UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended June 30, 2004
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from: __________ to__________
Commission file number: 0-28353
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INTEGRAL TECHNOLOGIES, INC.
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(Name of small business issuer as specified in its charter)
Nevada 98-0163519
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
805 W. Orchard Drive, Suite 3, Bellingham, Washington 98225
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (360) 752-1982
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Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act: Common Stock
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [_]
State issuer's revenues for its most recent fiscal year. $1,483.
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As of September 20, 2004, the aggregate market value of the voting stock
held by non-affiliates, approximately 36,138,483 shares of Common Stock, was
approximately $27.1 million based on an average of the bid and ask prices of
approximately $.75 per share of Common Stock on such date.
The number of shares outstanding of the issuer's Common Stock, $.001 par
value, as of September 20, 2004 was 40,225,849 shares.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one):
Yes [_]; No [X]
PART I
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CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO
DIFFER FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS
Readers of this document and any document incorporated by reference herein,
are advised that this document and documents incorporated by reference into this
document contain both statements of historical facts and forward looking
statements. Forward looking statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially for those
indicated by the forward looking statements. Examples of forward looking
statements include, but are not limited to (i) projections of revenues, income
or loss, earning or loss per share, capital expenditures, dividends, capital
structure and other financial items, (ii) statements of the plans and objectives
of the Company or its management or Board of Directors, including the
introduction of new products, or estimates or predictions of actions by
customers, suppliers, competitors or regulatory authorities, (iii) statements of
future economic performance, and (iv) statements of assumptions underlying other
statements and statements about the Company or its business.
This document and any documents incorporated by reference herein also
identify important factors which could cause actual results to differ materially
from those indicated by forward looking statements. These risks and
uncertainties include price competition, the decisions of customers, the actions
of competitors, the effects of government regulation, possible delays in the
introduction of new products and services, customer acceptance of products and
services, the Company's ability to secure debt and/or equity financing on
reasonable terms, and other factors which are described herein and/or in
documents incorporated by reference herein.
The cautionary statements made above and elsewhere by the Company should
not be construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company. Forward looking statements are beyond the
ability of the Company to control and in many cases the Company cannot predict
what factors would cause results to differ materially from those indicated by
the forward looking statements.
ITEM 1. DESCRIPTION OF BUSINESS.
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BUSINESS DEVELOPMENT
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Integral Technologies, Inc. ("Integral," the "Company" or the "Registrant")
is a development stage company, incorporated under the laws of the State of
Nevada on February 12, 1996. To date, Integral, directly and through its
subsidiaries, has expended its resources on the research and development of
several different types of technologies.
Presently, Integral is focusing substantially all of its resources on the
researching, developing and commercializing of new antenna and electriplast
technologies, directly and through its wholly-owned subsidiary, Antek Wireless,
Inc.
PRODUCTS
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The Company is focusing its marketing efforts through to the end of
calendar 2004 on wireless market segments. The Company's technology will be
marketed to manufacturers of such wireless devices as cellular phones, portable
phones, paging communicators, satellite communications, global positioning
systems (GPS) and wireless based networks. The Company's GPS/LEO antenna is for
use in mobile asset tracking and fleet management, utilizing GPS satellite
tracking and low earth orbit (LEO) satellite data communications to trucking
fleets, heavy equipment, marine vessels, railway cars, shipping containers,
transit vehicles, all via satellite interface communications. Presently, the
Company is focusing all of its resources on the researching, developing and
commercializing its Plastenna and Electriplast technologies.
1
Plastenna
The Company has developed and prototyped a new antenna technology. The
pioneering aspect of the Plastenna technology is that it opens the doors to vast
new horizons in antenna design and manufacturing processes. The combination of
the Company's proprietary recipe of conductive materials, and a selection of
resins from various resin suppliers results in a covert moldable antenna, that
can become part of the shell or case of any wireless device, be it phones,
radios, or even body parts of vehicles, or new designs for conventional antennas
as we know them today. Our research indicates that the Plastenna technology
vastly improves design flexibility, increases signal performance, reduces
manufacturing costs, and shows a marked reduction in power consumption.
GPS/LEOS Antenna
Integral has recently finalized the development of a "ruggedized" GPS/LEO
antenna, measuring only 13.25 inches by 9.90 inches, and .870 inches in height.
The term "ruggedized" is used to describe the durability of this antenna, that
is to say it can withstand the elements and yet endure significant shock and
vibration effects. This antenna is for use in mobile asset tracking and fleet
management, utilizing GPS satellite tracking and LEO satellite data
communications to trucking fleets, heavy equipment, marine vessels, railway
cars, shipping containers, transit vehicles, all via satellite interface
communications.
Integral continues to advance to the next stage of the commercialization of
its proprietary antenna technologies. The Company's Plastenna and GPS/LEO
antenna technologies are currently undergoing pilot projects with a number of
wireless companies around the world.
Flat Panel Antennas
The Company has also been developing several new flat panel antenna designs
for use in different wireless technology markets.
Electriplast
The Company has recently developed a new family of innovative applications,
deemed "Electriplast", based upon the Company's extensive research and
development of its Plastenna technology. Electriplast is the utilization of
Integral's proprietary recipe of conductive materials, combined with a selection
of resins from various resin suppliers to conduct electricity in multiple
applications.
Patents on Technologies
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Integral has completed a patent review of the antenna technologies and has
filed 80 U.S. patent applications, 47 of which are currently provisional
patents, 28 are pending final approval, and 5 have been granted. No assurances
can be given that all patent applications will be approved; however, to the
extent that patents are not granted, Integral will continue to attempt to
commercialize these technologies without the protection of patents. As patents
are issued, Integral will have the exclusive right to use in the U.S. the
design(s) described in each issued patent for the 18-year life of the patent.
The Company's intellectual property portfolio consists of over nine years
of accumulated research and design knowledge and trade secrets relating to
antenna design & components as well as proprietary manufacturing processes.
Product Manufacturing and Distribution
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The Company is not in the manufacturing business. The Company relies on
third-party manufacturing companies to manufacture antenna products.
The Company's antenna products will not be sold directly to the general
public, but rather to businesses and manufacturers who will use the antennas in
their products.
2
Barriers to Entry into Market Segment
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In the antenna market, Integral will be competing with other established
antenna providers that are much larger and better capitalized than Integral. In
order to compete, management believes that Integral must demonstrate to
potential users that its antenna products have an advantage over other antennas
on the market in terms of performance and cost.
EMPLOYEES
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Integral and its subsidiaries currently employ a total of 5 people on a
full-time basis and one person on a part-time basis. However, Integral also
relies on the expertise of several technical advisors who are consulted as
needed on a part-time, contract basis.
ITEM 2. DESCRIPTION OF PROPERTY.
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Neither the Company nor its subsidiaries own any real property. The
Company and its subsidiaries lease office space in Bellingham, Washington and
Vancouver, B.C., Canada.
ITEM 3. LEGAL PROCEEDINGS.
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In April 2003, James E. Smith, a shareholder and co-founder of the Company,
filed suit against the Company and its transfer agent in the Circuit Court of
Monongalia County, West Virginia. The Complaint alleges breach of contract,
negligence and fraud claims, and alleges damages in excess of $1 million. The
Company was successful in having the case moved to federal court in the U.S.
District Court for the Northern District of West Virginia. The Company filed an
Answer denying the claims, asserted several affirmative defenses, and filed
Counterclaims against Mr. Smith for the following claims for relief: (1)
Intentional Misrepresentation; (2) Breach of Oral Contract; (3) Breach of
Written Contract; (4) Negligent Misrepresentation; and (5) Rescission and
Restitution. On August 30, 2004, the Court dismissed Mr. Smith's claims for
fraud and negligence, and also dismissed the Company's counterclaim for breach
of oral contract and partially dismissed the counterclaims for intentional and
negligent misrepresentation. The case is scheduled to go to trial in March 2005.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 2004.
3
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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(a) Market Information
There is a limited public market for the common stock of the Company. The
Company's common stock is quoted on the NASD OTC Bulletin Board under the symbol
"ITKG."
The following table sets forth the range of high and low bid quotations for
the Company's common stock on the OTC Bulletin Board for each quarter of the
fiscal years ended June 30, 2003 and 2004.
Quarter Ended Low Bid High Bid
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September 30, 2002 $ 0.66 $ 1.06
December 31, 2002 $ 0.49 $ 0.88
March 31, 2003 $ 0.68 $ 1.26
June 30, 2003 $ 0.72 $ 1.05
September 30, 2003 $ 0.77 $ 1.40
December 31, 2003 $ 1.04 $ 1.50
March 31, 2004 $ 0.88 $ 1.54
June 30, 2004 $ 0.71 $ 1.26
The source of this information is the OTC Bulletin Board and other
quotation services. The quotations reflect inter-dealer prices, without retail
markup, markdown or commission and may not represent actual transactions.
(b) Holders
As of September 20, 2004 there were approximately 207 holders of record of
the Company's common stock (this number does not include beneficial owners who
hold shares at broker/dealers in "street-name").
(c) Dividends
To date, the Company has not paid any dividends on its common stock and
does not expect to declare or pay any dividends on such common stock in the
foreseeable future. Payment of any dividends will be dependent upon future
earnings, if any, the financial condition of the Company, and other factors as
deemed relevant by the Company's Board of Directors.
(d) Recent Sales of Unregistered Securities
Set forth below is information regarding the issuance and sales of
securities of the Company without registration within the past three fiscal
years.
(a) Within the past three fiscal years the Company sold securities from time to
time pursuant to an Investment Agreement with Swartz Private Equity, LLC
("Swartz") that was executed in May 2000 and terminated in May 2003. Pursuant
to the terms of the Investment Agreement, the Company periodically sold ("put")
shares of common stock to Swartz. In partial consideration of the Investment
Agreement, the Company issued a Commitment Warrants to Swartz to purchase
495,000 shares of Common Stock for five years, at an adjusted exercise price of
$.50 per share. The Company believes that these transactions are exempt from
registration pursuant to Section 4(2) of the Securities Act and/or Rule 506 of
Regulation D. Following is a summary of completed put transactions:
4
Price Per Gross Warrant
Put Date No. Shares Share Proceeds No. Warrants Exercise Price
(as adjusted)
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09-28-2000 81,885 $ 1.25 $ 102,356 8,189 $ 0.5126
09-26-2001 67,635 $ 0.45 $ 30,436 6,764 $ 0.561
12-12-2001 547,865 $ 1.34 $ 734,139 54,787 $ 1.0406
01-23-2002 51,000 $ 1.30 $ 66,300 5,100 $ 0.814
02-28-2002 109,475 $ 1.13 $ 123,707 10,948 $ 1.188
TOTALS 857,860 $1,056,938 85,788
(b) In August 2001, the Company issued an aggregate of 858,500 shares of its
common stock to 3 persons (including two officers) upon exercise of options
pursuant to the Employee Benefit and Consulting Services Compensation Plan. The
options had various exercise prices, ranging from $0.15 to $.33 per share. The
Company issued the shares in consideration for an aggregate of $52,305 in cash
and $124,200 in lieu of accrued salaries payable. These transactions did not
involve any public offering, the securities were issued under a plan structured
in compliance with Rule 701 of the Securities Act, no sales commissions were
paid, and a restrictive legend was placed on each certificate evidencing the
shares. The Company believes that each transaction was exempt from registration
pursuant to Rule 701 of the Securities Act.
(c) In September 2001, the Company issued an aggregate of 325,000 shares to
eight persons pursuant to the exercise of warrants previously issued in
connection with a private placement in March 2000, for aggregate proceeds of
$130,000. In August 2001, the exercise price of the warrants had been
temporarily reduced from $1.80 to $.40 per share through September 2001. The
transaction did not involve any public offering, no sales commissions were paid
and a restrictive legend was placed on each certificate evidencing the shares.
The Company believes that the transaction was exempt from registration pursuant
to Section 4(2) and Section 4(6) of the Securities Act and/or Rule 506 of
Regulation D.
(d) In January 2002, the Company issued 100,000 shares of its common stock
pursuant to its employee benefit and consulting services plan to one person.
The exercise price of the shares was $.40 per share and the exercise price was
paid in cash. The transaction did not involve any public offering, the
securities were issued under a plan structured in compliance with Rule 701 of
the Securities Act, no sales commissions were paid and a restrictive legend was
placed on each certificate evidencing the shares. The Company believes that the
transaction was exempt from registration pursuant to Rule 701 of the Securities
Act.
(e) In January 2002, the Company issued an aggregate of 450,000 shares of common
stock to two employees in consideration of the execution of a "Proprietary,
Non-Disclosure and Non-Solicitation Agreement" by each person. A restrictive
legend was placed on each certificate evidencing the shares. The Company
believes that the transactions were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D.
(f) In October 2002, the Company issued 144,793 shares of restricted common
stock to Swartz Private Equity, LLC ("Swartz"), pursuant to an agreement to
settle a non-use fee of $104,541.84 that had accrued pursuant to the Investment
Agreement between the Company and Swartz. The transaction did not involve any
public offering, no sales commissions were paid and a restrictive legend was
placed on each certificate evidencing the shares. The Company believes that the
transaction was exempt from registration pursuant to Section 4(2) and Section
4(6) of the Securities Act and/or Rule 506 of Regulation D.
5
(g) In November 2002, the Company completed a private placement with eight
investors and sold 1,684,000 shares of its common stock at $.50 per share and
warrants to purchase 842,000 shares of its common stock within two years at an
exercise price of $.75 per share. Aggregate proceeds from the sale of the
common stock was $842,000. In connection with the offering, the Company agreed
to use its best efforts to register the shares of common stock (including the
shares underlying the warrants) for resale by the investors within 180 days
after the close of the offering. The transaction did not involve any public
offering, no sales commissions were paid and a restrictive legend was placed on
each certificate evidencing the shares. The Company believes that the
transaction was exempt from registration pursuant to Section 4(2) and Section
4(6) of the Securities Act and/or Rule 506 of Regulation D.
(h) In February 2003, Swartz Private Equity, LLC ("Swartz") exercised a portion
of an outstanding warrant for $27,500 ($.50 per share) and the Company issued to
Swartz 55,000 shares of restricted common stock. The transaction did not
involve any public offering, no sales commissions were paid and a restrictive
legend was placed on each certificate evidencing the shares. The Company
believes that the transaction was exempt from registration pursuant to Section
4(2) and Section 4(6) of the Securities Act and/or Rule 506 of Regulation D.
(i) In May 2003 issued 200,000 shares of restricted common stock to The Investor
Relations Group, Inc. pursuant to a one-year service agreement dated February
27, 2003. The transaction did not involve any public offering, no sales
commissions were paid and a restrictive legend was placed on each certificate
evidencing the shares. The Company believes that the transaction was exempt
from registration pursuant to Section 4(2) and Section 4(6) of the Securities
Act and/or Rule 506 of Regulation D.
(j) In September 2003, the Company completed a private placement with ten
investors and sold 898,336 shares of its common stock at $.75 per share and
warrants to purchase 449,168 shares of its common stock within two years at an
exercise price of $1.00 per share. Aggregate proceeds from the sale of the
common stock was $673,752. In connection with the offering, the Company agreed
to use its best efforts to register the shares of common stock (including the
shares underlying the warrants) for resale by the investors within 180 days
after the close of the offering. The transaction did not involve any public
offering, no sales commissions were paid and a restrictive legend was placed on
each certificate evidencing the shares. The Company believes that the
transaction was exempt from registration pursuant to Section 4(2) and Section
4(6) of the Securities Act and/or Rule 506 of Regulation D.
(k) In September 2003, the Company issued 37,500 shares of restricted common
stock valued at $35,250 in connection with a settlement of a legal dispute with
Joffre J. Rolland, Jr. and Robyn Rolland, pursuant to a mutual release executed
in August 2003. The transaction did not involve any public offering, no sales
commissions were paid and a restrictive legend was placed on each certificate
evidencing the shares. The Company believes that the transaction was exempt
from registration pursuant to Section 4(2) of the Securities Act and/or Rule 506
of Regulation D.
(l) In January 2004, Swartz Private Equity, LLC ("Swartz") exercised outstanding
warrants pursuant to a cashless exercise provision and the Company issued to
Swartz 170,648 shares of common stock. The transaction did not involve any
public offering and no sales commissions were paid. The Company believes that
the transaction was exempt from registration pursuant to Section 4(2) and
Section 4(6) of the Securities Act and/or Rule 506 of Regulation D.
(m) On January 14, 2004, the Company completed a private placement of its
securities and raised $5,711,000 in gross proceeds. The transaction was
completed pursuant to a Securities Purchase Agreement dated December 26, 2003,
between the Company and Wellington Management Company, LLP, for a private
offering of 57,110 units ("Units") of equity securities, each Unit consisting of
100 shares of common stock (the "Common Stock"), and one warrant (the "Warrant")
convertible at no cost into 30 shares of Common Stock, at a purchase price of
$100.00 per Unit. Wellington Management Company, LLP acted as an investment
advisor on behalf of eleven institutional investors. By mutual agreement with
the Investors, closing occurred on January 14, 2004.
Each Warrant may be exercised in whole or in part at any time, and from
time to time, during the period commencing on April 30, 2004 and expiring on
December 31, 2009, and entitles the holder to receive shares of common stock for
no additional consideration.
6
Pursuant to the Securities Purchase Agreement, the Company filed a
registration statement to register the shares of common stock (including the
share of common stock underlying the Warrants) for resale by the investors.
Wells Fargo Securities, LLC, served as placement agent for the Company and
received a fee of six percent of the gross proceeds raised from the offering.
The transaction did not involve any public offering, and a restrictive
legend was placed on each certificate evidencing the securities. The Company
believes that the transaction was exempt from registration pursuant to Section
4(2) of the Securities Act and/or Rule 506 of Regulation D.
(n) In June 2004, Swartz Private Equity, LLC ("Swartz") exercised an outstanding
warrant pursuant to a cashless exercise provision and the Company issued to
Swartz 117,650 shares of common stock. The transaction did not involve any
public offering and no sales commissions were paid. The Company believes that
the transaction was exempt from registration pursuant to Section 4(2) and
Section 4(6) of the Securities Act and/or Rule 506 of Regulation D.
ITEM 6. MANAGEMENT'S PLAN OF OPERATION.
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Statements contained herein that are not historical facts are
forward-looking statements as that term is defined by the Private Securities
Litigation Reform Act of 1995. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, the forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ from those projected. We caution investors that any
forward-looking statements made by us are not guarantees of future performance
and that actual results may differ materially from those in the forward-looking
statements. Such risks and uncertainties include, without limitation:
well-established competitors who have substantially greater financial resources
and longer operating histories, regulatory delays or denials, ability to compete
as a start-up company in a highly competitive market, and access to sources of
capital.
The following discussion and analysis should be read in conjunction with
our financial statements and notes thereto included elsewhere in this Form
10-KSB. Except for the historical information contained herein, the discussion
in this Form 10-KSB contains certain forward-looking statements that involve
risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. The cautionary statements made in this Form 10-KSB
should be read as being applicable to all related forward-looking statements
wherever they appear in this Form 10-KSB. The Company's actual results could
differ materially from those discussed here.
To date the Company has recorded nominal revenues from the sales of
prototypes. The Company is still considered a development stage company for
accounting purposes. From inception on February 12, 1996 through June 30, 2004,
the Company has accrued an accumulated deficit of approximately $17.5 million.
The Company's net loss for the year ended June 30, 2004 was $2,543,848,
compared to a net loss of $1,346,833 for the prior fiscal year. The primary
expenses during the year ended June 30, 2004 were salaries ($685,023),
consulting fees ($536,728) and legal and accounting ($909,398). Legal fees were
exceptionally high and primarily related to costs associated with pursuing and
maintaining technology patent filings and costs incurred in defending the
lawsuit filed by James E. Smith (described above in Part I, Item 3).
As a result of the commercial interest in the Company's antenna
technologies, the Company presently intends to focus substantially all of its
resources on the commercialization and sales of Plastenna and Electriplast
technologies, and the Company will not be devoting any of its resources on the
further research, development and commercialization of the other technologies in
which it has an interest.
The Company's business strategy focuses on leveraging its intellectual
property rights on its antenna technologies, its strengths in antenna design,
material innovation, and an understanding of the wireless marketplace.
7
The Company is not in the manufacturing business and does not expect to
make any capital purchases of a manufacturing plant or significant equipment in
the next twelve months. The Company will be relying on contract manufacturers
to produce the antenna products.
The Company is focusing its marketing efforts through to the end of
calendar 2004 on wireless market segments. The Company's technology will be
marketed to manufacturers of such wireless devices as cellular phones, portable
phones, paging communicators, satellite communications, global positioning
systems (GPS) and wireless based networks. The Company's GPS/LEO antenna is for
use in mobile asset tracking and fleet management, utilizing GPS satellite
tracking and low earth orbit (LEO) satellite data communications to trucking
fleets, heavy equipment, marine vessels, railway cars, shipping containers,
transit vehicles, all via satellite interface communications. Presently, the
Company is focusing all of its resources on the researching, developing and
commercializing its Plastenna and Electriplast technologies.
The Company anticipates spending approximately $250,000 over the next
twelve months on ongoing research and development (primarily salaries) of the
different applications and uses of its antenna technologies.
During the next twelve months, the Company does not anticipate increasing
its staff.
To date, the Company has relied on loans from management and management's
ability to raise capital through debt and equity private placement financings to
fund its operations. During the current fiscal year, the Company raised capital
through two private placements by selling common stock and common stock purchase
warrants:
1. In September 2003, the Company completed a private placement with
ten investors and sold 898,336 shares of its common stock at $.75 per share and
warrants to purchase 449,168 shares of its common stock within two years at an
exercise price of $1.00 per share. Aggregate proceeds from the sale of the
common stock was $673,752. Pursuant to the terms of the offering, the Company
filed a registration statement to register the shares of common stock (including
the share of common stock underlying the warrants), for resale by the investors.
2. On January 14, 2004, the Company completed a private placement of
its securities and raised $5,711,000 in gross proceeds. The transaction was
completed pursuant to a Securities Purchase Agreement dated December 26, 2003,
between the Company and Wellington Management Company, LLP, for a private
offering of 57,115 units ("Units") of equity securities, each Unit consisting of
100 shares of common stock (the "Common Stock"), and one warrant (the "Warrant")
convertible into 30 shares of Common Stock, at a purchase price of $100.00 per
Unit. Wellington Management Company, LLP acted as an investment advisor on
behalf of eleven institutional investors. By mutual agreement with the
Investors, closing occurred on January 14, 2004. Each Warrant may be exercised
in whole or in part at any time, and from time to time, during the period
commencing on April 30, 2004 and expiring on December 31, 2009, and entitles the
holder to receive shares of common stock for no additional consideration.
Pursuant to the Securities Purchase Agreement, the Company filed a registration
statement to register the shares of common stock (including the share of common
stock underlying the Warrants), for resale by the investors. Wells Fargo
Securities, LLC, served as placement agent for the Company and was paid a fee of
six percent of the gross proceeds raised from the offering.
As a result of the private placement financing that was completed in
January 2004, the Company will have adequate funds available to fund its
operations over the next twelve months.
8
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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The information required by Item 7 and an index thereto commences on the
index to the financial statements, which page follows this page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
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FINANCIAL DISCLOSURE.
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None.
ITEM 8A. CONTROLS AND PROCEDURES.
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Based on their most recent evaluation, which was completed as of the end of the
period covered by this annual report on Form 10-KSB, the Company's Chief
Executive Officer and Chief Financial Officer believe the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are
effective to ensure that information required to be disclosed by the Company in
this report is accumulated and communicated to the Company's management,
including its principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. During the
last fiscal quarter to which this report relates, there were no significant
changes in the Company's internal controls or other factors that could
significantly affect these controls subsequent to the date of their evaluation
and there were no corrective actions with regard to significant deficiencies and
material weaknesses.
9
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
INDEX PAGE
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity (Deficit) F-4 - F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9 - F-25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE DIRECTORS AND STOCKHOLDERS OF
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
We have audited the consolidated balance sheets of Integral Technologies, Inc.
(A Development Stage Company) as of June 30, 2004 and 2003 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the years ended June 30, 2004, 2003 and 2002 and the
cumulative totals for the development stage of operations from February 12, 1996
(inception) through June 30, 2004. 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. The financial
statements of Integral Technologies, Inc. from February 12, 1996 (inception)
through June 30, 1996 were audited by other auditors whose report dated November
20, 1996, expressed an unqualified opinion on those statements. Our opinion
insofar as it relates to the cumulative totals for development stage operations
from February 12, 1996 (inception) through June 30, 1996, is based solely on the
report of the other auditors.
We conducted our audits in accordance with auditing standard of the Public
Company Accounting Oversight Board (United States of America). Those standards
require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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 and the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audit and the report of the other auditors, these
consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company as at June 30, 2004 and 2003 and
the consolidated results of its operations and its cash flows for each of the
years ended June 30, 2004, 2003 and 2002 and the cumulative totals for the
development stage of operations from February 12, 1996 (inception) through June
30, 2004 in conformity with accounting principles generally accepted in the
United States of America.
"Pannell Kerr Forster"
Registered Independent
Chartered Accountants
Vancouver, Canada
September 23, 2004
F-1
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
JUNE 30
(U.S. DOLLARS)
=================================================================================
2004 2003
- ---------------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 3,905,773 $ 174,210
Accounts receivable 0 1,141
Prepaid expenses 26,091 11,844
TOTAL CURRENT ASSETS 3,931,864 187,195
- ---------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (note 3) 31,250 54,282
INVESTMENTS (note 4) 1 1
- ---------------------------------------------------------------------------------
TOTAL ASSETS $ 3,963,115 $ 241,478
=================================================================================
LIABILITIES
CURRENT
Accounts payable and accruals (note 7) $ 522,337 $ 472,254
Due to West Virginia University Research
Corporation (note 9(a)) 397,296 397,296
- ---------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 919,633 869,550
- ---------------------------------------------------------------------------------
CONTINGENCIES (note 9)
STOCKHOLDERS' EQUITY (DEFICIT) (note 5)
PREFERRED STOCK AND PAID-IN CAPITAL IN EXCESS
OF $0.001 PAR VALUE
20,000,000 Shares authorized
321,038 (2003 - 439,610) Shares issued
and outstanding (note 5(b)) 321,038 439,610
COMMON STOCK AND PAID-IN CAPITAL IN EXCESS
OF $0.001 PAR VALUE
50,000,000 Shares authorized
40,181,849 (2003 - 32,923,855) Shares issued
and outstanding (note 5(a)) 20,197,085 13,335,752
PROMISSORY NOTES RECEIVABLE (note 5(e)) (66,500) (66,500)
SHARE SUBSCRIPTIONS 0 211,915
OTHER COMPREHENSIVE INCOME 46,267 46,267
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (17,454,408) (14,595,116)
- ---------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY(DEFICIT) 3,043,482 (628,072)
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,963,115 $ 241,478
=================================================================================
See notes to consolidated financial statements.
F-2
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS)
==================================================================================================
PERIOD FROM
FEBRUARY 12,
1996
(INCEPTION)
YEARS JUNE 30, ENDED THROUGH
2004 2003 2002 JUNE 30, 2004
- --------------------------------------------------------------------------------------------------
REVENUE $ 1,483 $ 21,355 $ 27,686 $ 238,150
COST OF SALES 0 0 13,468 216,016
- --------------------------------------------------------------------------------------------------
1,483 21,355 14,218 22,134
- --------------------------------------------------------------------------------------------------
EXPENSES
Legal and accounting 909,398 151,651 169,247 2,085,567
Salaries 685,023 467,093 547,272 3,941,471
Consulting 536,728 445,193 663,795 2,692,245
Travel and entertainment 133,132 93,879 122,898 876,800
General and administrative 123,596 57,515 97,458 630,013
Telephone 38,375 29,892 33,169 295,675
Rent 33,631 31,838 34,102 287,249
Financing fees 25,000 0 104,542 129,542
Bank charges and
interest, net 55,374 1,498 10,053 163,229
Advertising 6,000 9,360 13,348 277,255
Settlement of lawsuit (note 9(b)) 0 45,250 0 45,250
Research and development 0 1,234 8,401 1,244,755
Remuneration pursuant to
proprietary, non-competition
agreement (note 5(a)(i)) 0 0 711,000 711,000
Write-down of license
and operating assets 0 0 48,919 1,855,619
Interest on beneficial
conversion feature 0 0 0 566,456
Write-off of investments (note 4) 0 0 1,249,999 1,249,999
Cancellation of debt 0 0 0 (602,843)
Bad debts (recovery) (23,958) 10,753 14,500 52,613
Depreciation and
amortization 23,032 23,032 21,706 293,136
- --------------------------------------------------------------------------------------------------
2,545,331 1,368,188 3,850,409 16,795,031
- --------------------------------------------------------------------------------------------------
NET LOSS FOR YEAR $ (2,543,848) $(1,346,833) $(3,836,191) $ (16,772,897)
==================================================================================================
NET LOSS PER COMMON SHARE $ (0.07) $ (0.04) $ (0.13)
==================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 36,391,491 31,928,310 29,064,780
==================================================================================================
See notes to consolidated financial statements.
F-3
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(U.S. DOLLARS)
=====================================================================================================================
COMMON PREFERRED
SHARES STOCK AND SHARES OF STOCK AND
OF COMMON PAID-IN CAPITAL PREFERRED PAID-IN CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES SHARE
ISSUED OF PAR ISSUED OF PAR RECEIVABLE SUBSCRIPTIONS
- ---------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR
Cash 1,000,000 $ 10,000 0 $ 0 $ 0 $ 0
Property and equipment
(to officers
and directors) 1,500,000 15,000 0 0 0 0
Services (provided by
officers and directors) 2,000,000 20,000 0 0 0 0
Services (others) 1,500,000 15,000 0 0 0 0
Foreign currency
translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 6,000,000 60,000 0 0 0 0
SHARES ISSUED FOR
Cash 5,086,000 865,514 0 0 0 0
Share issue costs 0 (48,920) 0 0 0 0
Services 564,000 63,036 0 0 0 0
Acquisition of subsidiary 100,000 275,000 0 0 0 0
Foreign currency
translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 11,750,000 1,214,630 0 0 0 0
SHARES ISSUED FOR
Cash 825,396 650,000 0 0 0 0
Share issue costs 0 (78,000) 0 0 0 0
Foreign currency
translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 12,575,396 $ 1,786,630 0 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------
===============================================================================
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
INCOME STAGE EQUITY (DEFICIT)
- -------------------------------------------------------------------------------
SHARES ISSUED FOR
Cash $ 0 $ 0 $ 10,000
Property and equipment
(to officers
and directors) 0 0 15,000
Services (provided by
officers and directors) 0 0 20,000
Services (others) 0 0 15,000
Foreign currency
translation (1,226) 0 (1,226)
Net loss for year 0 (344,843) (344,843)
- -------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 (1,226) (344,843) (286,069)
SHARES ISSUED FOR
Cash 0 0 865,514
Share issue costs 0 0 (48,920)
Services 0 0 63,036
Acquisition of subsidiary 0 0 275,000
Foreign currency
translation 12,601 0 12,601
Net loss for year 0 (822,217) (822,217)
- -------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 11,375 (1,167,060) 58,945
SHARES ISSUED FOR
Cash 0 0 650,000
Share issue costs 0 0 (78,000)
Foreign currency
translation 24,860 0 24,860
Net loss for year 0 (937,373) (937,373)
- -------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 $ 36,235 $ (2,104,433) $ (281,568)
- -------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-4
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(U.S. DOLLARS)
=================================================================================================================================
COMMON PREFERRED
SHARES OF STOCK AND SHARES OF STOCK AND
COMMON PAID-IN CAPITAL PREFERRED PAID-IN CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES SHARE
ISSUED OF PAR ISSUED OF PAR RECEIVABLE SUBSCRIPTIONS
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 12,575,396 $ 1,786,630 0 $ 0 $ 0 $ 0
SHARES ISSUED FOR
Cash 200,000 50,000 0 0 0 0
Exercise of stock options 445,000 80,500 0 0 0 0
Promissory note 1,683,789 252,568 0 0 (284,068) 0
Settlement of lawsuit 150,000 15,000 0 0 0 0
Services (provided by
officers and directors) 666,666 100,000 0 0 0 0
Share issue costs 0 (100,500) 0 0 0 0
Services 250,000 50,000 0 0 0 0
Conversion of convertible debentures 3,869,120 525,813 0 0 0 0
Acquisition of subsidiary 1,800,000 619,200 0 0 0 0
Held in escrow 447,091 0 0 0 0 0
Stock option benefit 0 70,600 0 0 0 0
Beneficial conversion feature 0 566,456 0 0 0 0
Foreign currency translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE JUNE 30, 1999 22,087,062 4,016,267 0 0 (284,068) 0
SHARES ISSUED FOR
Cash on private placement 2,650,000 3,975,000 0 0 0 0
Exercise of options 1,245,000 256,700 0 0 0 0
Services 50,000 13,000 0 0 0 0
Settlement of debt 0 0 664,410 664,410 0 0
Shares released from escrow 0 75,558 0 0 0 0
Stock option benefit 0 48,256 0 0 0 0
Promissory note repayment 0 0 0 0 225,568 0
Foreign currency translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 26,032,062 $ 8,384,781 664,410 $ 664,410 $ (58,500) $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
=========================================================================================
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
INCOME STAGE EQUITY (DEFICIT)
- -----------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 $ 36,235 $ (2,104,433) $ (281,568)
SHARES ISSUED FOR
Cash 0 0 50,000
Exercise of stock options 0 0 80,500
Promissory note 0 0 (31,500)
Settlement of lawsuit 0 0 15,000
Services (provided by
officers and directors) 0 0 100,000
Share issue costs 0 0 (100,500)
Services 0 0 50,000
Conversion of convertible debentures 0 0 525,813
Acquisition of subsidiary 0 0 619,200
Held in escrow 0 0 0
Stock option benefit 0 0 70,600
Beneficial conversion feature 0 0 566,456
Foreign currency translation 8,444 0 8,444
Net loss for year 0 (1,404,021) (1,404,021)
- -----------------------------------------------------------------------------------------
BALANCE JUNE 30, 1999 44,679 (3,508,454) 268,424
SHARES ISSUED FOR
Cash on private placement 0 0 3,975,000
Exercise of options 0 0 256,700
Services 0 0 13,000
Settlement of debt 0 0 664,410
Shares released from escrow 0 0 75,558
Stock option benefit 0 0 48,256
Promissory note repayment 0 0 225,568
Foreign currency translation 1,614 0 1,614
Net loss for year 0 (1,537,402) (1,537,402)
- -----------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 $ 46,293 $ (5,045,856) $ 3,991,128
- -----------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-5
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(U.S. DOLLARS)
============================================================================================================================
COMMON PREFERRED
SHARES STOCK AND SHARES OF STOCK AND
OF COMMON PAID IN CAPITAL PREFERRED PAID- IN CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES SHARE
ISSUED OF PAR ISSUED OF PAR RECEIVABLE SUBSCRIPTIONS
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 26,032,062 $ 8,384,781 664,410 $ 664,410 $ (58,500) $ 0
SHARES ISSUED FOR
Cash on private placement 81,885 112,480 0 0 0 0
Exercise of options 517,000 91,515 0 0 0 0
Services 100,000 40,000 0 0 0 0
Held in escrow
(note 5(a)(ii)(b)(i)) 218,115 0 0 0 0 0
Stock option benefit 0 272,207 0 0 0 0
Dividends on preferred shares 0 0 0 0 0 0
Share subscriptions 0 0 0 0 0 50,000
Redeemed shares 0 0 (100,000) (100,000) 0 0
Foreign currency translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2001 26,949,062 8,900,983 564,410 564,410 (58,500) 50,000
SHARES ISSUED FOR
Proprietary non-competition
agreement (note 5(a)(i)) 450,000 711,000 0 0 0 0
Held in escrow 700,000 0 0 0 0 0
Exercise of options 2,263,500 971,200 0 0 (15,000) (10,000)
Exercise of warrants 325,000 130,000 0 0 0 0
Subscriptions 100,000 40,000 0 0 0 (40,000)
Stock option compensation 0 415,685 0 0 0 0
Shares released from escrow 0 954,582 0 0 0 0
Dividends on preferred shares 0 0 0 0 0 0
Redeemed shares 0 0 (124,800) (124,800) 0 0
Write-off of promissory
note receivable 0 (7,000) 0 0 7,000 0
Net loss for year 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 30,787,562 $ 12,116,450 439,610 $ 439,610 $ (66,500) $ 0
- ----------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
INCOME STAGE EQUITY (DEFICIT)
- ---------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 $ 46,293 $ (5,045,856) $ 3,991,128
SHARES ISSUED FOR
Cash on private placement 0 0 112,480
Exercise of options 0 0 91,515
Services 0 0 40,000
Held in escrow
(note 5(a)(ii)(b)(i)) 0 0 0
Stock option benefit 0 0 272,207
Dividends on preferred shares 0 (30,720) (30,720)
Share subscriptions 0 0 50,000
Redeemed shares 0 (100,000) (200,000)
Foreign currency translation (26) 0 (26)
Net loss for year 0 (4,000,169) (4,000,169)
- ---------------------------------------------------------------------------------
BALANCE, JUNE 30, 2001 46,267 (9,176,745) 326,415
SHARES ISSUED FOR
Proprietary non-competition
agreement (note 5(a)(i)) 0 0 711,000
Held in escrow 0 0 0
Exercise of options 0 0 946,200
Exercise of warrants 0 0 130,000
Subscriptions 0 0 0
Stock option compensation 0 0 415,685
Shares released from escrow 0 0 954,582
Dividends on preferred shares 0 (26,087) (26,087)
Redeemed shares 0 (187,200) (312,000)
Write-off of promissory
note receivable 0 0 0
Net loss for year 0 (3,836,191) (3,836,191)
- ---------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 $ 46,267 $(13,226,223) $ (690,396)
- ---------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-6
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(U.S. DOLLARS)
=================================================================================================================================
COMMON PREFERRED
SHARES STOCK AND SHARES OF STOCK AND
OF COMMON PAID-IN CAPITAL PREFERRED PAID IN-CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES SHARE
ISSUED OF PAR ISSUED OF PAR RECEIVABLE SUBSCRIPTIONS
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 30,787,562 $ 12,116,450 439,610 $ 439,610 $ (66,500) $ 0
SHARES ISSUED FOR
Cash on private placement 1,684,000 842,050 0 0 0 0
Settlement of debt 144,793 104,542 0 0 0 0
Services 200,000 196,000 0 0 0 0
Exercise of options 52,500 43,750 0 0 0 0
Exercise of warrants 55,000 27,500 0 0 0 0
Subscription received note 6(a)(vi)) 0 0 0 0 0 176,665
Stock option compensation 0 5,460 0 0 0 0
Settlement of lawsuit (note 9(b)) 0 0 0 0 0 35,250
Dividends on preferred shares 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2003 32,923,855 13,335,752 439,610 439,610 (66,500) 211,915
SHARES ISSUED FOR
Cash on private placement 6,609,336 6,042,935 0 0 0 (211,915)
Cash on exercise of options 25,000 25,000 0 0 0 0
Settlement of lawsuit (note 9(b)) 37,500 35,250 0 0 0 0
Services 25,000 21,873 0 0 0 0
Redemption of preferred shares 415,000 415,000 (118,572) (118,572) 0 0
Exercise warrants 288,298 0 0 0 0 0
Shares returned to treasury for
Cancellation (142,140) 0 0 0 0 0
Stock option compensation 0 321,275 0 0 0 0
Dividends on preferred shares 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2004 40,181,849 $ 20,197,085 321,038 $ 321,038 $ (66,500) $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
======================================================================================
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
INCOME STAGE EQUITY (DEFICIT)
- --------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 $ 46,267 $(13,226,223) $ (690,396)
SHARES ISSUED FOR
Cash on private placement 0 0 842,050
Settlement of debt 0 0 104,542
Services 0 0 196,000
Exercise of options 0 0 43,750
Exercise of warrants 0 0 27,500
Subscription received note 6(a)(vi)) 0 0 176,665
Stock option compensation 0 0 5,460
Settlement of lawsuit (note 9(b)) 0 0 35,250
Dividends on preferred shares 0 (22,060) (22,060)
Net loss for year 0 (1,346,833) (1,346,833)
- --------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2003 46,267 (14,595,116) (628,072)
SHARES ISSUED FOR
Cash on private placement 0 0 5,831,020
Cash on exercise of options 0 0 25,000
Settlement of lawsuit (note 9(b)) 0 0 35,250
Services 0 0 21,873
Redemption of preferred shares 0 (296,428) 0
Exercise warrants 0 0 0
Shares returned to treasury for
Cancellation 0 0 0
Stock option compensation 0 0 321,275
Dividends on preferred shares 0 (19,016) (19,016)
Net loss for year 0 (2,543,848) (2,543,848)
- --------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2004 $ 46,267 $(17,454,408) $ 3,043,482
- --------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-7
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS)
=====================================================================================================================
PERIOD FROM
FEBRUARY 12, 1996
YEARS ENDED JUNE 30, (INCEPTION) THROUGH
2004 2003 2002 JUNE 30, 2004
- ---------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $(2,543,848) $(1,346,833) $(3,836,191) $ (16,772,897)
Adjustments to reconcile net loss to
net cash used by operating activities
Write-down of investment 0 0 1,249,999 1,249,999
Cancellation of debt 0 0 0 (602,843)
Proprietary, non-competition
agreement (note 5(a)(i)) 0 0 711,000 711,000
Consulting services and financing fees 61,873 223,500 254,792 957,273
Depreciation and amortization 23,032 24,302 28,983 318,691
Stock option compensation 321,275 5,460 415,685 1,133,483
Interest on beneficial conversion 0 0 0 566,456
Settlement of lawsuit 0 45,250 0 60,250
Write-down of license and operating assets 0 0 46,842 1,853,542
Bad debt 1,141 10,752 14,500 77,712
Changes in non-cash working capital
Due from affiliated company 0 0 0 (116,000)
Notes and accounts receivable 0 3,873 (2,923) (109,213)
Inventory 0 0 0 (46,842)
Prepaid expenses (14,247) 3,249 (14,928) (26,091)
Deferred revenue and other 0 (13,232) 0 (2,609)
Accounts payable and accruals 31,067 (112,371) (95,852) 746,895
Due to West Virginia University
Research Corporation 0 0 0 397,296
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (2,119,707) (1,156,050) (1,228,093) (9,603,898)
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, equipment and
Intangibles assets 0 0 0 (200,935)
Assets acquired and liabilities assumed
on purchase of subsidiary 0 0 0 (129,474)
Investment in and advances to affiliate companies 0 0 0 (2,000,000)
License agreements 0 0 0 (124,835)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES 0 0 0 (2,455,244)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayment of loan 0 0 0 (45,000)
Advances from stockholders 0 0 0 1,078,284
Repayments to stockholders 0 0 0 (94,046)
Subscriptions received 0 176,665 0 226,665
Proceeds from issuance of common stock 5,851,270 885,800 1,426,332 14,380,165
Proceeds from convertible debentures 0 0 0 600,000
Share issue costs 0 0 0 (227,420)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,851,270 1,062,465 1,426,332 15,918,648
- ---------------------------------------------------------------------------------------------------------------------
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 0 0 0 46,267
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 3,731,563 (93,585) 198,239 3,905,773
CASH, BEGINNING OF YEAR 174,210 267,795 69,556 0
- ---------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 3,905,773 $ 174,210 $ 267,795 $ 3,905,773
=====================================================================================================================
Supplemental cash flow information (note 6)
See notes to consolidated financial statements.
F-8
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
1. INCORPORATION AND NATURE OF OPERATIONS
The Company was incorporated under the laws of the State of Nevada on
February 12, 1996 and has its head office in Bellingham, Washington, U.S.A.
The Company is in the development stage as more fully defined in Statement
No. 7 of the Financial Accounting Standards Board. The Company is in the
business of researching, developing and commercializing new antenna
technologies.
The Company will be devoting all of its resources to the research,
development and commercialization of its antenna technologies. As a
consequence, the value for the license of all other technologies was
written off in 2001.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
These financial statements include the accounts of Integral
Technologies, Inc. (a development stage company), its wholly-owned
subsidiaries, Integral Vision Systems, Inc. ("IVSI"), Antek Wireless
Inc. ("Antek") and Plastenna, Inc. ("Plastenna") a Delaware
corporation and its 76.625% owned subsidiary, Emergent Technologies
Corp. ("ETC"). All intercompany balances and transactions have been
eliminated. Investment in Continental Divide Robotics, Inc. ("CDRI")
is accounted for using the cost method since the Company exerts no
significant influence (note 4).
(b) Depreciation
Depreciation is provided using the straight-line method based on the
following estimated useful lives:
Machinery, furniture and equipment - 5 Years
Computer hardware and software - 5 Years
Molds - 5 Years
The Company reviews long-term assets to determine if the carrying
amount is recoverable based on the estimate of future cash flow
expected to result from the use of the asset and its eventual
disposition. If in this determination there is an apparent shortfall,
the loss will be recognized as a current charge to operations.
(c) Loss per share
Loss per share computations are based on the weighted average number
of common shares outstanding during the period. Common share
equivalents consisting of stock options and warrants are not
considered in the computation because their effect would be
anti-dilutive.
F-9
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Stock issued in exchange for services
The valuation of the common stock issued in exchange for services is
valued at an estimated fair market value as determined by officers and
directors of the Company based upon other sales and issuances of the
Company's common stock within the same general time period.
(e) Revenue recognition
As the Company is continuing development of its technologies, no
significant revenues have been earned to date. The Company recognizes
revenues at the time of delivery of the product to the customers.
(f) Foreign currency translation
Assets and liabilities of non-U.S. subsidiaries that operate in a
local currency environment are translated to U.S. dollars at year-end
exchange rates. Income and expense items are translated at
weighted-average rates of exchange prevailing during the year.
Translation adjustments are recorded in accumulated gains and losses
not affecting accumulated deficit within stockholders' equity
(deficit).
Property and equipment and other non-monetary assets and liabilities
of non-U.S. subsidiaries and branches that operate in U.S. dollars, or
whose economic environment is highly inflationary, are translated at
approximate exchange rates prevailing when the Company acquired the
assets or liabilities. All other assets and liabilities are translated
at year-end exchange rates. Cost of sales and depreciation are
translated at historical exchange rates. All other income and expense
items are translated at the weighted-average rates of exchange
prevailing during the year. Gains and losses that result from
translation are included in the determination of net loss.
The Company's transactions in foreign currencies have been minimal in
the last few years, as a result foreign exchange gains and losses have
been immaterial.
(g) Research and development
Research and development expenditures are charged to operations as
incurred.
(h) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and would impact
future results of operations and cash flows.
F-10
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Financial instruments
(i) Fair value
The carrying value of cash, accounts receivable, accounts payable
and accruals and due to West Virginia University Research
Corporation approximate their fair value because of the short
maturity of these financial instruments.
(ii) Interest rate risk
The Company is not exposed to significant interest rate risk due
to the short-term maturity of its monetary current assets and
current liabilities.
(iii) Credit risk
The Company's financial assets that are exposed to credit risk
consist primarily of cash which is placed with major financial
institutions.
(iv) Translation risk
The Company translates the results of non-US operations into US
currency using rates approximating the average exchange rate for
the year. The exchange rate may vary from time to time. This risk
is considered nominal as the Company does not incur any
significant transactions in non-US currency.
(j) Income taxes
The Company uses the asset and liability approach in its method of
accounting for income taxes which requires the recognition of deferred
tax liabilities and assets for expected future tax consequences of
temporary differences between the carrying amounts and the tax basis
of assets and liabilities. A valuation allowance against deferred tax
assets is recorded if, based upon weighted available evidence, it is
more likely than not that some or all of the deferred tax assets will
not be realized.
F-11
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Stock-based compensation
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options granted to employees. During the year
the Company extended the expiry date of some of its options and as a
result these options became variable options, and accordingly,
compensation expense of $136,750 (2003 - Nil; 2002 -$7,800) was
recognized as salaries expense. Had compensation expense been
determined as provided in SFAS 123 using the Black-Scholes option -
pricing model, the pro-forma effect on the Company's net loss and per
share amounts would have been as follows:
===============================================================================
2004 2003 2002
- -------------------------------------------------------------------------------
Net loss, as reported $(2,543,848) $(1,346,833) $(3,836,191)
Add: Stock-based employee
compensation expense under
intrinsic value method included in
reported net loss, net of related tax
effects 136,750 0 7,800
Deduct: Total stock-based
compensation expense determined
under fair value based method for all
awards, net of related tax effects (14,159) (230,180) (320,640)
- -------------------------------------------------------------------------------
Net loss, pro-forma $(2,421,257) $(1,577,013) $(4,149,031)
===============================================================================
Net loss per share, as reported $ (0.07) $ (0.04) $ (0.13)
Add: Stock-based employee
compensation expense under
intrinsic value method included in
reported net loss, net of related tax
effects 0.00 0.00 0.00
Deduct: Total stock-based
compensation expense determined
under fair value based method for all
awards, net of related tax effects 0.00 (0.01) (0.01)
- -------------------------------------------------------------------------------
Net loss per share, pro-forma $ (0.07) $ (0.05) $ (0.14)
================================================================================
The Company applies SFAS 123 in accounting for its stock options granted to
non-employees, and accordingly, compensation expense of $184,525 (2003 - $5,460;
2002 - $Nil) was recognized as consulting expense for fixed and variable
options.
F-12
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(k) Stock based compensation (Continued)
The fair value of each option grant is calculated using the following
weighted average assumptions:
============================================================
2004 2003 2002
------------------------------------------------------------
Expected life (years) 1 2.2 2
Interest rate 3.50% 3.00% 4.38%
Volatility 72.50% 51.50% 71.86%
Dividend yield 0.00% 0.00% 0.00%
============================================================
(l) Comprehensive income
Other comprehensive income includes revenues and expenses and
unrealized gains and losses that under accounting principles generally
accepted in the United States of America are excluded from net income
(loss) and are recorded directly as an adjustment to stockholders'
equity, net of tax. When the unrealized gains and losses are realized
they are reclassified from other comprehensive income and included in
net income. The Company's other comprehensive income (loss) is
composed of unrealized gains and losses from foreign currency
translation adjustments. (see note 10)
(m) Recent accounting pronouncements
(i) In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51, Consolidated Financial
Statements. Interpretation 46 establishes accounting guidance for
consolidation of variable interest entities that function to
support the activities of the primary beneficiary. Interpretation
46 applies to any business enterprise both public and private,
that has a controlling interest, contractual relationship or
other business relationship with a variable interest entity. The
Company has no investment in or contractual relationship or other
business relationship with a variable interest entity and
therefore the adoption did not have any impact on the Company's
consolidated financial position, results of operations or cash
flows.
F-13
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Recent accounting pronouncements (Continued)
(ii) On April 30, 2003, the FASB issued Statement No. 149,Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities. Statement 149 is intended to result in more
consistent reporting of contracts as either freestanding
derivative instruments subject to Statement 133 in its entirety,
or as hybrid instruments with debt host contracts and embedded
derivative features. In addition, Statement 149 clarifies the
definition of a derivative by providing guidance on the meaning
of initial net investments related to derivatives. Statement 149
is effective for contracts entered into or modified after June
30, 2003. The adoption of Statement 149 did not have any effect
on the Company's consolidated financial position, results of
operations or cash flows.
(iii) On May 15, 2003, the FASB issued Statement No. 150, Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. Statement 150 establishes standards for
classifying and measuring as liabilities certain financial
instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. Statement 150
represents a significant change in practice in the accounting for
a number of financial instruments, including mandatorily
redeemable equity instruments and certain equity derivatives that
frequently are used in connection with share repurchase programs.
Statement 150 is effective for all financial instruments created
or modified after May 31, 2003, and to other instruments as of
September 1, 2003. The Company adopted Statement 150 on July 1,
2003. The effect of adopting this statement did not have any
effect on the Company's consolidated financial position, results
of operations or cash flows.
(iv) On April 2002, the FASB issued statement No. 145, Rescission
of FASB No. 4 Reporting Gains and Losses from Extinguishment of
Debt, and amendment of FASB No. 64 Extinguishment of Debt made to
Satisfy Sinking-Fund Requirements. This statement also rescinds
FASB No. 44 Accounting for Intangible Assets of Motor Carriers
and also amends FASB No. 13 Accounting for leases to eliminate an
inconsistency in accounting for sale-leaseback. The Company
adopted this statement effective July 1, 2002. The impact of
adopting this statement is the reclassification of cancellation
of debt, previously recorded as extraordinary item, to other
income.
3. PROPERTY AND EQUIPMENT
===========================================================================
2004 2003
---------------------------------------------------------------------------
Machinery, furniture and equipment $ 148,940 $ 148,940
Computer hardware and software 39,419 39,419
Molds 4,800 4,800
---------------------------------------------------------------------------
193,159 193,159
Less: Accumulated depreciation (161,909) (138,877)
---------------------------------------------------------------------------
$ 31,250 $ 54,282
===========================================================================
F-14
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
4. INVESTMENTS
In July 2000, the Company executed a Stock Purchase Agreement with
Continental Divide Robotics Inc. ("CDRI") related to the acquisition of a
minority interest in CDRI. CDRI has developed certain proprietary hardware
and software systems that use a radio-navigation, satellite-based Global
Positioning System to track individuals, on a real time basis.
Pursuant to the agreement, the Company invested $1.25 million dollars to
acquire 20.33% of the outstanding common stock of CDRI. Because the Company
has no influence or control over CDRI, and no ability to exercise
significant influence over CDRI, the Company's investment has been recorded
at cost using the cost method.
CDRI is a privately held company and there is no public market for its
common stock. CDRI has a working capital deficiency and has sustained
continued significant operating losses. Due to the Company's lack of
control over the operations of CDRI, lack of information concerning the
business prospects of CDRI, lack of financial information concerning the
ability of CDRI to continue as a going concern, and lack of liquidity for
the Company's investment in CDRI during the year ended June 30, 2002, the
Company wrote down its investment in CDRI from $1,250,000 to a nominal
value of $1. This decision was made in consideration of the foregoing, and
in order to conform with accounting principles generally accepted in the
United States of America. However, CDRI remains an active business entity,
possessing proprietary technology, and continues to market its technology.
The Company has no current information to suggest that the CDRI technology
or the business opportunity for such technology has been negatively
impacted. The Company continues to retain its ownership position in CDRI.
5. STOCKHOLDERS' EQUITY (DEFICIT)
(a) Common stock
(i) During the year ended June 30, 2002, the Company entered into
a proprietary, non-disclosure and non-solicitation agreement with
two of its employees whereby, for a total of 450,000 common
shares, these employees will not disclose any information that is
defined as confidential by the Company in this agreement; the
employees will work for the Company exclusively while employed by
the Company and will not work for a competitor for a period of at
least three years after leaving the Company. These shares were
recorded at $1.58 per common share being the market price at the
date of issue for a total charge to operations of $711,000.
F-15
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
5. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(a) Common stock (Continued)
(ii) Private placement agreement
(a) During the year ended June 30, 2000, the Company entered
into a private placement agreement with Swartz Private
Equity, LLC ("Swartz") which called for periodic purchases
over a three year period of up to $25,000,000 of the
Company's common stock. This agreement expired May 2003.
Each periodic purchase ("put") has a purchase price equal to
the lesser of the market price minus $0.25, or 91% of the
market price, but not less than a stated minimum purchase
price as set in the advance put notice, which cannot be
greater than 80% of the market price on that date.
Each put cannot exceed the lesser of:
(i) $2,000,000 worth of common stock;
(ii) 15% of the aggregate reported trading volume
of the Company's common stock during the 20
business days before and after the date of notice
to exercise each put; and,
(iii) a number of shares that would cause Swartz to
acquire in a 31 day period preceding the put date,
in total in excess of 9.99% of the Company's total
number of shares of common stock outstanding at
that time.
At the time of each put, the Company will issue Swartz a
purchase warrant which will give Swartz the right to
purchase up to 10% of the number of shares issued in the
put. Each warrant will be immediately exercisable for a five
year period for a price equal to 110% of the market price
for such put.
If the Company has not put a minimum of $1,000,000 in
aggregate Put Dollar Amount during any six month period of
time during the term of the Investment Agreement, the
Company will be required to pay Swartz a non-usage fee equal
to the difference of $100,000 minus 10% of the aggregate Put
Dollar Amount of the Put Shares put to Swartz during such
six month period. In the event that the Company delivers a
termination notice to Swartz or an automatic termination
occurs, the Company must pay Swartz a termination fee equal
to the greater of the non-usage fee for the applicable
period or the difference of $200,000 minus 10% of the
aggregate Put Dollar Amount of the Put Shares put to Swartz
during all Puts to such date. The non-usage fee for the year
ended June 30, 2003 was waived as the agreement expired. The
non-usage fee for the year ended June 30, 2002 of $104,542
was settled in 2003 by issuance of 144,793 shares of common
stock. The non-usage fee for the period prior to August 3,
2001 was waived by Swartz.
F-16
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
5. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(a) Common stock (Continued)
(ii) Private placement agreement (Continued)
(b) Pursuant to this agreement:
(i) During the year ended June 30, 2001, the Company
issued 300,000 shares to be held in escrow to
exercise a put. Of these, 81,885 shares were
released on the exercise of the put and 218,115
are held in escrow for future put exercises.
As partial consideration of the investment
agreement the Company issued warrants to Swartz to
purchase 495,000 shares of common stock.
(ii) During the year ended June 30, 2002, the Company
issued 700,000 shares held in escrow to exercise
puts. 775,975 shares were released on the exercise
of these puts for total proceeds of $954,582,
leaving 142,140 shares in escrow at June 30, 2002.
As part of these puts 85,788 warrants were issued.
(iii) During the year ended June 30, 2003, the Company
settled the non-usage fee of $104,542 due to
Swartz by issuing 144,793 shares of common stock.
(iv) Subsequent to June 30, 2003, the 142,140 shares in
escrow were returned to the Company and cancelled.
(iii) During the year ended June 30, 2003, the Company entered into a
private placement agreement with various investors whereby the
Company issued 1,684,000 units consisting of one share of common
stock and one-half a share purchase warrant at a price of $0.50
per unit. Each whole warrant is exercisable at a price of $0.75
per share and expires two years after the date of grant.
(iv) During the year ended June 30, 2003, the Company entered into a
letter of agreement whereby the Company will pay a monthly fee of
$10,000 for investor relations and maintenance fees commencing
March 7, 2003 for a period of one year. For introductions for
private placement money, the Company will pay a three percent fee
for every one million dollars raised through this agreement.
As part of this agreement, the Company agreed to issue 200,000
common shares which was recognized as consulting expense at
market value on the date of the transaction for a total of
$196,000.
F-17
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
5. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(a) Common stock (Continued)
(v) During the year ended June 30, 2003, the Company issued 55,000
shares at a price of $0.50 per share on exercise of warrants.
(vi) During the year ended June 30, 2004, the Company:
(a) entered into a private placement whereby the Company issued
898,336 shares at a price of $0.75 per share and 449,268
share purchase warrants exercisable within two years with an
exercise price of $1.00 per share. Of which 20,000 shares
were paid for with services valued at $15,000.
(b) received for cancellation 142,140 shares previously issued
and held in escrow under the Swartz agreement which expired
during the year ended June 30, 2003.
(c) issued 37,500 shares as part of the mutual release agreement
in settlement of all claims related to the Joffre J. Rolland
and Robin L. Rolland claims.
(d) issued 25,000 shares at a price of $1.00 per share on
exercise of options.
(e) redeemed 118,572 shares of Series A convertible preferred
stock from an officer of the Company. The redemption price
of $3.50 per share was used as consideration for the
exercise of 415,000 options to purchase common stock of the
Company at a price of $1.00 per share.
(f) issued 288,298 shares upon the exercise of warrants held by
Swartz. The warrants were exercised under a cashless
exercise provision. No cash consideration was received by
the Company.
(g) entered into a private placement whereby the Company issued
57,110 units at $100 per unit for gross proceeds of
$5,711,000 less a private placement fee of 6% of gross
proceeds. Each unit is comprised of 100 newly issued shares
of the Company's common stock and one warrant convertible
into 30 additional shares of common stock. Each warrant may
be exercised in whole or in part at any time, during the
period commencing on April 30, 2004 and expiring on December
31, 2009, and entitles the holder to receive shares of
common stock for no additional consideration.
(vii) Subsequent to June 30, 2004, the Company issued 44,000 shares to
settle debt for $55,000.
F-18
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
5. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(b) Preferred stock
The preferred stock may be issued in one or more series. The
distinguishing features of each series including preference, rights
and restriction are to be determined by the Company's Board of
Directors upon the establishment of each such series.
During the year ended June 30, 2000, the Company designated 1,000,000
of its authorized 20,000,000 preferred shares as Series A Convertible
Preferred Stock with a par value of $0.001 each and a stated value and
liquidation preference of $1.00 per share. Cumulative dividends are
accrued at the rate of 5% annually, payable at the option of the
Company. The shares may be converted to restricted shares of common
stock at the average trading price ten days prior to conversion, and
entitled to votes equal to the number of shares of common stock into
which each series of preferred stock may be converted. Each Series A
Convertible Preferred Stock may be redeemed by the Company for $1.50
each within one year after the date of issue, and for $2.00, $2.50,
$3.00 and $3.50 per share in each of the subsequent four years after
the date of issue.
During the year ended June 30, 2000, the Company agreed to settle
$383,228 of accounts payable and $281,182 of long-term debt, both
amounts owed to officers and directors of the Company, by issuing
664,410 shares of Series A convertible preferred stock at a par value
of $0.001 and a stated value of $1.00 per share.
During the year ended June 30, 2004, the Company redeemed 118,572
(2003 - $Nil; 2002 - 124,800) preferred shares at a total cost of
$415,000 (2003 - $Nil; 2002 $312,000)
F-19
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
5. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(c) Stock options
In January 2001 the Company adopted the "Integral Technologies, Inc.
2001 Stock Plan" (the "2001 Plan"), a non-qualified stock option plan
under which the Company may issue up to 2,500,000 stock options and
stock bonuses of common stock of the Company to provide incentives to
officers, directors, key employees and other persons who contribute to
the success of the Company. This plan was amended December 2001 to
increase the number of common share options which may be granted from
2,500,000 to 3,500,000 stock options.
The following table summarizes the Company's stock option activity for
the years ended June 30, 2003, 2002 and 2001:
====================================================================
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
--------------------------------------------------------------------
Balance, June 30, 2001 1,338,500 $0.15 to $1.00 $ 0.35
Granted during the year
June 30, 2002 2,430,000 $0.40 to $1.50 $ 0.63
Exercised (2,463,500) $0.15 to $1.20 $ 0.41
--------------------------------------------------------------------
Balance, June 30, 2002 1,305,000 $0.40 to $1.50 $ 0.76
Granted during the year
June 30, 2003 1,230,000 $ 1.00 $ 1.00
Exercised (52,500) $0.69 to $1.50 $ 0.83
Cancelled (575,000) $0.40 to $1.00 $ 0.66
-------------------------------------------------------------------
Balance, June 30, 2003 1,907,500 $0.40 to $1.50 $ 0.94
Granted during the year
June 30, 2004 255,000 $ 1.00 $ 1.00
Cancelled (175,000) $0.65 to $1.50 $ 0.77
Exercised (440,000) $ 1.00 $ 1.00
--------------------------------------------------------------------
Balance, June 30, 2004 1,547,500 $0.64 to $1.50 $ 0.94
====================================================================
The following summarizes the options outstanding at June 30, 2004 and
2003 all of which were fully vested at these dates:
======================================================================
Exercise Number of Shares
Expiry Date Price 2004 2003
----------------------------------------------------------------------
August 31, 2004 $0.40 to $1.50 877,500 1,077,500
August 31, 2005 $ 1.00 255,000 0
December 31, 2005 $ 1.00 415,000 830,000
Total $0.40 to $1.50 1,547,500 1,907,500
======================================================================
F-20
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
5. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(c) Stock options (Continued)
Pursuant to the 2001 Plan:
(i) During the year ended June 30, 2004, the Company granted a
total of 255,000 stock options to consultants at an exercise
price of $1.00 per common share. All options are fully
vested at the date of grant and expire August 31, 2005.
(ii) During the year ended June 30, 2003, the Company granted a
total of 1,230,000 stock options to officers, directors and
key employees at an exercise price of $1.00 per common
share. 400,000 of these options are fully vested at the date
of grant and expire August 31, 2003 and 830,000 vested
January 1, 2003 and expire December 31, 2005.
(iii) During the year ended June 30, 2004, the expiry date of
790,000 options was extended to August 31, 2004 as such the
options became variable options (note 2(k)). Subsequent to
year-end, the expiry date of 730,000 of these options was
extended again to August 31, 2005.
In April 2003, the Company adopted the "Integral Technologies, Inc.
2003 Stock Plan" (the "2003 Plan"), a non-qualified stock option plan
under which the Company may issue up to 1,500,000 stock options. As of
June 30, 2003, no options have been granted with respect to this plan.
(d) Stock purchase warrants
At June 30, 2004, the following stock purchase warrants were
outstanding:
(i) Nil (2003 - 440,000) with an adjusted exercise price of
$0.50 exercisable before November 10, 2005;
(ii) 45,496 (2003 - 77,599) with exercise prices ranging from
$0.51 to $1.18 exercisable on or before November 10, 2005;
and
(iii) 842,000 with exercise price of $0.75 exercisable before
November 1, 2004.
(iv) 449,170 with exercise price of $1.00 exercisable before
September 25, 2005.
(v) 1,713,300 with exercise price of $Nil exercisable before
December 31, 2009.
Both (i) and (ii) above have reset provisions, whereby the exercise
price is adjusted to 110% of the five day average on every month's
anniversary of the warrants.
F-21
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
5. STOCKHOLDERS' EQUITY (DEFICIT)(Continued)
(e) Promissory notes receivable at June 30, 2004 includes:
(i) $31,500 (2003 - $31,500) due on exercise of 210,000 stock
options, interest at 10% per annum, due November 1, 2002,
subsequently extended to June 30, 2003.
(ii) $20,000 (2003 - $20,000) due on exercise of 100,000 stock
options, interest at 8% per annum due June 6, 2002.
(iii) $15,000 (2003 - $15,000) due on exercise of 23,000 stock
options, interest at 10% per annum due June 30, 2003.
As at September 3, 2004, these notes have not been collected. Shares
issued on exercise of options are restricted for trading by the
Company. The restrictions will not be removed until the respective
notes are paid to the Company.
6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
=============================================================================================
PERIOD FROM
FEBRUARY 12,
1996
(INCEPTION)
THROUGH
2004 2003 2002 JUNE 30, 2004
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
SHARES ISSUED
For redemption of preferred shares $ 415,000 $ 0 $ 0 $ 415,000
For property and equipment 0 0 18,000 23,000
For proprietary agreement 0 0 711,000 711,000
For settlement of accounts payable 0 104,542 124,200 228,742
For services (provided by officers
and directors) 0 0 0 120,000
For settlement of lawsuit 0 0 0 15,000
For services 61,873 223,500 150,250 696,784
For acquisition of subsidiary 0 0 0 894,200
SUPPLEMENT CASH FLOW INFORMATION
Interest paid 0 0 0 81,111
Income tax paid 0 0 0 0
=============================================================================================
7. RELATED PARTY TRANSACTIONS
(a) Accounts payable at June 30, 2004 includes $29,290 (2003 - $269,660)
due to two directors and officers of the Company.
(b) The Company incurred $398,777 (2003 - $340,000; 2002 - $312,000) for
wages due to two directors and officers of the Company.
(c) The Company incurred $37,000 (2003 - $nil; 2002 - $nil) for interest
paid to two directors and officers of the Company. This charge was
authorized by the board of directors for amounts owed since fiscal
year ended June 30, 2001.
F-22
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
8. INCOME TAXES
Deferred income taxes reflect the tax effect of the temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes. The components of
the net deferred income tax assets are as follows:
=========================================================================
2004 2003 2002
-------------------------------------------------------------------------
Deferred income tax assets
Net operating loss
and credit
Carryforwards $ 5,800,000 $ 4,900,000 $ 3,400,000
Accrued liabilities 40,000 40,000 40,000
Temporary differences
on property and
equipment depreciation (3,000) (3,000) (1,000)
-------------------------------------------------------------------------
Gross deferred tax assets 5,837,000 4,937,000 3,399,000
Valuation allowance (5,837,000) (4,937,000) (3,399,000)
-------------------------------------------------------------------------
$ 0 $ 0 $ 0
=========================================================================
As at June 30, 2004 the Company's net operating loss carryforwards for
income tax purposes were approximately $16,700,000(2003 - $14,100,000). If
not utilized, they will start to expire in 2017.
9. CONTINGENCIES
(a) A dispute exists between West Virginia University Research Corporation
("WVURC") and the Company with respect to the development work
performed by WVURC on the Plasma Ignition System and the Counterfeit
Detection Technology. The Company has included in its accounts the
amount alleged by WVURC to be owing to WVURC of $397,296, however, it
is the opinion of management that this amount should be reduced to an
amount not greater than $43,052. Management intends to defend this
position. As the actual outcome cannot be determined at this time, any
adjustments required will be recorded by the Company when settlement
occurs.
F-23
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
9. CONTINGENCIES (Continued)
(b) On August 9, 2000, the Company filed a Petition for Order to Compel
Arbitration against Joffre Rolland in the District Court of Clark
County, State of Nevada. The purpose of the Petition for Order to
Compel Arbitration was to require Joffre Rolland, a former employee,
to arbitrate employment issues that had arisen under contracts he had
entered into with the Company. On November 3, 2000, the Nevada State
Court ordered Joffre Rolland to arbitrate the dispute in the State of
Nevada. Instead of arbitrating as required by the Nevada State Court
Order, Joffre Rolland and Robin Rolland (the "Rollands") filed suit
against the Company and ETC in October 2000 in the Circuit Court of
Harrison County, West Virginia. The Rollands' complaint alleges that
they suffered damages and are seeking in excess of $18 million in
damages (including at least $18 million for lost sales royalties) for
their claims for relief. The Company filed a petition in the U.S.
District Court, District of Nevada, for an order compelling
arbitration. On June 6, 2001, the U.S. District Court of Nevada
ordered the dispute between the parties be arbitrated in Nevada, and
that the action pending before the West Virginia State Court be stayed
pending completion of the arbitration.
In a mutual release in full of all claims dated August 5, 2003, the
Rollands received the following consideration:
(a) Integral agreed to amend U.S. patent number 6,320,548 B1 and U.S.
patent number 6,329,950 B1 to add Joffre Rolland Jr. as an
inventor.
(b) Joffre J. Rolland Jr. will be entitled to receive future
royalties on any sales of products covered by U.S. patent number
6,320,548 B1 and U.S. patent number 6,329,950 B1.
(c) Joffre J. Rolland Jr. received $10,000 in cash and 37,500 shares
of Integral common stock, issued pursuant to Rule 144.
The settlement has been recorded in the accounts at June 30, 2003.
(c) On April 4, 2003, a suit was filed against the Company by James E.
Smith seeking damages in excess of one million dollars for claims for
relief of Breach of Contract, Quantum Mervit and/or Promissory
Estoppel, Fraud, Conversion and Negligence. The Company has denied
these allegations and asserted several Affirmative Defenses.
In addition, the Company filed counter-claims against James E. Smith
for relief of Intentional Misrepresentation, Breach of Contract
Negligence, Misrepresentation, Rescission and Restitution. On August
30, 2004, the Court dismissed James E. Smith's claims for fraud and
negligence by way of the Company's counter-claim for breach of oral
contract and partially dismissed the counter-claims for intentional
and negligent misrepresentation by way of James E. Smith's motion for
summary judgement.
Trial is scheduled to commence on March 8, 2005.
F-24
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(U.S. DOLLARS)
================================================================================
10. COMPREHENSIVE LOSS
===============================================================================
PERIOD FROM
FEBRUARY 12,
1996
(INCEPTION)
THROUGH
2004 2003 2002 JUNE 30, 2004
- -------------------------------------------------------------------------------
Net loss $(2,543,848) $(1,346,833) $(3,836,191) $ (16,772,897)
Other
comprehensive
income 0 0 0 46,267
- -------------------------------------------------------------------------------
Comprehensive
loss $(2,543,848) $(1,346,833) $(3,836,191) $ (16,726,630)
===============================================================================
F-25
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
- --------------------------------------------------------------------------------
WITH SECTION 16(A) OF THE EXCHANGE ACT.
- ---------------------------------------------
Directors and Executive Officers of Registrant. The Company has a Board of
Directors which is currently comprised of two members. Each director holds
office until the next annual meeting of shareholders or until a successor is
elected or appointed. The members of the Board and the executive officers of
the Company and their respective age and position are as follows:
Director of
Name Age Position with Registrant Registrant Since
- ------------------------------------------------------------------------------------
William S. Robinson 47 Chairman, CEO and Treasurer February 1996
William A. Ince 53 Director, President, Secretary and Chief February 1996
Financial Officer
DIRECTORS AND EXECUTIVE OFFICERS OF INTEGRAL
WILLIAM ROBINSON
(Chairman, CEO and Treasurer)
As a co-founder of the Company (since 1996), Mr. Robinson has been responsible
since the inception of Integral for securing funding in order to ensure the
ongoing operations of Integral and its subsidiaries. Together with Mr. Ince, he
has been responsible for the development and implementation of corporate
strategies.
Mr. Robinson brings many years of management experience in finance, banking and
corporate development. Previously, he acted as a director of a number of
companies involved in natural resources, sales and marketing, and computer
technologies.
WILLIAM A. INCE
(Director, President, Secretary and Chief Financial Officer)
Mr. Ince, a co-founder of the Company (since 1996), is responsible, along with
Mr. Robinson, for the development and implementation of corporate strategies.
He is also responsible for the accounting and financial systems and
record-keeping of Integral and its subsidiaries.
Mr. Ince brings with him a background as a professional accountant and
experience from management positions in finance and operations in several
private companies. He has consulted to both private and public companies in the
areas of marketing and finance, as well as turn-around situations. Mr. Ince has
been responsible for "team building" efforts to ensure that each project is
brought to fruition on a timely basis.
SIGNIFICANT EMPLOYEES OF THE COMPANY AND ITS SUBSIDIARIES
TOM AISENBREY, General Manager and Chief Technology Officer, has been with the
Company since February 2001. Mr. Aisenbrey is an accomplished executive program
manager with 27 years of experience in a variety of electronic industries, with
design & development of multiple computer oriented products, specializing in
wireless products. Mr. Aisenbrey is responsible for the development of the
Company's antenna technologies.
10
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT DISCLOSURE
The Company does not have a separately-designated standing audit committee at
this time because it is not required to do so. Accordingly, the Company does
not have an audit committee financial expert.
CODE OF ETHICS
On September 20, 2004, the Board of Directors established a written code of
ethics that applies to the Company's senior executive and financial officers. A
copy of the code of ethics is included as an exhibit to this annual report.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors, and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of copies of such reports received or written
representations from certain reporting persons, the Company believes that,
during the year ended June 30, 2003, all Section 16(a) filing requirements
applicable to its officers, directors and ten percent shareholders were complied
with by such persons.
ITEM 10. EXECUTIVE COMPENSATION.
- -----------------------------------
(a) General
The following information discloses all plan and non-plan compensation
awarded to, earned by, or paid to the executive officers of the Company, and
other individuals for whom disclosure is required, for all services rendered in
all capacities to the Company and its subsidiaries.
(b) Summary Compensation Table
The following table sets forth all compensation, including bonuses, stock
option awards and other payments, paid or accrued by Integral and/or its
subsidiaries, to or for Integral's Chief Executive Officer and each of the other
executive officers of Integral, during the fiscal years ended June 30, 2004,
2003 and 2002.
Annual Compensation
----------------------------------
(a) (b) (c) (d) (e)
Name Other
And Year Annual
Principal Ended Salary Bonus Compensation
Position June 30 ($) ($) ($)
- -----------------------------------------------------------------------
William S. Robinson, 2004 $ 170,000 $ 57,110 -0-
Director, Chairman, CEO, 2003 $ 170,000 -0- -0-
Treasurer 2002 $ 156,000 -0- -0-
William A. Ince, 2004 $ 170,000 -0- -0-
Director, President, 2003 $ 170,000 -0- -0-
Secretary, CFO 2002 $ 156,000 -0- -0-
11
Long Term Compensation
----------------------------------
Awards Payouts
----------------------------------
(a) (b) (f) (g) (h) (i)
Name Restricted
And Year Stock Shares LTIP All Other
Principal Ended Award(s) Underlying Payouts Compensation
Position June 30 ($) Options ($) ($)
William S. Robinson, 2004 -0- -0- -0- $368,943(n1,n2)
Chairman, CEO, Treasurer 2003 -0- 415,000 -0- -0-
2002 -0- -0- -0- $ 93,600 (n3)
William A. Ince, Director, 2004 -0- -0- -0- $ 32,268 (n2)
President, Secretary, CFO 2003 -0- 415,000 -0- -0-
2002 -0- -0- -0- $ 93,600 (n3)
(n1) In December 2003, the Company redeemed an aggregate of 118,572 shares
of Series A Preferred Stock from Mr. Robinson at a predetermined
redemption price of $3.50 per share. The stated value of the Series A
Preferred Stock is $1.00 per share, which resulted in a redemption
premium of $2.50 per share over the stated value (an aggregate of
$296,430). Mr. Robinson tendered the shares of Series A Preferred
Stock in payment of the aggregate exercise price of $415,000 for the
exercise of 415,000 options to purchase common stock, and no cash was
paid to Mr. Robinson.
(n2) A 5% dividend on the Series A Preferred Stock, payable in cash or
shares of common stock at the election of the Company, had been
accrued for the period from September 30, 1999 (date of issuance) to
June 30, 2003, and was paid in cash during the fiscal year end June
30, 2004, with $72,513 paid to William S. Robinson and $32,268 paid to
William A. Ince.
(n2) In March 2002, the Company redeemed an aggregate of 124,800 shares of
Series A Preferred Stock from Mr. Robinson (62,400 shares) and Mr.
Ince (62,400 shares) at a predetermined redemption price of $2.50 per
share. The stated value of the Series A Preferred Stock is $1.00 per
share, which resulted in a redemption premium of $1.50 per share over
the stated value.
(c) Option/SAR Grants in Last Fiscal Year
The information provided in the table below provides information with
respect to individual grants of stock options for the year ended June 30, 2004
to each of the persons named in the Summary Compensation Table above. Integral
did not grant any stock appreciation rights for the year ended June 30, 2004.
12
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
% of Total
Options/SARS
Number of Granted to
Securities Underlying Employees Exercise or
Options/SARs in Fiscal Base Price Expiration
Name Granted (#) Year (n1) ($/Sh) Date
- ---------------------------------------------------------------------------------------------
William S. Robinson, -0- -0- N/A N/A
Chairman, CEO, Treasurer
William A. Ince, Director, -0- -0- N/A N/A
President, Secretary, CFO
(n1) The percentage of total options granted (255,000) in the fiscal year
is based upon all options granted to eligible participants, which
includes officers, directors, employees, consultants and advisors,
under Integral's 2001 Stock Plan during the year ended June 30, 2004.
(d) Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The information provided in the table below provides information with
respect to each exercise of stock options during most recent fiscal year ended
June 30, 2004 by the persons named in the Summary Compensation Table and the
fiscal year end value of unexercised options.
(a) (b) (c) (d) (e)
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Value FY-End (#) FY-End($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(n1) Unexercisable Unexercisable(n1)
- -------------------------------------------------------------------------------------------
William S. Robinson 415,000 $ 41,500 -0-/-0- -0-/-0-
Director, Chairman,
CEO, Treasurer
William A. Ince -0- N/A 415,000/-0- $ 62,250/-0-
Director, President,
Secretary, CFO
(n1) The aggregate dollar values in columns (c) and (e) are calculated by
determining the difference between the fair market value of the common
stock underlying the options and the exercise price of the options at
exercise or fiscal year end, respectively.
13
(e) Long-Term Incentive Plans ("LTIP") - Awards in Last Fiscal Year
This table has been omitted, as no executive officers named in the Summary
Compensation Table above received any awards pursuant to any LTIP during the
fiscal year ended June 30, 2004.
(f) Compensation of Directors
No compensation was paid by Integral to its Directors for any service
provided as a Director during the fiscal year ended June 30, 2004. There are no
other formal or informal understandings or arrangements relating to
compensation; however, Directors may be reimbursed for all reasonable expenses
incurred by them in conducting Integral's business. These expenses would
include out-of-pocket expenses for such items as travel, telephone, and postage.
(g) Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
As of the date of filing of this report, the current executive officers do
not have written employment contracts.
Integral's Board of Directors has complete discretion as to the
appropriateness of (a) key-man life insurance, (b) obtaining officer and
director liability insurance, (c) employment contracts with and compensation of
executive officers and directors, (d) indemnification contracts, and (e)
incentive plan to award executive officers and key employees.
Integral's Board of Directors is responsible for reviewing and determining
the annual salary and other compensation of the executive officers and key
employees of Integral. The goals of Integral are to align compensation with
business objectives and performance and to enable Integral to attract, retain
and reward executive officers and other key employees who contribute to the
long-term success of Integral. Integral intends to provide base salaries to its
executive officers and key employees sufficient to provide motivation to achieve
certain operating goals. Although salaries are not specifically tied into
performance, incentive bonuses may be available to certain executive officers
and key employees. In the future, executive compensation may include without
limitation cash bonuses, stock option grants and stock reward grants.
(h) Employee Benefit and Consulting Services Compensation Plans
As of June 30, 2004, Integral had two Employee Benefit and Consulting
Services Compensation Plans in effect.
On January 2, 2001, Integral adopted an employee benefit and consulting
services compensation plan entitled the Integral Technologies, Inc. 2001 Stock
Plan (the "2001 Plan"), which was amended on December 17, 2001. As amended, the
2001 Plan covers up to 3,500,000 shares of common stock. The 2001 Plan has not
previously been approved by security holders.
On April 4, 2003, Integral adopted an employee benefit and consulting
services compensation plan entitled the Integral Technologies, Inc. 2003 Stock
Plan (the "2003 Plan"). The 2003 Plan covers up to 1,500,000 shares of common
stock. The 2003 Plan has not previously been approved by security holders.
Under both Plans, Integral may issue common stock and/or options to
purchase common stock to certain officers, directors and employees and
consultants of Integral and its subsidiaries. The purpose of the Plans is to
promote the best interests of Integral and its shareholders by providing a means
of non-cash remuneration to eligible participants who contribute to operating
progress and earning power of Integral. The Plans are administered by
Integral's Board of Directors or a committee thereof which has the discretion to
determine from time to time the eligible participants to receive an award; the
number of shares of stock issuable directly or to be granted pursuant to option;
the price at which the option may be exercised or the price per share in cash or
cancellation of fees or other payment which Integral or its subsidiaries is
liable if a direct issue of stock and all other terms on which each option shall
be granted.
14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
- --------------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS..
- -------------------------------
A. Common Stock
The following table sets forth, as of September 20, 2004 the stock
ownership of each person known by Integral to be the beneficial owner of five
percent or more of Integral's common stock, each Officer and Director
individually and all Directors and Officers of Integral as a group. Each person
is believed to have sole voting and investment power over the shares except as
noted.
====================================================================================================
Name and Address of Amount and Nature of Beneficial
Beneficial Owner (1) Ownership(1)(2) Percent of Class (3)
- ----------------------------------------------------------------------------------------------------
William S. Robinson (4)
#3 1070 West Pender St. 2,373,533 5.9%
Vancouver, B.C. V6E 2N7
- ----------------------------------------------------------------------------------------------------
William A. Ince (5)
805 W. Orchard Dr., Suite #3 2,128,833 5.2%
Bellingham, WA 98225
====================================================================================================
All officers and directors of Integral as a
group (2 persons) 4,502,366 11.1%
====================================================================================================
(1) Unless otherwise indicated, all shares are directly beneficially owned and
investing power is held by the persons named.
(2) Includes vested options beneficially owned but not yet exercised and
outstanding, if any. The table does not include the effects of conversion
by Mr. Robinson and Mr. Ince of their shares of Series A Convertible
Preferred Stock ("Series A"), which are convertible into shares of common
stock at a conversion rate that varies with the market price of the common
stock at the time of conversion. The conversion rate is determined by
dividing the number of shares of Series A being converted by the average of
the high and low bid prices of Integral's common stock reported by the OTC
Bulletin Board over the ten trading days preceding the date of conversion.
Mr. Robinson owns 211,225 shares of Series A and Mr. Ince owns 109,813
shares of Series A. As of September 20, 2004, the conversion rate was $.78
per share, so Mr. Robinson's 211,225 shares of Series A were convertible
into 270,801 shares of common stock, and Mr. Ince's 109,813 shares of
Series A were convertible into 140,786 shares of common stock. The actual
number of shares of common stock receivable by Messrs. Robinson and Ince
upon conversion of the Series A would depend on the actual conversion rate
in effect at the time of conversion.
(3) Based upon 40,225,849 shares issued and outstanding, plus the amount of
shares each person or group has the right to acquire within 60 days
pursuant to options, warrants, conversion privileges or other rights.
(4) Mr. Robinson is an officer and director of Integral and each of its
subsidiaries.
(5) Mr. Ince is an officer and director of Integral and each of its
subsidiaries. Beneficial ownership figure includes 415,000 shares
underlying options.
15
B. Series A Convertible Preferred Stock
The following table sets forth, as of September 20, 2004, the stock
ownership of each person known by Integral to be the beneficial owner of five
percent or more of Integral's Series A Convertible Preferred Stock, each Officer
and Director individually and all Directors and Officers of Integral as a group.
Each person is believed to have sole voting and investment power over the shares
except as noted.
======================================================================================================
Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership(1) Percent of Class (2)
- ------------------------------------------------------------------------------------------------------
William S. Robinson (3) -
#3 1070 West Pender St. 211,225 65.8%
Vancouver, B.C. V6E 2N7
- ------------------------------------------------------------------------------------------------------
William A. Ince (4) -
805 W. Orchard Dr., Suite #3 34.2%
Bellingham, WA 98225 109,813
======================================================================================================
All officers and directors of Integral as a
group (2 persons) 321,038 100%
======================================================================================================
(1) Unless otherwise indicated, all shares are directly beneficially owned and
investing power is held by the persons named.
(2) Based upon 321,038 Series A Convertible Preferred shares issued and
outstanding.
(3) Mr. Robinson is an officer and director of Integral and each of its
subsidiaries.
(4) Mr. Ince is an officer and director of Integral and each of its
subsidiaries.
EQUITY COMPENSATION PLAN INFORMATION
The following information concerning the Company's equity compensation
plans is as of the end of the fiscal year ended June 30, 2004:
- --------------------------------------------------------------------------------------------------------------------
Number of securities to be Weighted-average Number of securities
issued upon exercise of exercise price of options, available for future issuance
outstanding options, warrants and rights under equity compensation
warrants and rights plans (excluding securities
reflected in column (a))
(a) (b) (c)
Plan category
- --------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders 1,922,500 $ 0.94 1,530,000
- --------------------------------------------------------------------------------------------------------------------
Total 1,922,500 $ 0.94 1,530,000
- --------------------------------------------------------------------------------------------------------------------
16
As of June 30, 2004, Integral had two Employee Benefit and Consulting
Services Compensation Plans in effect.
On January 2, 2001, Integral adopted an employee benefit and consulting
services compensation plan entitled the Integral Technologies, Inc. 2001 Stock
Plan (the "2001 Plan"), which was amended on December 17, 2001. As amended, the
2001 Plan covers up to 3,500,000 shares of common stock. The 2001 Plan has not
previously been approved by security holders.
On April 4, 2003, Integral adopted an employee benefit and consulting
services compensation plan entitled the Integral Technologies, Inc. 2003 Stock
Plan (the "2003 Plan"). The 2003 Plan covers up to 1,500,000 shares of common
stock. The 2003 Plan has not previously been approved by security holders.
Under both Plans, Integral may issue common stock and/or options to
purchase common stock to certain officers, directors and employees and
consultants of Integral and its subsidiaries. The purpose of the Plans is to
promote the best interests of Integral and its shareholders by providing a means
of non-cash remuneration to eligible participants who contribute to operating
progress and earning power of Integral. The Plans are administered by
Integral's Board of Directors or a committee thereof which has the discretion to
determine from time to time the eligible participants to receive an award; the
number of shares of stock issuable directly or to be granted pursuant to option;
the price at which the option may be exercised or the price per share in cash or
cancellation of fees or other payment which Integral or its subsidiaries is
liable if a direct issue of stock and all other terms on which each option shall
be granted.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------------
During the last two fiscal years, the Company entered into the following
transactions in with its officers and directors have a material interest:
(a) A 5% dividend on the Series A Preferred Stock, payable in cash or shares
of common stock at the election of the Company, had been accrued for the period
from September 30, 1999 (date of issuance) to June 30, 2003, and was paid in
cash during the fiscal year end June 30, 2004, with $72,513 paid to William S.
Robinson and $32,268 paid to William A. Ince. For the year ended June 30, 2004,
$13,536 was accrued to Mr. Robinson and $5,491 was accrued to Mr. Ince.
(b) In December 2003, the Company redeemed 118,572 shares of Series A
Preferred Stock from Mr. Robinson at a predetermined redemption price of $3.50
per share. The stated value of the Series A Preferred Stock is $1.00 per share,
which resulted in a redemption premium of $2.50 per share over the stated value.
(c) During the fiscal year ended June 30, 2004, the Board of Directors
authorized the payment of accrued interest on amounts since July 1, 2001 for
loans made to the Company by officers and directors, at an average annual
interest rate of 8%. A total of $15,000 was accrued to Mr. Robinson and a total
of $22,000 was accrued to Mr. Ince.
17
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
- -------------------------------------------------
(a) List of Exhibits.
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation, as amended and currently in effect. (Incorporated by reference to Exhibit 3.1
of Integral's registration statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
3.2 Bylaws, as amended and restated on December 31, 1997. (Incorporated by reference to Exhibit 3.2 of
Integral's registration statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
10.12 Integral Technologies, Inc. 2001 Stock Plan dated January 2, 2001, as amended December 17, 2001.
(Incorporated by reference to Exhibit 10.12 of Integral's registration statement on Form S-8 (file no.
333-76058).)
10.15 Integral Technologies, Inc. 2003 Stock Plan dated April 4, 2003 (Incorporated by reference to Exhibit
10.15 of Integral's registration statement on Form S-8 (file no. 333-104522).)
10.16 Securities Purchase Agreement dated December 26, 2003, between the Registrant and Wellington
Management Company, LLP. (Incorporated by reference to Exhibit 10.16 of Integral's Current Report
on Form 8-K dated January 14, 2004 (filed January 28, 2004).)
10.17 Form of Common Stock Purchase Warrant related to the offering of securities described in Exhibit
10.16. (Incorporated by reference to Exhibit 10.17 of Integral's Current Report on Form 8-K dated
January 14, 2004 (filed January 28, 2004).)
14.1 Code of Ethics adopted September 20, 2004. (Filed herewith.)
21.4 List of Subsidiaries. (Filed herewith.)
31.1 Section 302 Certification by the Corporation's Chief Executive Officer. (Filed herewith).
31.2 Section 302 Certification by the Corporation's Chief Financial Officer. (Filed herewith).
32.1 Section 906 Certification by the Corporation's Chief Executive Officer. (Filed herewith).
32.2 Section 906 Certification by the Corporation's Chief Financial Officer. (Filed herewith).
(b) Reports on Form 8-K.
No current reports on Form 8-K were filed during the last quarter of the
fiscal year ended June 30, 2004.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -------------------------------------------------
The Company's board of directors reviews and approves audit and permissible
non-audit services performed by Pannell Kerr Forster, Vancouver, Canada ("PKF"),
as well as the fees charged by PKF for such services. In its review of
non-audit service fees and its appointment of PKF as the Company's independent
accountants, the board of directors considered whether the provision of such
services is compatible with maintaining PKF's independence. All of the services
provided and fees charged by PKF in the fiscal year ended June 30, 2004 were
pre-approved by the board of directors.
18
AUDIT FEES
The aggregate fees billed for professional services rendered by PKF for the
audit of our annual financial statements and the reviews of the financial
statements included in our quarterly reports on Form 10-QSB for fiscal years
ended June 30, 2004 and 2003 were $33,900 and $25,500, respectively.
AUDIT-RELATED FEES
There were no other fees billed by PKF during the last two fiscal years for
assurance and related services that were reasonably related to the performance
of the audit or review of the Company's financial statements and not reported
under "Audit Fees" above.
TAX FEES
The were no fees billed for professional services rendered by PKF for tax
compliance services in fiscal years ended June 30, 2004 and 2003.
ALL OTHER FEES
There were no other fees billed by PKF during the last two fiscal years for
products and services provided by PKF.
19
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INTEGRAL TECHNOLOGIES, INC
Dated: October 4, 2004 /s/ William S. Robinson
--------------------------------------------
William S. Robinson, Chief Executive Officer
/s/ William A. Ince
--------------------------------------------
William A. Ince, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ William S. Robinson Director, Chief Executive Officer October 4, 2004
- -----------------------
William S. Robinson
/s/ William A. Ince Director, Chief Financial Officer October 4, 2004
- -----------------------
William A. Ince
20
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation, as amended and currently in effect. (Incorporated by reference to Exhibit 3.1
of Integral's registration statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
3.2 Bylaws, as amended and restated on December 31, 1997. (Incorporated by reference to Exhibit 3.2 of
Integral's registration statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
10.12 Integral Technologies, Inc. 2001 Stock Plan dated January 2, 2001, as amended December 17, 2001.
(Incorporated by reference to Exhibit 10.12 of Integral's registration statement on Form S-8 (file no.
333-76058).)
10.15 Integral Technologies, Inc. 2003 Stock Plan dated April 4, 2003 (Incorporated by reference to Exhibit
10.15 of Integral's registration statement on Form S-8 (file no. 333-104522).)
10.16 Securities Purchase Agreement dated December 26, 2003, between the Registrant and Wellington
Management Company, LLP. (Incorporated by reference to Exhibit 10.16 of Integral's Current Report
on Form 8-K dated January 14, 2004 (filed January 28, 2004).)
10.17 Form of Common Stock Purchase Warrant related to the offering of securities described in Exhibit
10.16. (Incorporated by reference to Exhibit 10.17 of Integral's Current Report on Form 8-K dated
January 14, 2004 (filed January 28, 2004).)
14.1 Code of Ethics adopted September 20, 2004. (Filed herewith.)
21.4 List of Subsidiaries. (Filed herewith.)
31.1 Section 302 Certification by the Corporation's Chief Executive Officer. (Filed herewith).
31.2 Section 302 Certification by the Corporation's Chief Financial Officer. (Filed herewith).
32.1 Section 906 Certification by the Corporation's Chief Executive Officer. (Filed herewith).
32.2 Section 906 Certification by the Corporation's Chief Financial Officer. (Filed herewith).