WASHINGTON, D.C. 20549
FOR THE QUARTERLY PERIOD ENDED September 30, 2014.
FOR THE TRANSITION FROM _______ TO ________.
INTEGRAL TECHNOLOGIES, INC.
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 T No o
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of September 30, 2014, there were 101,343,529 outstanding shares of the Registrant's Common Stock, par value $0.001 per share.
INTEGRAL TECHNOLOGIES, INC.
ITEM 1. FINANCIAL STATEMENTS
ASSETS
|
|
September 30, 2014
|
|
|
June 30, 2014
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
181,196
|
|
|
$
|
199,777
|
|
Prepaid expenses
|
|
|
192,732
|
|
|
|
23,831
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
373,928
|
|
|
|
223,608
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
35,017
|
|
|
|
27,821
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
408,945
|
|
|
$
|
251,429
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accruals
|
|
$
|
739,613
|
|
|
$
|
973,220
|
|
Notes payable
|
|
|
110,000
|
|
|
|
60,000
|
|
Deferred revenue
|
|
|
125,000
|
|
|
|
50,000
|
|
|
|
|
-
|
|
|
|
|
|
Total current liabilities
|
|
|
974,613
|
|
|
|
1,083,220
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
219,000
|
|
|
|
229,500
|
|
Deferred revenue
|
|
|
408,333
|
|
|
|
420,833
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
627,333
|
|
|
|
650,333
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,601,946
|
|
|
|
1,733,553
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Common stock and paid in capital in excess of $0.001 par value, 150,000,000 shares authorized, 101,343,529 (June 30, 2014 - 98,985,442) issued and outstanding
|
|
|
47,421,462
|
|
|
|
46,832,941
|
|
Share subscriptions and obligations to issue shares
|
|
|
729,754
|
|
|
|
188,635
|
|
Accumulated other comprehensive income
|
|
|
46,267
|
|
|
|
46,267
|
|
Accumulated deficit
|
|
|
(49,390,484
|
)
|
|
|
(48,549,967
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(1,193,001
|
)
|
|
|
(1,482,124
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
408,945
|
|
|
$
|
251,429
|
|
See accompanying notes to consolidated financial statements.
Integral Technologies, Inc.
Consolidated
Statements of Operations
For the three months ended September 30, 2014 and 2013 (Unaudited)
|
|
Three Months Ended September 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
90,782
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
909,233
|
|
|
|
1,162,950
|
|
Research and development
|
|
|
19,349
|
|
|
|
27,196
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
928,582
|
|
|
|
1,190,146
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
(34
|
)
|
|
|
(81,842
|
)
|
Other expense
|
|
|
96
|
|
|
|
103,842
|
|
Interest expense
|
|
|
2,655
|
|
|
|
62,088
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(840,517
|
)
|
|
|
(1,274,234
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(840,517
|
)
|
|
$
|
(1,274,234
|
)
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
-
|
|
|
|
(15,460
|
)
|
|
|
|
|
|
|
|
|
|
Loss attributable to common shareholders
|
|
$
|
(840,517
|
)
|
|
$
|
(1,289,694
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
99,824,249
|
|
|
|
77,057,027
|
|
See accompanying notes to consolidated financial statements.
Integral Technologies, Inc.
Consolidated Statements of
Stockholders' Deficit
For the three months ended September 30, 2014 (Unaudited) and June 30, 2014 (Audited)
|
|
Number of
Shares of
Common
Stock Issued
|
|
|
Common Stock
and Paid-in
Capital in
Excess of Par
|
|
|
Number
of Shares
of
Preferred
Stock
Issued
|
|
|
Preferred
Stock and
Paid-in
Capital in
Excess of Par
|
|
|
Promissory
Notes
Receivable
From
Shareholders
|
|
|
Shares
Subscriptions
and
Obligations to
Issue Shares
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders'
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2013 (Audited)
|
|
|
76,748,839
|
|
|
$
|
41,204,935
|
|
|
|
237,950
|
|
|
$
|
237,950
|
|
|
$
|
(29,737
|
)
|
|
$
|
13,400
|
|
|
$
|
46,267
|
|
|
$
|
(44,079,931
|
)
|
|
$
|
(2,607,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
2,126,666
|
|
|
|
828,283
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
828,283
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercised
|
|
|
1,743,030
|
|
|
|
296,321
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
296,321
|
|
Private placements
|
|
|
8,171,250
|
|
|
|
1,399,375
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,400
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,385,975
|
|
Settlement of convertible debentures
|
|
|
3,379,734
|
|
|
|
1,122,933
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,122,933
|
|
Settlement of debt
|
|
|
6,433,772
|
|
|
|
1,809,031
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,809,031
|
|
Preferred shares converted
|
|
|
382,151
|
|
|
|
103,567
|
|
|
|
(103,567
|
)
|
|
|
(103,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Share issues costs
|
|
|
-
|
|
|
|
(168,010
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(168,010
|
)
|
Dividends on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,460
|
)
|
|
|
(15,460
|
)
|
Redeemable preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(134,383
|
)
|
|
|
(134,383
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71,932
|
|
|
|
(62,451
|
)
|
Subscriptions received
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
158,625
|
|
|
|
-
|
|
|
|
-
|
|
|
|
158,625
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
266,243
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
266,243
|
|
Promissory note written off
|
|
|
-
|
|
|
|
(29,737
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
29,737
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Obligation to issue shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,010
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,010
|
|
Net loss for year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,526,508
|
)
|
|
|
(4,526,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2014 (Audited)
|
|
|
98,985,442
|
|
|
|
46,832,941
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
188,635
|
|
|
|
46,267
|
|
|
|
(48,549,967
|
)
|
|
|
(1,482,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
900,000
|
|
|
|
295,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,250
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
280,500
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercised
|
|
|
819,147
|
|
|
|
139,255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(71,255
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
68,000
|
|
Private placements
|
|
|
638,940
|
|
|
|
108,620
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(87,370
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
21,250
|
|
Subscriptions received
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
491,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
491,000
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
44,896
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,896
|
|
Obligation to issue shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
223,994
|
|
|
|
-
|
|
|
|
-
|
|
|
|
223,994
|
|
Net loss for period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(840,517
|
)
|
|
|
(840,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2014 (Unaudited)
|
|
|
101,343,529
|
|
|
$
|
47,421,462
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
729,754
|
|
|
$
|
46,267
|
|
|
$
|
(49,390,484
|
)
|
|
$
|
(1,193,001
|
)
|
See accompanying notes to consolidated financial statements.
Integral Technologies, Inc.
Consolidated Statements of
Cash Flows
For the three months ended September 30, 2014 and 2013 (Unaudited)
|
|
Three Months Ended September 30,
|
|
|
|
2014
|
|
|
2013
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(840,517
|
)
|
|
$
|
(1,274,234
|
)
|
Items not involving cash
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
403
|
|
|
|
-
|
|
Other income
|
|
|
-
|
|
|
|
(6,250
|
)
|
Stock issued for consulting services
|
|
|
106,519
|
|
|
|
513,333
|
|
Stock-based compensation
|
|
|
44,896
|
|
|
|
88,315
|
|
Interest on convertible debentures
|
|
|
-
|
|
|
|
58,286
|
|
Fair value loss on derivative financial liabilities
|
|
|
-
|
|
|
|
103,842
|
|
Gain on extinguishment of debt
|
|
|
-
|
|
|
|
(75,429
|
)
|
Changes in working capital
|
|
|
57,967
|
|
|
|
224,613
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(630,732
|
)
|
|
|
(367,524
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(7,599
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investment activities
|
|
|
(7,599
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment of promissory notes
|
|
|
(10,500
|
)
|
|
|
(30,000
|
)
|
Proceeds from promissory notes
|
|
|
50,000
|
|
|
|
-
|
|
Proceeds from issuance of common stock
|
|
|
89,250
|
|
|
|
-
|
|
Subscriptions received
|
|
|
491,000
|
|
|
|
-
|
|
Proceeds from convertible debentures
|
|
|
-
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
619,750
|
|
|
|
145,000
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(18,581
|
)
|
|
|
(222,524
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
199,777
|
|
|
|
532,308
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
181,196
|
|
|
$
|
309,784
|
|
See accompanying notes to consolidated financial statements.
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 1 - NATURE OF OPERATIONS
Integral Technologies, Inc. (the “Company” or “Integral”) was incorporated under the laws of the state of Nevada on February 12, 1996 and has its head office in Bellingham, Washington, USA. The is in the business of researching, developing and commercializing new electrically-conductive resin-based materials called ElectriPlast.
The Company will be devoting all of its resources to the research, development and commercialization of its ElectriPlast technology.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
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 for the year ended June 30, 2014 filed as part of the Company’s June 30, 2014 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 balance sheet at September 30, 2014 and June 30, 2014, the consolidated results of operations and cash flows for the three months ended September 30, 2014 and 2013. The results of operations for the three months ended September 30, 2014 and 2013 are not necessarily indicative of the results to be expected for the entire fiscal year.
Principles of consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Integral Vision Systems, Inc. ("IVSI"), Antek Wireless Inc. ("Antek") and Electriplast Corp. (formerly Plastenna, Inc.) (“Electriplast”), and its 76.625%-owned subsidiary, Emergent Technologies Corp. ("ETC"), which is currently inactive. ETC's noncontrolling interest balance is immaterial to the financial statements. All intercompany balances and transactions have been eliminated.
Basic and Diluted Net Loss Per Share
Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. Because the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.
Stock issued in exchange for services
The valuation of common stock issued in exchange for services to non-employees is valued at an estimated fair market value of the Company’s stock price based upon trading, sales and other issuances of the Company's common stock. Stock-based compensation expense related to awards to non-employees is recognized based on the then-current fair value at each measurement date over the associated service period of the award, which is generally the vesting term, using the accelerated attribution method. The fair value of non-employee stock options is estimated using the Black-Scholes valuation model with assumptions generally consistent with those used for employee stock options, with the exception of the expected term, which is the remaining contractual life at each measurement date.
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Revenue recognition
The Company has not generated significant revenue since inception. Although the Company has begun to receive some revenue from the sale of material for commercial applications, the Company is devoting substantially all its efforts to developing the business. Most revenues to date are recorded against research and development expenditures.
As discussed in Note 14, the Company signed a ten year license agreement with Hanwha L&C, of South Korea. For license agreements that the Company enters into, revenue is recognized when all four of the following criteria are met: (i) a contract is executed, (ii) the contract price is fixed and determinable, (iii) delivery of the service or products has occurred, and (iv) collectability of the contract amounts is reasonably assured.
The Company’s license agreements can provide for upfront license fees, maintenance payments, and/or substantive milestone payments. In accordance with revenue recognition guidance, the Company identifies all of the deliverables at the inception of the agreement. License fees which are nonrefundable fees will be evaluated for standalone value to the licensor and may be recognized upon delivery pursuant to terms of the agreement. Upfront nonrefundable fees associated with license and development agreements where the Company has continuing involvement that does not meet the requirement of a separate deliverable are recorded as deferred revenue and recognized over the estimated service period. The Company may also enter into agreements to provide engineering services. The Company recognizes revenue from engineering services as the service has been performed and amounts are probable of collection.
Advertising
Advertising costs are charged to operations when incurred. Advertising expense was $32,613 and $4,706 for the three months ended September 30, 2014 and 2013, respectively.
Foreign currency translation
The Company’s functional and reporting currency is the US dollar. Transactions and balances for the Company’s operations that are not in US dollars are translated into US dollars at the exchange rates in effect at the balance sheet dates for monetary assets and liabilities, and at historical exchange rates for nonmonetary assets and liabilities. Revenues and expenses are translated at the rate of exchange on the date of the transaction, except for amortization and depreciation, which are translated on the same basis as the related assets. Resulting translation gains or losses are included in the consolidated statements of operations. The foreign currency impact on the consolidated financial statements is immaterial.
Research and development
Research and development expenditures are charged to operations as incurred.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates include valuation allowance for deferred income tax assets, the determination of the assumptions used in calculating the fair value of stock-based compensation and the determination of the assumptions used in calculating the fair value of the derivative financial liability. Actual results could differ from those estimates and could impact future results of operations and cash flows.
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Financial instruments
The Company considers all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents.
Compound financial instruments
The Company has recorded as an embedded derivative liability for the potential payments that would be made to holders of the convertible notes upon conversion. The embedded derivative liability is initially recorded at fair value, with gains and losses arising from changes in fair value recognized in the consolidated statements of operations at each period end while such instruments are outstanding. The liability is being valued using a Black-Scholes Model and was terminated upon the conversion of the notes into common shares in the year ended June 30, 2014 (refer to Note 12).
Fair value measurements
Assets and liabilities recorded at fair value in the balance sheets are categorized based upon the level of judgement associated with the inputs used to measure their fair value. For certain of the Company’s financial instruments including cash and accounts payable, the carrying values approximate fair value due to their short-term nature.
ASC 820 Fair Value Measurements and Disclosures specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820, these inputs are summarized in the three broad levels listed below:
|
· |
Level 1 – Quoted prices in active markets for identical securities; |
|
· |
Level 2 – Other significant observable inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities); and |
|
· |
Level 3 – Significant unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability. |
The fair value measurement of the embedded derivative liability was classified as a Level 3 measurement as further discussed under Fair Value Measurements.
Income taxes
The Company uses the asset and liability approach in its method of accounting for income taxes that requires the recognition of deferred tax liabilities and assets for expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance against deferred tax assets is recorded if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The impact of an uncertain tax position that is more likely than not of being sustained upon audit by the relevant taxing authority is recognized at the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of being sustained.
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Stock-based compensation
The Company accounts for stock-based compensation expense associated with stock options and other forms of equity compensation by estimating the fair value of share-based payment awards on the date of grant using the market price of common stock or the Black-Scholes option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations. The Company uses the straightline single-option method to recognize the value of stock-based compensation expense for all share-based payment awards. Stock-based compensation expense recognized in the consolidated statements of operations is reduced for estimated forfeitures, as it is based on awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Property and Equipment
Property and equipment are recorded at cost and depreciated over the estimated useful lives using the straight-line method of depreciation.
Recent Accounting Pronouncements
In May 2014, the FASB issued amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The requirements are effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. We are evaluating the impact of the amended revenue recognition guidance on our financial statements. Other recent accounting pronouncements issued by the FASB (including its EITF), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company’s financial statements.
NOTE 3 - GOING CONCERN
These unaudited consolidated financial statements have been prepared on a 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 $840,517 for the three months ended September 30, 2014, and an accumulated deficit of $49,390,484 and a working capital deficiency of $600,685 as of September 30, 2014 (fiscal year ended June 30, 2014 - $859,623). The Company has not yet commenced revenue-producing operations and has significant expenditure requirements to continue to advance research, developing and commercializing its conductive plastics technology, ElectriPlast. The Company estimates that, without further funding, it will deplete its cash resources within three months. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
These unaudited 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 and debt issuances to finance operations. If none of these events occur, there is a risk that the business will fail.
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 4 - PROPERTY AND EQUIPMENT
As of September 30, 2014 and June 30, 2014, property and equipment consisted of the following:
|
|
September 30,
2014
|
|
|
June 30, 2014
|
|
Equipment
|
|
$
|
99,025
|
|
|
$
|
98,975
|
|
Furniture and fixtures
|
|
|
96,279
|
|
|
|
96,279
|
|
Leasehold improvements
|
|
|
37,116
|
|
|
|
29,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232,420
|
|
|
|
224,821
|
|
Less: accumulated depreciation
|
|
|
(197,403
|
)
|
|
|
(197,000
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
35,017
|
|
|
$
|
27,821
|
|
Depreciation expense for the three months ended September 30, 2014 and 2013 was $403 and $0, respectively.
NOTE 5 - STOCKHOLDERS’ DEFICIT
Common stock
During the three months ended September 30, 2014, the Company completed 1 private placement:
|
(i) |
The private placement amounting to $108,620 for the issuance of 638,940 units consisting of common stock and warrants. 638,940 units were issued at $0.17 per unit. Warrants were issued at $0.001 per warrant to purchase 638,940 shares of common stock on or before January 1, 2016 at an exercise price of $0.30 per share. |
The Company determined that the warrants did not contain any provisions that would preclude equity treatment.
During the three month period ended September 30, 2014, the Company issued shares of common stock pursuant to consulting agreements as follows:
|
(i) |
50,000 shares measured at a fair value of $0.31 per share resulting in a total value of $15,250. |
|
(ii) |
850,000 shares measured at a fair value of $0.33 per share resulting in a total value of $280,500. $173,981 of the amount is being amortized over the eight month service period and $106,519 was recorded as selling, general, and administrative expenses. |
During the fiscal year ended June 30, 2014, the Company completed four private placements:
|
(i) |
The first private placement amounting to $13,400 for the issuance of 44,000 units consisting of common stock and warrants. 20,000 units were issued at $0.25 per unit and 24,000 units were issued at $0.35 per unit. Warrants were issued at $0.001 per warrant to purchase 88,000 shares of common stock on or before July 31, 2015 at an exercise price of $0.50 per share; and |
|
(ii) |
The second private placement amounting to $28,951 for the issuance of 144,757 units consisting of common stock at $0.20 per share and warrants at $0.001 per warrant to purchase 144,757 shares of common stock on or before September 13, 2015 at an exercise price of $0.60 per share; and |
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 5 - STOCKHOLDERS’ DEFICIT, CONTINUED
|
(iii) |
The third private placement amounting to $1,147,024 was received for subscriptions of 6,744,257 units consisting of common stock at $0.17 per share and warrants at $0.001 per warrant to purchase 6,744,251 shares of common stock on or before eighteen months after the closing date at an exercise price of $0.30 per share. Share issue costs of $88,610 have been accrued for; and |
|
(iv) |
The fourth private placement amounting to $210,000 for the issuance of 1,238,236 units consisting of common stock and warrants. 1,238,236 units were issued at $0.17 per unit. Warrants were issued at $0.001 per warrant to purchase 1,238,236 shares of common stock on or before December 1, 2015 at an exercise price of $0.30 per share. |
The Company determined that the warrants did not contain any provisions that would preclude equity treatment.
Share issue costs to complete private placements totaled $168,010.
During the fiscal year ended June 30, 2014, the Company issued shares of common stock pursuant to consulting agreements as follows:
|
(i) |
550,000 shares measured at a fair value of $0.50 per share |
|
(ii) |
250,000 shares measured at a fair value of $0.36 per share |
|
(iii) |
100,000 shares measured at a fair value of $0.30 per share |
|
(iv) |
500,000 shares measured at a fair value of $0.29 per share |
|
(v) |
185,000 shares measured at a fair value of $0.27 per share |
During the fiscal year ended June 30, 2014, the Company issued 541,666 shares of common stock for options vesting prior to the termination agreement (note 16(c)). The shares issued were measured at a fair value of $0.44 per share and recorded as shares issued for services in the statement of stockholders' deficit.
During the fiscal year ended June 30, 2014, the Company issued 3,379,734 shares of common stock in settlement of convertible debentures. The value of this stock was $1,122,933 ($0.33 per share) measured at fair market value on the date the shares were issued.
Preferred stock
The preferred stock may be issued in one or more series. The distinguishing features of each series, including preference, rights and restriction, are to be determined by the Company's Board of Directors upon the establishment of each such series.
During the year ended June 30, 2000, the Company designated 1,000,000 of its authorized 20,000,000 preferred shares as Series A convertible preferred stock with a par value of $0.001 each and a stated value and liquidation preference of $1.00 per share.
Cumulative dividends are accrued at the rate of 5% annually, payable in cash or shares of common stock at the option of the Company. The shares may be converted to restricted shares of common stock at the average trading price ten days prior to conversion and are entitled to votes equal to the number of shares of common stock into which each series of preferred stock may be converted. Each Series A convertible preferred share may be redeemed by the Company for $1.50 within one year after the date of issue and for $2.00, $2.50, $3.00, $3.50 and $4.00 in each of the subsequent five years after the date of issue, with the redemption price increasing by $0.50 each year thereafter. The Company may, at its discretion, redeem the shares at a price higher than stipulated herein.
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 5 - STOCKHOLDERS’ DEFICIT, CONTINUED
On November 8, 2012, a director of the Company resigned from his position as director and CEO of the Company. The Company agreed to redeem 70,588 shares of preferred stock held by the director at $4.25 per share for a total of $300,000.
On May 1, 2014, the Company entered into an amended agreement whereby the above mentioned liability, remaining preferred stock and stock options were exchanged for 750,000 shares of common stock valued at the share price of $0.26 per share in settlement of the remaining debt (Note 16(a)). On June 13, 2014 the remaining 103,567 preferred shares were converted into 382,151 shares of common stock As of September 30, 2014 and June 30, 2014 there are no outstanding preferred shares of stock.
Stock-based compensation
During the three months ended September 30, 2014, the Company recorded stock-based compensation expense with respect to vested stock options and warrants and modified stock options of $44,896 (2013 - $88,315) included in selling, general, and administrative expenses..
Stock-based compensation not yet recognized at September 30, 2014 relating to non-vested stock options and warrants was $510,938 and $0 (2013 - $9,454 and $0), which will be recognized over a period of 2.84 years (2013 - 0.36 and 0.00 years), respectively.
Stock options and restricted shares
In January 2001, the Company adopted the Integral Technologies, Inc. 2001 Stock Plan (the "2001 Plan"), a non-qualified stock option plan under which the Company may issue up to 2,500,000 stock options and bonuses of common stock of the Company to provide incentives to officers, directors, key employees and other persons who contribute to the success of the Company. This plan was amended during December 2001 to increase the number of common stock options that may be granted from 2,500,000 to 3,500,000 stock options. As of September 30, 2014, there were 764,500 (June 30, 2014 - 764,500) common stock options available under this plan.
In April 2003, the Company adopted the Integral Technologies, Inc. 2003 Stock Plan (the "2003 Plan"), a non-qualified stock option plan under which the Company may issue up to 1,500,000 stock options. As of September 30, 2014, there were 1,375,000 (June 30, 2014 - 1,375,000) common stock options available under this plan.
During the fiscal year ended June 30, 2010, the Company adopted the Integral Technologies, Inc. 2009 Stock Plan (the "2009 Plan"), a non-qualified stock option plan under which the Company may issue up to 4,000,000 common stock options. As of September 30, 2014, there were 500,000 (June 30, 2014 - 500,000) common stock options available under this plan.
During the fiscal year ended June 30, 2014, the Company entered into an agreement with an employee whereby the employee was granted 150,000 stock options at an exercise price equal to the fair market value on the date the options were granted of $0.25 per share. The option will be fully vested over a period of 3 years from the date of the employment, with 1/3 of the options vesting each anniversary date. The options have a term of five year.
During the fiscal year ended June 30, 2014, the Company entered into an agreement with an employee whereby 750,000 stock options were granted at an exercise price equal to the fair market value on the date the options were granted of $0.31 per share. 500,000 of the stock options remain unvested until certain milestones within the agreement are reached. All the options have a term of 3 years.
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 5 - STOCKHOLDERS’ DEFICIT, CONTINUED
Key assumptions
The fair value of the Company’s stock options was estimated on the measurement date using the Black-Scholes option pricing model with the following weighted average assumptions:
|
|
June 30,
2014
|
|
|
|
|
|
Expected life (years)
|
|
|
3.29
|
|
Interest rate
|
|
|
1.17
|
%
|
Volatility
|
|
|
104.25
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
Estimated forfeitures
|
|
|
0.00
|
%
|
Expected life: The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience and vesting schedules of similar awards.
Risk-free interest rate: The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on US Treasury zero-coupon issues with an equivalent remaining term.
Expected volatility: The Company’s expected volatility represents the weighted average historical volatility of the Company’s common stock for a period equal to the expected life of the options.
Expected dividend yield: The Black-Scholes valuation model calls for a single expected dividend yield as an input. The dividend yield is determined by dividing the expected per stock dividend for its common stock during the coming year by the grant date stock price of those stock. The expected dividend assumption is based on the Company’s current expectations about its anticipated dividend policy.
Estimated forfeitures: Represents the Company’s historical forfeitures and considers termination behavior as well as analysis of actual option forfeitures.
Stock option activity
The following summarizes information about the Company’s options outstanding:
|
|
Number of
Options
|
|
|
Price Per
Option
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, June 30, 2014
|
|
|
5,900,000
|
|
|
$
|
0.25 to $ 1.00
|
|
|
$
|
0.42
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(640,000
|
)
|
|
$
|
0.25 to $ 1.00
|
|
|
$
|
0.83
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2014
|
|
|
5,260,000
|
|
|
$
|
0.25 to $ 1.00
|
|
|
$
|
0.37
|
|
Exercisable, September 30, 2014
|
|
|
4,610,000
|
|
|
$
|
0.25 to $ 1.00
|
|
|
$
|
0.42
|
|
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 5 - STOCKHOLDERS’ DEFICIT, CONTINUED
A summary of the status of non-vested options as of September 30, 2014 is as follows:
|
|
Number of Options
|
|
|
Weighted Average
Grant Date Fair Value
|
|
|
|
|
|
|
|
|
Non-vested at June 30, 2014
|
|
|
650,000
|
|
|
$
|
0.30
|
|
Options granted
|
|
|
-
|
|
|
|
-
|
|
Options forfeited
|
|
|
-
|
|
|
|
-
|
|
Options vested
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-vested at September 30, 2014
|
|
|
650,000
|
|
|
$
|
0.30
|
|
There were no options granted during the three months ended September 30, 2014.
The following summarizes the options outstanding and exercisable:
|
|
|
|
|
Number of Options
|
|
Expiry Date
|
|
Exercise Price
|
|
|
September 30,
2014
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
March 9, 2014
|
|
$
|
0.25
|
|
|
|
-
|
|
|
|
125,000
|
|
June 1, 2014
|
|
$
|
0.85
|
|
|
|
-
|
|
|
|
100,000
|
|
July 31, 2014
|
|
$
|
1.00
|
|
|
|
-
|
|
|
|
415,000
|
|
October 15, 2014
|
|
$
|
0.50
|
|
|
|
100,000
|
|
|
|
100,000
|
|
November 15, 2014
|
|
$
|
1.00
|
|
|
|
100,000
|
|
|
|
100,000
|
|
December 1, 2014
|
|
$
|
0.50
|
|
|
|
75,000
|
|
|
|
75,000
|
|
December 1, 2014
|
|
$
|
0.85
|
|
|
|
100,000
|
|
|
|
100,000
|
|
December 31, 2014
|
|
$
|
1.00
|
|
|
|
110,000
|
|
|
|
110,000
|
|
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
|
|
|
|
75,000
|
|
|
|
75,000
|
|
June 1, 2015
|
|
$
|
0.85
|
|
|
|
100,000
|
|
|
|
100,000
|
|
December 1, 2015
|
|
$
|
0.50
|
|
|
|
75,000
|
|
|
|
75,000
|
|
December 1, 2015
|
|
$
|
0.85
|
|
|
|
100,000
|
|
|
|
100,000
|
|
June 1, 2016
|
|
$
|
0.50
|
|
|
|
75,000
|
|
|
|
75,000
|
|
June 1, 2016
|
|
$
|
0.85
|
|
|
|
100,000
|
|
|
|
100,000
|
|
June 30, 2016
|
|
$
|
0.25
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
December 1, 2016
|
|
$
|
0.50
|
|
|
|
75,000
|
|
|
|
75,000
|
|
December 1, 2016
|
|
$
|
0.85
|
|
|
|
100,000
|
|
|
|
100,000
|
|
February 19, 2017
|
|
$
|
0.31
|
|
|
|
750,000
|
|
|
|
750,000
|
|
June 1, 2017
|
|
$
|
0.50
|
|
|
|
75,000
|
|
|
|
75,000
|
|
January 13, 2019
|
|
$
|
0.25
|
|
|
|
50,000
|
|
|
|
50,000
|
|
January 13, 2020
|
|
$
|
0.25
|
|
|
|
50,000
|
|
|
|
50,000
|
|
January 13, 2021
|
|
$
|
0.25
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total outstanding
|
|
|
|
|
|
|
5,260,000
|
|
|
|
5,900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total exercisable
|
|
|
|
|
|
|
4,610,000
|
|
|
|
5,250,000
|
|
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 5 - STOCKHOLDERS’ DEFICIT, CONTINUED
The weighted average remaining contractual lives for options outstanding and exercisable at September 30, 2014 are 1.49 years and 1.23 years (September 30, 2013 - 1.85 and 1.60 years), respectively.
The aggregate intrinsic value of options outstanding and exercisable as at September 30, 2014 was $1,430,500 and $1,226,500 (September 30, 2013 - $833,750), respectively. 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.
Restricted stock
Restricted share activity during the three month period ended September 30, 2014 is summarized as follows:
|
|
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
per Share
|
|
Outstanding as of June 30, 2014
|
|
|
1,950,000
|
|
|
$
|
0.34
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2014
|
|
|
1,950,000
|
|
|
$
|
0.34
|
|
As of September 30, 2014, there was $510,938 of total unrecognized compensation costs related to the outstanding restricted shares, which is expected to be recognized over a weighted average period of 2.84 years.
A summary of the status of non-vested restricted shares as of September 30, 2014 is as follows:
|
|
Number of Restricted
Stock Awards
|
|
|
Weighted Average Grant
Date Fair Value
|
|
|
|
|
|
|
|
|
Non-vested at June 30, 2014
|
|
|
1,412,500
|
|
|
$
|
0.34
|
|
Awards granted
|
|
|
-
|
|
|
|
-
|
|
Awards forfeited
|
|
|
-
|
|
|
|
-
|
|
Awards vested
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-vested at September 30, 2014
|
|
|
1,412,500
|
|
|
$
|
0.34
|
|
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 5 - STOCKHOLDERS’ DEFICIT, CONTINUED
Stock purchase warrants
The following summarizes information about the Company’s stock purchase warrants outstanding:
|
|
Number of
Warrants
|
|
|
Price Per
Share
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2014
|
|
|
36,590,557
|
|
|
$
|
0.30 - $1.00
|
|
|
$
|
0.46
|
|
Issued
|
|
|
638,940
|
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
Expired
|
|
|
(4,766,164
|
)
|
|
$
|
0.70 - $1.00
|
|
|
$
|
0.72
|
|
Exercised (1)
|
|
|
(819,147
|
)
|
|
$
|
0.17
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2014
|
|
|
31,644,186
|
|
|
$
|
0.30 - $1.00
|
|
|
$
|
0.46
|
|
|
(1) |
During the three months ended September 30, 2014, 117,647 investor warrants exercisable at $0.60 were re-priced to $0.17 and were exercised for proceeds of $20,000 and 701,500 warrants exercisable at $0.50 were re-priced to $0.17 and were exercised for proceeds of $119,255. The re-pricing of warrants resulted in no additional expenses. |
|
|
|
|
|
Number of Warrants
|
|
Expiry Date
|
|
Exercise Price
|
|
|
September 30,
2014
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
July 17, 2014
|
|
$
|
0.31
|
|
|
|
-
|
|
|
|
300,000
|
|
August 31, 2014 (1)
|
|
$
|
0.60
|
|
|
|
-
|
|
|
|
2,129,999
|
|
August 31, 2014
|
|
$
|
0.70
|
|
|
|
-
|
|
|
|
799,709
|
|
September 30, 2014
|
|
$
|
0.50
|
|
|
|
-
|
|
|
|
3,808,604
|
|
November 30, 2014
|
|
$
|
0.50
|
|
|
|
100,000
|
|
|
|
100,000
|
|
January 31, 2015 (3)
|
|
$
|
0.50
|
|
|
|
3,750,000
|
|
|
|
4,150,000
|
|
February 28, 2015 (2)
|
|
$
|
0.50
|
|
|
|
4,262,857
|
|
|
|
5,049,356
|
|
February 28, 2015
|
|
$
|
0.30
|
|
|
|
287,881
|
|
|
|
249,382
|
|
May 25, 2015
|
|
$
|
0.50
|
|
|
|
12,645,696
|
|
|
|
10,952,548
|
|
July 31, 2015
|
|
$
|
0.50
|
|
|
|
88,000
|
|
|
|
88,000
|
|
September 13, 2015
|
|
$
|
0.30
|
|
|
|
1,263,568
|
|
|
|
235,715
|
|
September 13, 2015
|
|
$
|
0.60
|
|
|
|
44,757
|
|
|
|
144,757
|
|
October 1, 2015
|
|
$
|
0.30
|
|
|
|
7,044,251
|
|
|
|
7,044,251
|
|
December 1, 2015
|
|
$
|
0.30
|
|
|
|
1,238,236
|
|
|
|
1,238,236
|
|
January 1, 2016
|
|
$
|
0.30
|
|
|
|
638,940
|
|
|
|
-
|
|
November 29, 2016
|
|
$
|
0.70
|
|
|
|
300,000
|
|
|
|
300,000
|
|
Total outstanding
|
|
|
|
|
|
|
31,664,186
|
|
|
|
36,590,557
|
|
Total exercisable
|
|
|
|
|
|
|
31,664,186
|
|
|
|
36,590,557
|
|
|
(1) |
During the three months ended September 30, 2014, 117,647 investor warrants exercisable at $0.60 were re-priced to $0.17 and were exercised for proceeds of $20,000 and 701,500 warrants exercisable at $0.50 were re priced to $0.17 and were exercised for proceeds of $119,255. The re-pricing of warrants resulted in no additional expenses. |
|
(2) |
During the three months ended September 30, 2014, 301,500 warrants were re-priced to $0.17 and exercised immediately. |
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 5 - STOCKHOLDERS’ DEFICIT, CONTINUED
|
(3) |
During the three months ended September 30, 2014, 400,000 warrants were re-priced to $0.17 and exercised immediately. |
Share obligations
Pursuant to a consulting agreement dated August 19, 2013, the Company is obligated to pay $5,000 to $10,000 per month based on the number of hours worked and to issue 6,000 shares of common stock per month beginning September 1, 2013.
As of September 30, 2014, no shares have been issued. As such, a total of 42,000 shares of common stock are issuable. The obligation to issue shares of common stock was measured at a weighted average fair value of $0.35 per share on the date each series of shares became issuable. A total of $14,760 was recorded as an obligation to issue shares within equity and as consulting expense in the consolidated statements of operations during the fiscal year ended June 30, 2014. As of September 30, 2014 this amount is still recorded as an obligation to issue shares.
Pursuant to loan agreements dated December 19, 2013 and December 24, 2013, the Company was obligated to issue 50,000 shares. The obligation to issue shares of common stock was measured at a weighted average fair value of $0.30 per share on the date each series of shares became issuable. A total of $15,250 was recorded as an obligation to issue shares within equity. The shares were issued during the three months ended September 30, 2014.
Pursuant to a consulting agreement dated September 25, 2014 the Company is obligated to issue 400,000 shares of common stock. The obligation to issue shares was measured at a weighted average fair value of $0.56 per share on the date each series of shares became issuable. A total of $223,994 was recorded as an obligation to issue shares within equity.
NOTE 6 - RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
Fair value
The promissory note balance approximates fair value given that it was only recently entered into.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company’s financial asset that is exposed to credit risk consists of cash, which is placed with US and Canadian financial institutions.
Concentration of credit risk exists with respect to the Company’s cash, as certain amounts are held at US and Canadian financial institutions. The Company's cash and equivalents is as follows at September 30, 2014 and June 30, 2014:
|
|
September 30, 2014
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
Cash (US institution)
|
|
$
|
180,246
|
|
|
$
|
193,782
|
|
Cash (CDN institution)
|
|
|
950
|
|
|
|
5,995
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
181,196
|
|
|
$
|
199,777
|
|
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 6 - RISK MANAGEMENT AND FINANCIAL INSTRUMENTS, CONTINUED
All U.S. institution amounts are fully covered by FDIC insurance as of September 30, 2014 and June 30, 2014. Additionally, all CDN institution amounts are covered by CDIC insurance.
Interest rate risk
The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities.
Currency risk
The Company translates the results of non-US transactions into US dollars using rates of exchange on the date of the transaction. The exchange rate varies from time to time. This risk is considered nominal as the Company does not incur significant transactions in currencies other than US dollars.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due. The Company’s approach to managing liquidity risk is to provide reasonable assurance that it will have sufficient funds to meet liabilities when due. The Company manages its liquidity risk by forecasting cash flows required for operations and anticipated investing and financing activities.
The Company requires significant additional funding to meet its administrative overhead costs and maintain its research and development program in fiscal year 2015.
Financing transactions may include the issuance of equity securities, obtaining additional credit facilities, licensing proprietary technology or other financing mechanisms. However, the trading price of the Company’s common stock and the recent year’s slowdown in the United States economy has made it more difficult to obtain equity financing.
NOTE 7 - INCOME TAXES
There are no current or deferred tax expenses for the three months ended September 30, 2014 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. As of September 30, 2014, the Company had a net operating loss carry-forward of $12,686,000.
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 8 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
Three Months
Ended September
30, 2014
|
|
|
Three Months
Ended September
30, 2013
|
|
|
|
|
|
|
|
|
Changes in working capital
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
5,080
|
|
|
$
|
10,194
|
|
Accounts payable and accruals
|
|
|
(9,613
|
)
|
|
|
(35,581
|
)
|
Notes and accounts receivable
|
|
|
-
|
|
|
|
250,000
|
|
Deferred revenue and other
|
|
|
62,500
|
|
|
|
-
|
|
|
|
$
|
57,967
|
|
|
$
|
224,613
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
Services (provided by officers and directors)
|
|
|
-
|
|
|
|
122,500
|
|
Services and financing fees
|
|
|
106,519
|
|
|
|
226,625
|
|
Subscriptions received
|
|
|
491,000
|
|
|
|
143,769
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,751
|
|
|
$
|
-
|
|
NOTE 9 - LOSS PER SHARE
|
|
Loss
(Numerator)
|
|
|
Weighted
Average Number
of Shares
(Denominator)
|
|
|
Basic and
Diluted Loss
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2014
|
|
|
|
|
|
|
|
|
|
Net loss for period
|
|
$
|
(840,517
|
)
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to common shareholders
|
|
$
|
(840,517
|
)
|
|
|
99,824,249
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for period
|
|
$
|
(1,274,234
|
)
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
(3,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to common shareholders
|
|
$
|
(1,278,099
|
)
|
|
|
77,057,027
|
|
|
$
|
(0.02
|
)
|
Common share equivalents consisting of convertible preferred stock, convertible debentures, stock options and warrants are not considered in the computation of diluted loss per share because their effect would be anti-dilutive.
NOTE 10 - RELATED PARTY TRANSACTIONS
During the fiscal year ended June 30, 2014 the Company was involved in loan and extinguishment of debt transactions with various directors of the Company. These transactions are summarized in Notes 14(c), 15(a), 15(d), and 15(h). Also, as at September 30, 2014 $290,474 (June 30, 2014 - $330,474) was included in accounts payable and accruals owed to the Company's executives for outstanding managements fees, consulting fees and business related reimbursements, and are without interest or stated terms of repayment.
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 11 - SEGMENT INFORMATION
The Company operates primarily in one business segment, the development of electronically-conductive resin-based materials, with operations located in the US.
NOTE 12 - CONVERTIBLE DEBENTURES
As of June 30, 2014, the Company terminated convertible debenture purchase agreements with Asher Enterprises Inc. and JMJ Financial as follows:
|
(a) |
Asher Enterprises Inc. |
During the year ended June 30, 2012, the Company entered into a convertible debenture purchase agreement with Asher Enterprises Inc. The agreement has since resulted in eleven separate tranches being issued. Each tranche is due approximately nine months after their respective issuance. At June 30, 2014, there are no tranches outstanding.
The convertible debentures pay interest of 8% per annum and can be converted into common stock at the option of the holder at any time after 180 days following the date of issuance. Each debenture had a conversion price equal to 58% of the market price. Market price is defined as the average of the lowest three trading prices for the Company’s common stock during the ten day trading 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.
After the expiration of the 180 days following the date of issuance of the derivative, the Company will have no right of prepayment.
The liability component of the convertible debenture was measured at the present value with the embedded conversion feature being treated as a derivative liability with fair value measured at each reporting date.
During the year ended June 30, 2013, the Company entered into a convertible debenture purchase agreement with JMJ Financial (the “lender”). The total amount that may be borrowed is $500,000, which includes an upfront fee of 10%.
No interest will be applied to the principal balance for the first 90 days after cash advance. After the first 90 days, an interest charge of 12% will be immediately applied to the principal and the 10% upfront fee.
On delivery of consideration, the lender may convert all or part of the unpaid principal and upfront fee into common stock at its sole discretion. All balances outstanding have a variable conversion price equal to the lesser of $0.35 or 60% of the market price. The market price is defined as the lowest trade price in the 25 days prior to the conversion date. The lender is limited to holding no more than 4.99% of the issued and outstanding common stock at the time of conversion.
After the expiration of 90 days following the delivery date of any consideration, the Company will have no right of prepayment.
The liability component of the convertible debenture was measured at the present value with the embedded conversion feature being treated as a derivative liability with fair value measured at each reporting date.
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 12 - CONVERTIBLE DEBENTURES, CONTINUED
The Company entered into $345,000 (2013 - $377,498) of new tranches during the year ended June 30, 2014. $323,405 (2013 – $210,576) of the advances were allocated to the derivative liability at fair value on day of advance. Interest of $360,060 (2013 - $112,330) accrued on the tranches during the year ended June 30, 2014.
During the year ended June 30, 2014, $660,466 (2013 - $139,000) of convertible debentures were extinguished including accrued interest and any prepayment penalty by issuing 3,379,734 (2013 - 930,382) shares of common stock of the Company, and $1,122,933 (2013 - $252,456) representing the fair value of the derivative liabilities and the amortized cost of convertible debentures settled was included as additional paid-in capital. During the year ended June 30, 2014, $171,648 (2013 - $78,500) of convertible debentures were settled by paying $321,132 (2013 - $120,865) for principal, accrued interest, and any prepayment penalty. The extinguishment resulted in a net loss of $150,076 recorded in other expenses in the consolidated statements of operations for the period ended June 30, 2014.
The Company recorded $58,286 of interest expense and $103,842 of unrealized loss on the fair value of the derivative liability for convertible debentures during the three month period ending September 30, 2013.
The fair values of the derivative financial liabilities are calculated using the Black-Scholes valuation method at the consolidated balance sheet dates.
The following weighted average assumptions were used in determining the fair values of the derivative financial liabilities outstanding at inception:
|
|
2014
|
|
|
2013
|
|
Expected life (years)
|
|
|
0.87
|
|
|
|
0.76
|
|
Interest rate
|
|
|
1.10
|
%
|
|
|
0.71
|
%
|
Volatility
|
|
|
80.46
|
%
|
|
|
62.80
|
%
|
Dividend yield
|
|
|
N/
|
A
|
|
|
N/
|
A
|
Estimated forfeitures
|
|
|
N/
|
A
|
|
|
N/
|
A
|
NOTE 13 - PROMISSORY NOTES PAYABLE
During the fiscal year ended June 30, 2014, the Company entered into the following promissory note payable agreements:
|
(a) |
On December 19, 2013 and December 24, 2013, the company entered into one-month unsecured promissory notes payable totaling $25,000 and $35,000, respectively, which bore interest at 12% annually. Any unpaid principal and unpaid accrued interest is due January 19, 2014 and January 24, 2014, the maturity dates. In addition, the Company must issue 25,000 shares of common stock at each maturity date to settle the promissory notes. During the fiscal year ended June 30, 2014, the promissory notes payable were repaid, therefore the outstanding balance was $0. The shares were issued during the three months ended September 30, 2014. |
|
(b) |
On October 1, 2013, the Company entered into a unsecured promissory note agreement with a consultant for unpaid fees of $215,000, which bears interest at 6% annually. On April 17, 2014 the Company issued 1,264,706 shares of common stock valued at the fair market price of $0.17 per share. As of June 30, 2014, the outstanding balance on this note was $0. |
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 13 - PROMISSORY NOTES PAYABLE, CONTINUED
|
(c) |
On February 1, 2014, the Company entered into a unsecured promissory note agreement with a director for unpaid consulting fees of $300,000, which bears interest at 6% annually. Any interest accrued on the outstanding balance is due at the maturity date, February 1, 2016. $5,000 is payable on the first of each month beginning March 1, 2014 through to March 1, 2015. The final payment of $272,234 consisting of principal and accrued interest is due on the maturity date. As of September 30, 2014 and June 30, 2014, the balance of the outstanding note was $279,000 and $289,500, respectively. |
During the three months ended September 30, 2014, the Company entered into the following promissory note payable agreement:
|
(a) |
The principal amount of the promissory note totaled $50,000, which bears interest at 0% annually. Any unpaid principal is due October 20, 2014 the maturity date. If the Company defaults in payment by more than 30 days from the due date, a late payment fee of $5,000 will be assessed to the Company. In addition, the Company must issue 20,000 shares of restricted common stock at the maturity date. |
Total outstanding promissory notes as of September 30, 2014 and June 30, 2014 is as follows:
|
|
September 30,
2014
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
Current (due in 2015)
|
|
$
|
110,000
|
|
|
$
|
60,000
|
|
Non-current (due in 2016)
|
|
|
219,000
|
|
|
|
229,500
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
329,000
|
|
|
$
|
289,500
|
|
NOTE 14 - DEFERRED REVENUE
On June 21, 2013, the Company signed a ten year license agreement with Hanwha L&C, of South Korea. The agreement grants Hanwha L&C exclusive rights to sell, distribute and manufacture Integral's patented line of conductive plastics, ElectriPlast, in South Korea, as well as non-exclusive sales and distribution rights to ElectriPlast for Japan, Taiwan and the China markets.
The agreement called for license fees as follows:
|
· |
$250,000 (received) to be paid to the Company within 15 business days; and |
|
· |
$250,000 (received) payment to be paid to the Company no later than one year after signing the agreement. |
The payments have been recorded as deferred revenue, which will be recognized as license fee revenue in the consolidated statements of operations over the life of the ten year contract. During the three months ended September 30, 2014, $12,500 (three months ended September 30, 2013 - $0) has been recognized as revenue.
The Company had previously conducted a series of engineering tests with East Penn Deka to evaluate the use of ElectriPlast in new applications. Based on favorable outcome of the those tests, the Company entered into an initial Development and Supply Agreement contract on August 14, 2014 between the Company and East Penn Manufacturing. The Company received a Development and Supply Fee in the amount of $150,000. Based upon the terms of the contract, $75,000 has been recorded as revenue during the three months ended September 30, 2014. The balance of $75,000 has been recorded as deferred revenue as of September 30, 2014 and it is anticipated that it will be brought into revenue for the three-month period ended December 31, 2014.
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 14 - DEFERRED REVENUE, CONTINUED
As of September 30, 2014 and June 30, 2014, the remaining deferred revenue was as follows:
|
|
September 30,
2014
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
125,000
|
|
|
$
|
50,000
|
|
Non-current
|
|
|
408,333
|
|
|
|
420,833
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
533,333
|
|
|
$
|
470,833
|
|
NOTE 15 - EXTINGUISHMENT OF DEBT
During the three months ended September 30, 2014 and 2013, the following debts were extinguished:
|
(a) |
On June 13, 2013, the Company signed a separation agreement with a consultant resulting in a termination of consulting services effective December 31, 2012. As a result of the termination, the Company was required to issue the following: |
|
(i) |
541,666 common shares pursuant to a restricted stock award agreement for options vesting prior to the agreement date. These shares were issued during the three months ended September 30, 2013 and were measured at a fair value of $0.44 per share. |
|
(ii) |
628,571 common shares in consideration for unpaid fees of $243,000. The modified consulting fees were recorded at the fair value of shares to be issued of $352,000 as at June 30, 2013 which were included in accounts payable and accruals. The increase in value of modified debt of $109,000 was recognized as a loss on extinguishment of liabilities in the consolidated statements of operations for the year ended June 30, 2013. During the three months ended September 30, 2013, 628,571 shares were issued to settle the above mentioned consulting fees which were re-measured at a fair value of $0.44 per share on the share issuance date. A total of $276,571 was recorded as equity with the decrease in value of extinguished debt of $75,429 recorded as a recovery of loss on extinguishment of debt in the consolidated statements of operations. |
NOTE 16 - LEASE AGREEMENTS
During the three months ended September 30, 2014 and 2013, rent expense was $5,508 and $21,888, respectively. Effective July 1, 2013 the Company entered into a lease agreement whereby the Company is the lessee of office space. The agreement expires on June 30, 2018, and monthly payments are $2,500. Future minimum lease payments are as follows:
2015
|
|
$
|
22,500
|
|
2016
|
|
|
30,000
|
|
2017
|
|
|
30,000
|
|
2018
|
|
|
30,000
|
|
|
|
|
|
|
|
|
$
|
112,500
|
|
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 17 – LOAN PAYABLE
During the fiscal year ended June 30, 2014, the Company entered into a financing arrangement to cover directors’ and officers’ liability insurance for the period December 31, 2013 to December 31, 2014. The amount financed was $61,474, which bears interest at 3.75% annually. Monthly payments of $5,814 are required to settle amounts owing. The balance outstanding at September 30,2014 and June 30, 2014 was $4,668 and $15,342, respectively. This amount is included in accounts payable and accruals on the consolidated balance sheet.
NOTE 18 - SUBSEQUENT EVENTS
In accordance with Accounting Standards Codification Topic No. 855 Subsequent Events, the Company has evaluated subsequent events through the time between the end of the reporting period and the time this Quarterly Report on Form 10-Q for the three months ended September 30, 2014 was filed. The following subsequent events occurred:
|
(a) |
Prior to September 30, 2014, subscriptions were received in the amount of $305,478 for 1,796,925 units, each unit consisting of one share of common stock at $0.17 and one warrant at $0.001. Each warrant entitles the holder to purchase one share of common stock on or before eighteen months after the closing date at an exercise price of $0.30. These shares were issued subsequent to September 30, 2014. |
|
(b) |
Also, prior to September 30, 2014, the Company received $185,522 for subscriptions for 742,087 shares of the Company’s common stock at a price of $0.25 per share. These shares were issued subsequent to September 30, 2014. |
This quarterly report on Form 10-Q and other reports (collectively, the “Filings”) filed by Integral Technologies, Inc. (“Integral” or the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Statements contained herein that are not historical facts are forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. 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 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, 2014 as filed with the Securities and Exchange Commission on September 30, 2014, and available at www.sec.gov. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
This discussion and analysis should be read in conjunction with our consolidated 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, except as required by law.
Integral focuses the majority of its resources on researching, developing and commercializing its ElectriPlast® technologies. The technology possesses a multitude of applications in a myriad of industries. These include the auto industry, the aerospace, consumer electronics, and commercial aviation industries, among others. One key factor that could drive demand for ElectriPlast is the need for light-weighting. Automotive and aerospace are leading the way to achieve reduced emissions and increased fuel economy. Light-weighting involves the substitution of lighter materials, often times using carbon-fiber based, for heavier (aluminum and other metals) materials.
In addition, Integral allocates resources to expand and protect the extensive intellectual property holdings surrounding its ElectriPlast® technology. Integral’s business strategy focuses on the leveraging of its intellectual property rights its our strength in product design and material innovation. Integral is focusing its business development and marketing efforts on securing licensing and/or joint development agreements in areas for which it currently hold patents covering specific materials, components, parts, applications or end-products incorporating conductive resins and ElectriPlast technology. Integral collaborates with suppliers, Tier1 vendors, OEM's and manufacturers of products who would benefit from the incorporation of any of the ElectriPlast® applications.
ElectriPlast® is an innovative, electrically and thermally 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, is non-corrosive, and can serve as an electrically conductive alternative material to metal.
Various examples of applications for ElectriPlast® where Integral holds patent protection are: antennas, electronics shielding, lighting/LED circuitry, motors, switch actuators, resistors, medical devices, thermal management, toys and cable connector bodies, among others. We have been working to introduce these new applications and the ElectriPlast® technology on a global scale.
During the quarter, several steps were taken by the Company to mature certain client relationships and applications while also addressing on-going funding requirements. On September 25, 2014 the Company announced the signing of a development and supply agreement with East Penn Manufacturing Co.,. East Penn operates the largest single-site, lead-acid battery manufacturing facility in the world and is a proven leader in custom wire and cable solutions. Under the terms of the contract ElectriPlast will provide engineering and design services, materials and finished products to East Penn.
The Company announced that it is expanding its manufacturing agreement with longtime manufacturer, Jasper Rubber Products, Inc., allowing Jasper to manufacture ElectriPlast at more than one facility. This step was necessary in order to demonstrate to key customers, that the Company has the capacity to support their demand, which may require manufacturing capacity in addition to Jasper's existing facility, In Asia, the Company introduced ElectriPlast technology to an automotive power supply company that provides its products to some of the world's largest Hybrid Electric Vehicle (HEV) and Electric Vehicles (EV) companies. Additionally, the Company met in Shanghai with global innovation engineers to further the commercialization process with current projects being developed in the U.S.
Funding remains a priority for the Company, and during the quarter $580,250 were raised through a combination of stock warrant exercises, subscriptions received, and limited new share placements. In Subsequent Events, the Company describes additional capital inflows.
Integral’s intellectual property portfolio consists of over fourteen years of accumulated research and design knowledge and trade secrets. The Company has sought United States (“US”) patent protection for many of its ideas related to our ElectriPlast® technologies. Currently, we have filed 116 non-provisional US patent applications, 55 of which have been issued as patents, with 51 of those issued patents not yet expired. 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 116 non-provisional applications filed that have not issued as patents, 9 are currently pending, and 52 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 has filed 12 Canadian patent applications, 2 of which have issued, with 10 no longer being active. Integral has filed an International patent application, which was published on September 25, 2014.
To date we have recorded nominal revenues. Although the Company has begun to receive some revenue from the sale of material for commercial applications, the Company is devoting substantially all of its efforts to developing the business. From inception on February 12, 1996 through September 30, 2014, we have accrued an accumulated deficit of approximately $49.4 million.
As of September 30, 2014, our assets were $408,945, consisting of cash of $181,196, prepaid expense of $192,732 and fixed assets of $35,017.
As of September 30, 2014, current liabilities of $974,613 consisting of accounts payable and accruals of $739,613, deferred revenue of $125,000, and a promissory note of $110,000. Non-current liabilities consist of notes payable of $219,000 and deferred revenue of $408,333.
As of September 30, 2014, total stockholders' deficit was $ 1,193,001.
Results of Operations of the Three Months Ended September 30, 2014 compared to the Three Months Ended September 30, 2013
Our net loss for the three months ended September 30, 2014, was $840,517 compared to a net loss of $1,289,694 for the corresponding period of the prior fiscal year, a reduction of $449,177. Revenue of $90,782 for the current quarter ended September 30, 2014 included the addition of $75,000 of engineering services revenue associated with the East Penn Manufacturing Co.(Deka) agreement, $12,500 of license revenue arising from the current quarter amortization of the $500,000 payment by Hanwha L&C Corp. to the Company for the 10-year license extended by the Company to Hanwha as of September 30, 2013, and $3,282 of revenue associated with sales of ElectriPlast. Operating expenses for the quarter ended September 30, 2014, after the one-time charges to obligations to issue shares, were reduced from the quarter ending September 30, 2013. Interest Expense decreased $59,433 in the current quarter ended September 30, 2014 due to the elimination of convertible promissory notes compared to the corresponding quarter ending September 30, 2013.
Without making adjustments for the items described above, the decrease in our net loss between the corresponding periods is primarily attributable to the increase in revenue associated with the East Penn Deka agreement, licensee fee revenue associated with the recognition of Hanwha deferred revenue in the current quarter, ElectriPlast sales, and a reduction of selling, general, and administrative expenses of $253,717. In the quarter ending September 30, 2014, consulting expenses decreased by $566,877, a redefinition of certain salaries and benefits as a separate category increased salaries and benefits by $229,730, research and development decreased by $7,847, bank charges and interest decrease by $59,433 and gain on extinguishment of debt was $0 compared to a recovery of $75,429 for the three months ended September 30, 2013.
Selling, general, and administrative fees (comprised of consulting, salaries and benefits, and other G&A expense) for the three months ended September 30, 2014 of $909,233, includes non-cash, stock based compensation charges for options and restricted stock previously granted of $44,896 and shares issued for services of $106,519. This is compared to selling, general, and administrative fees of $1,162,950 in the corresponding period of the prior fiscal year that included non-cash, stock based compensation charges for options granted of $88,663 and shares issued for services of $513,333. As described in the notes to the financial statements, the fair value of options granted were valued using the Black-Scholes option pricing model.
Consulting fees of $324,786, includes non-cash, stock based compensation charges for options of zero and shares issued for services of $106,519. This is compared to consulting fees of $891,663 provided in the corresponding period of the prior fiscal year that included non-cash, stock based compensation charges for options granted of $88,663 and shares issued for services of $513,333. As described in the notes to the financial statements, the fair value of options granted were valued using the Black-Scholes option pricing model.
Salaries and benefits incurred of $284,730 for the three months ending September 30, 2014, compared to $55,000 in the corresponding period of the prior fiscal year and, stock based compensation charges for options and restricted stock previously granted of $44,896 compared to 0 in the corresponding period of the prior fiscal year.
Other general and administrative expense incurred of $299,717 for the three-month period ended September 30, 2014, compared to other general and administrative expense of $216,287 during the corresponding period of the prior fiscal year. For the period ended September 30, 2014, compared to the period ended September 30, 2013, other general and administrative items includes legal & accounting fees of $178,592 as compared to $105,398, travel and entertainment expenses of $25,202 as compared to $40,600, and other miscellaneous general and administrative items of $95,923 compared to $70,289.
Bank charges and interest expense of $2,655 includes interest incurred on the promissory notes for the three month period ended September 30, 2014, compared to amortization of convertible debt of $58,286 provided in the corresponding period of the prior fiscal year.
There have been no material changes to our critical accounting policies as described in Item 9 of our most recent annual report on Form 10-K for the year ended June 30, 2014, as filed with the Securities and Exchange Commission on September 30, 2014.
Since inception we have funded our operations through capital fundraising, issuance of convertible debt, and loans from management. As of September 30, 2014, we had $181,196, in cash on hand as compared to $199,777 as of June 30, 2014.
Net cash provided by financing activities for the three months ended September 30, 2014 consisted of proceeds from promissory notes of $50,000, subscriptions received of $491,000, and proceeds from issuance of common stock of $89,250.
Based on our current cash and cash equivalents levels and expected cash flow from operations, we believe our current cash position is not sufficient to fund our cash requirements during the next twelve months, including operations and capital expenditures. We intend to license our proprietary technology and services or obtain equity and/or debt financing to support our current and proposed operations and capital expenditures. We executed a supply and manufacturing agreement with East Penn Manufacturing and received a $150,000 payment as engineering services revenue. Additional financing may not be available on satisfactory terms when required. In addition, the trading price of our common stock and a downturn in the equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. We currently have no firm commitments for any additional capital. There is no guarantee that we will be successful in raising the funds required. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.