UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

T QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED December 31, 2011.

OR

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

FOR THE TRANSITION FROM _______ TO ________.

COMMISSION FILE NUMBER 0-28353

INTEGRAL TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in its Charter)

Nevada
98-0163519
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

805 W. Orchard Drive, Suite 7, Bellingham, Washington 98225
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (360) 752-1982

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o      No T

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

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

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

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of December 31, 2011, there were 58,877,762 outstanding shares of the Registrant's Common Stock, $0.001 par value.
 


 
 

 

INTEGRAL TECHNOLOGIES, INC.
December 31, 2011 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS
   
Page
PART I - FINANCIAL INFORMATION
     
Item 1.
Financial Statements
 
     
 
INTEGRAL TECHNOLOGIES, INC.
 
 
(A Development Stage Company)
 
 
Consolidated Financial Statements
 
 
December 31, 2011
 
 
(U.S. Dollars)
 
 
(Unaudited)
 
     
 
F-1
     
 
F-2
     
 
F-3
     
 
F-4
     
 
F-5
     
Item 2.
1
Item 3.
3
Item 4.
3
     
PART II - OTHER INFORMATION
     
Item 1.
4
Item 1A.
4
Item 2.
4
Item 3.
4
Item 4.
4
Item 5.
4
Item 6.
4
5

 
 


PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Balance Sheet
(US Dollars)

   
December 31,
2011
   
June 30,
2011
 
   
(Unaudited)
       
Assets
           
             
Current
           
Cash
  $ 249,435     $ 61,365  
                 
Total Assets
  $ 249,435     $ 61,365  
                 
Liabilities
               
                 
Current
               
Accounts payable and accruals
  $ 1,645,110     $ 775,747  
Convertible debenture (note 9)
    63,100       0  
                 
Total Liabilities
    1,708,210       775,747  
                 
Stockholders’ Deficit (note 3)
               
                 
Preferred Stock and Paid-in Capital in Excess of $0.001 Par Value
               
20,000,000 shares authorized
               
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
               
58,877,762 (June 30, 2011 - 58,296,760) issued and outstanding
    36,086,011       35,858,822  
Promissory Notes Receivable
    (29,737 )     (29,737 )
Subscriptions Received
    443,333       0  
Accumulated Other Comprehensive Income
    46,267       46,267  
Deficit Accumulated During the Development Stage
    (38,313,187 )     (36,898,272 )
                 
Total Stockholders’ Deficit
    (1,458,775 )     (714,382 )
                 
Total Liabilities and Stockholders’ Deficit
  $ 249,435     $ 61,365  

Going Concern (Note 2)

See notes to unaudited interim consolidated financial statements.

 
F-1


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
(US Dollars)

   
Three Months Ended
December 31,
   
Six Months Ended
December 31,
   
Period from February 12, 1996 (Inception) to December 31,
 
   
2011
   
2010
   
2011
   
2010
   
2011
 
                               
Revenue
  $ 0     $ 0     $ 0     $ 0     $ 249,308  
Cost of Sales
    0       0       0       0       (216,016 )
      0       0       0       0       33,292  
Other Income
    0       283       0       785       869,303  
      0       283       0       785       902,595  
                                         
Expenses
                                       
Consulting
    172,758       603,411       659,023       897,961       10,267,648  
Salaries and benefits
    110,000       110,000       220,000       220,000       11,219,316  
Legal and accounting
    111,818       83,549       169,983       116,430       4,965,300  
General and administrative
    24,424       33,061       78,535       50,293       1,446,718  
Research and development (note 7)
    80,889       47,521       122,649       146,547       2,090,031  
Travel and entertainment
    58,638       30,401       82,694       54,307       1,607,554  
Rent
    16,181       12,460       32,898       24,925       617,653  
Telephone
    1,455       8,064       11,065       13,192       522,650  
Advertising
    0       765       0       765       345,339  
Financing fees
    0       0       2,800       0       131,843  
Bank charges and interest, net
    27,343       164       27,536       236       235,727  
Remuneration pursuant to proprietary, non-competition agreement
    0       0       0       0       711,000  
Write-off of investments
    0       0       0       0       1,250,000  
Interest on beneficial conversion feature
    0       0       0       0       566,455  
Write-down of license and operating assets
    0       0       0       0       1,855,619  
Settlement of lawsuit
    0       0       0       0       45,250  
Bad debts
    0       0       0       0       46,604  
Amortization
    0       0       0       0       324,386  
      603,506       929,396       1,407,183       1,524,656       38,249,093  
                                         
Net Loss for Period
  $ (603,506 )   $ (929,113 )   $ (1,407,183 )   $ (1,523,871 )   $ (37,346,498 )
                                         
Loss Per Common Share (note 6)
  $ (0.01 )   $ (0.02 )   $ (0.02 )   $ (0.03 )        
                                         
Weighted Average Number of Common Shares Outstanding
    58,532,450       55,665,583       58,363,407       55,314,423          

See notes to unaudited interim consolidated financial statements.

 
F-2


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statement of Stockholders' Deficit
(US Dollars)

   
Shares of Common Stock Issued
   
Common Stock and Paid-in Capital in Excess of Par
   
Shares of Preferred Stock Issued
   
Preferred Stock and Paid-in Capital in Excess of Par
   
Promissory Notes Receivable
   
Share Subscriptions
   
Accumulated Other Comprehensive Income
   
Deficit Accumulated During the Development Stage
   
Total Stockholders' Equity (Deficit)
 
                                                       
Balance, June 30, 2010
    54,838,921     $ 33,224,263       308,538     $ 308,538     $ (29,737 )   $ 11,250     $ 46,267     $ (33,909,950 )   $ (349,369 )
                                                                         
Shares issued for
                                                                       
Services
    446,118       619,284       0       0       0       0       0       0       619,284  
Cash
    1,820,042       1,101,720       0       0       0       (11,250 )     0       0       1,090,470  
Share issue costs
    330,879       (122,497 )     0       0       0       0       0       0       (122,497 )
Warrants exercised
    860,800       430,400       0       0       0       0       0       0       430,400  
Dividends on preferred stock
    0       0       0       0       0       0       0       (15,460 )     (15,460 )
Warrant extension
                                                                       
Deemed dividend
    0       131,577       0       0       0       0       0       (131,577 )     0  
Stock-based compensation
    0       474,075       0       0       0       0       0       0       474,075  
Net loss for year
    0       0       0       0       0       0       0       (2,841,285 )     (2,841,285 )
                                                                         
Balance, June 30, 2011
    58,296,760       35,858,822       308,538       308,538       (29,737 )     0       46,267       (36,898,272 )     (714,382 )
                                                                         
Shares issued for
                                                                       
Services
    27,755       15,461       0       0       0       0       0       0       15,461  
Cash
    553,247       202,000       0       0       0       0       0       0       202,000  
Reversal of fair value (note 10)
    0       (290,750 )     0       0       0       0       0       0       (290,750 )
Beneficial conversion feature of convertible debenture (note 9)
    0       102,504       0       0       0       0       0       0       102,504  
Dividends on preferred stock
    0       0       0       0       0       0       0       (7,732 )     (7,732 )
Subscriptions received
    0       0       0       0       0       443,333       0       0       443,333  
Stock-based compensation
    0       197,974       0       0       0       0       0       0       197,974  
Net loss for period
    0       0       0       0       0       0       0       (1,407,183 )     (1,407,183 )
                                                                         
Balance, December 31, 2011 (Unaudited)
    58,877,762     $ 36,086,011       308,538     $ 308,538     $ (29,737 )   $ 443,333     $ 46,267     $ (38,313,187 )   $ (1,458,775 )

See notes to unaudited interim consolidated financial statements.

 
F-3


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Unaudited)
(US Dollars)

   
Six Months Ended
December 31,
   
Period from February 12, 1996 (Inception) to December 31,
 
   
2011
   
2010
   
2011
 
Operating Activities
                 
Net loss
  $ (1,407,183 )   $ (1,523,871 )   $ (37,346,498 )
Items not involving cash
                       
Write-down of investment
    0       0       1,250,000  
Proprietary, non-competition agreement
    0       0       711,000  
Amortization
    0       0       349,941  
Other income
    0       0       (658,305 )
Consulting services for common shares
    15,461       306,589       2,116,047  
Stock-based compensation
    197,974       237,372       7,730,558  
Interest on beneficial conversion feature
    27,104       0       593,560  
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  
Reversal of fair value (note 11)
    (290,750 )     0       (290,750 )
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
    0       7,544       1  
Other
    0       0       (2,609 )
Accounts payable and accruals
    861,631       73,256       1,916,747  
Cash Used in Operating Activities
    (595,763 )     (899,110 )     (21,910,859 )
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 )
Cash Used in Investing Activities
    0       0       (2,455,244 )
Financing Activities
                       
Redemption of preferred shares
    0       0       (50,000 )
Repayment of loan
    0       0       (11,000 )
Repayments to stockholders
    0       0       (91,283 )
Proceeds from issuance of common stock
    202,000       758,285       22,361,428  
Advances from stockholders
    0       0       1,078,284  
Share issue costs
    0       (8,235 )     (414,406 )
Subscriptions received
    443,333       280,400       957,748  
Proceeds from convertible debentures
    138,500       0       738,500  
Cash Provided by Financing Activities
    783,833       1,030,450       24,569,271  
Effect of Foreign Currency Translation on Cash
    0       0       46,267  
Inflow of Cash
    188,070       131,340       249,435  
Cash, Beginning of Period
    61,365       350,235       0  
Cash, End of Period
  $ 249,435     $ 481,575     $ 249,435  

Note 5 - Supplemental Disclosure of Cash Flow Information

See notes to unaudited interim consolidated financial statements.

 
F-4


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Unaudited Interim Consolidated Financial Statements
Six Months Ended December 31, 2011
(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, 2011 Form 10-K.

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, 2011 and June 30, 2011, the consolidated results of operations for the three and six months ended December 31, 2011 and 2010 and the consolidated cash flows for the six months ended December 31, 2011 and 2010. The results of operations for the three and six months ended December 31, 2011 and 2010 are not necessarily indicative of the results to be expected for the entire fiscal year.

2.
GOING CONCERN

These unaudited interim consolidated financial statements have been prepared on the going concern basis, which assumes the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the ordinary course of business. The Company’s operations have resulted in a net loss of $603,506 for the three months ended December 31, 2011 (2010 - $929,113), and an accumulated deficit of $38,313,187 (June 30, 2011 - $36,898,272) and a working capital deficiency of $1,458,775 as at December 31, 2011 (June 30, 2011 - $714,382). The Company has not yet commenced revenue-producing operations and has significant expenditure requirements to continue to advance research, developing and commercializing new antenna technologies. The Company estimates that, without further funding, it will deplete its cash resources in approximately three months. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

These consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate because management believes that the actions already taken or planned will mitigate the adverse conditions and events that raise doubts about the validity of the going concern assumption used in preparing these consolidated financial statements. Management intends to raise additional capital through stock issuances to finance operations. If none of these events occur, there is a risk that the business will fail.

 
F-5


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Unaudited Interim Consolidated Financial Statements
Six Months Ended December 31, 2011
(Unaudited)
(US Dollars)
 

 
3.
STOCKHOLDERS’ DEFICIT

 
(a)
Preferred stock

Cumulative dividends on preferred stock are accrued at a rate of 5% per annum, payable at the option of the Company. Each holder has the right to convert preferred shares into common stock at the average trading price ten days prior to conversion. The Company has the right to redeem the preferred shares from the date of issue as follows:

 
Within one year
$1.50
 
2nd year
$2.00
 
3rd year
$2.50
 
4th year
$3.00
 
5th year
$3.50
 
6th year
$4.00
increasing $0.50 per year thereafter.

 
(b)
Common stock

During the period ended December 31, 2011, the Company completed two private placements. The first private placement amounted to $23,000 for the issuance of 41,819 units consisting of common stock at $0.55 per share and warrants at $0.001 per warrant to purchase 41,819 shares of common stock on or before March 31, 2013 at an exercise price of $1.00 per share.

The second private placement amounted to $179,000 for the issuance of 511,428 units consisting of common stock at $0.35 per share and warrants at $0.001 per warrant to purchase 511,428 shares of common stock on or before November 29, 2016 at an exercise price of $0.70 per share. Exercise of all the investment warrants may be required in the event that the market price for the common stock exceeds $1.50 per share.

The Company determined that the warrants did not contain any provisions that would preclude equity treatment.

 
(c)
Stock-based compensation

During the period ended December 31, 2011, the Company recorded stock-based compensation expense with respect to vested stock options of $197,974 (six months ended December 31, 2010 - $237,372), which has been included as consulting fees.

Stock-based compensation not yet recognized at December 31, 2011 relating to non-vested stock options was $192,061, which will be recognized over a weighted average period of 1.12 years.

 
F-6


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Unaudited Interim Consolidated Financial Statements
Six Months Ended December 31, 2011
(Unaudited)
(US Dollars)
 

 
3.
STOCKHOLDERS’ DEFICIT (continued)

 
(d)
Stock options

The following summarizes information about the Company’s options outstanding:

   
Number of Options
   
Price Per Option
   
Weighted Average Exercise Price
 
                   
Outstanding, June 30, 2010
    4,125,000     $ 0.25 to $ 1.00     $ 0.36  
Granted
    2,375,000     $ 0.25 to $ 0.85     $ 0.58  
                         
Outstanding, June 30, 2011 and December 31, 2011
    6,500,000     $ 0.25 to $ 1.00     $ 0.44  
                         
Exercisable, June 30, 2011 and December 31, 2011
    4,225,000     $ 0.25 to $ 1.00     $ 0.38  

 
F-7


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Unaudited Interim Consolidated Financial Statements
Six Months Ended December 31, 2011
(Unaudited)
(US Dollars)


 
3.
STOCKHOLDERS’ DEFICIT (continued)

 
(d)
Stock options (continued)

The following summarizes the options outstanding and exercisable:

         
Number of Options
 
Expiry Date
 
Exercise Price
   
December 31,
2011
   
June 30,
2011
 
                   
December 31, 2013(1)
  $ 1.00       110,000       110,000  
December 31, 2012
  $ 0.25       2,500,000       2,500,000  
November 15, 2013(2)
  $ 1.00       100,000       100,000  
March 9, 2014
  $ 0.25       125,000       125,000  
June 1, 2014
  $ 0.85       100,000       100,000  
October 15, 2014
  $ 0.50       100,000       100,000  
July 31, 2014(3)
  $ 1.00       415,000       415,000  
December 1, 2014
  $ 0.50       175,000       175,000  
December 1, 2014
  $ 0.85       100,000       100,000  
December 31, 2014
  $ 0.25       1,000,000       1,000,000  
April 15, 2015
  $ 0.50       100,000       100,000  
June 1, 2015
  $ 0.50       175,000       175,000  
June 1, 2015
  $ 0.85       100,000       100,000  
October 15, 2015
  $ 0.50       100,000       100,000  
December 1, 2015
  $ 0.50       175,000       175,000  
December 1, 2015
  $ 0.85       100,000       100,000  
April 15, 2016
  $ 0.50       100,000       100,000  
June 1, 2016
  $ 0.50       175,000       175,000  
June 1, 2016
  $ 0.85       100,000       100,000  
October 15, 2016
  $ 0.50       100,000       100,000  
December 1, 2016
  $ 0.50       175,000       175,000  
December 1, 2016
  $ 0.85       100,000       100,000  
April 15, 2017
  $ 0.50       100,000       100,000  
June 1, 2017
  $ 0.50       175,000       175,000  
                         
Total outstanding
            6,500,000       6,500,000  
                         
Total exercisable
            4,225,000       3,950,000  

 
(1)
During the year ended June 30, 2011, the expiry date of the 110,000 options was extended from December 31, 2011 to December 31, 2013.
 
(2)
During the year ended June 30, 2011, the expiry date of these options was extended from November 15, 2010 to November 15, 2013.
 
(3)
During the year ended June 30, 2010, the expiry date of these options was extended from December 31, 2010 to July 31, 2014.

 
F-8


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Unaudited Interim Consolidated Financial Statements
Six Months Ended December 31, 2011
(Unaudited)
(US Dollars)


 
3.
STOCKHOLDERS’ DEFICIT (continued)

 
(d)
Stock options (continued)

The weighted average remaining contractual lives for options outstanding and exercisable at December 31, 2011 are 2.47 and 1.83 years, respectively.

The weighted average grant date fair value of options modified during the six months ended December 31, 2011 was $nil (six months ended December 31, 2010 - $0.44), granted during the six months ended December 31, 2011 was $nil (six months ended December 31, 2010 - $0.57) and vested during the six months ended December 31, 2011 was $nil (six months ended December 31, 2010 - $0.42).

No options were exercised during the six months ended December 31, 2011 and 2010.

The aggregate intrinsic value of options outstanding as at December 31, 2011 was $688,750 of which $612,750 related to options that were exercisable. The aggregate intrinsic values exclude options having a negative aggregate intrinsic value due to awards with exercise prices greater than market value. The intrinsic value is the difference between the market value of the shares and the exercise price of the award as of the measurement date.

 
(e)
Stock purchase warrants

The following summarizes information about the Company’s stock purchase warrants outstanding:

   
Number of Warrants
   
Price Per Warrant
   
Weighted Average Exercise Price
 
                   
Balance, June 30, 2010
    8,763,952           $ 0.60  
Issued
    1,316,553     $ 1.00     $ 1.00  
Exercised
    (860,800 )   $ 0.50     $ 0.50  
Expired
    (2,970,000 )   $ 0.50     $ 0.50  
                         
Balance, June 30, 2011
    6,249,705             $ 0.74  
Issued
    41,819     $ 1.00     $ 1.00  
Issued
    511,428     $ 0.70     $ 0.70  
                         
Balance, December 31, 2011
    6,802,952             $ 0.74  

 
F-9


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Unaudited Interim Consolidated Financial Statements
Six Months Ended December 31, 2011
(Unaudited)
(US Dollars)


 
3.
STOCKHOLDERS’ DEFICIT (continued)

 
(e)
Stock purchase warrants (continued)

         
Number of Warrants
 
Expiry Date
 
Exercise Price
   
December 31,
2011
   
June 30,
2011
 
                   
December 31, 2011
  $ 0.50       670,000       670,000  
February 8, 2012
  $ 0.70       2,123,400       2,123,400  
May 14, 2012
  $ 0.70       507,853       507,853  
June 3, 2012
  $ 0.70       1,631,899       1,631,899  
December 31, 2012
  $ 1.00       503,490       503,490  
February 28, 2013
  $ 1.00       813,063       813,063  
March 31, 2013
  $ 1.00       41,819       0  
November 29, 2016
  $ 0.70       511,428       0  
                         
Total outstanding and exercisable
            6,802,952       6,249,705  

4.
INCOME TAXES

There are no current or deferred tax expenses for the six months ended December 31, 2011 due to the Company's loss position. The Company has fully reserved for any benefits of these losses. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company's ability to generate taxable income within the net operating loss carry-forward period. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.

 
F-10


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Unaudited Interim Consolidated Financial Statements
Six Months Ended December 31, 2011
(Unaudited)
(US Dollars)


 
5.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   
Six Months Ended
December 31,
   
Period from February 12, 1996 (Inception) to June 30,
 
   
2011
   
2010
   
2011
 
                   
Shares Issued for
                 
Redemption of preferred shares
  $ 0     $ 0     $ 415,000  
Property and equipment
  $ 0     $ 0     $ 23,000  
Proprietary agreement
  $ 0     $ 0     $ 711,000  
Settlement of accounts payable
  $ 0     $ 0     $ 228,742  
Services (provided by officers
                       
and directors)
  $ 0     $ 364,128     $ 120,000  
Settlement of lawsuit
  $ 0     $ 0     $ 15,000  
Services and financing fees
  $ 15,461     $ 0     $ 1,523,868  
Subscriptions received
  $ 0     $ 0     $ 57,750  
Acquisition of subsidiary
  $ 0     $ 0     $ 894,200  
Interest paid
  $ 0     $ 0     $ 81,111  
Income tax paid
  $ 0     $ 0     $ 0  
Private placement share issue costs included in accounts payable
  $ 0     $ 62,852     $ 0  

6.
LOSS PER SHARE

   
Loss (Numerator)
   
Weighted Average Number of Shares (Denominator)
   
Loss Per Share
 
                   
Three months ended December 31, 2011
                 
Net loss for period
  $ (603,506 )            
Preferred stock dividends (note 3(a))
    (3,865 )            
Loss attributable to common shareholders
  $ (607,371 )     58,532,450     $ (0.01 )
Three months ended December 31, 2010
                       
Net loss for period
  $ (929,113 )                
Preferred stock dividends (note 3(a))
    (3,865 )                
Loss attributable to common shareholders
  $ (932,978 )     55,665,583     $ (0.02 )
Six months ended December 31, 2011
                       
Net loss for period
  $ (1,407,183 )                
Preferred stock dividends (note 3(a))
    (7,730 )                
Loss attributable to common shareholders
  $ (1,414,913 )     58,363,407     $ (0.02 )
Six months ended December 31, 2010
                       
Net loss for period
  $ (1,523,871 )                
Preferred stock dividends (note 3(a))
    (7,730 )                
Loss attributable to common shareholders
  $ (1,531,601 )     55,314,423     $ (0.03 )

 
F-11


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Unaudited Interim Consolidated Financial Statements
Six Months Ended December 31, 2011
(Unaudited)
(US Dollars)


 
6. 
LOSS PER SHARE (continued)

Common share equivalents consisting of convertible preferred stock, stock options and warrants are not considered in the computation of diluted loss per share because their effect would be anti-dilutive.

7.
RESEARCH AND DEVELOPMENT

As the Company is considered to be in the development stage, all research and development costs are expensed as incurred.

During the six months ended December 31, 2011, the Company sold sample products totalling $2,640 (six months ended December 31, 2010 - $nil). This amount has been credited against research and development expenses.

8.
SEGMENT INFORMATION

The Company operates primarily in one business segment with operations located in the United States.

9.
CONVERTIBLE DEBENTURE

During the period ended December 31, 2011, the Company entered into a convertible debenture purchase agreement with Asher Enterprises Inc. The agreement involved three separate tranches of convertible debentures. Each tranche is due nine months after its issuance. The three debentures were issued as follows:

 
·
August 3, 2011 received $53,000;
 
·
September 15, 2011 received $50,000; and
 
·
October 15, 2011 received $35,500.

The convertible debentures pay interest of 8% per annum and can be converted into common stock at the option of the issuer at any time after 180 days following the date of issuance. Each debenture has a variable conversion price equal to 58% of the market price. Market price is defined as the average of the lower three trading prices for the Company’s common stock during the ten trading day period ending one trading day prior to the date of conversion notice with a limitation of 4.99% of the issued and outstanding common stock at the time of conversion.

The note may be prepaid by the Company as follows:

 
·
Outstanding principal multiplied by 135% together with accrued interest and unpaid interest thereon if prepaid within a period of 90 days beginning on the date of the note;
 
·
Outstanding principal multiplied by 145% together with accrued interest and unpaid interest thereon if prepaid at any time during the period beginning 91 days from the date of the note and ending on the date that is 150 days following the date of the note; and
 
·
Outstanding principal multiplied by 150% together with accrued interest and unpaid interest thereon if prepaid at any time during the period beginning 151 days from the date of the note and ending on the date that is 180 days following the date of the note.

 
F-12


INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Unaudited Interim Consolidated Financial Statements
Six Months Ended December 31, 2011
(Unaudited)
(US Dollars)


 
9.
CONVERTIBLE DEBENTURE (continued)

After the expiration of the 180 days following the date of the note, the Company will have no right of prepayment.

The convertible debentures were measured at the intrinsic value of the embedded conversion feature by calculating the effective conversion price. The resulting amount of $102,504 was included as additional paid in capital and the liability amount was $35,996. During the quarter, interest expense of $27,104 was accrued.

The Company incurred $8,500 in transactions costs in connection with the issuance of the convertible debenture.

10.
REVERSAL OF FAIR VALUE

During the period, the shares to be issued in conjunction with the Company’s Piedmont Consulting contract were cancelled thereby resulting in a recovery of paid-in capital and consulting expenses, in the amount of $290,750, which had been recognized in prior periods.

11.
SUBSEQUENT EVENT

The Company has evaluated subsequent events for the period after December 31, 2011 and determined that there were no material subsequent events to be disclosed in these consolidated interim financial statements.

 
F-13


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS

Forward Looking Statements

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, our ability to compete as a start-up company in a highly competitive market, our access to sources of capital, and other risks and uncertainties described in our annual report on Form 10-K for the fiscal year ended June 30, 2011 as filed with the Securities and Exchange Commission on September 28, 2011, and available at www.sec.gov.

This discussion and analysis should be read in conjunction with our financial statements and notes thereto included elsewhere in this Form 10-Q. Except for the historical information contained herein, the discussion in this Form 10-Q 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-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. Our actual results could differ materially from those discussed here. We undertake no obligation to update these forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q.

Overview

Integral Technologies, Inc. (the “Company” or “we”) focuses the majority of our resources on researching, developing and commercializing our ElectriPlast™ 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™ technologies with manufacturers of products which would benefit from the incorporation of any of the ElectriPlast™ applications.

ElectriPlast™ is an innovative, electrically-conductive resin-based material. The ElectriPlast™ 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™ 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™ technology to the global marketplace.

Patents/Trademarks on Technologies

Our intellectual property portfolio consists of over eleven years of accumulated research and design knowledge and trade secrets. We have sought United States (“US”) patent protection for many of our ideas related to our ElectriPlast™ technologies. Currently, we have filed 106 non-provisional US patent applications, 53 of which have been issued, with 49 of those issued still alive. 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 and license the design(s) described in each issued patent for the life of the patent in the US.

Of the 106 non-provisional applications filed that have not issued as patents, 10 are currently pending, and 43 are no longer pending. Integral continues to pursue intellectual property protection through its patent and trademark portfolio while constantly evaluating its filings to judiciously apply resources to our most critical technologies.

Integral also has a pending trademark application for ELECTRIPLASTTM and a registered trademark for INTEGRAL®. This application and registration establish rights for the use of these marks in commerce.

Financial Condition

To date we have recorded nominal revenues. We are still considered a development stage company for accounting purposes. From the Company’s incorporation on February 12, 1996 through December 31, 2011, we have accrued an accumulated deficit of approximately $38.3 million.

At December 31, 2011, our current assets totaled $249,435, which consisted of cash equal to $249,435. All of our property and equipment has been fully depreciated.

At December 31, 2011 our current liabilities totaled $1,708,210, consisting of accounts payable and accruals of $1,645,110 and convertible debentures of $63,100. Of the accounts payable and accruals total, payables for legal fees (including associated filing fees) related to patent filings accounted for approximately $535,000 of the total. The convertible debentures of $63,100 were measured at the intrinsic value of the embedded conversion feature by calculating the effective conversion price. The resulting amount of $102,504 was included as additional paid in capital and the liability amount was $35,996. During the quarter, interest expense of $27,104 was accrued.

At December 31, 2011, our total stockholder’s deficit was $1,458,775.

 
1


Results of Operations for the Three Months Ended December 31, 2011 compared to the Three Months Ended December 31, 2010

Our net loss for the quarter ended December 31, 2011 was $603,506, compared to a net loss of $929,113 for the corresponding period of the prior fiscal year. The decrease of $325,607 was primarily a result of a decrease in stock based compensation of approximately $22,814, and a decrease in consulting fees of $290,750 arising from the reversal of fair value costs previously expensed in relation to a consulting contract that was cancelled during the year.

Total expenses for the quarter ended December 31, 2011 were $603,506, compared to total expenses of $929,396 for the corresponding period of the prior fiscal year. The decrease of $325,890 was primarily a result of decreases in stock based compensation of approximately $84,344, and a decrease in consulting fees of $290,750 arising from the reversal of fair value costs previously expensed in relation to a consulting contract that was cancelled during the year..

Consulting expenses during the quarter ended December 31, 2011 were $172,758, which included issuances of shares in consideration for consulting services in the amount of $6,214, and $102,508 for non-cash stock based compensation charges. In the corresponding period of the prior fiscal year, consulting expenses were $603,411 which included issuances of shares in consideration for consulting services in the amount of $301,588, and $125,322 for non-cash stock based compensation charges for the vesting and modifications of options previously issued. The remaining decrease relates to additional fees incurred in the comparative period with respect to the consulting agreements entered into by the Company.

Salaries and benefits expenses during the quarter ended December 31, 2011, were $110,000. In the corresponding period of the prior fiscal year, salaries and benefits expenses were $110,000.

Research and development costs of $80,889 during the quarter ended December 31, 2011, are attributable to refining the manufacturing process of our ElectriPlast™ material. In the corresponding period of the prior fiscal year, research and development costs totaled $47,521. The increase of $33,368 can be attributed in increase demand for prototypes from potential customers.

Results of Operations for the Six Months Ended December 31, 2011 compared to the Six Months Ended December 31, 2010

Our net loss for the six months ended December 31 2011, was $1,407,183, compared to a net loss of $1,523,871 for the corresponding period of the prior fiscal year. The decrease of $116,688 was primarily a result of a decrease in consulting fees of $238,938, offset partially by an increase in legal and accounting fees of $53,553.

Total expenses for the six months ended December 31, 2011, were $1,407,183 compared to total expenses of $1,524,656 for the corresponding period of the prior fiscal year. The decrease of $117,473 which was primarily a result of an a decrease in consulting fees of $238,938, offset partially by an increase in legal and accounting fees of $53,553.

Total income for the six months ended December 31, 2011, was comprised of “other income” of $0 compared to “other income” of $785 for the corresponding period of the prior fiscal year, a decrease of $785. The category of “other income” consists of interest income.

Consulting expenses during the six months ended December 31, 2011, were $659,023 which included non-cash, issuance of shares in consideration for consulting services in the amount of $14,014, $197,974 for non-cash stock based compensation charges and a $290,750 recovery from the reversal of fair value costs in relation to a cancelled consulting contract. In the corresponding period of the prior fiscal year, consulting expenses were $897,961 which included non-cash, issuance of shares in consideration for consulting services in the amount of $306,589 and $237,372 for non-cash stock based compensation charges.

Salaries and benefits expenses during the six months ended December 31, 2011, were $220,000 which included non-cash, stock based compensation charges of $0. In the corresponding period of the prior fiscal year, salaries and benefits expenses were $220,000 which included non-cash, stock based compensation charges of $0.

Research and development costs of $122,649 during the six months ended December 31, 2011, are attributable to refining the manufacturing process of our ElectriPlast™ material. In the corresponding period of the prior fiscal year, the amount expensed under this category was $146,547.

For the six months ended December 31, 2011, our cash used in operating activities was $595,763 compared to $899,110 used in the corresponding period of the prior fiscal year for a decrease of $303,347.

For the six months ended December 31, 2011, our cash provided by financing activities was $783,833 compared to $1,030,450 provided in the corresponding period of the prior fiscal year. The difference of $246,617 was due to decreased issuances of common stock during the six months ended December 31, 2011.

 
2


Critical Accounting Policies and Estimates

The details of the critical accounting policies relevant to the Company are set out in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, filed with the Securities and Exchange Commission on September 28, 2011. There have been no material changes to our critical accounting policies as described in Item 7 of our most recent annual report on Form 10-K for the year ended June 30, 2011.

Management does not believe that any new accounting pronouncements not yet effective will have any material effect on the Company’s financial statements if adopted.

Liquidity and Capital Resources
Since inception we have funded our operations through capital fundraising and loans from management. As of December 31, 2011, we had $249,435 in cash on hand.

Management believes that there is adequate cash on hand to fund operations over the next month and that further equity funding will be required thereafter. There can be no assurance that additional equity financing will be available on terms satisfactory to us, or at all, and if funds are raised in the future through issuance of preferred stock, these securities could have rights, privileges or preference senior to those of our common stock. Further, any sale of newly issued equity securities could result in additional dilution to our current shareholders.

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.

Off-Balance Sheet Arrangements

We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities, nor entered into any options or non-financed assets.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to smaller reporting companies.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2011, our management, including our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2011.

Changes in Internal Control over Financial Reporting

During our most recent fiscal quarter, no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
3


PART II
OTHER INFORMATION COMPANY CONFIRM OR UPDATE AS NEEDED

ITEM 1 - LEGAL PROCEEDINGS

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved, nor has a material interest, in a legal proceeding adverse to our business.

ITEM 1A. RISK FACTORS

Not applicable for smaller reporting companies.

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

On November 29, 2011, the Company completed a private placement sale to several individuals, pursuant to the exemption from registration provided by Section 4(2) under the Securities Act of 1933. The sale consisted of 511,428 units of common stock at $0.35 per share and warrants to purchase 511,428 shares of common stock on or before November 29, 2016 at an exercise price of $0.70 per share. Exercise of all the investment warrants may be required in the event that the market price for the common stock exceeds $1.50 per share. The recipient took its securities for investment purposes without a view to distribution and had access to information concerning us and our business prospects, as required by the Securities Act. In addition, there was no general solicitation or advertising for the acquisition of these securities.

On November 30, 2011, the Company issued 17,755 shares of common stock to an individual as consideration of $6,214 for computer consulting services. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act for the issuance of these securities. The recipient took its securities for investment purposes without a view to distribution and had access to information concerning us and our business prospects, as required by the Securities Act. In addition, there was no general solicitation or advertising for the acquisition of these securities.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - REMOVED AND RESERVED

None.

ITEM 5 - OTHER INFORMATION

None.

ITEM 6. Exhibits

31.1
Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act is filed herewith.

31.2
Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act is filed herewith.

32.1
Certification by Chief Executive Officer and Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code is filed herewith.
 
101.INS
Instance Document

101.SCH
XBRL Taxonomy Extension Schema Document

101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF
XBRL Taxonomy Extension Definition Linkbase Document

101.LAB
XBRL Taxonomy Extension Label Linkbase Document

101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
4


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly 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
   
and Principal Executive Officer
       
 
By:
/s/ William A. Ince
 
   
William A. Ince, Chief Financial Officer and
   
Principal Accounting Officer

Date: February 14, 2012

 
5


EXHIBIT INDEX

Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act is filed herewith.

Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act is filed herewith.

Certification by Chief Executive Officer and Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code is filed herewith.
 
101.INS
Instance Document

101.SCH
XBRL Taxonomy Extension Schema Document

101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF
XBRL Taxonomy Extension Definition Linkbase Document

101.LAB
XBRL Taxonomy Extension Label Linkbase Document

101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
6