Activities

 

 

 

Acquisition of equipment

 

(26,334)

-

Net cash used in investing activities

 

(26,334)

-

 

 

 

 

Decrease in cash and cash equivalents during the period

 

25,665

(23,354)

 

 

 

 

Cash and cash equivalents, beginning of the period

 

179,578

101,523

 

 

 

 

Cash and cash equivalents, end of the period

 

$           205,243

$             78,169

 

 

 

 

Supplemental Cash Flow Information

 

 

 

Cash paid for interest

 

$             15,844

$             19,727

 

 

 

 

Cash paid for income taxes

 

$                       -

$                       -

 

 

 

 

SEE ACCOMPANYING NOTES









INTERNATIONAL BARRIER TECHNOLOGY, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

for the period ended September 30, 2013

(Stated in US Dollars)

(Unaudited)

 

 

 

 

 

 

 

 

Common Stock

 

 

 

Additional

 

 

 

 

Issued

Amount

Paid-in

Accumulated

 

 

 

Shares

 

Capital

Deficit

 

Total

 

 

 

 

 

 

 

Balance, June 30, 2012

44,454,926

15,463,675

1,579,555

(14,730,354)

 

2,312,876

Net loss for the year

-

-

-

(58,639)

 

(58,639)

 

 

 

 

 

 

 

Balance, June 30, 2013

44,454,926

15,463,675

1,579,555

(14,788,993)

 

2,254,237

Stock based compensation

-

-

65,359

-

 

65,359

Net income for the period

-

-

-

101,620

 

101,620

 

 

 

 

 

 

 

Balance, September 30, 2013

44,454,926

15,463,675

1,644,914

(14,687,373)

 

2,421,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SEE ACCOMPANYING NOTES







INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Stated in US Dollars)

(Unaudited)




Note 1

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.


Note 2

Fair Value Measurements


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


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


Level 2 -  observable inputs other than Level I, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and


Level 3 - assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.


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


The Company’s long-term debt is based on Level 2 inputs in the ASC 820 fair value hierarchy.  Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of the long-term debt is $357,383 (June 30, 2013:  $371,926).


The Company’s convertible debentures are based on Level 2 inputs in the ASC 820 fair value hierarchy.  The Company calculated the fair value of these instruments by discounting future cash flows using rates representative of current borrowing rates.  At September 30, 2013, the convertible debentures had a fair value of $526,159 (June 30, 2013:  $431,022).


The Company’s capital lease obligations are based on Level 2 inputs in the ASC 820 fair value hierarchy.  The fair value of the capital lease obligations is $190,419 (June 30, 2013:  $206,215).  








INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Stated in US Dollars)

(Unaudited)



Note 3

Inventory


 

 September 30, 2013

 

 June 30, 2013

 

 

 

 

Raw materials

$             336,019

 

$          320,338

Finished goods

200,093

 

90,562

 

 

 

 

 

$             536,112

 

$          410,900


Note 4

Long-term Debt


 

 September 30, 2013

 

 June 30, 2013

 

 

 

 

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

357,383

 

371,926

 

 

 

 

Less: current portion

(60,711)

 

(59,752)

 

 

 

 

 

$                    296,672

 

$                 312,174


Note 5

Convertible Debentures


During the year ended June 30, 2012, the Company approved the issuance of two convertible debentures to a director and a company controlled by a director in the amount of $300,000.  The debentures are being issued in tranches from $10,000-$50,000 and as at September 30, 2013 the Company had received $240,000 (2012:  $200,000) in respect of these debentures.  The debentures bear interest at 12% per annum, payable quarterly, and are collateralized by a third charge over the Company’s plant and equipment as well as a charge against the Company’s patents.  At any time, the notes are convertible into units of the Company at a price of $0.10 per unit.  Each unit will consist of one common share and one common share purchase warrant entitling the holder the right to purchase one additional share for $0.10 for a period of two years from the conversion date. During the period ended September 30, 2013, the Company incurred interest charges of $7,200 (three months ended September 30, 2012:  $6,000) on these convertible debentures.






INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Stated in US Dollars)

(Unaudited)



Note 6  

Common Stock


Escrow:


At September 30, 2013, there are 48,922 (2012 – 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 September 30, 2013 and June 30, 2013, all of these shares held in escrow are issuable but the Company has yet to request their release.  


Commitments:


Stock-based Compensation Plan


At September 30, 2013, the Company has outstanding options that were granted to directors, officers, and consultants to purchase 4,430,000 common shares of the Company.


A summary of the status of the Company’s share purchase option plan for the three months ended September 30, 2013 is presented below:


 

 

 

 

Weighted

 

 

 

 

Average

 

 

Number of

 

Exercise

 

 

Shares

 

Price

 

 

 

 

 

Outstanding, June 30, 2013

 

3,252,500

 

$           0.100

Granted

 

1,177,500

 

$           0.097

 

 

 

 

 

Outstanding September 30, 2013

 

4,430,000

 

$           0.099

 

 

 

 

 

Exercisable September 30, 2013

 

4,430,000

 

$           0.099

 

 

 

 

 

Exercisable, June 30, 2013

 

3,252,500

 

$           0.100


The following summarizes information about the stock options outstanding at September 30, 2013:


 

 

 

 

 

 

Remaining

Number

 

Exercise

 

 

 

Contractual

 

 

Price

 

Expiry Date

 

Life

 

 

 

 

 

 

 

3,252,500

 

$0.10

 

May 15, 2015

 

1.62 years

1,177,500

 

$0.097

 

August 2, 2016

 

2.84 years

4,430,000

 

 

 

 

 

 


During the three month period ended September 30, 2013, the Company granted 1,177, 500 fully vested share purchase options having a fair value of $65,359.  The fair value of options was calculated using the Black-Scholes option pricing model using the following weighted average assumptions: stock price - $0.058; exercise price - $0.097; expected life – 3.0 yrs.; volatility – 246.16%; risk free discount rate – 0.59%; dividend rate – 0.00%.







INTERNATIONAL BARRIER TECHNOLOGY INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Stated in US Dollars)

(Unaudited)



Note 6  

Common Stock – (cont’d)


Stock-based Compensation Plan – (cont’d)

Stock-based compensation amounts for the three month period ended September 30 are classified in the Company’s Statement of Operations as follows:


 

 

2013

 

2012

 

 

 

 

 

Wages and management fees

 

$      63,139

 

$                   -

Consulting

 

2,220

 

-

 

 

 

 

 

 

 

$      65,359

 

$                   -

 

 

 

 

 


Note 7

Segmented Information and Sales Concentration


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


During the three months ended September 30, 2013, two customers accounted for 97% of total sales revenue; each representing 73% and 24%, respectively (2012:  two customers accounted for 100% of total sales revenue each representing 56% and 44% respectively).  The amounts receivable from each of these customers at September 30, 2013 were $159,256 and $0, respectively.  


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

















ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

         CONDITION AND RESULTS OF OPERATIONS


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


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


Description of Business

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


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


Discussion of Operations

Barrier’s financial statements are filed with both the SEC (USA) and SEDAR (Canada) and are disclosed in US dollars utilizing US generally accepted accounting principles.  Barrier’s filings with the SEC consist of quarterly reviewed financial statements on Form 10-Q and annual audited financial statements on Form 10-K.  Barrier continues to file the above financial statements with SEDAR in Canada on their website at www.sedar.com.  Finally, we also make Canadian and USA reports available on the Company’s website: www.intlbarrier.com.


Sales revenue reported for the quarterly period ending September 30, 2013 increased 155% to $2,282,153 in comparison to $896,533 generated in the same quarterly period in 2012. Total sales volume, as measured by surface volume of product shipped, was 5,560,500 sq. ft.  This is a 185% increase from the 1,951,000 sq. ft. shipped during the previous period.


Shipments into the Residential Roof Deck, Wall Assembly, and Structural Insulated Panel Market Sectors (LP FlameBlock) during Q1 2014 increased 231% over shipments in Q1 2013.  LP Flameblock sales were split between the Mid-Atlantic region at 52%, the West at 21%, the Midwest at 18%, and the South at 7%. There were 2% of shipments of LP Flameblock into the Structural Insulated Panel market during this period.


Sales into the Commercial Modular Market (FR Deck Panel) increased 97% in comparison to the previous year quarterly period).  FR Deck Panel sales were split between the South at 74%, the West at 14%, the Midwest at 9%, and the East at 3%.







LP and Barrier extended their existing Supply Agreement through December 31, 2013, with an option to extend through December 31, 2014 with mutual agreement.  The agreement provides LP the exclusive opportunity to market Pyrotite® technology based structural wood products in North America as long as minimum sales volumes are met on an annual basis.  Sales to the Commercial Modular Market are restricted from the LP Agreement since that market is serviced by MuleHide.  LP is the largest producer of Oriented Strand Board (OSB) in the world and believes that Barrier’s Pyrotite Technology helps them achieve their strategy of providing “value added” OSB products to the building community.


The relationship with LP has increased sales volume to historical levels and Barrier anticipates that sales will continue to grow substantially through the efforts of LP’s sales and marketing team.  Reported sales revenue for LP products, include only the charges for treatment services, not the underlying OSB substrate or outbound freight as LP supplies its own OSB substrate and contracts for its own outgoing freight.  The “pass through” of the OSB substrate and freight serves to lower reported “top line” sales revenue, but not gross profits since margins on substrate and freight have historically been restricted to handling costs only to help keep prices competitive.  For the Commercial Modular market, Barrier purchases OSB from local distributors and invoices the cost of the substrate and outgoing freight to the customer, therefore the cost of the substrate and freight is included in revenue for Commercial Modular shipments.


Cost of sales increased to $1,860,542 from $832,799 in the prior year quarterly period.  The increase is in direct relation to the increase in volume produced.  Barrier continues to capture gains in manufacturing efficiency as reflected in the quarterly average cost per sq.ft. of production which decreased by $0.10 from $0.43 to $0.33 over the comparable period in the previous year.


Substrate cost and materials/labor were the major expenses in this category.  Substrate, purchased for the MuleHide FR panel only, accounted for $436,064 for the quarter versus $220,303 in the same period last year.  Materials and labor accounted for an additional $1,027,630 in the three month period in 2013 versus $403,317 in 2012.


During the current period, R&D activity has generally been focused on creating new and improved fire rated wall assemblies. New and improved wall assemblies, tested and listed by Underwriters Laboratory and sanctioned by the International Code Council, are a significant factor in improved sales volume.


Depreciation on plant and equipment is included in cost of sales category. Depreciation, which has non-cash impact on Barrier’s actual cash flow, increased slightly from $74,559 in Q1 2013 to $78,544 in Q1 2014.  The expense reflects scheduled depreciation of new manufacturing line equipment and building improvements.


Gross profit for the quarterly period ended September 30, 2013 was $421,611 vs. $63,734 in the prior year quarter.  The gross margin, as a percentage of sales revenue, increased to 18% from 7%.  Improvements in gross margin were captured with gains in manufacturing efficiencies provided by improved production technology and efficiencies created by steady and increased sales volumes.  Overhead costs are spread across a larger manufacturing/sales volume base.  Barrier is intently focused on continued strong gross margins.


Administrative expenses for the quarter ended September 30, 2013 increased to $301,919 from $207,008 in the prior year quarterly period.  The administrative costs per sq. ft. were $0.05 for the quarter in comparison to $0.11 reported through September 30, 2012. . The positive impact of increased sales volume reducing administrative cost per square foot shipped was captured during this reporting period.  As volumes continue to increase, the trend for overall reduction in the average cost of administrative expense per sq.ft. is expected to continue.


Accounting and Audit Fees were $47,166 vs. $52,432.  A significant portion of the cost for accounting services is involved with the year-end audited review and publishing of Barrier’s annual financials.


Insurance costs have remained stable at $18,416 vs. $18,464.


Legal fees for the quarterly period increased to $28,987 from $5,079 in the prior year comparable period.  Legal fees were expended on activities in support of developing strategic partners and technology licensees.







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


Sales, marketing, and investor relations expenses increased from $6,554 to $7,265 for the quarter. During the period, there were sales trips directly related to the expansion of product markets.


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


Operating income (loss) of $119,692 is being reported for the quarter ending September 30, 2013, whereas in the same period in 2012, a net loss of ($143,274) was reported.


The significant improvement in loss before other items is a result of increased sales volumes and focus on manufacturing efficiency.  It is Barrier’s fundamental belief that sustained increased sales volume, in concert with the existing supply agreements with both MuleHide and LP Products is the best pathway to long-term profitability. Increases in Barrier’s sales volume are expected to follow the improving trend in home building starts in North America.


Other items include income and costs not directly related to business operations.  Other income items reported during the period herein includes a foreign exchange loss of $2,326 and interest/other income of $98.  To compare, for the same reporting period last year there was a foreign exchange gain of $2,168 and interest/other income of $68.


Interest on Long Term Debt has decreased from $19,727 to $15,884 for the three-month reporting period as a result of declining debt balances.


Net Income (loss).  Net income of $101,620 is being reported for the quarter ending September 30, 2013, whereas in the same period in the prior year, a net loss of $160,765 was reported.


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


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


 

Sept 30 2013

Jun 30 2013

Mar 31 2013

Dec 31 2012

Sept 30 2012

June 30 2012

Mar 31 2012

Dec 31 2011

Sept 30 2011

Volume shipped (MSF)

5,561

5,162

3,625

2,506

1,951

2,531

2,619

2,327

2,210

Total Revenues (000)

$2,282

$2,426

$1,695

$977

$897

$1,029

$1,023

$1,008

$1,085

Operating Income(loss) (000)

$120

$218

$50

($125)

($143)

($270)

($103)

($157)

($104)

Net income (loss) (000)

$102

$201

$36

($135)

($161)

($291)

($65)

($34)

$250

EPS (Loss) Per Share

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00

($0.01)

$0.01


Selected Annual Information


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


 

2013

2012

2011

Total Revenue

$5,995.0

$4,144.8

$3,256.0

Net income (loss)

(58.6)

$(139.7)

$895.8

Per share

0.00

$0.00

$0.02

Per share, fully diluted

0.00

$0.00

$0.02

Total assets

3,921.9

$3,708.0

$4,002.2

Total long-term financial liabilities

818.1

$900.0

$705.9

Cash dividends declared per share

Nil

$Nil

$Nil








New product and market development

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


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


Global licensing opportunities

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


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


Financial position & financings

Barrier ended the period with a working capital surplus (current assets less current liabilities) of $74,735.  Positive operating cash flow was $82,336 in comparison to $3,550 for the quarterly period ended September 30, 2012.


Barrier has a short term revolving line of credit ($100,000) at the local Farmers State Bank of Watkins, in Watkins, Minnesota.  As of September 30, 2013 the balance owing on the revolving line of credit was $0 leaving an additional $100,000 available for use.  In addition, two convertible debentures in the amount of $150,000 each were established in December 2011.  To date, $240,000 has been used on these debentures with an additional $60,000 available for cash flow if needed.


Investing activities resulted in net cash outflow of $26,334 in the current period in comparison to a net cash outflow of $0 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 $30,337 in the current period compared to a net cash outflow of $26,904 for the same period last year.  The cash outflow resulted from the repayments on long-term debt and obligations under capital lease.


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







During the twelve months ended June 30, 2012, the Company issued two convertible promissory debentures to a director and a company controlled by a director.  As of June 30, 2013, the company had received $240,000 in respect to these debentures.  As needed, the Company will draw the remaining $60,000 available.  The debentures bear interest at 12% per annum and are secured by a third charge over the Company’s plant and equipment as well as charge against the Company’s patents.  At any time, the notes are convertible into units of the Company at a price of $0.10 per unit.  Each unit will consist of one common share and one common share purchase warrant entitling the hold thereof to purchase an additional share for $0.10 for a period of two years from the conversion date.


Current and Future Financing Needs

At September 30, 2013, the current cash and cash equivalents totaled $205,243; there was $100,000 in available funds to draw on the revolving credit facility, and an additional $60,000 available from the convertible debentures.


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


·

Increased costs of general and administrative expenses

·

Increased costs of raw materials and freight

·

Costs associated with the research and development activities

·

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


Related Party Transactions

During the year ended June 30, 2012, the Company approved the issuance of two convertible debentures to a director and a company controlled by a director in the amount of $300,000.  The debentures are being issued in tranches from $10,000 - $50,000 and as at June 30, 2013 the Company had received $240,000 (2012:  $200,000) in respect of these debentures.  The debentures bear interest at 12% per annum, payable quarterly, and are collateralized by a third charge over the Company’s plant and equipment as well as a charge against the Company’s patents.  At any time, the notes are convertible into units of the Company at a price of $0.10 per unit.  Each unit will consist of one common share and one common share purchase warrant entitling the holder the right to purchase one additional share for $0.10 for a period of two years from the conversion date.  During the period ended September 30, 2013, the Company incurred interest charges of $7,200 (2012:  $6,000) on these convertible debentures.


Capitalization

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


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

Issued as of November 14, 2013:  44,454,926 common shares at $15,463,675


Options outstanding:


The following summarizes information about the stock options outstanding at September 30, 2013:


 

Exercise

 

Number

Price

Expiry Date

 

 

 

3,252,500

$0.10

May 15, 2015

1,177,500

$0.097

August 2, 2016

 

 

 

4,430,000

 

 


Other Matters

As at September 30, 2013 the Company did not have any off-balance sheet arrangements to report.









ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         No Disclosure Necessary



ITEM 4.  CONTROLS AND PROCEDURES


a.  Evaluation of Disclosure Controls and Procedures

As required by Rule 13(a)-15 under the Exchange Act, in connection with this 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 September 30, 2013 and has concluded the disclosure controls and procedures were ineffective.  As of the date of this filing, the Company is still in the process of remediating such material weaknesses in its internal controls and procedures.


b.  Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.








PART II

OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

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


ITEM 1A.  RISK FACTORS

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


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

         a.  No Disclosure Necessary

         b.  No Disclosure Necessary

         c.  No Disclosure Necessary


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         No Disclosure Necessary


ITEM 4.  MINE SAFETY DISCLOSURES

         No Disclosure Necessary


ITEM 5.  OTHER INFORMATION

      a. Reports on Form 8-K:

          1.  Form 8-K dated 7/25/2913 regarding press release disclosing

               sales results for the month, the quarter, and fiscal year ended 6/30/2013.

          2.  Form 8-K dated 8/8/2013 regarding press release disclosing the granting of stock options.

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

          No Disclosure Necessary


ITEM 6.  EXHIBITS


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


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


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


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


101.INS(1):      XBRL Instance Document

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

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

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

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

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


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








SIGNATURE PAGE



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


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

Registrant



Dated: November 14, 2013

By: /s/ Michael Huddy

 

Michael Huddy, President/CEO/Director

 

 

Dated: November 14, 2013

By: /s/ Melissa McElwee

 

Melissa McElwee, CFO