Attached files
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, 2012
[ ] 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). [X ] Yes [] 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, 2012 = $1,333,648
Common Shares outstanding at August 31, 2012 44,454,926 shares
Page 1 of 62
Index to Exhibits on Page 61
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TABLE OF CONTENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. DESCRIPTION OF PROPERTY
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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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$4.1 million and US$3.3 million during Fiscal 2012 and 2011, respectively.
FINANCIAL AND OTHER INFORMATION
In this Annual Report, unless otherwise specified, all dollar amounts are expressed in U.S. Dollars (“$”).
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.
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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.
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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”.
The Company has 100,000,000 no par common shares authorized. At 6/30/2012, 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 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: US$200,000 from the issuance of convertible debentures
Fiscal 2013-to-date: None
Capital Expenditures
Fiscal 2010: $ 23,068, purchase of plant and equipment
Fiscal 2011: $ 74,857, purchase of plant and equipment
Fiscal 2012: $ 116,363, purchase of plant and equipment
1.B. Financial Information About Segments
Refer to the audited financial statements for Fiscal 2012 ended June 30th (footnote #14, “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.
Barrier sells LP® FlameBlock Fire-Rated OSB Sheathing to LP® Building Products and sales to LP accounted for 61% of Fiscal 2012 revenues. Barrier sells MuleHide FR Deck Panel to MuleHide Products, Inc. and sales to MuleHide accounted for 38% of Fiscal 2012 revenues. In 2011, sales to LP accounted for 26% of sales revenues and MuleHide accounted for 72%.
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Seasonality
The building products industry in the United States does experience seasonality with housing starts generally depressed in winter months. Barrier’s 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 8/31/2012, the Company had 16 full-time employees, one full time Executive Officer and two part-time Executive Officers. As of 6/30/2012, the Company had 15 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.
Dependency upon Customers
Fiscal 2012
During Fiscal 2012, the company’s largest customer was LP® Building Products (LP). LP is a partner that services the multifamily residential roof deck construction, wall assemblies, and structural insulated panels (SIPs)markets. LP purchased 65% of the 9,687,029 sq. ft. of Pyrotite® products shipped in Fiscal 2012. 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. Through an exclusive supply agreement, LP has the exclusive right to sell Pyrotite® treated panel products in North America, in all markets other
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than the commercial modular (MuleHide Products, Inc.) market, under their brand name LP® FlameBlock® Fire-Rated OSB Sheathing.
LP® FlameBlock® is sold through wholesale distribution companies such as ProBuild, Builders FirstSource, Biewer Lumber, Weekes Forest Products (Logan Lumber), 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 32% of total sales into these markets. Other regions in these markets include the South, the Midwest, the MidAtlantic and Canada). The building products distribution companies mentioned have a presence in all of these areas and are consistent FlameBlock customers throughout these geographies.
The second largest market for Pyrotite® products was the commercial modular market. MuleHide Products, Inc. “Mulehide”. Mulehide is the company that services the commercial modular market including selling Pyrotite® products to the commercial modular market. Commercial modular sales accounted for 35% of total shipments in 2012. Product shipped to MuleHide Products is through an exclusive supply agreement and private labeled MuleHide FR Deck Panel. The FR Deck Panel is distributed through ABC Supply Company locations throughout the United States.
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. The FR Deck Panel is distributed through ABC Supply Company locations throughout the United States.
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 consistent FlameBlock customers throughout these geographies.
1.D. Financial Information About Geographic Areas
During Fiscal 2012 and 2011, all sales were in the United States.
At 6/30/2012 and 6/30/2011: $3,583,555 and $3,688,347 of the assets were located in the United States and $124,490 and $313,888 were located in Canada, respectively.
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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. Such differences may cause investors legal difficulties.
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, 2012, the Company has incurred aggregate losses of ($14,730,354). Our earnings (losses) from operations for years ended 6/30/2012 and 6/30/2011 were ($139,696) and $895,811, respectively; our cash used in operations for years ended 6/30/2012 and 6/30/2011 was $244,349 and $329,065, 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,
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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.
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: ($139,696) in FY2012 and $895,811 [“profit” result of non-cash flow “change in fair value of derivative liability] in FY2011. 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%. In December 2011, Barrier negotiated a 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. At June 30, 2012, the capital loan balance was $427,880. By a promissory note agreement dated December 29, 2011, the Company has arranged for credit facilities with Farmers State Bank of Watkins which allows the Company to be advanced up to $50,000 under the terms of the promissory note agreement. Advances will bear interest at 6.25% per annum and will be repayable in installments of accrued interest beginning February 1, 2012 with the entire unpaid Principal and interest to be repaid on February 1, 2013. Advances are collateralized by a security interest on inventory, accounts receivable, equipment and all intangibles of the Company as well as an assignment of the building lease.
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.
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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.
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).
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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. are slowly starting to recover. The U.S. Census Bureau reported 750,000 new housing starts in August 2012 (adjusted on an annual basis). August's numbers were 2.3 percent higher than the July 2012 estimate of 733,000 and 29.1 percent higher than the August 2011 annually adjusted rate of 581,000. There continues to be a risk that the economy is not yet stable enough to support long term improvements in new housing starts. If housing growth is unstable, sales of Pyrotite® products could be negatively impacted or unpredictable.
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.
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.
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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 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.
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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 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. MINE SAFETY DISCLOSURES
Not applicable
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.
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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 6/30/2012 835,700 CDN$0.07 CDN$0.03 CDN$0.04 3/31/2012 691,100 0.07 0.04 0.06 12/31/2011 454,200 0.09 0.04 0.08 9/30/2011 426,800 0.10 0.03 0.07 6/30/2011 570,800 0.11 0.05 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 ______________________________________________________________________________ ______________________________________________________________________________ |
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.
Table No. 2 OTC Bulletin Board Common Shares Trading Activity US Dollars ______________________________________________________________________________ ______________________________________________________________________________ - Sales - Period US Dollars Ended Volume High Low Closing Quarterly 6/30/2012 883,400 US$0.08 US$0.03 US$0.04 3/31/2012 1,191,300 0.07 0.04 0.06 12/31/2011 2,086,500 0.08 0.03 0.08 9/30/2011 1,183,400 0.10 0.03 0.07 6/30/2011 675,800 0.12 0.06 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 ______________________________________________________________________________ ______________________________________________________________________________ |
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 10/21/2011, the Company’s shareholders’ list showed 44,454,926 common shares outstanding and 145 registered shareholders with: 4,655,606 shares owned by 44 registered shareholders/depositories resident in Canada, 10% of the total; 39,799,220 shares owned by 100 registered shareholders/depositories resident in the United States; and 100 shares owned by one shareholder in one other country.
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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.
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 2010: 15,000,000 units at CDN$0.10 per unit = US$1,482,974 (CDN$1,500,000)
Fiscal 2011: 40,000 units at US$0.09 per unit = US$3,600
Fiscal 2012: None
Fiscal 2013-to-date: None
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data as shown in the following table for the Company for Fiscal 2012/2011 Ended June 30th was derived from the consolidated financial statements of the Company that have been audited by BDO Canada LLP, Chartered Accountants, as indicated in their auditor’s report included elsewhere in this Annual Report. Selected financial data as shown in the following table for the Company for Fiscal 2010/2009/2008 is derived from the Company's audited consolidated financial statements, not included herein.
The information presented below should be read in conjunction with following “Management’s Discussion and Analysis” and with the consolidated financial statements and other financial data included elsewhere in this Annual Report.
The Company has not declared any dividends since incorporation and does not anticipate that it will do so in the near future.
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Table No. 3 Selected Financial Data ($ in 000’s, except per share data) _________________________________________________________________________________ _________________________________________________________________________________ Year Year Year Year Year Ended Ended Ended Ended Ended 6/30/2012 6/30/2011 6/30/2010 6/30/2009 6/30/2008 Sales Revenue $4,145 $3,256 $2,606 $4,092 $4,878 Net Income (Loss) ($140) 896 ($2,330) ($719) ($808) Income (Loss) per Share $ 0.00 0.02 ($0.07) ($0.02) ($0.03) Dividends Per Share Nil Nil Nil Nil Nil
Wtg. Avg. Shares (000) 44,455 44,427 34,018 29,415 29,415 Period-end Shares O/S 44,455 44,455 44,415 29,415 29,415 -------------------------------------------------------------------------------- Working Capital ($154) ($702) ($1,743) $271 $433 Long-Term Debt $668 $416 $556 $921 $750 Capital Lease Obligations $232 $290 $344 $398 $462
Capital Stock $15,464 $15,464 $15,458 $15,079 $15,079 Shareholders’ Equity $2,313 $2,134 $1,213 $3,164 $3,873 Total Assets $3,708 $4,002 $5,002 $4,849 $5,738 --------------------------------------------------------------------------------- (1) Cumulative Net Loss since incorporation to 6/30/2012 was ($14,730,354). _________________________________________________________________________________ _________________________________________________________________________________ |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
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 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
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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.
Recent Accounting Pronouncements
In June 2011, the FASB issued Accounting Standards Update 2011-05, “Presentation of Comprehensive Income (Topic 220)”. The objective of this Update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, among other amendments in this Update. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the impact of this update on the consolidated financial statements.
In December 2011, the FASB issued Accounting Standards Update 2011-12, “Comprehensive Income (Topic 220)”. The amendments in this Update supersede certain pending paragraphs in Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011—5 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is
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currently evaluating the impact of this update on the consolidated financial statements.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Equity Financing Timeline
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: None
Fiscal 2013-to-date: None
Fiscal 2012 Ended 6/30/2012
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 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.
Barrier’s financial statements are filed with both the SEC (USA) and SEDAR (Canada) and are disclosed in US dollars utilizing US generally accepted accounting principles. Barrier’s filings with the SEC consist of quarterly reviews financial statements on Form 10-Q and annual audited financial statements on Form 10-K. Barrier continues to file the above financial statements with SEDAR in Canada.
Sales revenue reported for the fiscal period ending June 30, 2012 was up 27% to $4,144,769 in comparison to $3,256,019 generated in the same fiscal period in 2011. Total sales volume, as measured by surface volume of product shipped, was 9,687,029 sq. ft.; an all time high for Barrier. This is a 39% increase from the 6,962,264 sq. ft. shipped during the previous year.
Shipments into the Residential Roof Deck, Wall Assembly, and Structural Insulated Panel Market Sectors (LP FlameBlock) during the fiscal year increased 106% over shipments in fiscal 2011. LP Flameblock sales were split between the West at 32%, the Mid-Atlantic region at 31%, the South at 17%, the Midwest at 15%, and less than 1% in Canada. There were 5% of shipments of LP Flameblock into the Structural Insulated Panel market during this period.
Sales into the Commercial Modular Market (FR Deck Panel) decreased 13% in comparison to the previous year). The decrease was the result of the stagnant construction industry. However, the decrease in sales volume in the Commercial Modular market was only offset by a 3.30% decrease in cost of sales primarily as a result of increased commodity prices incurred during the year for substrate. As expansion funds for projects that use commercial modular structures, such as government barracks and temporary school buildings weren’t available during the economic downturn. In addition, the need for job-site construction trailers (another use of commercial modular products) diminished during this time as well.
On January 18, 2011, LP and Barrier extended their existing Supply Agreement through December 31, 2012 with the opportunity to extend through December 31, 2013 should both parties agree. 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 “value added” OSB products to the building community. The agreement gives LP the exclusive right to sell Pyrotite® treated structural panel products in North America, in all markets other than
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commercial modular (MuleHide Products, Inc.), under their brand name LP® FlameBlock® Fire-Rated OSB Sheathing.
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 as LP supplies its own OSB substrate, and outgoing freight. This pass through of the OSB substrate and freight serves to lower reported “top line” sales revenue, but not gross profits since margins on substrate and freight have historically been restricted to handling costs only to help keep prices competitive. For the Commercial Modular market, Barrier purchases OSB from local distributors and invoices the cost of the substrate and outgoing freight to the customer, therefore the cost of the substrate and freight is included in revenue for Commercial Modular shipments.
Gross profit for the fiscal period was $258,072 vs. $110,088 in the previous year. The gross margin, as a percentage of sales revenue, doubled to 6% from 3% in the prior year. 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.
Cost of sales increased to $3,886,697 from $3,145,931 in Fiscal 2011. 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 $0.40 in comparison to $0.45 in the comparable period. As shipment volumes continue to increase, Barrier expects that the fixed costs included in Cost of Sales will continue to decrease as revenues increase, thus improving gross margins considerably.
Substrate cost and materials/labor were the major expenses in this category. Substrate accounted for $822,271 for the fiscal year versus $850,852 in the same period last year. Materials and labor accounted for an additional $2,101,367 in the twelve month period in 2012 versus $1,350,400 in 2011.
R&D activity has generally been focused on product applications in wildfire prone areas in the western US and for 1 and 2-hour rated exterior wall assemblies. Fire resistant exterior walls are often required where buildings are intended to be built close together.
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 $272,105 in 2011 to $295,466. The expense reflects scheduled depreciation of the new manufacturing line equipment and building 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 was fully amortized during the reporting period.
Administrative expenses for Fiscal 2012 increased to $892,033 from $660,196 in the prior year. The administrative costs per sq. ft. were $0.09 for the fiscal year which equaled the $0.09 reported in Fiscal 2011. While changes in derivative value (see Note 6) positively affected administrative costs significantly last year, 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.
Accounting and Audit Fees increased from $86,575 to $100,646.
Insurance costs have decreased from $85,121 to $80,672. The difference is due to annually adjusted premiums based on larger sales volume discounts.
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Legal fees decreased significantly to $36,512 for the annual period ending June 30, 2012. For the same period in the prior year, legal fees were $62,979. 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 has two US patents and a patent in Australia protecting the manufacturing technology utilized in the production of fire-rated sheathing products utilizing Pyrotite.
Sales, marketing, and investor relations expenses decreased from $208,944 to $44,218 for the year. The major reason for the decrease in expense under this category was the enhanced effort placed on investor relations in the prior year. 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 communication on an ongoing basis and as future cashflow allows access to additional funds, a more active investor relations program will be initiated.
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 ($633,961) is being reported for the fiscal period ending June 30, 2012, whereas in the same period in 2011, a net loss of ($550,108) was reported.
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 the construction industry continues recovery, and 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 loss of ($8,531) and interest/other income of $1,268. To compare, for the same reporting period last year there was a foreign exchange gain of $37,919 and interest/other income of $4,296.
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. 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 was required to record these instruments as derivative liabilities which are re-measured to their fair value each reporting period. During the fiscal year ending June 30, 2012 the Company reported a fair value gain of $556,762 vs. $1,453,238 in Fiscal 2011.
Interest on Long Term Debt has increased from $49,534 to $55,234 for the 12-month reporting period.
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Net Income. A net loss of ($139,696) is being reported for the fiscal period ending June 30, 2012, whereas in the same period in 2011, a net gain of $895,811 was reported. While changes in derivative value (see Note 6) affected net income in the prior year reporting period, Barrier remains focused on cutting costs and improving efficiencies wherever it can. 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.
Summary of Quarterly Results. The following is a summary of the Company’s financial results for the nine most recently completed quarters:
| June 30 2012 | Mar 31 2012 | Dec 31 2011 | Sept 30 2011 | June 30 2011 | Mar 31 2011 | Dec 31 2010 | Sept 30 2010 | June 30 2010 |
Volume shipped (MSF) | 2,531 | 2,619 | 2,327 | 2,210 | 1,861 | 1,573 | 1,754 | 1,774 | 1,496 |
Total Revenues (000) | 1,029 | $1,023 | $1,008 | $1,085 | $765 | $735 | $877 | $879 | $574 |
Operating Income (000) | ($270) | ($103) | ($157) | ($104) | ($175) | ($176) | ($30) | ($169) | ($370) |
Net income (loss) (000) | ($291) | ($65) | ($34) | $250 | $31 | $11 | $808 | $46 | ($117) |
EPS (Loss) Per Share | $0.00 | $0.00 | ($0.01) | $0.01 | $0.00 | $0.00 | $0.02 | $0.00 | ($0.00) |
Selected Annual Information
The following financial data is for the three most recent years ended June 30:
| 2012 | 2011 | 2010 |
Total Revenue | $4,144.8 | $3,256.0 | $2,606.3 |
Net income (loss) | (139.7) | 895.8 | (2,330.0) |
Per share | 0.00 | 0.02 | (0.07) |
Per share, fully diluted | 0.00 | 0.02 | (0.07) |
Total assets | 3,708.0 | 4,002.2 | 5,002.0 |
Total long-term financial liabilities | 900.0 | 705.9 | 900.0 |
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 US.
Barrier and LP have now successfully designed, tested, and UL certified a 2-hr exterior load bearing wall being currently being used in wood-frame commercial/residential buildings of Type III construction. As more architects and specifying engineers become aware of this new design Barrier and LP are confident that considerable sales will result for these projects.
Global licensing opportunities
Barrier continues to explore manufacturing and distribution opportunities for Pyrotite technology in geographies outside of the US.
Financial position & financings
Barrier ended the period with a working capital deficiency (current assets less current liabilities) of ($153,932). The negative operating cash flow was ($244,349) in comparison to ($329,065) for the fiscal period ended June 30, 2011.
21
Barrier has also established a short term revolving line of credit ($50,000) at the local Farmers State Bank of Watkins, in Watkins, Minnesota. As of June 30, 2012 the balance owing on the revolving line of credit was $40,000 leaving an additional $10,000 available for use. In addition, a $300,000 convertible debenture was established in December 2011. To date, $200,000 has been used on this debenture with an additional $100,000 available for cash flow if needed.
Investing activities resulted in net cash outflow of ($116,363) in the current period in comparison to a net cash outflow of ($74,857) 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 inflow of $193,493 in the current period compared to a net cash outflow of ($190,457) for the same period last year. The cash inflow resulted from the incoming funds from the convertible debenture, a new loan facility and then repayments on long-term debt and obligations under capital lease. At the end of December, Barrier negotiated a new banking relationship with Farmers State Bank of Watkins. With the long term debt needs reduced, Barrier was able to combine the term loan and line of credit from First National Bank of Cold Spring into a single note with a reduced interest rate (from 6.75% and 7% to 6.25%) at Farmers State Bank.
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 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, 2012.
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. The debentures are being issued in tranches of $50,000 and as of June 30, 2012, the company had received $200,000 in respect to these debentures. As needed, the company will draw the remaining $100,000 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 holder thereof to purchase an additional share for $0.10 for a period of two years from the conversion date.
Although management believes that revenues will increase, management also expects an increase in operating costs directly related to the increase in sales. 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, 2012, the current cash and cash equivalents totaled $101,523; there was $10,000 in available funds to draw on the revolving credit facility, and an additional $100,000 available from the convertible debentures. Over the next twelve months, the Company anticipates that the operation of business will produce an average monthly operating cash flow of $20,000 for a total of $240,000 for the 2013 fiscal year. In addition, over the next 12 months, the Company is required to make payments totaling $169,714 in respect of its long-term debt and capital lease obligations and $495,383 in respect of accounts payable outstanding as at June 30, 2012 with $114,881 incoming accounts
22
receivable as of June 30, 2012. The Company expects to fund the cash shortfall with an additional convertible debenture or private placement.
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, 2012 the Company incurred wages and management fees to the directors and officers of the company of $278,363. The Company paid $186,793 in wages and management fees for the same prior year-to-date.
Capitalization
Authorized: 100,000,000 common shares without par value.
Issued as of June 30, 2012: 44,454,926 common shares at $15,463,675
Issued as of Sept 14, 2012: 44,454,926 common shares at $15,463,675
Options outstanding:
The following summarizes information about the stock options outstanding at June 30, 2012:
| Exercise |
|
Number | Price | Expiry Date |
|
|
|
350,000 | $0.15 CDN | October 29, 2012 |
40,000 | $0.064 CDN | June 10, 2013 |
3,840,000 | $0.10 | May 15, 2015 |
|
|
|
4,230,000 |
|
|
Other Matters
As at June 30, 2012 the Company did not have any off-balance sheet arrangements to report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
| 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 |
![[ibt10ksept2812ev4002.gif]](ibt10ksept2812ev4002.gif)
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, 2012 and 2011and the related consolidated statements of operations and comprehensive (loss) income, 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, 2012 and 2011 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 $14,730,354 at June 30, 2012 and had a working capital deficit of $153,932. 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.
As discussed in Note 2 to the consolidated financial statements, effective July 1, 2011, the Company changed its accounting for employee share purchase options with the adoption of the new guidance for employee share purchase options denominated in a currency of the market in which the Company’s equity securities trade.
/s/ BDO CANADA LLP
Chartered Accountants
Vancouver, Canada
September 28, 2012
24
INTERNATIONAL BARRIER TECHNOLOGY, INC. | |||
CONSOLIDATED BALANCE SHEETS | |||
June 30, 2012 and June 30, 2011 | |||
(Stated in US Dollars) | |||
| |||
|
| June 30, | June 30, |
|
| 2012 | 2011 |
ASSETS |
|
|
|
Current |
|
|
|
Cash and cash equivalents |
| $ 101,523 | $ 268,742 |
Accounts receivable |
| 114,881 | 49,825 |
Inventory - Note 3 |
| 242,465 | 230,226 |
Prepaid expenses and deposits |
| 40,115 | 46,359 |
Total Current Assets |
| 498,984 | 595,152 |
|
|
|
|
Property, plant and equipment - Note 4 |
| 3,209,061 | 3,387,810 |
Patent, trademark, and technology rights - Note 5 |
| - | 19,273 |
Total Assets |
| $ 3,708,045 | $ 4,002,235 |
|
|
|
|
LIABILITIES |
|
|
|
Current |
|
|
|
Accounts payable and accrued liabilities |
| $ 495,383 | $ 401,562 |
Customer deposits |
| - | 19,844 |
Derivative liability - Notes 2, 7 and 10 |
| - | 741,357 |
Current portion of long term debt - Note 8 |
| 96,093 | 76,412 |
Obligation under capital leases - Note 9 |
| 61,440 | 57,911 |
Total Current Liabilities |
| 652,916 | 1,297,086 |
|
|
|
|
Long-term debt - Note 8 |
| 371,787 | 339,709 |
Convertible debentures - Note 6 |
| 200,000 | - |
Obligation under capital leases - Note 9 |
| 170,466 | 231,907 |
|
|
|
|
Total Liabilities |
| 1,395,169 | 1,868,702 |
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
Common Stock - Note 10 |
|
|
|
Authorized: 100,000,000 common shares without par value |
|
|
|
Issued: 44,454,926 common shares (June 30, 2011: 44,454,926) |
| 15,463,675 | 15,463,675 |
Additional paid-in capital |
| 1,579,555 | 1,030,593 |
Accumulated deficit |
| (14,730,354) | (14,360,735) |
|
|
|
|
Total Stockholders' Equity |
| 2,312,876 | 2,133,533 |
|
|
|
|
Total Liabilities and Stockholders' Equity |
| $ 3,708,045 | $ 4,002,235 |
APPROVED BY THE BOARD OF DIRECTORS |
|
|
| ||
| |||||
"David Corcoran" |
|
| "Victor Yates" |
| |
David Corcoran | Director |
| Victor Yates | Director | |
SEE ACCOMPANYING NOTES
25
INTERNATIONAL BARRIER TECHNOLOGY, INC. | |||
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME | |||
June 30, 2012 and 2011 | |||
(Stated in US Dollars) | |||
| |||
|
|
|
|
|
| 2012 | 2011 |
|
|
|
|
Sales |
| $ 4,144,769 | $ 3,256,019 |
|
|
|
|
Cost of Sales |
| 3,886,697 | 3,145,931 |
|
|
| |
Gross Profit |
| 258,072 | 110,088 |
|
|
|
|
Expenses |
|
|
|
Accounting and audit fees |
| 100,646 | 86,575 |
Filing Fees |
| 15,833 | 22,537 |
Insurance |
| 80,672 | 85,121 |
Bank charges and interest |
| 573 | 441 |
Legal fees |
| 36,512 | 62,979 |
Office and miscellaneous |
| 53,110 | 52,382 |
Sales, marketing, and investor relations - Note 10 |
| 44,218 | 208,944 |
Telephone |
| 10,975 | 11,011 |
Transfer agent fees |
| 7,999 | 8,539 |
Wages and management fees - Notes 10 and 12 |
| 541,495 | 121,667 |
|
|
|
|
Total Administrative Expenses |
| 892,033 | 660,196 |
|
|
|
|
Loss before other income |
| (633,961) | (550,108) |
|
|
|
|
Foreign exchange gain (loss) and other income |
| (7,263) | 42,215 |
Interest on long-term obligations |
| (55,234) | (49,534) |
Change in fair value of derivative liability - Note 7 |
| 556,762 | 1,453,238 |
|
|
|
|
Total Other Income |
| 494,265 | 1,445,919 |
|
|
|
|
Net income (loss) for the period |
| $ (139,696) | $ 895,811 |
|
|
|
|
Basic and diluted income (loss) per share |
| $ (0.00) | $ 0.02 |
|
|
|
|
Weighted average number of shares outstanding |
| 44,454,926 | 44,426,542 |
|
|
|
|
Diluted weighted average number of shares outstanding | 44,454,926 | 44,837,955 | |
SEE ACCOMPANYING NOTES
26
INTERNATIONAL BARRIER TECHNOLOGY, INC. | |||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
June 30, 2012 and 2011 | |||
(Stated in US Dollars) | |||
|
|
|
|
|
| 2012 | 2011 |
|
|
|
|
Operating Activities |
|
|
|
Net income for the year |
| $ (139,696) | $ 895,811 |
Items not involving cash: |
|
|
|
Depreciation - plant and equipment |
| 295,466 | 272,105 |
Amortization - patent, trademark and technology rights |
| 19,273 | 126,016 |
Stock-based compensation - investor relations |
| 5,429 | 27,090 |
Stock-based compensation - wages |
| 129,015 | (331,176) |
Change in fair value of derivative liability |
| (556,762) | (1,453,238) |
Changes in non-cash working capital balances related to operations: |
|
|
|
Accounts receivable |
| (65,056) | 52,273 |
Inventory |
| (12,239) | 25,604 |
Prepaid expenses and deposits |
| 6,244 | 4,501 |
Accounts payable and accrued liabilities |
| 93,821 | 32,105 |
Customer deposits |
| (19,844) | 19,844 |
|
|
|
|
Net cash used in operating activities |
| (244,349) | (329,065) |
|
|
|
|
Cash Flows provided by Financing Activities |
|
|
|
Issuance of common shares |
| - | 3,600 |
Issuance of Convertible debentures |
| 200,000 | - |
Advances on bank loan facility |
| 490,000 | 250,000 |
Repayment of bank loan facility |
| (181,723) | (318,277) |
Repayment on long term debt |
| (256,872) | (71,187) |
Decrease in obligations under capital lease |
| (57,912) | (54,593) |
Net cash provided by (used in) financing activities |
| 193,493 | (190,457) |
|
|
|
|
Cash Flows used in Investing Activities |
|
|
|
Acquisition of equipment |
| (116,363) | (74,857) |
Net cash used in investing activities |
| (116,363) | (74,857) |
|
|
|
|
Decrease in cash and cash equivalents during the year |
| (167,219) | (594,379) |
|
|
|
|
Cash and cash equivalents, beginning of the year |
| 268,742 | 863,121 |
|
|
|
|
Cash and cash equivalents, end of the year |
| $ 101,523 | $ 268,742 |
|
|
|
|
Supplemental Cash Flow Information |
|
|
|
Cash paid for interest |
| $ 50,176 | $ 49,534 |
|
|
|
|
Cash paid for income taxes |
| $ - | $ - |
SEE ACCOMPANYING NOTES
27
INTERNATIONAL BARRIER TECHNOLOGY, INC. | ||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY | ||||||
June 30, 2012 and 2011 | ||||||
(Stated in US Dollars) | ||||||
| ||||||
|
|
|
|
|
|
|
| Common Stock |
|
|
|
| |
| Issued | Amount | Paid-in |
| Accumulated |
|
| Shares |
| Capital |
| Deficit | Total |
|
|
|
|
|
|
|
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 |
Cumulative effect of accounting change - Note 2 | - | - | 395,362 |
| (229,923) | 165,439 |
Stock-based compensation | - | - | 153,600 |
| - | 153,600 |
Net income for the period | - | - |
|
| (139,696) | (139,696) |
|
|
|
|
|
|
|
Balance, June 30, 2012 | 44,454,926 | $ 15,463,675 | $ 1,579,555 |
| $ (14,730,354) | $ 2,312,876 |
SEE ACCOMPANYING NOTES
28
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(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, 2012, the Company had not yet achieved profitable operations, had an accumulated deficit of $14,730,354 since its inception and had a working capital deficiency of $153,932, 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. Management has no formal plan in place to address this concern but considers obtaining additional funds by equity financing and/or from issuing promissory notes. 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, 2012 and June 30, 2011, 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.
29
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(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, redeemable within 90 days of inception, held at Canadian banks.
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.
30
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(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 Gain (Loss) per Share
Basic net gain per common share is calculated by dividing net gain by the weighted-average number of common shares outstanding for the period. Diluted net gain 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, 2012 and 2011 upon exercise or conversion of share purchase warrants and share purchase options and the conversion of convertible debentures totalled 8,230,000 and 18,930,000 respectively. These instruments were excluded from the calculation of diluted earnings per shares because their effect is anti-dilutive.
j)
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 $467,880 (2011: $416,121).
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 June 30, 2012, the convertible debentures had a fair value of $309,185 (2011: $Nil)
31
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 2
Significant Accounting Policies – (cont’d)
j)
Fair Value Measurements – (cont’d)
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). There were no assets or liabilities measured at fair value on a nonrecurring basis during the periods ended June 30, 2012 and 2011.
As at June 30, 2012, the Company’s Level 3 liabilities consisted of share purchase options granted to non-employees that are exercisable in a currency other than the Company’s functional currency. 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 7) as well as share purchase options granted to employees and non-employees that are exercisable in a currency other than the Company’s functional currency (Note 10). During the year ended June 30, 2012, employee share purchase options that were exercisable in a currency of than the Company’s functional currency were reclassified to equity upon the adoption of ASU 2010-13 effective July 1, 2011 (Note 2(o)). These Level 3 liabilities had no active market and are required to be measured at their fair value at each reporting period based on information that is unobservable.
A summary of the Company’s Level 3 liabilities for the years ended June 30, 2012 and 2011 is as follows:
| Year ended |
| Year ended |
| June 30, |
| June 30, |
| 2012 |
| 2011 |
|
|
|
|
Warrants |
|
|
|
|
|
|
|
Beginning fair value | $ 556,762 |
| $ 2,010,000 |
Change in fair value | (556,762) |
| (1,453,238) |
Ending fair value | $ - |
| $ 556,762 |
|
|
|
|
Non-employee options |
|
|
|
|
|
|
|
Beginning fair value | $ 19,156 |
| $ 40,600 |
Issuance | - |
| 10,745 |
Transfers in | - |
| 27,031 |
Transfers out | - |
| (20,405) |
Change in fair value | (19,156) |
| (38,815) |
Ending fair value | - |
| 19,156 |
Total Level 3 Liabilities | $ - |
| $ 575,918 |
32
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 2
Significant Accounting Policies – (cont’d)
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, 2012 or June 30, 2011.
Currency Risk
The Company holds cash of $57,190 (2010 $276,225) in Canadian dollars exposing it to a foreign currency exchange risk. During the year ended June 30, 2012, the Company realized a foreign exchange loss of $8,531 (2011: foreign exchange gain of $37,919) as a result of the Company holding cash in Canadian dollars.
l)
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 605, “Revenue Recognition”, which requires that: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the sales price is fixed and determinable, and (iv) collection is reasonably assured. The Company recognizes revenue when the building supplies have been shipped.
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 segregation, 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.
33
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 2
Significant Accounting Policies – (cont’d)
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.
The Company uses 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.
o)
Derivative Liabilities
ASC 815, “Derivatives and Hedging” requires free standing warrants and share purchase options classified as liabilities 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 or as an expense relating to the services provided. In determining the appropriate fair value, the Company used the binomial option pricing model.
34
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 2
Significant Accounting Policies – (cont’d)
p)
Recent Accounting Pronouncements and Change in Accounting Policy
Recently Adopted Accounting Pronouncements
In April, 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-13 (“ASU 2010-13”) “Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades”. ASU 2010-13 clarifies that an employee share-based payment award with an exercise price denominated in 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. Therefore, such awards would not be classified as liabilities if they otherwise qualify as equity. ASU 2010-13 became effective for fiscal years commencing after December 15, 2010 with early adoption permitted. Thus, this guidance became effective for the Company commencing July 1, 2011 as the Company had chosen not to early adopt these provisions.
The Company’s outstanding employee share-purchase options have an exercise price denominated in Canadian dollars whereas the functional currency for the Company’s operations is the US dollar. Prior to the adoption of ASU 2010-13, the Company recorded and classified these instruments as a liability in accordance with the provisions of Topic 718 because they were indexed to a factor that was considered to be other than a market, performance or service condition. However, given that a substantial number of the Company’s shares trade in each of Canada and the United States, effective July 1, 2011, the Company’s employee share purchase options have been recorded and classified as equity instruments.
The transition provisions of ASU 2010-13 require a cumulative effect adjustment as of July 1, 2011 to reflect the amounts that would have been recorded and recognized if the guidance of ASU 2010-13 had been applied consistently since the inception of the awards outstanding at July 1, 2011.
The cumulative effect of this change in accounting principle of $165,439 was to recognize an increase of additional paid-in capital of $395,362 representing the fair value of the employee options on their respective grant dates and record a charge to accumulated deficit of $229,923. In addition, the Company reversed the fair value of the derivative liability previously associated with the employee share-purchase options on July 1, 2011 in the amount of $165,439. Also, in accordance with the disclosure requirements of ASC 250-10, the effect of this change in accounting principle in the current year statement of operations and comprehensive (loss) income was for an increased loss of $165,439, being the gain resulting from the change of fair value in derivative liability that would have been recognized under the prior accounting principle. There is no change in basic and diluted income (loss) per share as a result of applying this change in accounting principle.
|
|
| Non-Employee | Employee |
|
| Warrants |
| Options | Options | Total |
Balance, June 30, 2011 | $ 556,762 |
| $ 19,156 | $ 165,439 | $ 741,357 |
Cumulative effect of adopting ASU 2010-13 | - |
| - | (165,439) | (165,439) |
Change in fair value | (556,762) |
| (19,156) | - | (575,918) |
Balance, June 30, 2012 | $ - |
| $ - | $ - | $ - |
35
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 2
Significant Accounting Policies – (cont’d)
p)
Recent Accounting Pronouncements and Change in Accounting Policy – (cont’d)
Accounting Standards Not Yet Effective
In June 2011, the FASB issued Accounting Standards Update 2011-05, “Presentation of Comprehensive Income (Topic 220)”. The objective of this Update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, among other amendments in this Update. The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the impact of this update on the consolidated financial statements.
In December 2011, the FASB issued Accounting Standards Update 2011-12, “Comprehensive Income (Topic 220)”. The amendments in this Update supersede certain pending paragraphs in Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011—5 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the impact of this update on the consolidated financial statements.
Note 3
Inventory
| June 30, 2012 |
| June 30, 2011 |
|
|
|
|
Raw materials | $ 189,028 |
| $ 153,369 |
Finished goods | 53,437 |
| 76,857 |
Total Inventory | $ 242,465 |
| $ 230,226 |
36
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 4
Property, Plant and Equipment
|
| 2012 | ||
|
| Cost | Accumulated Depreciation | Net |
Manufacturing Equipment |
| $ 3,634,499 | $ 1,444,381 | $ 2,190,118 |
Equipment and Furniture |
| 33,194 | 33,194 | - |
Computer Equipment |
| 30,032 | 30,032 | - |
Subtotal Equipment |
| 3,697,725 | 1,507,607 | 2,190,118 |
|
|
| ||
|
| 2012 | ||
Assets under Capital Lease |
| Cost | Accumulated Depreciation | Net |
Equipment |
| 69,696 | 44,529 | 25,167 |
Land |
| 54,498 | 0 | 54,498 |
Building |
| 1,877,801 | 983,783 | 894,018 |
Railroad Spur |
| 94,108 | 48,848 | 45,260 |
Subtotal Assets under Capital Lease |
| 2,096,103 | 1,077,160 | 1,018,943 |
Total Property, Plant and Equipment |
| $ 5,793,828 | $ 2,584,767 | $ 3,209,061 |
|
| 2011 | ||
|
| Cost | Accumulated 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 |
Subtotal Equipment |
| 3,581,362 | 1,314,563 | 2,266,799 |
|
|
| ||
|
| 2011 | ||
Assets under Capital Lease |
| Cost | Accumulated Depreciation | Net |
Equipment |
| 69,696 | 38,237 | 31,459 |
Land |
| 54,498 | 0 | 54,498 |
Building |
| 1,877,801 | 889,893 | 987,908 |
Railroad Spur |
| 94,108 | 46,962 | 47,146 |
Subtotal Assets under Capital Lease |
| 2,096,103 | 975,092 | 1,121,011 |
Total Property, Plant and Equipment |
| $ 5,677,465 | $ 2,289,655 | $ 3,387,810 |
During the year ended June 30, 2012, the Company recorded depreciation expense of $295,466 (2011: $272,105) 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, 2012 was $102,068 (2011: $90,852).
37
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 5
Patent, Trademark and Technology Rights
|
| 2012 | 2011 |
|
|
|
|
Trademark and Technology Rights - at cost |
| $ 1,000,000 | $ 1,000,000 |
Patent - at cost |
| 24,104 | 24,104 |
Subtotal Patent, Trademark and Technology Rights at Cost |
| 1,024,104 | 1,024,104 |
Less Accumulated Amortization |
| (910,358) | (891,085) |
Impairment Provision |
| (113,746) | (113,746) |
Total Patent, Trademark and Technology Rights |
| $ - | $ 19,273 |
Note 6
Convertible Debentures
During the year ended June 30, 2012, the Company approved the issuance of two convertible promissory debentures to a director and a company controlled by a director in the amount of $300,000. The debentures are being issued in tranches of $50,000 and as at June 30, 2012 the Company had received $200,000 in respect of these debentures. The debentures bear interest at 12% per annum, payable monthly, 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.
Note 7
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 was re-valued 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 warrant liability was accounted for at its fair value as follows:
| June 30, 2012 |
| June 30, 2011 |
Beginning Fair Value | $ 566,762 |
| $ 2,010,000 |
Change in Fair Value | (566,762) |
| (1,453,238) |
Ending Fair Value | $ - |
| $ 556,762 |
The warrants expired during the year ended June 30, 2012.
The Company used the binomial option pricing model to estimate the fair value of the warrants at June 30, 2011 using the following assumptions:
| June 30, 2012 |
| June 30, 2011 |
Expected life (years) | - |
| 0.72 |
Risk-free interest rate | - |
| 0.19% |
Expected volatility | - |
| 146.29% |
Expected dividend yield | - |
| 0.00% |
38
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 8
Long-term Debt
| June 30, 2012 |
| June 30, 2011 |
|
|
|
|
Revolving bank loan facility in the amount of $250,000 bearing interest at 6.75% per annum 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 balance was due on September 1, 2012 | $ - |
| $ 181,723 |
|
|
|
|
Term bank loan facility in the amount of $500,000 bearing interest at 7% annum and collateralized 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 |
|
|
|
|
Revolving promissory note in the amount of $50,000 bearing interest at 6.25% per annum and is unsecured. Monthly interest payments are due beginning on February 1, 2012. The promissory note is repayable on demand, but if no demand for repayment is made, on February 1, 2013. The Company has drawn $40,000 on this promissory note at June 30, 2012 | 40,000 |
| - |
|
|
|
|
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 | 427,880 |
| - |
|
|
|
|
Subtotal including Current Portion | 467,880 |
| 416,121 |
Less: current portion | (96,093) |
| (76,412) |
|
|
|
|
Total Long-Term Debt | $ 371,787 |
| $ 339,709 |
Future principal payments required on long-term debt are as follows:
2013 | $ 96,093 |
2014 | 59,752 |
2015 | 63,650 |
2016 | 248,385 |
Total Future Long-Term Debt Principal Payments | $ 467,880 |
39
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 9
Obligation under Capital Leases
Future minimum annual lease payments on the obligation under capital leases are as follows:
2013 | $ 73,621 |
2014 | 73,621 |
2015 | 73,621 |
2016 | 36,812 |
Thereafter | - |
|
|
Subtotal Including Interest | 257,675 |
Less: amount representing interest | (25,769) |
Subtotal Including Current Portion | 231,906 |
Less: current portion | (61,440) |
Long-term portion | $ 170,466 |
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, 2012 was $15,710 (2011: $16,996).
Note 10
Common Stock
a)
Escrow:
At June 30, 2012, there are 48,922 (2011 – 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, 2012, 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.
A summary of the status of the Company’s share purchase option plan as of June 30, 2012 and 2011 and changes during the years ending on those dates is presented below:
40
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 10
Common Stock – (cont’d)
b)
Commitments: - (cont’d)
Stock-based Compensation Plan – (cont’d)
|
|
| Weighted |
|
|
|
|
| Average |
| Aggregate |
|
| Number of | Exercise |
| Intrinsic |
|
| Shares | Price |
| Value |
|
|
|
|
|
|
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 | $ - |
|
|
|
|
|
|
Granted |
| 3,840,000 | $0.10 |
| - |
Expired |
| (3,540,000) | $0.12 | CDN | - |
Forfeited |
| - | - |
| - |
Outstanding, June 30, 2012 |
| 4,230,000 | $0.10 |
| $ - |
|
|
|
|
|
|
Exercisable, June 30, 2012 |
| 4,230,000 | $0.10 |
|
|
|
|
|
|
|
|
Exercisable, June 30, 2011 |
| 3,890,000 | $0.12 | CDN |
|
The following summarizes information about share purchase options outstanding as at June 30, 2012:
Number | Exercise |
|
| Remaining |
| Price |
| Expiry Date | Contractual Life |
350,000 | $0.15 | CDN | October 29, 2012 | 0.33 years |
40,000 | $0.06 | CDN | June 10, 2013 | 0.95 years |
3,840,000 | $0.10 |
| May 15, 2015 | 2.87 years |
4,230,000 |
|
|
|
|
The weighted-average grant date fair value of options granted during the years 2012 and 2011 was $0.04 and $0.10 respectively.
Employee Share Purchase Options
During the year ended June 30, 2012, the Company granted a total of 3,840,000 share purchase options to various directors, employees and consultants exercisable at $0.10 per share until May 15, 2015. These options were fully vested at the date of issuance. The fair value of these options was determined to be $153,600, which was recognized in the statement of operations for the year ended June 30, 2012.
The fair value of the stock options granted was determined using the Black Scholes option pricing model using the following assumptions: expected dividend yield: 0.00%, expected volatility: 116.48%, risk-free interest rate: 0.38%, expected term: 3.00 years.
41
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 10
Common Stock – (cont’d)
b)
Commitments: - (cont’d)
Stock-based Compensation Plan – (cont’d)
At June 30, 2011, employee share options exercisable in a currency that was not the functional currency of the Company were required to be classified as liabilities and were required to be re-valued at each reporting period with the change in fair value of the liability included in Wages and Management fees in the Company’s Consolidated Statements of Operations. Upon the adoption of ASU 2010-13 effective July 1, 2012 (Note 2), these employee share purchase options are no longer required to be classified as liabilities.
Stock-based compensation charges relating to employee share purchase options during the year ended June 30, 2011 were determined under the fair value method using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield: 0.00%, expected volatility: 151.61%, risk-free interest rate: 0.35%, expected term: 2.00 years.
The employee share purchase option liabilities accounted for at their respective fair values and are summarized as follows:
| 2012 |
| 2011 |
Fair value of employee options accounted for as liabilities, beginning of the year | $ 165,439 |
| $ 469,000 |
Cumulative effect of change in accounting policy on July 1, 2011 - Note 2 | (165,439) |
| - |
Fair value of employee options, at issuance | - |
| 26,864 |
Change in fair value of employee options accounted for as liabilities during the year | - |
| (330,425) |
Fair value of employee options accounted for as liabilities, end of the year | $ - |
| $ 165,439 |
Non-Employee Share Purchase Options
In accordance with the guidance of ASC 815-40-15, stock options granted to non-employees with exercise prices that are not denominated in the functional currency of the Company are determined not to be indexed to the Company’s stock and are required to be accounted for as derivative liabilities in accordance with ASC 815 “Derivatives and Hedging”.
The non-employee share purchase option liabilities are accounted for at their respective fair values and are summarized as follows:
| 2012 |
| 2011 |
Fair value of non-employee options, beginning of the year | $ 19,156 |
| $ 40,600 |
Fair value of non-employee options, at issuance | - |
| 10,745 |
Fair value of non-employee options vested 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 during the year | (19,156) |
| (38,815) |
Fair value of non-employee options, end of the year | $ - |
| $ 19,156 |
42
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
The non-employee options were 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. At June 30, 2012 the 140,000 remaining non-employee options required to be classified as a liability had $Nil value.
Stock based compensation amounts are classified in the Company’s Statement of Operations and Comprehensive (Loss) Income as follows:
|
| 2012 | 2011 |
Investor Relations |
| $ 5,430 | $ 27,090 |
Wages and management fees |
| 129,014 | (331,176) |
|
|
|
|
Total Stock-Based Compensation |
| $ 134,444 | $ (304,086) |
A summary of changes in the Company’s unvested stock options for the years ended June 30, 2012 and 2011 is presented below:
|
| 2012 |
| 2011 | ||
|
|
| Weighted |
|
| Weighted |
|
|
| Average |
|
| Average |
|
| Number of | Grant Date |
| Number of | Grant Date |
|
| Options | Fair Value |
| Options | Fair Value |
Unvested, beginning of year |
| 40,000 | $0.08 |
| 410,000 | $0.13 |
Granted |
| 3,840,000 | $0.03 |
| 390,000 | $0.10 |
Expired |
| - |
|
| (200,000) | $0.13 |
Forfeited |
| - |
|
| - |
|
Vested |
| (3,880,000) | $ 0.03 |
| (560,000) | $0.12 |
Unvested, end of year |
| - |
|
| 40,000 | $0.08 |
Note 11
Research and Development Costs
Research and development expense, included in cost of sales, consists of the following for the years ended June 30, 2012 and 2011.
|
| 2012 | 2011 |
|
|
|
|
Testing Services |
| $ 31,625 | $ 30,962 |
Note 12
Related Party Transactions
The Company was charged the following amounts by directors or private companies with common directors during the years ended June 30, 2012 and 2011:
|
| 2012 | 2011 |
|
|
|
|
Wages and management fees |
| $ 278,363 | $ 186,793 |
43
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 13
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:
|
| 2012 | 2011 |
|
|
|
|
Net operating losses |
| $ 1,944,000 | $ 1,885,000 |
Property, plant and equipment |
| (69,000) | (52,000) |
Expenses not currently deductible |
| 17,000 | 26,000 |
Research and development |
| 37,000 | - |
Valuation allowance |
| (1,929,000) | (1,859,000) |
Net deferred tax assets |
| $ - | $ - |
The provision for income taxes differs from the amount established using the statutory income tax rate as follows:
|
| June 30, 2012 | June 30, 2011 |
|
|
|
|
Income tax expense (benefit) at statutory rate |
| $ (35,600) | $ 246,000 |
Foreign income taxed at foreign statutory rate |
| (23,100) | (43,000) |
Change in fair value of derivative liability |
| (141,600) | (400,000) |
Stock-based compensation |
| 34,300 | (82,000) |
Effect of foreign exchange and other |
| 94,600 | (79,000) |
Effect of reduction in tax rates |
| 1,400 | 7,000 |
Increase in valuation allowance |
| 70,000 | 351,000 |
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, 2012 and June 30, 2011.
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INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 13
Income Taxes – (cont’d)
As at June 30, 2012, 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 |
| $ - | $ 79,000 | $ 79,000 |
2015 |
| - | 164,000 | 164,000 |
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 |
|
| 176,000 | 176,000 |
2027 |
| 331,000 | 212,000 | 543,000 |
2028 |
| 848,000 | 179,000 | 1,027,000 |
2029 |
| 493,000 | 182,000 | 675,000 |
2030 |
| 774,000 | 150,000 | 924,000 |
2031 |
| 354,000 | 108,000 | 462,000 |
2032 |
| 289,000 | 252,000 | 541,000 |
Total Net Operating Loss Carry-Forwards |
| $ 4,473,000 | $ 1,502,000 | $ 5,975,000 |
Uncertain Tax Positions
The Company has adopted certain provisions of ASC 740, “Income Taxes”, which prescribes a recognition threshold and measurement attribute for the recognition and measurement of tax positions taken or expected to be taken in income tax returns. The provisions also provide guidance on the de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions.
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 2003.
At June 30, 2012, 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.
45
INTERNATIONAL BARRIER TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
(Stated in US Dollars)
Note 14
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.
The Company sells LP® FlameBlock Fire-Rated OSB Sheathing to LP® Building Products (“LP”) and sales to LP accounted for 61% of Fiscal 2012 revenues. Barrier sells MuleHide FR Deck Panel to MuleHide Products (“MuleHide”), Inc. and sales to MuleHide accounted for 38% of Fiscal 2012 revenues. In 2011, sales to LP accounted for 26% of sales revenues and MuleHide accounted for 72%. The amounts receivable from each of these customers at June 30, 2012 is $89,936 and $17,662 respectively (2011: $Nil and $43,261 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 15
Comparative Figures
Certain comparative figures have been reclassified to be consistent with the current year presentation.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
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, 2012, 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, 2012.
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, 2012, 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, 2012.
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.
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Material Weaknesses Identified
In connection with the preparation of the consolidated financial statements for the year ended June 30, 2012, 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 2013 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, 2012 that have materially affected or are reasonably likely to materially affect, the internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
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.
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Table No. 4 Directors and Executive Officers August 31, 2012 _______________________________________________________________________________ _______________________________________________________________________________ Date of First Election or Name Position Age Appointment David J. Corcoran (1)(2)(6)CFO/Director 65 July 1986 Michael D. Huddy (3) President/CEO/Director 60 February 1993 Lindsey Nauen (4) Corporate Secretary 60 December 2003 Craig Roberts (1)(5)(6) Director 39 August 2006 Victor A. Yates (1) Director 67 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.
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
49
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.
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
50
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 with the exception that Michael Huddy, David Corcoran, Victor Yates, and Craig Roberts all late filed one Form 4 during Fiscal 2012 relating 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 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 2012, the Board of Directors held three regularly scheduled meetings, and nine 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 2011 annual shareholders meeting.
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The attendance records of our Board members during Fiscal 2012 were:
Name | Board of Director Meetings | Audit Committee Meetings |
David Corcoran | 3 of 3 | 12 of 12 |
Michael Huddy | 3 of 3 |
|
Craig Roberts | 3 of 3 | 12 of 12 |
Victor Yates | 3 of 3 | 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 2012 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 2012 and has met three times during Fiscal 2013-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.
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
52
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.
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 2012/2011/2010, Directors were paid $9,000, $17,250, and $13,500 for attending meetings, respectively. During the year ended June 30, 2012, each member of the Board of Directors were granted 787,500 common share purchase options to replace options that had expired during the fiscal year.
Executive Officer Compensation
The following table sets forth the summary of compensation earned during Fiscal 2011 and Fiscal 2012 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.
53
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 | 2012 2011 | $126,865 $120,250 | Nil Nil | Nil Nil | $31,500 $Nil | Nil Nil | Nil Nil | Nil Nil | $158,365 $120,250 |
David Corcoran Administrator/CFO | 2012 2011 | $50,000 $50,000 | Nil Nil | Nil Nil | $31,500 $Nil | Nil Nil | Nil Nil | Nil Nil | $81,500 $50,000 |
Lindsey Nauen Corporate Secretary | 2012 2011 | 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. | |||||||||
Director Compensation
The following table sets forth the summary of compensation earned during Fiscal 2011 through Fiscal 2012 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 (1) | 2012 2011 | $2,250 $4,750 | Nil Nil | $0 Nil | Nil Nil | Nil Nil | Nil Nil | $2,250 $4,750 |
Michael Huddy | 2012 2011 | $2,250 $4,750 | Nil Nil | $0 Nil | Nil Nil | Nil Nil | Nil Nil | $2,250 $4,750 |
Craig Roberts | 2012 2011 | $2,250 $4,000 | Nil Nil | $31,500 $26,862 | Nil Nil | Nil Nil | Nil Nil | $33,750 $30,862 |
Victor Yates | 2012 2011 | $2,250 $4,750 | Nil Nil | $31,500 Nil | Nil Nil | Nil Nil | Nil Nil | $33,750 $4,750 |
(1) $750 of the Director’s Fees earned in Fiscal 2012 will be paid in Fiscal 2013.
(2) The determination of value of option awards is based upon the grant date fair value determined by either binomial or Black-Scholes Option pricing model, details and assumptions of which are set out in Notes 2 and 9 to the consolidated financial statements included in this Annual Report.
Stock Options
The Company grants stock options to Directors, Executive Officers and employees/consultants; refer to ITEM #11, “Stock Options” and Tables 5/6/7/8/9.
Stock Options Granted/Expired During The Most Recently Completed Fiscal Year
During the most recently completed fiscal year, 3,840,000 incentive stock options were granted to Executive Officers, Directors, employees/consultants. The Company has no equity or non-equity incentive plans. 2,950,000 stock options previously granted to Executive Officers and Directors were cancelled, forfeited, or expired un-exercised; and 590,000 stock options previously granted to employees and/or consultants were cancelled, forfeited, or expired un-exercised.
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Table No. 7 | |||||
Grants of Plan-Based Awards During Fiscal 2012 Ended 6/30/2012 | |||||
Name | Grant date | All other Stock awards: Number of shares of stock or units (#) | All other Option awards: Number of Securities Underlying Options (#) | Exercise or base price of option awards ($/Sh) | Grant date Fair value of stock and option awards |
Directors | 5/15/2012 | Nil | 3,150,000 | $0.10 | $0.04 |
Employees | 5/15/2012 | Nil | 400,000 | $0.10 | $0.04 |
Consultants | 5/15/2012 | Nil | 290,000 | $0.10 | $0.04 |
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 2012 Ended 6/30/2012.
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 | 787,500 | Nil | Nil | $0.10 | 5/15/2015 |
David Corcoran | 787,500 | Nil | Nil | $0.10 | 5/15/2015 |
Victor Yates | 787,500 | Nil | Nil | $0.10 | 5/15/2015 |
Craig Roberts | 787,500 | Nil | Nil | $0.10 | 5/15/2015 |
Craig Roberts | 250,000 | Nil | Nil | $0.15 | 10/29/2012 |
Columns (g) through (j) have been omitted since the Company has not granted any stock awards.
Option Exercises and Stock Vested
During Fiscal 2012 ended 6/30/2012, there were no exercises of stock options, grants of 3,840,000 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.
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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 2012 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.
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, 2012:
Plan Category | Number of Securities to | Weighted-Average | Number of Securities |
Equity compensation plans approved by security holders | 4,230,000 | $0.10 | 215,493 |
Plan Category | Number of Securities to | Weighted-Average | Number of Securities |
Equity compensation plans not approved by security holders | Nil | Nil | Nil |
Total | 4,230,000 | $0.10 |
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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.
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, 2012 ______________________________________________________________________________ Title Amount and Nature Percent of of Beneficial of Class Name/Address of Beneficial Owner Ownership Class # ------------------------------------------------------------------------------ Common Carl Marks Group (1) 6,515,695 14.7% ------------------------------------------------------------------------------ Common Michael Huddy (2) 2,367,760 5.3% Common David Corcoran (3) 1,923,185 4.3% Common Victor Yates (4) 1,217,272 2.7% Common Craig Roberts (5) 1,437,500 3.2% Common Lindsay Nauen 0 0.0% Total Directors/Officers 6,945,717 15.6% TOTAL 5% and Directors/Officers 13,461,412 30.3% ------------------------------------------------------------------------------ (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 250,000 currently exercisable stock options. (2) 787,500 represent currently exercisable stock options. (3) 787,500 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) 787,500 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 1,037,500 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 8/31/2012. |
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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 8/31/2012, 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.
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
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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.
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.
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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.
Table No. 10 Stock Options Outstanding August 31, 2012 _____________________________________________________________________________ Number of Shares of CDN$ Common Exer. Grant Expir’n Name Stock Price Date Date ----------------------------------------------------------------------------- David Corcoran 787,500 $0.10 5/15/12 5/15/15 Victor Yates 787,500 $0.10 5/15/12 5/15/15 Michael Huddy 787,500 $0.10 5/15/12 5/15/15 Craig Roberts 787,500 $0.10 5/15/12 5/15/15 Craig Roberts 250,000 $0.15CDN 10/29/10 10/29/12 Subtotal Officers/Directors 3,400,000 Consultant 100,000 $0.15CDN 10/29/10 10/29/12 Employees/Consultants 690,000 $0.10 5/15/12 5/15/15 Consultant (1) 40,000 $0.064CDN 6/10/11 6/10/13 Total Officers/Directors/Employees 4,230,000 ----------------------------------------------------------------------------- 25% of the options vest every six months following grant date. |
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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 2012/2011, $50,000 and $50,000 were paid/accrued to Corcoran Enterprises Ltd., respectively.
Other than described above, there have been no transactions since 6/30/2012, 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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Professional accounting services were rendered by BDO Canada LLP for Fiscal 2012 and Fiscal 2011.
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 6/30/2012 and 6/30/2011 were $75,615 and $72,822, respectively.
Audit Related Fees
The Company incurred no fees during fiscal years ended 6/30/2012 and 6/30/2011.
Tax Fees
The Company incurred tax fees of $6,200 and $Nil during fiscal years ended 6/30/2012 and 6/30/2011 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 10/11/2011
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: To be filed by amendment
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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
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Dated: September 28, 2012 By /s/ Michael Huddy |
Michael Huddy, President/CEO/Director |
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Dated: September 28, 2012 By /s/ David Corcoran |
David Corcoran, CFO/Director |
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