UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to ______________
Commission file number: 0-28353
INTEGRAL TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in it charter)
NEVADA 98-0163519
- ------------------------------------- -------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
805 W. ORCHARD DRIVE, SUITE 7, BELLINGHAM, WASHINGTON 98225
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(Address of principal executive offices)
(360) 752-1982
---------------------------
(issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
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 such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the issuer is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: AS OF FEBRUARY 12, 2007, THE ISSUER
-----------------------------------
HAD 45,439,969 SHARES OF $.001 PAR VALUE COMMON STOCK OUTSTANDING.
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
INDEX
PAGE
----
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Financial Statements
December 31, 2006
(U.S. Dollars)
(Unaudited)
Consolidated Balance Sheets . . . . . . . . . . . . .F-1
Consolidated Statement of Operations . . . . . . . . F-2
Consolidated Statement of Stockholders' Equity . . . .F-3
Consolidated Statement of Cash Flows . . . . . . . . F-4
Notes to Consolidated Financial Statements . . . . . F-5
Item 2. Management's Plan of Operation. . . . . . . . . . . . .1
Item 3. Controls and Procedures. . . . . . . . . . . . . . . . 4
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 5
Item 2. Changes in Securities and Use of Proceeds . . . . . . .5
Item 3. Defaults upon Senior Securities . . . . . . . . . . . .5
Item 4. Submission of Matters to a Vote of Security Holders . .5
Item 5. Other Information . . . . . . . . . . . . . . . . . . .5
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . 5
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
i
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(US DOLLARS)
====================================================================================================
DECEMBER 31, JUNE 30,
2006 2006
- ----------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
CURRENT
Cash $ 3,090,339 $ 1,496,818
Prepaid expenses 34,680 109,045
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TOTAL ASSETS $ 3,125,019 $ 1,605,863
====================================================================================================
LIABILITIES
CURRENT
Accounts payable and accruals $ 588,719 $ 687,603
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TOTAL CURRENT LIABILITIES 588,719 687,603
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STOCKHOLDERS' EQUITY
PREFERRED STOCK AND PAID-IN CAPITAL IN EXCESS OF $0.001
PAR VALUE
20,000,000 shares authorized
308,538 (June 30, 2006 - 308,538) issued and outstanding 308,538 308,538
COMMON STOCK AND PAID-IN CAPITAL IN EXCESS OF $0.001
PAR VALUE
150,000,000 shares authorized
45,439,969 (June 30, 2006 - 44,234,432) issued and outstanding 25,819,614 22,035,483
PROMISSORY NOTES RECEIVABLE (29,737) (32,500)
OTHER COMPREHENSIVE INCOME 46,267 46,267
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (23,608,382) (21,439,528)
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TOTAL STOCKHOLDERS' EQUITY 2,536,300 918,260
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,125,019 $ 1,605,863
====================================================================================================
See notes to consolidated financial statements.
F-1
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(US DOLLARS)
===================================================================================================================
PERIOD FROM
FEBRUARY 12,
1996
THREE MONTHS ENDED SIX MONTHS ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
2006 2005 2006 2005 2006
- -------------------------------------------------------------------------------------------------------------------
REVENUE $ 0 $ 0 $ 0 $ 0 $ 249,308
COST OF SALES 0 0 0 0 216,016
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0 0 0 0 33,292
OTHER INCOME 40,051 2,096 78,941 2,096 739,342
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40,051 2,096 78,941 2,096 772,634
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Legal and accounting 47,228 5,903 114,657 84,566 3,624,716
Salaries and benefits (note 2(b)) 1,428,610 122,528 1,556,507 247,368 6,689,649
Consulting (note 2(b)) 229,823 176,058 334,049 360,158 4,090,658
General and
administrative 36,700 42,939 74,914 71,428 972,805
Travel and entertainment 48,801 22,485 68,342 42,661 1,150,596
Bank charges and
interest, net 6,918 285 10,800 462 188,188
Rent 10,249 9,186 19,708 18,372 377,063
Telephone 10,074 9,372 21,041 15,521 387,296
Advertising 210 0 434 0 320,700
Research and
development 39,611 0 39,611 0 887,070
Settlement of lawsuit 0 0 0 0 45,250
Remuneration pursuant
to proprietary, non-
competition agreement 0 0 0 0 711,000
Financing fees 0 0 0 0 129,043
Write-off of investments 0 0 0 0 1,250,000
Interest on beneficial
conversion feature 0 0 0 0 566,456
Write-down of license
and operating assets 0 0 0 0 1,855,619
Bad debts 0 0 0 0 52,614
Amortization 0 2,461 0 8,219 324,386
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1,858,224 391,217 2,240,063 848,755 23,623,109
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NET LOSS FOR PERIOD $ (1,818,173) $ (389,121) $ (2,161,122) $ (846,659) $ (22,850,475)
===================================================================================================================
LOSS PER SHARE $ (0.04) $ (0.01) $ (0.05) $ (0.02)
===================================================================================================================
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 45,414,969 42,439,149 44,920,940 42,439,149
===================================================================================================================
See notes to consolidated financial statements.
F-2
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(US 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, 2005 42,439,149 $ 20,522,085 308,538 $ 308,538 $ (66,500) $ 0
SHARES ISSUED FOR
Exercise of options 200,000 134,000 0 0 0 0
Cashless exercise of warrants 35,115 0 0 0 0 0
For services 269,000 191,510 0 0 0 0
Exercise of warrants 1,291,168 1,080,669 0 0 0 0
Repayment of promissory note 0 0 0 0 34,000 0
Dividends on preferred shares 0 0 0 0 0 0
Stock option compensation 0 107,219 0 0 0 0
Net loss for year 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2006 44,234,432 22,035,483 308,538 308,538 (32,500) 0
SHARES ISSUED FOR
Exercise of options 25,000 25,000 0 0 0 0
Private placement 1,180,537 2,361,641 0 0 0 0
Repayment of promissory note 0 0 0 0 2,763 0
Dividends on preferred shares 0 0 0 0 0 0
Stock option compensation 0 1,397,490 0 0 0 0
Net loss for period 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2006 45,439,969 $ 25,819,614 308,538 $ 308,538 $ (29,737) $ 0
========================================================================================================================
=================================================================================
Deficit
Accumulated
Other During the Total
Comprehensive Development Stockholders'
Income Stage Equity (Deficit)
- ---------------------------------------------------------------------------------
BALANCE, JUNE 30, 2005 $ 46,267 $(19,319,912) $ 1,490,478
SHARES ISSUED FOR
Exercise of options 0 0 134,000
Cashless exercise of warrants 0 0 0
For services 0 0 191,510
Exercise of warrants 0 0 1,080,669
Repayment of promissory note 0 0 34,000
Dividends on preferred shares 0 (15,427) (15,427)
Stock option compensation 0 0 107,219
Net loss for year 0 (2,104,189) (2,104,189)
- ---------------------------------------------------------------------------------
BALANCE, JUNE 30, 2006 46,267 (21,439,528) 918,260
SHARES ISSUED FOR
Exercise of options 0 0 25,000
Private placement 0 0 2,361,641
Repayment of promissory note 0 0 2,763
Dividends on preferred shares 0 (7,732) (7,732)
Stock option compensation 0 0 1,397,490
Net loss for period 0 (2,161,122) (2,161,122)
- ---------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2006 $ 46,267 $(23,608,382) $ 2,536,300
=================================================================================
See notes to consolidated financial statements.
F-3
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(US DOLLARS)
========================================================================================================
PERIOD FROM
FEBRUARY 12,
1996
SIX MONTHS ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
----------------------------
2006 2005 2006
========================================================================================================
OPERATING ACTIVITIES
Net loss $ (2,161,122) $ (846,659) $ (22,850,475)
Items not involving cash
Write-down of investment 0 0 1,250,000
Proprietary, non-competition agreement 0 0 711,000
Amortization 0 8,219 349,941
Other income 0 0 (658,305)
Consulting services and financing fees 81,254 135,000 1,405,247
Stock option compensation 1,397,490 0 2,638,192
Interest on beneficial conversion feature 0 0 566,456
Settlement of lawsuit 0 0 60,250
Write-down of license and operating assets 0 0 1,853,542
Bad debts 0 0 77,712
CHANGES IN NON-CASH WORKING CAPITAL
Due from affiliated company 0 0 (116,000)
Notes and accounts receivable 0 0 (109,213)
Inventory 0 0 (46,842)
Prepaid expenses (6,889) (13,001) (21,144)
Other 0 0 (2,609)
Accounts payable and accruals (106,616) (110,197) 884,842
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CASH USED IN OPERATING ACTIVITIES (795,883) (826,638) (14,007,406)
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, equipment and intangible assets 0 0 (200,935)
Assets acquired and liabilities assumed on purchase of
subsidiary 0 0 (129,474)
Investment purchase 0 0 (2,000,000)
License agreement 0 0 (124,835)
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CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 0 0 (2,455,244)
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FINANCING ACTIVITIES
Share redemption 0 0 (50,000)
Repayments from (to) stockholders 2,763 0 (102,283)
Issuance of common stock 2,386,641 0 17,981,475
Advances from stockholders, net of repayments 0 0 1,078,284
Share issue costs 0 0 (227,420)
Subscriptions received 0 0 226,666
Proceeds from convertible debentures 0 0 600,000
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CASH PROVIDED BY FINANCING ACTIVITIES 2,389,404 0 19,506,722
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EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 0 0 46,267
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INFLOW (OUTFLOW) OF CASH 1,593,521 (826,638) 3,090,339
CASH, BEGINNING OF PERIOD 1,496,818 1,791,442 0
- --------------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ 3,090,339 $ 964,804 $ 3,090,339
========================================================================================================
See notes to consolidated financial statements.
F-4
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2006
(UNAUDITED)
(US DOLLARS)
================================================================================
1. BASIS OF PRESENTATION
These unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United
States for interim financial information. These financial statements are
condensed and do not include all disclosures required for annual financial
statements. The organization and business of the Company, accounting
policies followed by the Company and other information are contained in the
notes to the Company's audited consolidated financial statements filed as
part of the Company's June 30, 2006 Form 10-KSB.
In the opinion of the Company's management, these consolidated
financial statements reflect all adjustments necessary to present fairly
the Company's consolidated financial position at December 31, 2006 and June
30, 2006 and the consolidated results of operations and the consolidated
statements of cash flows for the six months ended December 31, 2006 and
2005. The results of operations for the six months ended December 31, 2006
are not necessarily indicative of the results to be expected for the entire
fiscal year.
2. STOCKHOLDERS' EQUITY
(a) On September 15, 2006, the Company closed a private placement of
1,180,537 units consisting of common stock at $2 per share and
warrants to purchase 590,269 shares of common stock within two years
at an exercise price of $2.50 per share, provided that in the event
that the average closing bid price of a share of the Company's common
stock exceeds $4.50 for ten consecutive trading days, the Company has
the right to redeem the warrants for $0.01 per share of common stock
purchasable hereunder, upon thirty days' written notice (the holder
shall have the right to exercise the warrant in accordance with its
terms prior to the expiration of the thirty-day period). The purchase
price attributable to the warrants was $0.001 per share of common
stock underlying the warrants. Aggregate proceeds from the sale of the
common stock and the warrants was $2,361,641 ($2,361,074 for the
common stock and $590 for the warrants). At any time commencing sixty
days after the close of the offering, the investors can require that
the Company prepare and file a registration statement to register the
shares of common stock (including the shares underlying the warrants)
for resale by the investors. The Company also reserves the right to
file such a registration statement at any time after the closing date
on its own initiative.
(b) On November 3, 2006, the Company granted an option to a consultant
to acquire 100,000 common shares of the Company's common stock,
exercisable at a price of $1.00 per share, until the option expires on
November 3, 2007.
On November 6, 2006, the Company granted an option to an officer
to acquire 1,000,000 common shares of the Company's common stock,
exercisable at a price of $2.25 per share, until the option expires on
June 30, 2010.
F-5
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2006
(UNAUDITED)
(US DOLLARS)
================================================================================
2. STOCKHOLDERS' EQUITY (Continued)
(b) (Continued)
The following table summarizes the Company's stock option activity for
the period:
===================================================================
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
-------------------------------------------------------------------
Balance, June 30, 2006 2,295,000 $0.50 to $1.16 $ 0.76
Exercised during the period (25,000) $ 1.00 $ 1.00
Granted during the period 1,100,000 $1.00 to $2.25 $ 2.05
-------------------------------------------------------------------
Balance, December 31, 2006 3,370,000 $0.50 to $2.25 $ 1.68
===================================================================
The fair value for options granted was estimated at the date of grant
using the Black-Scholes option pricing model. During the period ended
December 31, 2006, the Company recorded stock-based compensation of
$1,274,600 as salaries and benefits expense and $122,890 as consulting
expense.
The fair value of each option grant is calculated using the following
weighted average assumptions:
===================================================================
Expected life (years) 3.3
Interest rate 3.00%
Volatility 66.13%
Dividend yield 0.00%
===================================================================
F-6
ITEM 2. PLAN OF OPERATION.
Statements contained herein that are not historical facts are forward-looking
statements. 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-QSB.
Except for the historical information contained herein, the discussion in this
Form 10-QSB 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-QSB should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-QSB. Our actual results could differ materially from those
discussed here.
To date we have recorded nominal revenues from the sales of prototypes. We are
still considered a development stage company for accounting purposes. From
inception on February 12, 1996 through December 31, 2006, we have incurred an
accumulated deficit of approximately $23.6 million.
At December 31, 2006, all of our assets were current assets of $3,125,019,
consisting of cash of $3,090,339 and prepaid expenses of $34,680. All of our
property and equipment has been fully depreciated.
At December 31, 2006, all of our liabilities were current liabilities of
$588,719, consisting of accounts payable and accruals. Of this amount, payables
for legal fees (including associated filing fees) related to patent filings
accounting for approximately $508,000 of the total.
At December 31, 2006, total stockholder's equity was $2,536,300.
Our net loss for the quarter ended December 31, 2006 was $1,818,173, compared to
a net loss of $389,121 in the corresponding period of the prior fiscal year, an
increase of $1,467,007. This substantial increase in our net loss is
attributable to non-cash charges incurred under the expense categories of
"salaries and benefits" and "consulting" during the quarter ended December 31,
2006: salaries and benefits included a non-cash, stock based compensation
charge of $1,274,600 for a non-plan option granted to Thomas Aisenbrey, our
Chief Technology Officer; and consulting included a charge of $122,890 for an
option granted to a long-term consultant under our 2003 Stock Plan. In
addition, consulting fees in both periods included non-cash charges for shares
previously issued to a consultant for services (approximately $40,000 during the
current period and approximately $67,500 in the prior period). These values
were estimated at the date of grant using the Black-Scholes option pricing
model.
Excluding the non-cash charges described above, total cash-related expenses for
the quarter ended December 31, 2006, was $420,734, compared to $323,717, in the
corresponding period of the prior fiscal year, an increase of $97,017. This
increase is primarily attributable to increased costs relating to our
manufacturing agreement with Jasper Rubber Products, Inc. (described below) in
the categories of research and development, travel and entertainment and legal
and accounting. Our net loss was partially offset by an increase in other
income ($40,051 compared to $2,096 in the prior period, an increase of $37,955).
The category of "other income" consists of interest income and nominal license
fees.
For the six months ended December 31, 2006, our cash used in operating
activities was $795,883, which was $30,755 less than the $826,638 used in the
corresponding period of the prior fiscal year.
1
For the six months ended December 31, 2006, our cash provided by financing
activities was $2,389,404, compared to $-0- in the corresponding period of the
prior fiscal year.
We are not in the manufacturing business and do not expect to make any capital
purchases of a manufacturing plant or significant equipment in the next twelve
months.
We anticipate spending approximately $250,000 over the next twelve months on
ongoing research and development (primarily salaries and consulting fees) of the
different applications and uses of our technologies.
During the next twelve months, we do not anticipate increasing our staff.
As of December 31, 2006, we had $3,090,339 in cash on hand. Management believes
that there is adequate cash on hand to fund operations over the next twelve
months.
Presently, we are focusing all of our resources on the researching, developing
and commercializing of our ElectriPlast(R) technologies. Our business strategy
focuses on leveraging our intellectual property rights and our strengths in
product design and material innovation. We are focusing our marketing efforts on
securing licensing agreements for applications of our ElectriPlast(R)
technologies with manufacturers of products which would benefit from the
incorporation of any of the ElectriPlast(R) applications.
ElectriPlast(R) is an innovative, electrically-conductive resin-based material.
The ElectriPlast(R) polymer is a compounded formulation of resin-based
materials, which are conductively loaded, or doped, with a
proprietary-controlled, balanced concentration of micron conductive materials,
then pelletized. The conductive loading or doping within this pellet is then
homogenized using conventional molding techniques and conventional molding
equipment. The end result is a product that can be molded into any of the
infinite shapes and sizes associated with plastics and rubbers, and is
non-corrosive, but which is as electrically conductive as if it were metal.
Various examples of applications for ElectriPlast(R) are shielding, lighting
circuitry, switch actuators, resistors, medical devices, thermal management and
cable connector bodies, to name just a few. We have been working to introduce
these new applications and the ElectriPlast(R) technology on a global scale.
Our intellectual property portfolio consists of over ten years of accumulated
research and design knowledge and trade secrets. We have sought U.S. patent
protection for many of our ideas related to our ElectriPlast(R) technologies.
Currently, we have filed 111 U.S. patent applications, 24 of which have been
issued or allowed and are pending issuance, and 87 of which have been filed and
are pending approval. No assurances can be given that all patent applications
will be approved; however, to the extent that patents are not granted, We will
continue to attempt to commercialize these technologies without the protection
of patents. As patents are issued, we 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.
SUMMARY OF RECENT BUSINESS DEVELOPMENTS
During the quarter ended December 31, 2006, we executed two new patent license
agreements (ADAC Plastics, Inc. and Esprit Solutions Limited) and one
manufacturing agreement. Below is a summary of each of our commercial
agreements concerning our ElectriPlast(R) technology:
Patent License Agreement with Heatron, Inc.
- ------------------------------------------------
In March 2006, we entered into a Patent License Agreement with Heatron, Inc.
("Heatron"), pursuant to which we granted to Heatron the rights to use our
ElectriPlast(R) technology for specific applications in the heating and LED
lighting markets. Heatron, founded in 1977 and based in Leavenworth, Kansas, is
an industry leader in heating element and thermal management designs and
solutions.
2
We granted to Heatron a non-exclusive, non-sublicensable, non-assignable,
worldwide license; however, Heatron's rights are exclusive for the initial two
years. The agreement will terminate upon the expiration of the last patent
licensed under the agreement, or earlier under certain circumstances.
Heatron paid to us a nominal up-front license fee of $1.00. Any revenue to be
generated by us under the agreement will be from raw materials fees. We have
not yet derived revenues from this agreement.
Patent License Agreement with Jasper Rubber Products, Inc.
- ---------------------------------------------------------------
In August 2006, we entered into a Patent License Agreement with Jasper Rubber
Products, Inc. ("Jasper"), pursuant to which we granted to Jasper the rights to
use our ElectriPlast(R) technology for specific applications within its customer
base. Jasper, founded in 1949, and based in Jasper, Indiana, is an industry
leader in innovative rubber and plastics development. Jasper manufactures a full
range of molded, extruded, lathe-cut rubber and thermoplastic products for major
appliance, oil filter, and automotive industries.
We granted to Jasper a non-exclusive, non-sublicensable, non-assignable,
worldwide license. The agreement will terminate upon the expiration of the last
patent licensed under the agreement, or earlier under certain circumstances.
Jasper paid to us a nominal up-front license fee of $1.00. Any revenue to be
generated by us under the agreement will be from raw materials fees. We have
not yet derived revenues from this agreement.
Manufacturing Agreement with Jasper Rubber Products, Inc.
- -------------------------------------------------------------
In November 2006, we entered into a Manufacturing Agreement with Jasper Rubber
Products, Inc. ("Jasper"), pursuant to which Jasper shall manufacturer for us
resin-based conductive, moldable capsules incorporating our ElectriPlast(R)
technology. The primary term of the agreement is five years, subject to
automatic renewal or termination under certain conditions. Jasper agreed that
during the term of the agreement and for a period of 12 months after its
expiration or termination for any reason, Jasper will not directly or indirectly
compete with us or our ElectriPlast(R) technology.
Patent License Agreement with ADAC Plastics, Inc. d/b/a ADAC Automotive.
- -------------------------------------------------------------------------------
In November 2006, we entered into a Patent License Agreement with ADAC Plastics,
Inc. d/b/a ADAC Automotive ("ADAC"), pursuant to which we granted to ADAC the
rights to use our ElectriPlast(R) technology for use in car antennas, cup holder
heating elements, driver's seat heating elements and light-emitting diode (LED)
packs manufactured and sold by specified customers of ADAC. ADAC is a
full-service automotive supplier dedicated to the production of door handles and
components, cowl vent grilles, exterior trim, and marker lighting. Founded in
1975 as ADAC Plastics, Inc., the Grand Rapids, Mich.-based company operates
facilities in North America and the United Kingdom.
We granted to ADAC a non-exclusive, non-sublicensable, non-assignable, worldwide
license. The agreement will terminate upon the expiration of the last patent
licensed under the agreement, or earlier under certain circumstances.
ADAC paid to us a nominal up-front license fee of $1.00. Any revenue to be
generated by us under the agreement will be from raw materials fees. We have
not yet derived revenues from this agreement.
Patent License Agreement withEsprit Solutions Limited
- ----------------------------------------------------------
In December 2006, we entered into a Patent License Agreement with Esprit
Solutions Limited ("Esprit"), pursuant to which we granted to Esprit the rights
to use our ElectriPlast(R) technology for the manufacture and sale of products
to Esprit's customer base in the Aero/Defense Interconnection and Protective
3
Components Industry. Esprit, based in the United Kingdom, specializes in high
performance protective systems within the Aerospace and Defense markets.
We granted to Esprit a non-exclusive, non-sublicensable, non-assignable,
worldwide license. The agreement will terminate upon the expiration of the last
patent licensed under the agreement, or earlier under certain circumstances.
Esprit paid to us a nominal up-front license fee of $1.00. Any revenue to be
generated by us under the agreement will be from raw materials fees. We have
not yet derived revenues from this agreement.
CES INNOVATIONS 2007 DESIGN AND ENGINEERING AWARD
On November 8, 2006, we issued a press release to announce that our
ElectriPlast(TM) technology has been selected as a recipient of a CES
Innovations 2007 Design and Engineering Award in the Enabling Technologies
product category. Presented by the Consumer Electronics Association (CEA) and
the International Consumer Electronics Show (CES), the Innovations Awards
recognize advancements in technology and engineering. This year, an independent
panel of judges evaluated more than 1,000 entries from over 160 companies.
ITEM 3. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and that such information
is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in assessing the costs and benefits of such
controls and procedures.
With the participation of management, our Chief Executive Officer and Chief
Financial Officer evaluated the effectiveness of the design and operation of our
disclosure controls and procedures at the conclusion of the period ended
December 31, 2006. Based upon this evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective in ensuring that material information required to be disclosed is
included in the reports that we file with the Securities and Exchange
Commission.
There were no significant changes in our disclosure controls or in other factors
that could significantly affect those controls subsequent to the date of this
evaluation, including any corrective actions with regard to significant
deficiencies and weaknesses.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management has not yet completed, and is not yet required to have completed, its
assessment of the effectiveness of internal control over financial reporting as
required by Section 404 of the Sarbanes-Oxley Act of 2002, as amended.
4
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In November 2006, we provided a Grant of Option to Thomas Aisenbrey, our Chief
Technical Officer. Information regarding this transaction was previously
included In Part II, Item 5 of our quarterly report on Form 10-QSB for the
period ended September 30, 2006. The transaction did not involve any public
offering, no sales commissions were paid and a restrictive legend was placed on
each certificate evidencing the securities. We believe 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 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION.
On February 12, 2007, we announced that we had entered into a Patent License
Agreement with Knowles Electronics, LLC ("Knowles"), pursuant to which we
granted to Knowles the rights to use our proprietary ElectriPlast(R) technology
for the manufacture and sale of EMF protected molded components. The effective
date of the agreement was January 18, 2007.
We also announced that Knowles has made an initial purchase of ElectriPlast(R).
This initial order of $4,000 represents the first commercial order for our
ElectriPlast(R) technology.
Knowles is the world's leading provider of microphones and receivers to the
hearing health industry. They are credited with the miniaturization of the
acoustic transducer, which has enabled the design and manufacture of smaller
hearing aids. Knowles has increased the transducers' sensitivity and maximum
output, helping those with even the most profound hearing loss.
As outlined in the agreement, Knowles was granted a non-exclusive,
non-sublicensable, non-assignable, worldwide license. The agreement will
terminate upon the expiration of the last patent licensed under the agreement.
Knowles may terminate the agreement upon 30 days notice at any time. Either
party may terminate the agreement for cause, subject to a 30 day cure period.
We may terminate the agreement in the event Knowles institutes any legal action
claiming that our patents are invalid or unenforceable, or alleging that we
infringe on any Knowles patent.
Knowles paid a nominal up-front fee of $1.00 to Integral. Any revenue to be
generated by us under the agreement will be from raw materials fees.
The foregoing description does not constitute a complete summary of the terms of
the Patent License Agreement and reference is made to the complete text of the
Patent License Agreement, a copy of which is attached as an exhibit to this
report and is incorporated by reference herein.
On February 12, 2007, we issued a press release to announce the agreement with
Knowles. A copy of the press release is attached as an exhibit hereto.
ITEM 6. EXHIBITS.
No. Description
- ----- ---------------------------------------------------------------------------------------------------
3.03 Articles of Incorporation, as amended and currently in effect. (Incorporated by reference to
Exhibit 3.03 of Integral's quarterly report on Form 10-QSB for the period ended March 31, 2006.)
5
3.04 Bylaws, as amended and restated on December 31, 1997. (Incorporated by reference to Exhibit
3.04 of Integral's quarterly report on Form 10-QSB for the period ended March 31, 2006.)
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).)
10.18 Grant of Option dated June 17, 2005 between Integral and Thomas Aisenbrey. (Incorporated by
reference to Exhibit 10.18 of Integral's Current Report Form 8-K dated June 17, 2005 (filed
June 23, 2005).)
10.19 Agreement between the Company and The QuanStar Group, LLC dated June 20, 2005.
(Incorporated by reference to Exhibit 10.18 of Integral's Current Report Form 8-K dated June 17,
2005 (filed June 23, 2005).)
10.20 Patent License Agreement between the Company and Heatron, Inc. dated March 17, 2006.
(Incorporated by reference to Exhibit 10.20 of Integral's Current Report Form 8-K dated
March 17, 2006 (filed April 11, 2006).)
10.21 Patent License Agreement between the Company and Jasper Rubber Products, Inc. dated
August 25, 2006. (Incorporated by reference to Exhibit 10.21 of Integral's Current Report
Form 8-K dated August 25, 2006 (filed September 19, 2006).)
10.22 Grant of Option dated November 6, 2006 between Integral and Thomas Aisenbrey. (Incorporated
by reference to Exhibit 10.22 of Integral's Quarterly Report on Form 10-QSB for the period ended
September 30, 2006.)
10.23 Manufacturing Agreement between Integral and Jasper Rubber Products, Inc. dated November
22, 2006. (Incorporated by reference to Exhibit 10.23 of Integral's Current Report Form 8-K dated
November 27, 2006 (filed December 4, 2006).)
10.24 Patent License Agreement between the Company and ADAC Plastics, Inc. d/b/a ADAC
Automotive, dated November 28, 2006. (Incorporated by reference to Exhibit 10.24 of Integral's
Current Report Form 8-K dated December 18, 2006 (filed December 20, 2006).)
10.25 Patent License Agreement between the Company and Esprit Solutions Limited, dated December
18, 2006. (Incorporated by reference to Exhibit 10.25 of Integral's Current Report Form 8-K dated
January 9, 2007 (filed January 19, 2007).)
10.26 Patent License Agreement between the Company and Knowles Electronics, LLC, dated January
18, 2007. (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).
99.09 Press release dated February 12, 2007. (Filed herewith.)
6
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTEGRAL TECHNOLOGIES, INC.
By: /s/ William S. Robinson
-----------------------------------
William S. Robinson, Chief
Executive Officer
By: /s/ William A. Ince
-----------------------------------
William A. Ince, Chief Financial
Officer and Principal Accounting
Officer
Date: February 14, 2007
7
EXHIBIT INDEX
No. Description
- ----- ---------------------------------------------------------------------------------------------------
3.03 Articles of Incorporation, as amended and currently in effect. (Incorporated by reference to
Exhibit 3.03 of Integral's quarterly report on Form 10-QSB for the period ended March 31, 2006.)
3.04 Bylaws, as amended and restated on December 31, 1997. (Incorporated by reference to Exhibit
3.04 of Integral's quarterly report on Form 10-QSB for the period ended March 31, 2006.)
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).)
10.18 Grant of Option dated June 17, 2005 between Integral and Thomas Aisenbrey. (Incorporated by
reference to Exhibit 10.18 of Integral's Current Report Form 8-K dated June 17, 2005 (filed
June 23, 2005).)
10.19 Agreement between the Company and The QuanStar Group, LLC dated June 20, 2005.
(Incorporated by reference to Exhibit 10.18 of Integral's Current Report Form 8-K dated June 17,
2005 (filed June 23, 2005).)
10.20 Patent License Agreement between the Company and Heatron, Inc. dated March 17, 2006.
(Incorporated by reference to Exhibit 10.20 of Integral's Current Report Form 8-K dated
March 17, 2006 (filed April 11, 2006).)
10.21 Patent License Agreement between the Company and Jasper Rubber Products, Inc. dated
August 25, 2006. (Incorporated by reference to Exhibit 10.21 of Integral's Current Report
Form 8-K dated August 25, 2006 (filed September 19, 2006).)
10.22 Grant of Option dated November 6, 2006 between Integral and Thomas Aisenbrey. (Incorporated
by reference to Exhibit 10.22 of Integral's Quarterly Report on Form 10-QSB for the period ended
September 30, 2006.)
10.23 Manufacturing Agreement between Integral and Jasper Rubber Products, Inc. dated November
22, 2006. (Incorporated by reference to Exhibit 10.23 of Integral's Current Report Form 8-K dated
November 27, 2006 (filed December 4, 2006).)
10.24 Patent License Agreement between the Company and ADAC Plastics, Inc. d/b/a ADAC
Automotive, dated November 28, 2006. (Incorporated by reference to Exhibit 10.24 of Integral's
Current Report Form 8-K dated December 18, 2006 (filed December 20, 2006).)
10.25 Patent License Agreement between the Company and Esprit Solutions Limited, dated December
18, 2006. (Incorporated by reference to Exhibit 10.25 of Integral's Current Report Form 8-K dated
January 9, 2007 (filed January 19, 2007).)
10.26 Patent License Agreement between the Company and Knowles Electronics, LLC, dated January
18, 2007. (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).
99.09 Press release dated February 12, 2007. (Filed herewith.)