UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2002 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from: __________ to ___________ Commission file number: 0-28353 ------- INTEGRAL TECHNOLOGIES, INC. - -------------------------------------------------------------------------------- (Name of small business issuer as specified in its charter) Nevada 98-0163519 - ----------------------------------- ------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 805 W. Orchard Drive, Suite 3, Bellingham, Washington 98225 - --------------------------------------------------------- --------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number: (360) 752-1982 -------------- Securities registered under Section 12(b) of the Exchange Act: None ---- Securities registered under Section 12(g) of the Exchange Act: Common Stock ------------ Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year. $27,686. ------- As of September 30, 2002, the aggregate market value of the voting stock held by non-affiliates, approximately 26,905,196 shares of Common Stock, was approximately $18.8 million based on an average of the bid and ask prices of approximately $0.70 per share of Common Stock on such date. The number of shares outstanding of the issuer's Common Stock, $.001 par value, as of September 30, 2002 was 30,787,562 shares. DOCUMENTS INCORPORATED BY REFERENCE: None. Transitional Small Business Disclosure Format (check one): Yes [ ]; No [X] PART I ------ CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS Readers of this document and any document incorporated by reference herein, are advised that this document and documents incorporated by reference into this document contain both statements of historical facts and forward looking statements. Forward looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially for those indicated by the forward looking statements. Examples of forward looking statements include, but are not limited to (i) projections of revenues, income or loss, earning or loss per share, capital expenditures, dividends, capital structure and other financial items, (ii) statements of the plans and objectives of the Company or its management or Board of Directors, including the introduction of new products, or estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, (iii) statements of future economic performance, and (iv) statements of assumptions underlying other statements and statements about the Company or its business. This document and any documents incorporated by reference herein also identify important factors which could cause actual results to differ materially from those indicated by forward looking statements. These risks and uncertainties include price competition, the decisions of customers, the actions of competitors, the effects of government regulation, possible delays in the introduction of new products and services, customer acceptance of products and services, the Company's ability to secure debt and/or equity financing on reasonable terms, and other factors which are described herein and/or in documents incorporated by reference herein. The cautionary statements made above and elsewhere by the Company should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company. Forward looking statements are beyond the ability of the Company to control and in many cases the Company cannot predict what factors would cause results to differ materially from those indicated by the forward looking statements. ITEM 1. DESCRIPTION OF BUSINESS. - ------------------------------------ BUSINESS DEVELOPMENT - --------------------- Integral Technologies, Inc. ("Integral," the "Company" or the "Registrant") is a development stage company, incorporated under the laws of the State of Nevada on February 12, 1996. To date, Integral, directly and through its subsidiaries, has expended its resources on the research and development of several different types of technologies. Presently, Integral is focusing substantially all of its resources on the researching, developing and commercializing of new antenna technologies directly and through its wholly-owned subsidiary, Antek Wireless, Inc. EMPLOYEES - --------- Integral and its subsidiaries currently employ a total of 5 people on a full-time basis. Research and development activities are conducted primarily by two employees. However, Integral also relies on the expertise of several technical advisors who are consulted as needed on a part-time, contract basis. SUBSIDIARIES - ------------ SUBSIDIARY - ANTEK WIRELESS, INC. --------------------------------- Antek Wireless, Inc. ("Antek"), a wholly-owned subsidiary of Integral, was incorporated in the State of Delaware on November 2, 1999 as NextAntennas.Com, Inc. The change of name to Antek became effective July 7, 2000. Antek develops and commercializes new antenna technologies. The focus of Antek will be to 1 continue to develop and commercialize new antenna technologies designed to meet the needs of the wireless telecommunications industry. Antenna Products The Company expects to now be able to focus its marketing efforts through to the end of calendar 2003 on two primary wireless market segments. The Company's Plastenna technology will be marketed to manufacturers of such wireless devices as cellular phones, portable phones, paging communicators, satellite communications, global positioning systems (GPS) and wireless based networks. The Company's GPS/LEO antenna is for use in mobile asset tracking and fleet management, utilizing GPS satellite tracking and low earth orbit (LEO) satellite data communications to trucking fleets, heavy equipment, marine vessels, railway cars, shipping containers, transit vehicles, all via satellite interface communications. Plastenna The Company has developed and prototyped a new antenna technology. The pioneering aspect of the Plastenna technology is that it opens the doors to vast new horizons in antenna design and manufacturing processes. The combination of the Company's proprietary recipe of conductive materials, and a selection of resins from various resin suppliers results in a covert moldable antenna, that can become part of the shell or case of any wireless device, be it phones, radios, or even body parts of vehicles, or new designs for conventional antennas as we know them today. Our research indicates that the Plastenna technology vastly improves design flexibility, increases signal performance, reduces manufacturing costs, and shows a marked reduction in power consumption. GPS/LEOS Antenna Integral has recently finalized the development of a "ruggedized" GPS/LEO antenna, measuring only 13.25 inches by 9.90 inches, and .870 inches in height. The term "ruggedized" is used to describe the durability of this antenna, that is to say it can withstand the elements and yet endure significant shock and vibration effects. This antenna is for use in mobile asset tracking and fleet management, utilizing GPS satellite tracking and LEO satellite data communications to trucking fleets, heavy equipment, marine vessels, railway cars, shipping containers, transit vehicles, all via satellite interface communications. Integral continues to advance to the next stage of the commercialization of its proprietary antenna technologies. The Company's Plastenna and GPS/LEO antenna technologies are currently undergoing pilot projects with a number of wireless companies around the world. Flat Panel Antennas The Comapny has also been developing several new flat panel antenna designs for use in different wireless technology markets. Patents on Antenna Technologies - ---------------------------------- Integral has completed a patent review of the antenna technologies and has filed eight U.S. patent applications, five of which are currently provisional patents, one is pending approval, and two have been approved. No assurances can be given that all patent applications will be approved; however, to the extent that patents are not granted, Integral will continue to attempt to commercialize these technologies without the protection of patents. As patents are issued, Integral will have the exclusive right to use in the U.S. the antenna design(s) described in each issued patent for the 18-year life of the patent. The Company's intellectual property portfolio consists of over seven years of accumulated research and design knowledge and trade secrets relating to antenna design & components as well as proprietary manufacturing processes. 2 Product Manufacturing and Distribution - ----------------------------------------- The Company is not in the manufacturing business. The Company relies on third-party manufacturing companies to manufacture antenna products. The Company's antenna products will not be sold directly to the general public, but rather to businesses and manufacturers who will use the antennas in their products. Barriers to Entry into Market Segment - ------------------------------------------ In the antenna market, Integral will be competing with other established antenna providers that are much larger and better capitalized than Integral. In order to compete, management believes that Integral must demonstrate to potential users that its antenna products have an advantage over other antennas on the market in terms of performance and cost. SUBSIDIARY - EMERGENT TECHNOLOGIES CORP. ---------------------------------------- Emergent Technologies Corp. ("Emergent") was incorporated in the State of West Virginia on September 29, 1995 for the purpose of developing the Contrawound Toroidal Helical Antenna ("CTHA") for commercialization to government and/or military applications worldwide. Emergent's rights to commercialize the CTHA technology is limited to these applications. Integral owns a 76.625% equity interest in Emergent. The CTHA technology was created at the Center for Industrial Research Applications ("CIRA"), a research center run by West Virginia University Research Corporation ("WVURC"), which is a subsidiary of West Virginia University ("WVU"). Integral does not intend to pursue further development of CTHA technology and is focusing its research and development resources on other antenna technologies. SUBSIDIARY - INTEGRAL VISION SYSTEMS INC. ----------------------------------------- Integral Vision Systems Inc. ("Integral Vision") was incorporated in the State of West Virginia on January 20, 1994, for the purpose of researching, developing and commercializing certain 2D and 3D Color Machine Vision technology. This technology was created at the Center for Industrial Research Applications ("CIRA"), a research center run by West Virginia University Research Corporation ("WVURC"), which is a subsidiary of West Virginia University ("WVU"). Integral owns 100% of Integral Vision. Integral does not intend to pursue further development of the 2D and 3D Color Machine Vision technology and is focusing its research and development resources on antenna technologies. TECHNOLOGY UNDER LICENSE DIRECTLY BY INTEGRAL - RF PLASMA INJECTION SYSTEM -------------------------------------------------------------------------- (NEW SPARK PLUG) ---------------- Integral has directly (rather than through subsidiaries) acquired the rights to commercialize the RF Plasma Ignition System technology, This technology was created at the Center for Industrial Research Applications ("CIRA"), a research center run by West Virginia University Research Corporation ("WVURC"), which is a subsidiary of West Virginia University ("WVU). Integral does not intend to pursue further development of the RF Plasma Ignition System technology and is focusing its research and development resources on antenna technologies. INVESTMENT AGREEMENT WITH SWARTZ PRIVATE EQUITY, LLC ---------------------------------------------------- On May 11, 2000, the Company entered into an Investment Agreement and a Registration Rights Agreement with Swartz Private Equity, LLC ("Swartz"). Pursuant to the terms of the Investment Agreement, the Company may, in its sole 3 discretion and subject to certain restrictions, periodically sell ("Put") shares of its common stock for up to $25,000,000 to Swartz, beginning on the effective registration of such Put shares and continuing for a period of thirty-six (36) months thereafter. The Investment Agreement allows the Company to choose to sell common stock to Swartz at times which it decides is advantageous. The Investment Agreement is not a debt instrument. Any Put exercised by the Company is a sale of common stock and not a loan. PUT RIGHTS. An advance put notice must be delivered to Swartz at least ten business days prior to the date that the Company intends to sell the common stock to Swartz. The advance put notice must state the put date as well as the number of shares of common stock that the Company intends to put to Swartz. At the Company's option, the notice may also state a minimum purchase price per share which cannot be greater than 80% of the closing bid price of its common stock on the date of the advance put notice. After the registration statement is declared effective, the number of shares of common stock sold to Swartz in a put may not exceed the lesser of (i) the maximum put amount set forth in the Company's Advance Put Notice; (ii) $2,000,000 worth of common stock; (iii) 15% of the aggregate reported trading volume of the Company's common stock, excluding block trades of 20,000 or more shares of its common stock, during the 20 business days after the date of the Company's put notice, excluding any trading days in which the common stock trades below a minimum price, if any, that the Company specifies in its put notice; (iv) 15% of the aggregate daily reported trading volume of the Company's common stock, excluding block trades of 20,000 or more shares of its common stock, during the 20 business days before the put date; or (v) a number of shares that, when added to the number of shares acquired by Swartz under the investment agreement during the 31 days preceding the put date, would exceed 9.99% of the Company's total number of shares of common stock outstanding (as calculated under Section 13(d) of the Securities Exchange Act of 1934). PUT PRICE. The purchase price for the Put Shares will be equal to the lesser of the Market Price for such Put minus $.25 or 91% of the Market Price (lowest closing bid price for the Common Stock on the principal market during the twenty day pricing period following the date of the Put Notice), but in no event can it be less than our designated minimum put share price, if any, as set forth in the Advance Put Notice. PURCHASE WARRANTS. At the time of each Put, Swartz will be issued a Purchase Warrant which will give the holder the right to purchase up to ten percent (10%) of the number of Put shares issued to Swartz in that Put. Each Purchase Warrant will be exercisable at a price equal to 110% of the Market Price for such put. Each Purchase Warrant will be immediately exercisable and will terminate on a date which is five years after the date of issuance. The terms of the Purchase Warrants allow for a non-cash exercise (so long as the shares underlying the warrants are not registered pursuant to an effective registration statement). Each Purchase Warrant contain a reset provision, whereby the exercise price may be lowered to 110% percent of the five-day average of the Market Price on every six-month anniversary of the issuance date. The shares underlying the Purchase Warrants are registered pursuant to the registration statement. COMMITMENT WARRANTS. In partial consideration of the Investment Agreement, we issued warrants to Swartz (the "Commitment Warrants") to purchase 495,000 shares of our Common Stock. Each Commitment Warrant is immediately exercisable and terminates five years after the date of issuance. Each Commitment Warrant contain a reset provision, whereby the exercise price may be lowered to 110% percent of the five-day average of the Market Price on every six-month anniversary of the issuance date. The shares underlying the Commitment Warrants are registered pursuant to the registration statement. As of June 30 ,2002, the adjusted exercise price of the Commitment Warrants is $.50 per share. SHORT SALES. Swartz and its affiliates are prohibited from engaging in short sales of our Common Stock unless they have received a Put Notice and the amount of shares involved in a short sale does not exceed the number of shares specified in the Put Notice. 4 CANCELLATION OF PUTS. The Company must cancel a particular put if between the date of the advance put notice and the last day of the pricing period: - - The Company discovers an undisclosed material fact relevant to a shareholder's investment decision; - - the registration statement registering resales of the Common Shares becomes ineffective; or - - shares are delisted from the then primary exchange. The pricing period for that Put shall end as of the preceding business day, and the Put shall remain effective for the shortened pricing period. NON-USAGE FEE. If the Company has not put a minimum of $1,000,000 in aggregate Put Dollar Amount during any six month period of time during the term of the Investment Agreement, the Company will be required to pay Swartz a non-usage fee equal to the difference of $100,000 minus 10% of the aggregate Put Dollar Amount of the Put Shares put to Swartz during such six month period. In the event that the Company delivers a termination notice to Swartz or an automatic termination occurs, the Company must pay Swartz a termination fee the greater of the non-usage fee for the applicable period or the difference of $200,000 minus 10% of the aggregate Put Dollar Amount of the Put Shares put to Swartz during all Puts to such date. The accrued non-usage fees as of August 9, 2002 are $104,542. SHAREHOLDER APPROVAL. The Company may issue more than 20% of our outstanding shares. If the Company becomes listed on the Nasdaq Small Cap Market or Nasdaq National Market, then it must get shareholder approval to issue more than 20% of its outstanding shares. Since the Company is currently a bulletin board company, it does not need shareholder approval. TERMINATION OF INVESTMENT AGREEMENT. The Company may also terminate its right to initiate further puts or terminate the Investment Agreement by providing Swartz with notice of such intention to terminate; however, any such termination will not affect any other rights or obligations the Company has concerning the Investment Agreement or any related agreement. RESTRICTIVE COVENANTS. During the term of the Investment Agreement and for a period of six months thereafter, the Company is prohibited from certain transactions. These include the issuance of any equity securities in a private transaction, or any debt in a private transaction which are convertible or exercisable into shares of Common Stock at a price based on the trading price of the Common Stock. The Company is also prohibited from entering into any private equity line type agreements similar to the Investment Agreement without obtaining Swartz's prior written approval. RIGHT OF FIRST REFUSAL. Swartz has a right of first refusal to purchase equity securities offered by the Company in a private transaction or any debt securities in a private transaction which closes on or prior to six (6) months after the termination of the Investment Agreement. SWARTZ'S RIGHT OF INDEMNIFICATION. The Company is obligated to indemnify Swartz (including their stockholders, officers, directors, employees and agents) from all liability and losses resulting from any misrepresentations or breaches the Company made in connection with the Investment Agreement, its Registration Rights Agreement and other related agreements or the registration statement. REGISTRATION STATEMENT. As required under the Registration Rights Agreement with Swartz, in July 2000, the Company filed a registration statement on Form SB-2 to register for resale shares of its common stock by Swartz and certain other selling shareholders who had similar registration rights. The registration statement was declared effective by the U.S. Securities and Exchange Commission on August 9, 2000. Subsequently, the Company filed a post-effective amendment to the registration statement, which became effective on November 28, 2001. 5 ITEM 2. DESCRIPTION OF PROPERTY. - ------------------------------------ Neither the Company nor its subsidiaries own any real property. The Company and its subsidiaries lease office space in Vancouver, B.C., Canada, and Bellingham, Washington. ITEM 3. LEGAL PROCEEDINGS. - ----------------------------- On August 9, 2000, the Company filed a Petition for Order to Compel Arbitration against Joffre Rolland in the District Court of Clark County, State of Nevada. The purpose of the Petition for Order to Compel Arbitration was to require Joffre Rolland, a former employee, to arbitrate employment issues that had arisen under contracts he had entered into with the Company. On November 3, 2000, the Nevada State Court ordered Joffre Rolland to arbitrate the dispute in the State of Nevada. Instead of arbitrating as required by the Nevada State Court Order, Joffre Rolland and Robin Rolland (the "Rollands") filed suit against the Company and its subsidiary, Emergent Technologies Corp. ("Emergent") (for a description of Emergent, see Part I, Item 1, Page 3 Subheading "Subsidiary - Emergent Technologies Corp."), in October 2000 in the Circuit Court of Harrison County, West Virginia. The Company filed a petition in the U.S. District Court, District of Nevada, for an order compelling arbitration. On June 6, 2001, the U.S. District Court in Nevada ordered the dispute between the parties be arbitrated in Nevada, and that the action pending before the West Virginia State Court be stayed pending completion of the arbitration. The parties have commenced the process of arbitration. The Rollands' claims allege: (1) Breach of Employment Contract; (2) Breach of Contract; (3) Fraud; and (4) Failure to Provide Health Insurance. The Rollands further claim that during Mr. Rolland's employment he was entitled to certain compensation, including royalty payments for purportedly inventing specific antenna technologies, the right to stock options and health insurance coverage. Both the Company and Emergent believe that the Rollands' claims are frivolous and without merit. Both the Company and Emergent vigorously deny that the Rollands' are owed for any damages whatsoever, in particular Mr. Rolland's claim that he invented a "Dual-Disk Antenna" and a "Planar Antenna Comprising Two Joined Conducting Regions With Coax" while employed at Emergent and that he is entitled to approximately $18 million in "royalties" based on hypothetical sales (that never occurred), when in fact those specific antennas, which are unrelated to any of the Company's current antenna technologies, were never even produced, marketed or sold by the Company or Emergent due to their failure to meet performance criteria and were ultimately abandoned. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ---------------------------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 2002. 6 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. - ------------------------------------------------------------------- (a) Market Information There is a limited public market for the common stock of the Company. The Company's common stock is quoted on the NASD OTC Bulletin Board under the symbol "ITKG." The following table sets forth the range of high and low bid quotations for the Company's common stock on the OTC Bulletin Board for each quarter of the fiscal years ended June 30, 2001 and 2002. Quarter Ended Low Bid High Bid -------------- -------- --------- September 30, 2000 $1.25 $2.593 December 31, 2000 $0.296 $1.812 March 31, 2001 $0.359 $1.48 June 30, 2001 $0.406 $0.60 September 30, 2001 $0.32 $0.90 December 31, 2001 $0.48 $1.96 March 31, 2002 $1.05 $1.84 June 30, 2002 $0.77 $1.34 The source of this information is the OTC Bulletin Board and other quotation services. The quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions. (b) Holders As of September 12, 2002 there were approximately 161 holders of record of the Company's common stock (this number does not include beneficial owners who hold shares at broker/dealers in "street-name"). (c) Dividends To date, the Company has not paid any dividends on its common stock and does not expect to declare or pay any dividends on such common stock in the foreseeable future. Payment of any dividends will be dependent upon future earnings, if any, the financial condition of the Company, and other factors as deemed relevant by the Company's Board of Directors. (d) Recent Sales of Unregistered Securities Set forth below is information regarding the issuance and sales of securities of the Company without registration within the past three fiscal years. (a) In July 1999, the Company issued 50,000 shares of its common stock to one person for consulting services rendered to the Company which were valued at $13,000. This transaction did not involve any public offering, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes this transaction was exempt from registration pursuant to Section 4(2) of the Securities Act. (b) In September 1999, the Company issued an aggregate 664,410 shares of its Series A Convertible Preferred Stock ("Series A Stock") to its officers and directors. William S. Robinson received 175,000 shares of Series A Stock in lieu of $175,000 in accrued salaries through September 30, 1999 and 267,197 shares of Series A Stock as repayment of $267,197 in loans made to the Company. William A. Ince received 175,000 shares of Series A Stock in lieu of $175,000 in accrued salaries through September 30, 1999 and 7 47,213 shares of Series A Stock in repayment of $47,213 in loans made to the Company. Messrs. Robinson and Ince as officers and directors of the Company are therefore considered accredited investors under applicable securities laws. This transaction did not involve any public offering, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes this transaction was exempt from registration pursuant to Section 4(2) of the Securities Act. (c) In November 1999, the Company issued a total of 405,000 shares of its common stock to members of its employee benefit and consulting services plan who exercised, in July and September 1999, their options previously granted under the plan. The exercise price of the issued shares ranged between $.15 and $.20 per share. One person paid the exercise price in the form of services rendered which was valued at $11,250 and the other persons paid the exercise price in cash in an aggregate amount of $65,750. These transactions did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that the transaction was exempt from registration pursuant to Rule 701 of the Securities Act. (d) In February 2000, the Company issued 50,000 shares of its common stock pursuant to its employee benefit and consulting services plan to one person. The exercise price of the issued shares was $.15 per share and the exercise price was paid in cash. The transaction did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that the transaction was exempt from registration pursuant to Rule 701 of the Securities Act. (e) In February 2000, the Company issued 200,000 shares of its common stock pursuant to its employee benefit and consulting services plan to one person. The exercise price of the issued shares was $.20 per share and the exercise price was paid in cash. The transaction did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that the transaction was exempt from registration pursuant to Rule 701 of the Securities Act. (f) In March 2000, the Company issued 87,500 shares of its common stock pursuant to its employee benefit and consulting services plan to one person. The exercise price of the issued shares was $.23 per share and the exercise price was paid in the form of services rendered and valued at $20,125. The transaction did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that the transaction was exempt from registration pursuant to Rule 701 of the Securities Act. (g) In March 2000, the Company completed a private placement with 10 investors and sold 2,650,000 shares of its common stock and warrants in order to purchase 1,325,000 shares of its common stock at an exercise price of $1.80 per share. Aggregate proceeds were $3,976,325. The transaction did not involve any public offering, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that the transaction was exempt from registration pursuant to Section 4(2) and Section 4(6) of the Securities Act and/or Rule 506 of Regulation D. (h) In April 2000, the Company issued 287,500 shares of its common stock pursuant to its employee benefit and consulting services plan to one person. The exercise price of the shares ranged between $.15 and $.40 per share and the exercise price was paid in the form of services rendered and valued at $65,000. The transaction did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that the transaction was exempt from registration pursuant to Rule 701 of the Securities Act. 8 (i) In April 2000, the Company issued 80,000 shares of its common stock pursuant to its employee benefit and consulting services plan to one person. The exercise price of the shares was $.20 per share and the exercise price was paid in cash. The transaction did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that the transaction was exempt from registration pursuant to Rule 701 of the Securities Act. (j) In May 2000, the Company entered into an Investment Agreement and a Registration Rights Agreement with Swartz Private Equity, LLC ("Swartz"). Pursuant to the terms of the Investment Agreement, the Company may, in its sole discretion and subject to certain restrictions, periodically sell ('put") shares of common stock to Swartz for up to $25,000,000. In partial consideration of the Investment Agreement, the Company issued a Commitment Warrants to Swartz to purchase 495,000 shares of Common Stock for five years, at an adjusted exercise price of $.50 per share. The Company believes that these transactions are exempt from registration pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D. Following is a summary of completed put transactions to date:
Price Per Gross Warrant Put Date No. Shares Share Proceeds No. Warrants Exercise Price (as adjusted) - ------------------------------------------------------------------------------ 09-28-2000 81,885 $ 1.25 $ 102,356 8,189 $ 0.5126 09-26-2001 67,635 $ 0.45 $ 30,436 6,764 $ 0.561 12-12-2001 547,865 $ 1.34 $ 734,139 54,787 $ 1.0406 01-23-2002 51,000 $ 1.30 $ 66,300 5,100 $ 0.814 02-28-2002 109,475 $ 1.13 $ 123,707 10,948 $ 1.188 TOTALS 857,960 $1,056,938 85,788
(k) In June 2000, the Company issued 135,000 shares pursuant to its employee benefit and consulting services plan to two individuals in consideration for two one year promissory notes bearing an 8% interest rate. The exercise price was $.20 per share. One promissory note is in the amount of $20,000 and the other is in the amount of $7,500. These transactions did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that transactions were exempt from registration pursuant to Rule 701 of the Securities Act. (l) On December 28, 2000, the Company issued 20,000 shares of its common stock to one person upon exercise of options pursuant to the Employee Benefit and Consulting Services Compensation Plan. The Company issued the shares in consideration for the payment of $3,000. This transaction did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid, and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that the transaction was exempt from registration pursuant to Rule 701 of the Securities Act. (m) In January 2001, the Company issued an aggregate of 517,000 shares of its common stock to six persons upon exercise of options pursuant to the Employee Benefit and Consulting Services Compensation Plan. The options had various exercise prices, ranging from $0.15 to $1.16 per share. The Company issued the shares in consideration for an aggregate of $91,500. These transactions did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid, and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that each transaction was exempt from registration pursuant to Rule 701 of the Securities Act. 9 (n) In April 2001, the Company issued 100,000 shares of its common stock to one person upon exercise of options pursuant to the Employee Benefit and Consulting Services Compensation Plan. The exercise price of the shares was $.40 per share, and the exercise price was paid in the form of services rendered (valued at $40,000). The transaction did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid, and a restrictive legend was placed on each certificate evidencing the shares. Integral believes that the transaction was exempt from registration pursuant to Rule 701 of the Securities Act. (o) In August 2001, the Company issued an aggregate of 858,500 shares of its common stock to 3 persons (including two officers) upon exercise of options pursuant to the Employee Benefit and Consulting Services Compensation Plan. The options had various exercise prices, ranging from $0.15 to $.33 per share. The Company issued the shares in consideration for an aggregate of $52,305 in cash and $124,200 in lieu of accrued salaries payable. These transactions did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid, and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that each transaction was exempt from registration pursuant to Rule 701 of the Securities Act. (p) In September 2001, the Company issued an aggregate of 325,000 shares to eight persons pursuant to the exercise of warrants previously issued in connection with a private placement in March 2000, for aggregate proceeds of $130,000. In August 2001, the exercise price of the warrants had been temporarily reduced from $1.80 to $.40 per share through September 2001. The transaction did not involve any public offering, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that the transaction was exempt from registration pursuant to Section 4(2) and Section 4(6) of the Securities Act and/or Rule 506 of Regulation D. (q) In January 2002, the Company issued 100,000 shares of its common stock pursuant to its employee benefit and consulting services plan to one person. The exercise price of the shares was $.40 per share and the exercise price was paid in cash. The transaction did not involve any public offering, the securities were issued under a plan structured in compliance with Rule 701 of the Securities Act, no sales commissions were paid and a restrictive legend was placed on each certificate evidencing the shares. The Company believes that the transaction was exempt from registration pursuant to Rule 701 of the Securities Act. ITEM 6. MANAGEMENT'S PLAN OF OPERATION. - ------------------------------------------- To date the Company has recorded nominal revenues from operations. The Company is still considered a development stage company for accounting purposes. From inception on February 12, 1996 through June 30, 2002, the Company has accrued an accumulated deficit of approximately $ 13 million. As a result of the commercial interest in the Company's antenna technologies, the Company presently intends to focus substantially all of its resources on the commercialization and sales of antenna products. As a result, the Company will not be devoting any of its resources on the further research, development and commercialization of the other technologies in which it has an interest. The Company's business strategy focuses on leveraging its intellectual property rights on its antenna technologies, its strengths in antenna design, material innovation, and an understanding of the wireless marketplace. The Company is not in the manufacturing business and does not expect to make any capital purchases of a manufacturing plant or significant equipment in the next twelve months. The Company will be relying on contract manufacturers to produce the antenna products. 10 The Company expects to now be able to focus its marketing efforts through to the end of calendar 2003 on two primary wireless market segments. The Company's Plastenna technology will be marketed to manufacturers of such wireless devices as cellular phones, portable phones, paging communicators, satellite communications, global positioning systems (GPS) and wireless based networks. The Company's GPS/LEO antenna is for use in mobile asset tracking and fleet management, utilizing GPS satellite tracking and low earth orbit (LEO) satellite data communications to trucking fleets, heavy equipment, marine vessels, railway cars, shipping containers, transit vehicles, all via satellite interface communications. The Company anticipates spending approximately $250,000 over the next twelve months on ongoing research and development of the different applications and uses of its antenna technologies. During the next twelve months, the Company does not anticipate increasing its staff. To date, the Company has relied on loans from management and management's ability to raise capital through debt and equity private placement financings to fund its operations. During the past two fiscal years, the majority of financing was completed pursuant to an equity line of credit with the Swartz Private Equity, LLC ("Swartz"). In May 2000, the Company entered into an Investment Agreement with Swartz. Pursuant to the terms of the Investment Agreement, the Company may, in its sole discretion and subject to certain restrictions, periodically sell ("Put") shares of common stock to Swartz for up to $25,000,000. Pursuant to the terms of the Investment Agreement, the Put share price will be determined and paid to the Company twenty business days after the date of the Put. The terms of the Investment Agreement are more fully described in Item 1 (Description of Business) under the subsection entitled "Investment Agreement with Swartz Private Equity, LLC." The Company received net proceeds of $102,356 from a Put of 81,885 shares to Swartz during the fiscal year ended June 30, 2001. The Company received net proceeds of $954,582 from Puts totaling 775,975 shares to Swartz during the year ended June 30, 2002. The Company does not currently have adequate funds available to fund its operations over the next twelve months. If the Company does not earn adequate revenues to sufficiently fund operations during this time period, the Company will attempt to raise capital through the sale of its securities pursuant to the Investment Agreement with Swartz. There can be no assurance, however, that market conditions will permit the Company to raise sufficient funds pursuant to the Investment Agreement with Swartz or that additional financing will be available when needed or on terms acceptable to the Company. Other Material Developments In July 2000, the Company executed a Stock Purchase Agreement with Continental Divide Robotics, Inc. ("CDRI") related to the acquisition of a minority interest in CDRI. CDRI has developed certain proprietary hardware and software systems that use the radio-navigation, satellite-based Global Positioning System to track individuals on a real-time basis. Pursuant to the agreement, the Company invested $1.25 million dollars to acquire 20.33% of the outstanding common stock of CDRI. Because the Company has no influence or control over CDRI, and no ability to exercise significant influence over CDRI, the Company's investment has been recorded at cost using the cost method. CDRI is a privately held company and there is no public market for CDRI's common stock. CDRI has a working capital deficiency and has sustained continued significant operating losses. Because of the Company's lack of control over CDRI, lack of information concerning the business prospects of CDRI, lack of information concerning the ability of CDRI to continue as a going concern, and lack of liquidity for the Company's investment in CDRI, the Company has written-down its investment in CDRI from $1,250,000 to a nominal value of $1. This decision is made in consideration of the foregoing, and in order to conform with generally accepted accounting principles. However, CDRI remains an active business entity, possesses proprietary technology, and continues to market its technology. The Company has no current information to suggest that the CDRI technology or the business opportunity for such technology has been negatively impacted. The Company continues to retain its ownership position in CDRI. 11 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - --------------------------------------------------------- The information required by Item 7 and an index thereto commences on the index to the financial statements, which page follows this page. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - -------------------------------------------------------------------------------- FINANCIAL DISCLOSURE. - --------------------- None. 12 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 AND 2001 (U.S. DOLLARS) INDEX PAGE - ----- ---- REPORT OF INDEPENDENT ACCOUNTANTS F-1 FINANCIAL STATEMENTS Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Stockholders' Equity (Deficit) F-4-F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8-F-24 REPORT OF INDEPENDENT ACCOUNTANTS TO THE DIRECTORS AND STOCKHOLDERS OF INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) We have audited the accompanying consolidated balance sheets of Integral Technologies, Inc. (A Development Stage Company) as of June 30, 2002 and 2001 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years ended June 30, 2002, 2001 and 2000 and the cumulative totals for the development stage of operations from February 12, 1996 (inception) through June 30, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Integral Technologies, Inc. from February 12, 1996 (inception) through June 30, 1996 were audited by other auditors whose report dated November 20, 1996, expressed an unqualified opinion on those statements. Our opinion insofar as it relates to the cumulative totals for development stage operations from February 12, 1996 (inception) through June 30, 1996, is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of the other auditors, these consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at June 30, 2002 and 2001 and the consolidated results of its operations and its cash flows for each of the years ended June 30, 2002, 2001 and 2000 and the cumulative totals for the development stage of operations from February 12, 1996 (inception) through June 30, 2002 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the consolidated financial statements, the Company has minimal capital resources available and has incurred substantial losses to June 30, 2002. The Company must obtain additional financing to meet its cash flow requirements. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plan in regard to these matters is also described in note 2. These financial statements do not include any adjustments that may result from the outcome of these uncertainties. "Pannell Kerr Forster" Chartered Accountants Vancouver, Canada September 23, 2002 F-1
INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS JUNE 30, 2002 AND 2001 (U.S. DOLLARS) =============================================================================================== 2002 2001 - ----------------------------------------------------------------------------------------------- ASSETS CURRENT Cash $ 267,795 $ 69,556 Accounts receivable 15,767 27,344 Inventory 0 46,842 Prepaid expenses 15,093 165 - ----------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 298,655 143,907 PROPERTY AND EQUIPMENT (note 4) 78,583 89,566 INVESTMENTS (note 5) 1 1,250,000 - ----------------------------------------------------------------------------------------------- TOTAL ASSETS $ 377,239 $ 1,483,473 =============================================================================================== LIABILITIES CURRENT Accounts payable and accruals (note 8) $ 657,107 $ 746,530 Due to West Virginia University Research Corporation (note 10(a)) 397,296 397,296 Customer deposits 13,232 13,232 - ----------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,067,635 1,157,058 - ----------------------------------------------------------------------------------------------- CONTINGENCIES (note 10) SUBSEQUENT EVENT (note 11) STOCKHOLDERS' EQUITY (DEFICIT) (note 6) PREFERRED STOCK AND PAID-IN CAPITAL IN EXCESS OF $0.001 PAR VALUE 20,000,000 Shares authorized 439,610 (2001 - 564,410) Shares issued and outstanding (note 6(b)) 439,610 564,410 COMMON STOCK AND PAID-IN CAPITAL IN EXCESS OF $0.001 PAR VALUE 50,000,000 Shares authorized 30,787,562 (2001 - 26,949,062) Shares issued and outstanding 12,116,450 8,900,983 PROMISSORY NOTES RECEIVABLE (note 6(e)) (66,500) (58,500) SHARE SUBSCRIPTIONS 0 50,000 OTHER COMPREHENSIVE INCOME 46,267 46,267 DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (13,226,223) (9,176,745) - ----------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY (690,396) 326,415 - ----------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 377,239 $ 1,483,473 ===============================================================================================
See notes to consolidated financial statements. F-2
INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (DEFICIT) YEARS ENDED JUNE 30, 2002, 2001 AND 2000 AND PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) THROUGH JUNE 30, 2002 (U.S. DOLLARS) ============================================================================================ PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) YEARS ENDED JUNE 30, THROUGH 2002 2001 2000 JUNE 30, 2002 - -------------------------------------------------------------------------------------------- REVENUE $ 27,686 $ 15,209 $ 172,417 $ 215,312 COST OF SALES 13,468 5,360 197,188 216,016 - -------------------------------------------------------------------------------------------- 14,218 9,849 (24,771) (704) - -------------------------------------------------------------------------------------------- EXPENSES Remuneration pursuant to proprietary, non-competition agreement (note 6(a)(i)) 711,000 0 0 711,000 Consulting 663,795 151,108 282,426 1,710,324 Salaries 547,272 1,273,094 454,630 2,789,355 Legal and accounting 169,247 390,034 217,336 1,024,518 Travel and entertainment 122,898 173,242 86,259 649,789 Financing fees (note 6(a)(ii)) 104,542 0 0 104,542 General and administrative 97,458 115,428 94,679 448,902 Write-down of license and operating assets (note 1) 48,919 1,382,046 0 1,855,619 Rent 34,102 73,578 44,746 221,780 Telephone 33,169 45,842 44,468 227,408 Bad debts 14,500 48,750 2,568 65,818 Advertising 13,348 139,961 24,455 261,895 Bank charges and interest, net 10,053 (53,971) 13,932 106,357 Research and development 8,401 171,756 155,250 1,243,521 Interest on beneficial conversion feature 0 0 0 566,456 Write-off of investment 1,249,999 0 0 1,249,999 Depreciation and Amortization 21,706 99,150 91,882 247,072 - -------------------------------------------------------------------------------------------- 3,850,409 4,010,018 1,512,631 13,484,355 - -------------------------------------------------------------------------------------------- LOSS BEFORE EXTRAORDINARY ITEM (3,836,191) (4,000,169) (1,537,402) (13,485,059) EXTRAORDINARY ITEM Cancellation of debt 0 0 0 602,843 - -------------------------------------------------------------------------------------------- NET LOSS FOR PERIOD $(3,836,191) $(4,000,169) $(1,537,402) $ (12,882,216) ============================================================================================ LOSS PER COMMON SHARE BEFORE EXTRAORDINARY ITEM $ (0.13) $ (0.15) $ (0.07) EXTRAORDINARY ITEM PER COMMON SHARE 0.00 0.00 0.00 - -------------------------------------------------------------------------------------------- NET LOSS PER COMMON SHARE $ (0.13) $ (0.15) $ (0.07) ============================================================================================ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 29,064,780 26,499,533 23,133,541 ============================================================================================
See notes to consolidated financial statements. F-3
INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) THROUGH JUNE 30, 2002 (U.S. DOLLARS) ========================================================================================================================== COMMON PREFERRED STOCK AND STOCK AND SHARES PAID-IN SHARES OF PAID-IN OF COMMON CAPITAL PREFERRED CAPITAL PROMISSORY OTHER STOCK IN EXCESS STOCK IN EXCESS NOTES SHARE COMPREHENSIVE ISSUED OF PAR ISSUED OF PAR RECEIVABLE SUBSCRIPTIONS INCOME - -------------------------------------------------------------------------------------------------------------------------- SHARES ISSUED FOR Cash 1,000,000 $ 10,000 0 $ 0 $ 0 $ 0 $ 0 Property and equipment (to officers and directors) 1,500,000 15,000 0 0 0 0 0 Services (provided by officers and directors) 2,000,000 20,000 0 0 0 0 0 Services 1,500,000 15,000 0 0 0 0 0 Foreign currency translation 0 0 0 0 0 0 (1,226) Net loss for year 0 0 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1996 6,000,000 60,000 0 0 0 0 (1,226) SHARES ISSUED FOR Cash 5,086,000 865,514 0 0 0 0 0 Share issue costs 0 (48,920) 0 0 0 0 0 Services 564,000 63,036 0 0 0 0 0 Acquisition of subsidiary 100,000 275,000 0 0 0 0 0 Foreign currency translation 0 0 0 0 0 0 12,601 Net loss for year 0 0 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1997 11,750,000 1,214,630 0 0 0 0 11,375 SHARES ISSUED FOR Cash 825,396 650,000 0 0 0 0 0 Share issue costs 0 (78,000) 0 0 0 0 0 Foreign currency Translation 0 0 0 0 0 0 24,860 Net loss for year 0 0 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1998 12,575,396 $1,786,630 0 $ 0 $ 0 $ 0 $ 36,235 - -------------------------------------------------------------------------------------------------------------------------- DEFICIT ACCUMULATED DURING THE TOTAL DEVELOPMENT STOCKHOLDERS' STAGE EQUITY - ------------------------------------------------------------ SHARES ISSUED FOR Cash $ 0 $ 10,000 Property and equipment (to officers and directors) 0 15,000 Services (provided by officers and directors) 0 20,000 Services 0 15,000 Foreign currency translation 0 (1,226) Net loss for year (344,843) (34,843) - ------------------------------------------------------------ BALANCE, JUNE 30, 1996 (344,843) (286,069) SHARES ISSUED FOR Cash 0 865,514 Share issue costs 0 (48,920) Services 0 63,036 Acquisition of subsidiary 0 275,000 Foreign currency translation 0 12,601 Net loss for year (822,217) (822,217) - ------------------------------------------------------------ BALANCE, JUNE 30, 1997 (1,167,060) 58,945 SHARES ISSUED FOR Cash 0 650,000 Share issue costs 0 (78,000) Foreign currency Translation 0 24,860 Net loss for year (937,373) (937,373) - ------------------------------------------------------------ BALANCE, JUNE 30, 1998 $ (2,104,433) $ (281,568) - ------------------------------------------------------------
See notes to consolidated financial statements. F-4
INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) THROUGH JUNE 30, 2002 (U.S. DOLLARS) ============================================================================================================================== COMMON PREFERRED STOCK AND STOCK AND SHARES OF PAID-IN SHARES OF PAID-IN COMMON CAPITAL PREFERRED CAPITAL PROMISSORY OTHER STOCK IN EXCESS STOCK IN EXCESS NOTES SHARE COMPREHENSIVE ISSUED OF PAR ISSUED OF PAR RECEIVABLE SUBSCRIPTIONS INCOME - ------------------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 30, 1998 12,575,396 $1,786,630 0 $ 0 $ 0 $ 0 $ 36,235 SHARES ISSUED FOR Cash 200,000 50,000 0 0 0 0 0 Exercise of stock options 445,000 80,500 0 0 0 0 0 Promissory note 1,683,789 252,568 0 0 (284,068) 0 0 Settlement of lawsuit 150,000 15,000 0 0 0 0 0 Services (provided by officers and directors) 666,666 100,000 0 0 0 0 0 Share issue costs 0 (100,500) 0 0 0 0 0 Services 250,000 50,000 0 0 0 0 0 Conversion of convertible Debentures 3,869,120 525,813 0 0 0 0 0 Acquisition of subsidiary 1,800,000 619,200 0 0 0 0 0 Held in escrow 447,091 0 0 0 0 0 0 Stock option benefit 0 70,600 0 0 0 0 0 Beneficial conversion feature 0 566,456 0 0 0 0 0 Foreign currency translation 0 0 0 0 0 0 8,444 Net loss for year 0 0 0 0 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------ BALANCE JUNE 30, 1999 22,087,062 4,016,267 0 0 (284,068) 0 44,679 SHARES ISSUED FOR Cash on private placement 2,650,000 3,975,000 0 0 0 0 0 Exercise of options 1,245,000 256,700 0 0 0 0 0 Release from escrow 0 75,558 0 0 0 0 0 Services 50,000 13,000 0 0 0 0 0 On settlement of debt 0 0 664,410 664,410 0 0 0 Stock option benefit 0 48,256 0 0 0 0 0 Promissory note repayment 0 0 0 0 225,568 0 0 Foreign currency translation 0 0 0 0 0 0 1,614 Net loss for year 0 0 0 0 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 30, 2000 26,032,062 $8,384,781 664,410 $ 664,410 $ (58,500) $ 0 $ 46,293 ============================================================================================================================== DEFICIT ACCUMULATED DURING THE TOTAL DEVELOPMENT STOCKHOLDERS' STAGE EQUITY - ---------------------------------------------------------------- BALANCE, JUNE 30, 1998 $ (2,104,433) $ (281,568) SHARES ISSUED FOR Cash 0 50,000 Exercise of stock options 0 80,500 Promissory note 0 (31,500) Settlement of lawsuit 0 15,000 Services (provided by officers and directors) 0 100,000 Share issue costs 0 (100,500) Services 0 50,000 Conversion of convertible Debentures 525,813 Acquisition of subsidiary 0 619,200 Held in escrow 0 0 Stock option benefit 0 70,600 Beneficial conversion feature 0 566,456 Foreign currency translation 0 8,444 Net loss for year (1,404,021) (1,404,021) - ---------------------------------------------------------------- BALANCE JUNE 30, 1999 (3,508,454) 268,424 SHARES ISSUED FOR Cash on private placement 0 3,975,000 Exercise of options 0 256,700 Release from escrow 0 75,558 Services 13,000 On settlement of debt 0 664,410 Stock option benefit 0 48,256 Promissory note repayment 0 225,568 Foreign currency translation 0 1,614 Net loss for year (1,537,402) (1,537,402) - ---------------------------------------------------------------- BALANCE, JUNE 30, 2000 $ (5,045,856) $ 3,991,128 ================================================================
See notes to consolidated financial statements. F-5
INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) THROUGH JUNE 30, 2002 (U.S. DOLLARS) ================================================================================================================== COMMON PREFERRED STOCK AND STOCK AND SHARES PAID-IN SHARES OF PAID-IN OF COMMON CAPITAL PREFERRED CAPITAL PROMISSORY STOCK IN EXCESS STOCK IN EXCESS NOTES SHARE ISSUED OF PAR ISSUED OF PAR RECEIVABLE SUBSCRIPTIONS - ------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 30, 2000 26,032,062 $ 8,384,781 664,410 $ 664,410 $ (58,500) $ 0 SHARES ISSUED FOR Private placement 81,885 112,480 0 0 0 0 Exercise of options 517,000 91,515 0 0 0 0 For services 100,000 40,000 0 0 0 0 Held in escrow (note 6(a)(ii)(b)(i)) 218,115 0 0 0 0 0 Stock option benefit 0 272,207 0 0 0 0 Dividends on preferred shares 0 0 0 0 0 0 Share subscriptions 0 0 0 0 0 50,000 Redeemed shares 0 0 (100,000) (100,000) 0 0 Foreign currency translation 0 0 0 0 0 0 Net loss for the year 0 0 0 0 0 0 - ------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 30, 2001 26,949,062 8,900,983 564,410 564,410 (58,500) 50,000 Proprietary non-competition agreement (note 6(a)(i)) 450,000 711,000 0 0 0 0 Held in escrow 700,000 0 0 0 0 0 Exercise of options 2,263,500 971,200 0 0 (15,000) (10,000) Exercise of warrants 325,000 130,000 0 0 0 0 Subscriptions 100,000 40,000 0 0 0 (40,000) Stock option compensation 0 415,685 0 0 0 0 Shares released from Escrow 0 954,582 0 0 0 0 Dividends on preferred shares shares 0 0 0 0 0 0 Redeemed shares 0 0 (124,800) (124,800) 0 0 Write-off of promissory note receivable 0 (7,000) 0 0 7,000 0 Net loss for the year 0 0 0 0 0 0 - ------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 30, 2002 30,787,562 $12,116,450 439,610 $ 439,610 $ (66,500) $ 0 ================================================================================================================== DEFICIT ACCUMULATED OTHER DURING THE TOTAL COMPREHENSIVE DEVELOPMENT STOCKHOLDERS' INCOME STAGE EQUITY - --------------------------------------------------------------------------------- BALANCE, JUNE 30, 2000 $ 46,293 $ (5,045,856) $ 3,991,128 SHARES ISSUED FOR Private placement 0 0 112,480 Exercise of options 0 0 91,515 For services 0 0 40,000 Held in escrow (note 6(a)(ii)(b)(i)) 0 0 0 Stock option benefit 0 0 272,207 Dividends on preferred shares 0 (30,720) (30,720) Share subscriptions 0 0 50,000 Redeemed shares 0 (100,000) (200,000) Foreign currency translation (26) 0 (26) Net loss for the year 0 (4,000,169) (4,000,169) - --------------------------------------------------------------------------------- BALANCE, JUNE 30, 2001 46,267 (9,176,745) 326,415 Proprietary non-competition agreement (note 6(a)(i)) 0 0 711,000 Held in escrow 0 0 0 Exercise of options 0 0 946,200 Exercise of warrants 0 0 130,000 Subscriptions 0 0 0 Stock option compensation 0 0 415,685 Shares released from Escrow 0 0 954,582 Dividends on preferred shares shares 0 (26,087) (26,087) Redeemed shares 0 (187,200) (312,000) Write-off of promissory note receivable 0 0 0 Net loss for the year 0 (3,836,191) (3,836,191) - --------------------------------------------------------------------------------- BALANCE, JUNE 30, 2002 $ 46,267 $(13,226,223) $ (690,396) =================================================================================
See notes to consolidated financial statements. F-6
INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 AND PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) THROUGH JUNE 30, 2002 (U.S. DOLLARS) ==================================================================================================================== PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) YEARS ENDED JUNE 30, THROUGH 2002 2001 2000 JUNE 30, 2002 - -------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net loss $(3,836,191) $(4,000,169) $(1,537,402) $ (12,882,216) Adjustments to reconcile net loss to net cash used by operating activities Write-down of investment 1,249,999 0 0 1,249,999 Extraordinary item 0 0 0 (602,843) Proprietary, non-competition agreement (note 6(a)(i)) 711,000 0 0 711,000 Consulting services and financing fees 254,792 55,389 113,683 671,900 Depreciation and amortization 28,983 99,150 104,388 271,358 Stock option compensation 415,685 272,207 48,256 806,748 Interest on beneficial conversion 0 0 0 566,456 Settlement of lawsuit 0 0 0 15,000 Write-down of license and operating assets 46,842 1,382,046 0 1,853,542 Bad debt 14,500 48,750 2,568 65,818 Changes in non-cash working capital Due from affiliated company 0 0 0 (116,000) Notes and accounts receivable (2,923) (453) 174,358 (113,086) Inventory 0 (21,842) (25,000) (46,842) Prepaid expenses (14,928) 5,230 (5,395) (15,093) Deferred revenue 0 0 13,232 13,232 Other 0 0 0 (2,609) Accounts payable and accruals (95,852) 143,369 236,171 828,199 Due to West Virginia University Research Corporation 0 0 0 397,296 - -------------------------------------------------------------------------------------------------------------------- NET CASH USED BY OPERATING ACTIVITIES (1,228,093) (2,016,323) (875,141) (6,328,141) - -------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of property, equipment and intangibles assets 0 (66,401) (22,995) (200,935) Assets acquired and liabilities assumed on purchase of subsidiary 0 0 0 (129,474) Investment in and advances to affiliated companies 0 (950,000) (300,000) (2,000,000) License agreements 0 0 0 (124,835) - -------------------------------------------------------------------------------------------------------------------- NET CASH USED BY INVESTING ACTIVITIES 0 (1,016,401) (322,995) (2,455,244) - -------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Repayment of loan 0 (45,000) 0 (45,000) Advances from stockholders 0 0 0 1,078,284 Repayments to stockholders 0 0 0 (94,046) Subscriptions received 0 50,000 0 50,000 Proceeds from issuance of common stock 1,426,332 188,606 4,104,575 7,643,095 Proceeds from convertible debentures 0 0 0 600,000 Share issue costs 0 0 0 (227,420) - -------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,426,332 193,606 4,104,575 9,004,913 - -------------------------------------------------------------------------------------------------------------------- EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 0 (26) 1,614 46,267 - -------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH 198,239 (2,839,144) 2,908,053 267,795 - -------------------------------------------------------------------------------------------------------------------- CASH, BEGINNING OF YEAR 69,556 2,908,700 647 0 - -------------------------------------------------------------------------------------------------------------------- CASH, END OF YEAR $ 267,795 $ 69,556 $ 2,908,700 $ 267,795 ==================================================================================================================== Supplemental cash flow information (note 7)
See notes to consolidated financial statements. F-7 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 1. INCORPORATION AND NATURE OF OPERATIONS The Company was incorporated under the laws of the State of Nevada on February 12, 1996 and has its head office in Bellingham, Washington, U.S.A. The Company is in the development stage as more fully defined in Statement No. 7 of the Financial Accounting Standards Board. The Company is in the business of researching, developing and commercializing new antenna technologies directly and through its wholly-owned subsidiary Antek Wireless, Inc. ("Antek"). The Company will be devoting all of its resources to the research, development and commercialization of its antenna technologies. As a consequence, the value for the license of all other technologies was written off in 2001 for an amount aggregating $1,382,046. 2. GOING CONCERN These consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles on a going concern basis. This presumes funds will be available to finance on-going development, operations and capital expenditures and the realization of assets and the payment of liabilities in the normal course of operations for the foreseeable future. The Company has minimal capital resources presently available to meet obligations which normally can be expected to be incurred by similar companies, has a working capital deficiency (an excess of current liabilities over current assets) of $768,980 (2001 - $1,013,151) and has an accumulated deficit during the development stage of $13,226,223 (2001 - $9,176,745). These factors raise substantial doubt about the Company's ability to continue as a going concern and is dependent on its ability to obtain and maintain an appropriate level of financing on a timely basis and to achieve sufficient cash flows to cover obligations and expenses. Management is continuously working to obtain financing (note 6). The outcome of these matters cannot be predicted. These consolidated financial statements do not give effect to any adjustments to the amounts and classification of assets and liabilities which might be necessary should the Company be unable to continue its operations as a going concern. F-8 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES (a) Principles of consolidation These financial statements include the accounts of Integral Technologies, Inc. (a development stage company), its wholly-owned subsidiaries, Integral Vision Systems, Inc. ("IVSI") and Antek and its 76.625% owned subsidiary, Emergent Technologies Corp. ("ETC"). All intercompany balances and transactions have been eliminated. Investment in Continental Divide Robotics, Inc. ("CDRI") is accounted for using the cost method since the Company exerts no significant influence. (b) Inventories Inventories are stated at the lower of cost and market. Cost is determined using the first-in-first-out method. (c) Depreciation Depreciation is provided using the straight-line method based on the following estimated useful lives: Machinery, furniture and equipment - 5 Years Computer hardware and software - 5 Years Moulds - 5 Years The Company reviews long-term assets to determine if the carrying amount is recoverable based on the estimate of future cash flow expected to result from the use of the asset and its eventual disposition. If in this determination there is an apparent shortfall, the loss will be recognized as a current charge to operations. (d) Loss per share Loss per share computations are based on the weighted average number of common shares outstanding during the period. Common share equivalents consisting of stock options and warrants are not considered in the computation because their effect would be anti-dilutive. (e) Stock issued in exchange for services The valuation of the common stock issued in exchange for services is valued at an estimated fair market value as determined by officers and directors of the Company based upon other sales and issuances of the Company's common stock within the same general time period. F-9 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (f) Revenue recognition As the Company is continuing development of its technologies, no significant revenues have been earned to date. The Company recognizes revenues at the time of delivery of the product to the customers. (g) Foreign currency translation Amounts recorded in foreign currency are translated into United States dollars as follows: (i) Monetary assets and liabilities are translated at the rate of exchange in effect at the balance sheet date; and, (ii) Revenues and expenses, at the average rate of exchange for the year. Gains and losses arising from this translation of foreign currency are excluded from net loss for the period and accumulated as a separate component of stockholders' equity. (h) Research and development Research and development expenditures are charged to operations as incurred. (i) Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and would impact future results of operations and cash flows. (j) Financial instruments The Company's financial instruments include cash, accounts receivable, promissory notes receivable, investments, accounts payable and accruals and due to West Virginia University Research Corporation (note 10(a)). Unless otherwise noted, in the opinion of management, the carrying value of these financial instruments approximates their fair market values and the Company is not exposed to significant credit, interest or currency risk. F-10 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (k) Income taxes The Company uses the asset and liability approach in its method of accounting for income taxes which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance against deferred tax assets is recorded if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. (l) Stock based compensation The Company applies APB Opinion No. 25 and related interpretations in accounting for its employee stock option plans. Compensation expense is recorded when options are granted to management at discounts to market. (m) Comprehensive income (loss) Other comprehensive income (loss) includes revenues and expenses and unrealized gains and losses that under accounting principles generally accepted in the United States are excluded from net income (loss) and are recorded directly as an adjustment to stockholders' equity, net of tax. When the unrealised gains and losses are realized they are reclassified from other comprehensive income and included in net income. The Company's other comprehensive income (loss) is composed of unrealized gains and losses from foreign currency translation adjustments. (n) Recent accounting pronouncements (i) In June 2001, the Financial Accounting Standards Board issued FAS 142, Goodwill and Other Intangible Assets. Under FAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed at least annually for impairment. The amortization provisions of FAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company has adopted FAS 142 effective July 1, 2001. Application of the non-amortization provisions of FAS 142 for goodwill did not have any impact on its financial reporting. F-11 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (n) Recent accounting pronouncements (Continued) (ii) In October 2001, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses significant issues relating to the implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and develops a single accounting model, based on the framework established in SFAS No. 121 for long-lived assets to be disposed of by sale, whether such assets are or are not deemed to be a business. SFAS No. 144 also modifies the accounting and disclosure rules for discontinued operations. The standard will be adopted on July 1, 2002, and is not expected to have a material effect on the financial statements. In November 2001, the FASB issued EITF Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for 'Out of Pocket' Expenses Incurred." This guidance requires companies to recognize the recovery of reimbursable expenses such as travel costs on service contracts as revenue. These costs are not to be netted as a reduction of cost. This guidance will be implemented July 1, 2002. The Company does not expect this guidance to have a material effect on the financial statements. (iii) Beginning July 1, 2000 the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), and the corresponding amendments under SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of SFAS No. 133 ("SFAS 138"), establishes accounting and reporting standards for derivative instruments. It requires a company to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will effect either stockholders' equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. Adoption of this standard did not change the Company's existing accounting policies or disclosures. F-12 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (n) Recent accounting pronouncements (Continued) (iv) In March 2000 the Financial Accounting Standards Board issued "Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation". Among other issues, this interpretation clarifies: (a) The definition of employee for purposes of applying APB Opinion No. 25. (b) The criteria for determining whether a plan qualifies as a non-compensatory plan. (c) The accounting consequence of various modifications of the terms of a previously fixed stock option award, and (d) The accounting for an exchange of stock compensation awards in a business combination. In relation to (c) the interpretation states, "if the exercise price of a fixed stock option award is reduced, the award shall be accounted for as a variable from the date of the modification to the date the award is exercised, is forfeited, or expired unexercised, the exercise price of an option award has been reduced if the fair value of the consideration required to be remitted pursuant to the award's original terms." (v) In March 2000, the Emerging Issues Task Force ("EITF") of the FASB reached a consensus on EITF Issue 00-2, "Accounting for Web Site Development Costs." This consensus provides guidance on what types of costs incurred to develop Web sites should be capitalized or expensed. The Company adopted this consensus for the year ended June 30, 2001. (vi) In September 2000, the EITF reached a final consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." This consensus requires that all amounts billed to a customer in a sale transaction related to shipping and handling, if any, represent revenue and should be classified as revenue. Adoption of this consensus did not change the Company's existing accounting policies or disclosures. F-13 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 4. PROPERTY AND EQUIPMENT =========================================================================== 2002 2001 --------------------------------------------------------------------------- Machinery, furniture and equipment $ 148,940 $148,940 Computer hardware and software 39,419 21,419 Moulds 4,800 4,800 --------------------------------------------------------------------------- 193,159 175,159 Less: Accumulated depreciation (114,576) (85,593) --------------------------------------------------------------------------- $ 78,583 $ 89,566 =========================================================================== 5. INVESTMENTS As at June 30, 2002, the Company has reviewed its investment in CDRI. In July 2000, the Company executed a Stock Purchase Agreement with CDRI related to the acquisition of a minority interest in CDRI. CDRI has developed certain proprietary hardware and software systems that use a radio-navigation, satellite-based Global Positioning System to track individuals, on a real time basis. Pursuant to the agreement, the Company invested $1.25 million dollars to acquire 20.33% of the outstanding common stock of CDRI. Because the Company has no influence or control over CDRI, and no ability to exercise significant influence over CDRI, the Company's investment has been recorded at cost using the cost method. CDRI is a privately held company and there is no public market for its common stock. CDRI has a working capital deficiency and has sustained continued significant operating losses. Due to the Company's lack of control over the operations of CDRI, lack of information concerning the business prospects of CDRI, lack of financial information concerning the ability of CDRI to continue as a going concern, and lack of liquidity for the Company's investment in CDRI, the Company has written down its investment in CDRI from $1,250,000 to a nominal value of $1. This decision is made in consideration of the foregoing, and in order to conform with generally accepted accounting principles in the United States of America. However, CDRI remains an active business entity, possessing proprietary technology, and continues to market its technology. The Company has no current information to suggest that the CDRI technology or the business opportunity for such technology has been negatively impacted. The Company continues to retain its ownership position in CDRI. F-14 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 6. STOCKHOLDERS' EQUITY (a) Common stock (i) During the year ended June 30, 2002, the Company entered into a proprietary, non-disclosure and non-solicitation agreement with two of its employees whereby, for a total of 450,000 common shares, these employees will not disclose any information that is defined as confidential by the Company in this agreement; the employee will work for the Company exclusively while employed by the Company and will not work for a competitor for a period of at least three years after leaving the Company. These shares were recorded at $1.58 per common share being the market price at the date of issue for a total charge to operations of $711,000. (ii) Private placement agreement (a) During the year ended June 30, 2000, the Company entered into a private placement agreement with Swartz Private Equity, LLC ("Swartz") which calls for periodic purchases over the next three years of up to $25,000,000 of the Company's common stock. Each periodic purchase ("put") will have a purchase price equal to the lesser of the market price minus $0.25, or 91% of the market price, but not less than a stated minimum purchase price as set in the advance put notice, which cannot be greater than 80% of the market price on that date. Each put cannot exceed the lesser of: (i) $2,000,000 worth of common stock; (ii) 15% of the aggregate reported trading volume of the Company's common stock during the 20 business days before and after the date of notice to exercise each put; and, (iii) a number of shares that would cause Swartz to acquire in a 31 day period preceding the put date, in total in excess of 9.99% of the Company's total number of shares of common stock outstanding at that time. At the time of each put, the Company will issue Swartz a purchase warrant which will give Swartz the right to purchase up to 10% of the number of shares issued in the put. Each warrant will be immediately exercisable for a five year period for a price equal to 110% of the market price for such put. F-15 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 6. STOCKHOLDERS' EQUITY (Continued) (a) Common stock Continued) If the Company has not put a minimum of $1,000,000 in aggregate Put Dollar Amount during any six month period of time during the term of the Investment Agreement, the Company will be required to pay Swartz a non-usage fee equal to the difference of $100,000 minus 10% of the aggregate Put Dollar Amount of the Put Shares put to Swartz during such six month period. In the event that the Company delivers a termination notice to Swartz or an automatic termination occurs, the Company must pay Swartz a termination fee equal to the greater of the non-usage fee for the applicable period or the difference of $200,000 minus 10% of the aggregate Put Dollar Amount of the Put Shares put to Swartz during all Puts to such date. The non-usage fee for the year ended June 30, 2002 totals $104,542. The non-usage fee for the period prior to August 3, 2001 has been waived by Swartz. (b) Pursuant to this agreement: (i) During the year ended June 30, 2001, the Company issued 300,000 shares to be held in escrow to exercise a put. Of these, 81,885 shares were released on the exercise of the put and 218,115 are held in escrow for future put exercises. As partial consideration of the investment agreement the Company issued warrants to Swartz to purchase 495,000 shares of common stock (note 6(d)(ii)). (ii) During the year ended June 30, 2002, the Company issued 700,000 shares held in escrow to exercise puts. 775,975 shares were released on the exercise of these puts for total proceeds of $954,582, leaving 142,140 shares in escrow at June 30, 2002. As part of these puts 85,788 warrants were issued. (b) Preferred stock The preferred stock may be issued in one or more series. The distinguishing features of each series including preference, rights and restriction are to be determined by the Company's Board of Directors upon the establishment of each such series. During the year ended June 30, 2000, the Company designated 1,000,000 of its authorized 20,000,000 preferred shares as Series A Convertible Preferred Stock with a par value of $0.001 each and a stated value and liquidation preference of $1.00 per share. Cumulative dividends are accrued at the rate of 5% annually, payable at the option of the Company. The shares may be converted to restricted shares of common stock at the average trading price ten days prior to conversion, and entitled to votes equal to the number of shares of common stock into which each series of preferred stock may be converted. Each Series A Convertible Preferred Stock may be redeemed by the Company for $1.50 each within one year after the date of issue, and for $2.00, $2.50, $3.00 per share and $3.50 in each of the subsequent four years after date of issue. F-16 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 6. STOCKHOLDERS' EQUITY (Continued) (b) Preferred stock (Continued) During the year ended June 30, 2000, the Company agreed to settle $383,228 of accounts payable and $281,182 of long-term debt, both amounts owed to officers and directors of the Company, by issuing 664,410 shares of Series A convertible preferred stock at a par value of $0.001 and a stated value of $1.00 per share. During the year ended June 30, 2002, the Company redeemed 124,800 (2001 - 100,000) preferred shares at a total cost of $312,000 (2001 - $200,000). (c) Stock options In January 2001 the Company adopted the "Integral Technologies, Inc. 2001 Stock Plan" (the "2001 Plan"), a non-qualified stock option plan under which the Company may issue up to 2,500,000 stock options and stock bonuses of common stock of the Company to provide incentives to officers, directors, key employees and other persons who contribute to the success of the Company. This plan was amended December 2001 to increase the number of common share options which may be granted from 2,500,000 to 3,500,000 stock options. F-17 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 6. STOCKHOLDERS' EQUITY (Continued) (c) Stock options (Continued) The following table summarizes the Company's stock option activity for the years ended June 30, 2002, 2001 and 2000: ====================================================================== Weighted Exercise Average Number Price Exercise of Shares Per Share Price ---------------------------------------------------------------------- Balance, June 30, 1999 1,920,000 $0.15 to $2.00 $ 0.26 Granted during the year June 30, 2000 960,000 $0.15 to $0.40 $ 0.19 Cancelled (25,000) $ 0.15 $ 0.15 Exercised (1,245,000) $0.15 to $0.40 $ 0.21 ---------------------------------------------------------------------- Balance, June 30, 2000 1,610,000 $0.15 to $2.00 $ 0.27 Granted during the year June 30, 2001 689,500 $0.15 to $0.65 $ 0.50 Cancelled (209,000) $ 0.15 $ 0.15 Expired (235,000) $0.15 to $2.00 $ 0.66 Exercised (517,000) $0.15 to $0.20 $ 0.17 ---------------------------------------------------------------------- Balance, June 30, 2001 1,338,500 $0.15 to $1.00 $ 0.35 Granted during the year June 30, 2002 2,430,000 $0.40 to $1.50 $ 0.63 Exercised (2,463,500) $0.15 to $1.20 $ 0.41 ---------------------------------------------------------------------- Balance, June 30, 2002 1,305,000 $0.40 to $1.50 $ 0.76 ====================================================================== The following summarizes the options outstanding at June 30, 2002 and 2001 all of which were fully vested at these dates: ====================================================================== Exercise Number of Shares Expiry Date Price 2002 2001 ---------------------------------------------------------------------- January 30, 2002 $0.15 to $0.33 0 858,500 August 31, 2003 $0.40 to $1.50 1,305,000 0 December 30, 2005 $ 1.00 0 480,000 ====================================================================== F-18 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 6. STOCKHOLDERS' EQUITY (Continued) (c) Stock options (Continued) Pursuant to the Company's 1996 Incentive Compensation plan which is now finished, the Company granted Nil (2001 - 368,000; 2000 - 460,000) stock options, and at the same time cancelled Nil (2001 - 368,000) stock options previously granted. The 368,000 new stock options granted in 2001 were granted to consultants and were recognized applying SFAS 123 using the Black-Scholes option pricing model which resulted in additional legal and consulting fees of $53,007 in 2001 and $37,455 in 2000. At June 30, 2002, no more options are outstanding pursuant to the 1996 Plan. During the year ended June 30, 2001 the Company extended the expiration date for 700,000 stock options expiring January 30, 2001 to January 30, 2002. As a result of this change, these options became variable and an additional compensation expense of $Nil (2001 - $251,120) was charged to operations. These options were exercised during the year ended June 30, 2002 for settlement of debt of $124,200. Pursuant to the 2001 Plan: (i) During the year ended June 30, 2001 the Company granted a total of 480,000 fully vested stock options to two directors of the Company at an exercise price of $0.65 per share which will expire December 31, 2005. (ii) During the year ended June 30, 2002, the Company granted a total of 2,430,000 fully vested stock options to officers, directors, key employees and consultants at an exercise price ranging from $0.40 to $1.50 per share which will expire August 31, 2003. The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock options granted to employees, and accordingly, compensation expense of $7,800 (2001 - $219,200; 2000 - $10,800) was recognized as salaries expense. Had compensation expense been determined as provided in SFAS 123 using the Black-Scholes option - pricing model, the pro-forma effect on the Company's net loss and per share amounts would have been as follows: ================================================================= 2002 2001 ----------------------------------------------------------------- Net loss, as reported $(3,836,191) $(4,000,169) Net loss, pro-forma $(4,149,031) $(4,172,969) Net loss per share, as reported $ (0.13) $ (0.15) Net loss per share, pro-forma $ (0.14) $ (0.16) ================================================================= F-19 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 6. STOCKHOLDERS' EQUITY (Continued) (c) Stock options (Continued) The fair value of each option grant is calculated using the following weighted average assumptions: ================================================================= 2002 2001 ----------------------------------------------------------------- Expected life (years) 2 5 Interest rate 4.38% 5.00% Volatility 71.86% 61.04% Dividend yield 0.00% 0.00% ================================================================= (iii) Subsequent to June 30, 2002, the Company granted a total of 1,030,000 stock options to officers, directors and key employees at an exercise price of $1.00 per common share. 200,000 of these options are fully vested at the date of grant and expire August 31, 2003 and 680,000 vest January 1, 2003 and expire August 31, 2005. (d) Stock purchase warrants At June 30, 2002, the following stock purchase warrants were outstanding: (i) Nil (2001 - 1,325,000) with an exercise price of $1.80 expiring March 15, 2002. During the year, the exercise price was reduced to $0.40 per share if exercised prior to September 30, 2001 and exercisable at $1.80 per share from October 1, 2001 to March 15, 2002. During the year ended June 30, 2002, 325,000 warrants were exercised at $0.40 per share to net the Company $130,000; (ii) 495,000 (2001 - 495,000) with an adjusted exercise price of $0.50 exercisable before November 10, 2005; and (iii) 85,788 (2001 - 8,189) with exercise prices ranging from $0.51 to $1.18 exercisable on or before November 10, 2005. Both (ii) and (iii) above have reset provisions, whereby the exercise price is adjusted to 110% of the five day average on every month's anniversary of the warrants. (e) Promissory notes receivable at June 30, 2002 includes: (i) $31,500 due on exercise of 210,000 stock options, interest at 10% per annum, due November 1, 2002, subsequent to June 30, 2002, this note was extended to June 30, 2003; (ii) $20,000 due on exercise of 100,000 stock options, interest at 8% per annum due June 6, 2002; and (iii) $15,000 due on exercise of 23,000 stock options, interest at 10% per annum due June 30, 2003. F-20
INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ==================================================================================================== 7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION =============================================================================================== PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) THROUGH 2002 2001 2000 JUNE 30, 2002 ----------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS For property and equipment $ 18,000 $ 0 $ 0 $ 23,000 For proprietary agreement 711,000 0 0 711,000 For settlement of accounts payable 124,200 0 0 124,200 For services (provided by officers and directors) 0 0 0 120,000 For settlement of lawsuit 0 0 0 15,000 For services 150,250 45,265 113,125 411,411 For acquisition of subsidiary 0 0 0 894,200 SUPPLEMENT CASH FLOW INFORMATION Interest paid 0 0 0 81,111 Income tax paid 0 0 0 0 ===============================================================================================
8. RELATED PARTY TRANSACTIONS (a) Accounts payable at June 30, 2002 includes $178,128 (2001 - $228,722) due to two directors and officers of the Company. (b) The Company incurred $312,000 (2001 - $276,000; 2000 - $240,000) for wages due to two directors and officers of the Company and $Nil (2001 - $Nil; 2000 - $42,000) for interest amounts owed to these directors. F-21 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 9. INCOME TAXES Deferred income taxes reflect the tax effect of the temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The components of the net deferred income tax assets are as follows: =========================================================================== 2002 2001 2000 --------------------------------------------------------------------------- Deferred income tax assets Net operating loss and credit carryforwards $ 3,900,000 $ 2,900,000 $ 1,933,000 Temporary differences on property and equipment depreciation (1,000) (1,000) (600) --------------------------------------------------------------------------- Gross deferred tax assets 3,899,000 2,899,000 1,932,400 Valuation allowance (3,899,000) (2,899,000) (1,932,400) --------------------------------------------------------------------------- $ 0 $ 0 $ 0 =========================================================================== As at June 30, 2002 the Company's net operating loss carryforwards for income tax purposes were approximately $8,300,000. If not utilized, they will start to expire in 2017. 10. CONTINGENCIES (a) A dispute exists between West Virginia University Research Corporation ("WVURC") and the Company with respect to the development work performed by WVURC on the Plasma Ignition System and the Counterfeit Detection Technology. The Company has included in its accounts the amount alleged by WVURC to be owing to WVURC of $397,296, however, it is the opinion of management that this amount should be reduced to an amount not greater than $43,052. Management intends to defend this position. As the actual outcome cannot be determined at this time, any adjustments required will be recorded by the Company when settlement occurs. F-22 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 10. CONTINGENCIES (Continued) (b) Integral Technologies, Inc., Antek, ETC. and Jack Parsons, a director of the Company, were defendants in a lawsuit filed in May 2000 in the United States District Court for the Northern District of West Virginia by IAS Communications, Inc. ("IAS"). IAS claimed that, pursuant to agreement by and among IAS, ICI and ETC, IAS acquired the exclusive right to commercial applications of certain patented and proprietary antenna technology developed at West Virginia University and ETC acquired exclusive rights to military applications of such technology. IAS claimed that ETC breached its agreement by pursuing commercial applications of the technology. IAS further claimed that all defendants misappropriated certain trade secrets and interfered with IAS's economic relations. In addition, IAS claimed that Jack Parsons breached certain fiduciary duties, IAS sought an injunctive relief prohibiting the defendants from disclosing certain information related to the technology; an order requiring defendants to account for any profits from the alleged conduct, return any proprietary materials to IAS and destroy all devices created in violations of IAS's rights; and a money judgement in an amount to be determined at trial, but no less than $15,000,000. On September 6, 2001, the United States District Court Magistrate Judge recommended that the action filed by IAS against the Company and its subsidiaries be dismissed with prejudice. The Magistrate Judge entered his order after IAS failed to appear at prior court hearings, failed to provide information ordered to be produced by the Magistrate Judge and ordered IAS to pay certain costs and attorney's fees to the Company and its subsidiaries. By Court Order dated September 24, 2001, the U.S. District Court Judge adopted the Magistrate Judge's recommendation and ordered the case be dismissed with prejudice from the Court's docket. Accordingly, no further claims by IAS Communications against the Company and its subsidiaries exist in this litigation. (c) On August 9, 2000, the Company filed a Petition for Order to Compel Arbitration against Joffre Rolland in the District Court of Clark County, State of Nevada. The purpose of the Petition for Order to Compel Arbitration was to require Joffre Rolland, a former employee, to arbitrate employment issues that had arisen under contracts he had entered into with the Company. On November 3, 2000, the Nevada State Court ordered Joffre Rolland to arbitrate the dispute in the State of Nevada. Instead of arbitrating as required by the Nevada State Court Order, Joffre Rolland and Robin Rolland (the "Rollands') filed suit against the Company and ETC in October 2000 in the Circuit Court of Harrison County, West Virginia. The Rollands' complaint alleges that the Rollands suffered damages and are seeking in excess of $18 million in damages (including at least $18 million for lost sales royalties) for their claims for relief. The Company filed a petition in the U.S. District Court, District of Nevada, for an order compelling arbitration. On June 6, 2001, the U.S. District Court in Nevada order the dispute between the parties be arbitrated in Nevada, and that the action pending before the West Virginia State Court be stayed pending completion of the arbitration. The parties have commenced the process of arbitration. Management intends to vigorously defend against these claims. As the outcome of this litigation cannot be determined at this time, any adjustments required will be recorded by the Company when the outcome becomes determinable. F-23 INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2002, 2001 AND 2000 (U.S. DOLLARS) ================================================================================ 11. SUBSEQUENT EVENT On July 1, 2002, the Company executed new employment agreements with the Chairman, CEO and Treasurer of the Company and the President, Secretary and CFO of the Company. Each employment agreement provides for a two year term, an annual salary of $170,000 and fully-vested options to purchase 415,000 shares of the Company's common stock at an exercise price of $1.00 per share, exercisable after January 1, 2003 and expire December 31, 2005. 12. COMPREHENSIVE LOSS =========================================================================== PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) THROUGH 2002 2001 2000 JUNE 30, 2002 --------------------------------------------------------------------------- Net loss $(3,836,191) $(4,000,169) $(1,537,402) $ (12,882,216) Other comprehensive income (loss) 0 (26) 1,614 46,267 --------------------------------------------------------------------------- Comprehensive loss $(3,836,191) $(4,000,195) $(1,535,788) $ (12,835,949) =========================================================================== F-24 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE - -------------------------------------------------------------------------------- WITH SECTION 16(A) OF THE EXCHANGE ACT. - --------------------------------------------- Directors and Executive Officers of Registrant. The Company has a Board of Directors which is currently comprised of two members. Each director holds office until the next annual meeting of shareholders or until a successor is elected or appointed. The members of the Board and the executive officers of the Company and their respective age and position are as follows:
Director of Name Age Position with Registrant Registrant Since - ------------------------------------------------------------------------------------ William S. Robinson 45 Chairman, CEO and Treasurer February 1996 William A. Ince 51 Director, President, Secretary and Chief Financial Officer February 1996
DIRECTORS AND EXECUTIVE OFFICERS OF INTEGRAL WILLIAM ROBINSON (Chairman, CEO and Treasurer) As a co-founder of the Company (since 1996), Mr. Robinson has been responsible since the inception of Integral for securing funding in order to ensure the ongoing operations of Integral and its subsidiaries. Together with Mr. Ince, he has been responsible for the development and implementation of corporate strategies. During the period 1988 to 1996, Mr. Robinson was President of Achieva Development Corporation, a mining company which is publicly traded on the Canadian Venture Exchange. Mr. Robinson brings many years of management experience in finance, banking and corporate development. Previously, he acted as a director of a number of companies involved in natural resources, sales and marketing, and computer technologies. WILLIAM A. INCE (Director, President, Secretary and Chief Financial Officer) Mr. Ince, a co-founder of the Company (since 1996), is responsible, along with Mr. Robinson, for the development and implementation of corporate strategies. He is also responsible for the accounting and financial systems and record-keeping of Integral and its subsidiaries. Prior to his engagement with the Company, Mr. Ince was a self-employed management consultant for a period of five years. Mr. Ince brings with him a background as a professional accountant and experience from management positions in finance and operations in several private companies. He has consulted to both private and public companies in the areas of marketing and finance, as well as turn-around situations. Mr. Ince has been responsible for "team building" efforts to ensure that each project is brought to fruition on a timely basis. 13 SIGNIFICANT EMPLOYEES OF THE COMPANY AND ITS SUBSIDIARIES TOM AISENBREY, CHIEF TECHNOLOGY OFFICER, has been with the Company since February 2001. Mr. Aisenbrey is an accomplished executive program manager with 27 years of experience in a variety of electronic industries, with design & development of multiple computer oriented products, specializing in wireless products. Mr. Aisenbrey is responsible for the development of the Company's antenna technologies. RAVI MIRCHANDANI, VICE-PRESIDENT - BUSINESS DEVELOPMENT, has been with the Company since April 2002. Mr. Mirchandani is a thirty- year veteran of General Electric. The majority of his experience at GE was in sales and marketing for the GE Plastics division, where he developed extensive business relationships and customer contacts. Mr. Mirchandani will be responsible for introducing the Company's antenna technologies to potential corporate users. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC"). Officers, directors, and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of copies of such reports received or written representations from certain reporting persons, the Company believes that, during the year ended June 30, 2002, all Section 16(a) filing requirements applicable to its officers, directors and ten percent shareholders were complied with by such persons, except as follows: 1) William A. Ince did not timely file his Form 5 (Annual Statement of Changes in Beneficial Ownership) for the fiscal year, and his Form 5 indicated that he did not timely disclose transactions on 5 different dates (6 transaction total) that should have been disclosed on a Form 4 for the months of April and May 2002; and 2) William S. Robinson did not timely file his Form 5 (Annual Statement of Changes in Beneficial Ownership) for the fiscal year, and his Form 5 indicated that he did not timely disclose transactions on 4 different dates (15 transaction total) that should have been disclosed on a Form 4 for the month of May 2002 ITEM 10. EXECUTIVE COMPENSATION. - ----------------------------------- (a) General The following information discloses all plan and non-plan compensation awarded to, earned by, or paid to the executive officers of the Company, and other individuals for whom disclosure is required, for all services rendered in all capacities to the Company and its subsidiaries. (b) Summary Compensation Table The following table sets forth all compensation, including bonuses, stock option awards and other payments, paid or accrued by Integral and/or its subsidiaries, to or for Integral's Chief Executive Officer and each of the other executive officers of Integral, during the fiscal years ended June 30, 2002, 2001 and 2000. 14
Annual Compensation --------------------------------- (a) (b) (c) (d) (e) Name Other And Year Annual Principal Ended Salary Bonus Compensation Position June 30 ($) ($) ($) - --------------------------------------------------------------------- William S. Robinson, 2002 $ 156,000 -0- -0- Director, Chairman, CEO, 2001 $ 138,000 -0- -0- Treasurer (n1) 2000 $ 120,000 -0- -0- William A. Ince, 2002 $ 156,000 -0- -0- Director, President, 2001 $ 138,000 -0- -0- Secretary (n2) 2000 $ 120,000 -0- -0-
Long Term Compensation --------------------------------------------- Awards Payouts --------------------------------------------- (a) (b) (f) (g) (h) (i) Name Restricted And Year Stock Shares LTIP All Other Principal Ended Award(s) Underlying Payouts Compensation Position June 30 ($) Options ($) ($) - ---------------------------- -------- ----------- ----------- -------- -------------- William S. Robinson, 2002 -0- -0- -0- $ 93,600 (n3) Chairman, CEO, Treasurer 2001 -0- 240,000 -0- $ 50,000 (n4) (n1) 2000 -0- 120,000 -0- -0- William A. Ince, Director, 2002 -0- -0- -0- $ 93,600 (n3) President, Secretary (n2) 2001 -0- 240,000 -0- $ 50,000 (n4) 2000 -0- 120,000 -0- -0-
(n1) As of June 30, 2002, of the $156,000 salary earned for the year then ended, the Company owed Mr. Robinson $85,400 of this amount as accrued but unpaid salary for the year then ended. (n2) As of June 30, 2002, of the $156,000 salary earned for the year then ended, the Company owed Mr. Ince $96,500 of this amount as accrued but unpaid salary for the year then ended. (n3) In March 2002, the Company redeemed an aggregate of 124,800 shares of Series A Preferred Stock from Mr. Robinson (62,400 shares) and Mr. Ince (62,400 shares) at a predetermined redemption price of $2.50 per share. The stated value of the Series A Preferred Stock is $1.00 per share, which resulted in a redemption premium of $1.50 per share over the stated value. (n4) In December 2000, the Company redeemed an aggregate of 100,000 shares of Series A Preferred Stock from Mr. Robinson (50,000 shares) and Mr. Ince (50,000 shares) at a predetermined redemption price of $2.00 per share. The stated value of the Series A Preferred Stock is $1.00 per share, which resulted in a redemption premium of $1.00 per share over the stated value. 15 (c) Option/SAR Grants in Last Fiscal Year The information provided in the table below provides information with respect to individual grants of stock options for the year ended June 30, 2002 to each of the persons named in the Summary Compensation Table above. Integral did not grant any stock appreciation rights for the year ended June 30, 2002.
OPTION/SAR GRANTS IN LAST FISCAL YEAR Individual Grants (a) (b) (c) (d) (e) % of Total Options/SARS Number of Granted to Securities Underlying Employees Exercise or Options/SARs in Fiscal Base Price Expiration Name Granted (#) Year (n1) ($/Sh) Date - -------------------------------------------------------------------------------------------- William S. Robinson, Chairman, CEO, Treasurer -0-(n2) -0-% N/A N/A William A. Ince, Director, President, Secretary -0-(n3) -0-% N/A N/A
(n1) The percentage of total options granted (2,230,000) in the fiscal year is based upon all options granted to eligible participants, which includes officers, directors, employees, consultants and advisors, under Integral's 2001 Stock Plan during the year ended June 30, 2002. (n2) William S. Robinson: The Company did not grant any options to Mr. Robinson during the fiscal year ended June 30, 2002. However, subsequent to year-end, on July 1, 2002, Mr. Robinson was granted 415,000 options under Integral's 2001 Stock Plan. The options are fully-vested, have an exercise price of $1.00 per share, may be exercised at any time beginning January 1, 2003, and expire on December 31, 2005. (n3) William A. Ince: The Company did not grant any options to Mr. Robinson during the fiscal year ended June 30, 2002. However, subsequent to year-end, on July 1, 2002, Mr. Robinson was granted 415,000 options under Integral's 2001 Stock Plan. The options are fully-vested, have an exercise price of $1.00 per share, may be exercised at any time beginning January 1, 2003, and expire on December 31, 2005. (d) Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values The information provided in the table below provides information with respect to each exercise of stock options during most recent fiscal year ended June 30, 2002 by the persons named in the Summary Compensation Table and the fiscal year end value of unexercised options. 16
(a) (b) (c) (d) (e) Number of Value of Securities Underlying Unexercised Unexercised In-the-Money Options/SARs at Options/SARs at Shares Value FY-End (#) FY-End($) Acquired on Realized Exercisable/ Exercisable/ Name Exercise (#) ($)(n1) Unexercisable Unexercisable(n1) - ------------------------------------------------------------------------------------------ William S. Robinson 590,000- $ 156,600 -0-/-0- -0-/-0- Director, Chairman, CEO, Treasurer (n2) William A. Ince 590,000 $ 156,600 -0-/-0- -0-/-0- Director, President, Secretary (n3)
(n1) The aggregate dollar values in columns (c) and (e) are calculated by determining the difference between the fair market value of the common stock underlying the options and the exercise price of the options at exercise or fiscal year end, respectively. (n2) Mr. Robinson exercised options during the last fiscal year as follows: - On August 8, 2001, Mr. Robinson exercised options to acquire 120,000 shares at an exercise price of $.23 per share. The market price of the Company's common stock on that date was $.33 per share, which resulted in a value realized of $12,000. - On August 8, 2001, Mr. Robinson exercised options to acquire 230,000 shares at an exercise price of $.15 per share. The market price of the Company's common stock on that date was $.33 per share, which resulted in a value realized of $41,400. - On March 4, 2002, Mr. Robinson exercised options to acquire 240,000 shares at an exercise price of $.65 per share. The market price of the Company's common stock on that date was $1.08 per share, which resulted in a value realized of $103,200. (n3) Mr. Ince exercised options during the last fiscal year as follows: - On August 8, 2001, Mr. Ince exercised options to acquire 120,000 shares at an exercise price of $.23 per share. The market price of the Company's common stock on that date was $.33 per share, which resulted in a value realized of $12,000. - On August 8, 2001, Mr. Ince exercised options to acquire 230,000 shares at an exercise price of $.15 per share. The market price of the Company's common stock on that date was $.33 per share, which resulted in a value realized of $41,400. - On March 4, 2002, Mr. Ince exercised options to acquire 240,000 shares at an exercise price of $.65 per share. The market price of the Company's common stock on that date was $1.08 per share, which resulted in a value realized of $103,200. (e) Long-Term Incentive Plans ("LTIP") - Awards in Last Fiscal Year This table has been omitted, as no executive officers named in the Summary Compensation Table above received any awards pursuant to any LTIP during the fiscal year ended June 30, 2002. 17 (f) Compensation of Directors No compensation was paid by Integral to its Directors for any service provided as a Director during the fiscal year ended June 30, 2002. There are no other formal or informal understandings or arrangements relating to compensation; however, Directors may be reimbursed for all reasonable expenses incurred by them in conducting Integral's business. These expenses would include out-of-pocket expenses for such items as travel, telephone, and postage. (g) Employment Contracts and Termination of Employment and Change-in-Control Arrangements On July 1, 2002, Integral executed new employment agreements with William S. Robinson, the Chairman, CEO and Treasurer of Integral and William A. Ince, a director and the President, Secretary and CFO of Integral. Each employment agreement provides for a two year term, an annual salary of $170,000 and fully-vested options to purchase 415,000 shares of Integral's common stock at an exercise price of $1.00 per share, which are exercisable after January 1, 2003. Pursuant to the employment agreements, in the event Integral terminates the employment of the executive without cause, then the executive shall be entitled to severance pay equal to twelve month's base salary based on the base salary then in effect at the termination. In addition, the employment agreements provide that in the event Integral is indebted to the executive for a minimum of three months salary, the executive shall have the option to convert such unpaid salary into shares of common stock of Integral at market price (average daily closing over the previous month). Integral's Board of Directors has complete discretion as to the appropriateness of (a) key-man life insurance, (b) obtaining officer and director liability insurance, (c) employment contracts with and compensation of executive officers and directors, (d) indemnification contracts, and (e) incentive plan to award executive officers and key employees. Integral's Board of Directors is responsible for reviewing and determining the annual salary and other compensation of the executive officers and key employees of Integral. The goals of Integral are to align compensation with business objectives and performance and to enable Integral to attract, retain and reward executive officers and other key employees who contribute to the long-term success of Integral. Integral intends to provide base salaries to its executive officers and key employees sufficient to provide motivation to achieve certain operating goals. Although salaries are not specifically tied into performance, incentive bonuses may be available to certain executive officers and key employees. In the future, executive compensation may include without limitation cash bonuses, stock option grants and stock reward grants. Employee Benefit and Consulting Services Compensation Plan As of June 30, 2002, the Company had one Employee Benefit and Consulting Services Compensation Plan in effect: On January 2, 2001, Integral adopted an employee benefit and consulting services compensation plan entitled the Integral Technologies, Inc. 2001 Stock Plan (the "2001 Plan"), which was amended on December 17, 2001. As amended, the 2001 Plan covers up to 3,500,000 shares of common stock. The 2001 Plan has not previously been approved by security holders. Under the 2001 Plan, Integral may issue common stock and/or options to purchase common stock to certain officers, directors and employees and consultants of Integral and its subsidiaries. The purpose of the 2001 Plan is to promote the best interests of Integral and its shareholders by providing a means of non-cash remuneration to eligible participants who contribute to operating progress and earning power of Integral. The 2001 Plan is administered by Integral's Board of Directors or a committee thereof which has the discretion to determine from time to time the eligible participants to receive an award; the number of shares of stock issuable directly or to be granted pursuant to option; the price at which the option may be exercised or the price per share in cash or cancellation of fees or other payment which Integral or its subsidiaries is liable if a direct issue of stock and all other terms on which each option shall be granted. 18 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND - -------------------------------------------------------------------------------- RELATED STOCKHOLDER MATTERS.. - ------------------------------- A. Common Stock The following table sets forth, as of September 12, 2002 the stock ownership of each person known by Integral to be the beneficial owner of five percent or more of Integral's common stock, each Officer and Director individually and all Directors and Officers of Integral as a group. Each person is believed to have sole voting and investment power over the shares except as noted.
============================================ ================================ ==================== Name and Address of Amount and Nature of Beneficial Beneficial Owner (1) Ownership(1)(2) Percent of Class (3) - -------------------------------------------- -------------------------------- -------------------- William S. Robinson (4) #3 1070 West Pender St. Vancouver, B.C. V6E 2N7 1,958,533 6.4% - -------------------------------------------- -------------------------------- -------------------- William A. Ince (5) 805 W. Orchard Dr., Suite #3 Bellingham, WA 98225 1,923,833 6.2% - -------------------------------------------- -------------------------------- -------------------- James Smith Route 4, Box E36 Bruceton Mills, WV 26330 1,857,140 6.0% ============================================ ================================ ==================== All officers and directors of Integral as a group (2 persons) 3,882,366 12.6% ============================================ ================================ ====================
(1) Unless otherwise indicated, all shares are directly beneficially owned and investing power is held by the persons named. (2) Includes vested options beneficially owned but not yet exercised and outstanding, if any. The table does not include the effects of conversion by Mr. Robinson and Mr. Ince of their shares of Series A Convertible Preferred Stock, which are convertible into shares of common stock at a conversion rate that varies with the market price of the common stock at the time of conversion. The conversion rate is determined by dividing the number of shares of Series A being converted by the average of the high and low bid prices of Integral's common stock reported by the OTC Bulletin Board over the ten trading days preceding the date of conversion. Mr. Robinson owns 329,797 shares of Series A and Mr. Ince owns 109,813 shares of Series A. As of September 12, 2002, the conversion rate was $.88 per share, so Mr. Robinson's 329,797 shares of Series A were convertible into 374,769 shares of common stock, and Mr. Ince's 109,813 shares of Series A were convertible into 124,788 shares of common stock. The actual number of shares of common stock receivable by Messrs. Robinson and Ince upon conversion of the Series A would depend on the actual conversion rate in effect at the time of conversion. (3) Based upon 30,787,562 shares issued and outstanding, plus the amount of shares each person or group has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights. (4) Mr. Robinson is an officer and director of Integral and each of its subsidiaries. Beneficial ownership figure does not include 415,000 shares underlying fully-vested options ($1.00 per share exercise price) granted on July 1, 2002, but not exercisable until January 1, 2003. (5) Mr. Ince is an officer and director of Integral and each of its subsidiaries. Beneficial ownership figure does not include 415,000 shares underlying fully-vested options ($1.00 per share exercise price) granted on July 1, 2002, but not exercisable until January 1, 2003. 19 B. Series A Convertible Preferred Stock The following table sets forth, as of September 12, 2002, the stock ownership of each person known by Integral to be the beneficial owner of five percent or more of Integral's Series A Convertible Preferred Stock, each Officer and Director individually and all Directors and Officers of Integral as a group. Each person is believed to have sole voting and investment power over the shares except as noted.
============================================ ================================ ==================== Name and Address of Amount and Nature of Beneficial Beneficial Owner (1) Ownership(1) Percent of Class (2) - -------------------------------------------- -------------------------------- -------------------- William S. Robinson (3) #3 1070 West Pender St. Vancouver, B.C. V6E 2N7 329,797 75% - -------------------------------------------- -------------------------------- -------------------- William A. Ince (4) 805 W. Orchard Dr., Suite #3 Bellingham, WA 98225 109,813 25% ============================================ ================================ ==================== All officers and directors of Integral as a group (2 persons) 439,610 100% ============================================ ================================ ====================
(1) Unless otherwise indicated, all shares are directly beneficially owned and investing power is held by the persons named. (2) Based upon 439,610 Series A Convertible Preferred shares issued and outstanding. (3) Mr. Robinson is an officer and director of Integral and each of its subsidiaries. (4) Mr. Ince is an officer and director of Integral and each of its subsidiaries. EQUITY COMPENSATION PLAN INFORMATION The following information concerning the Company's equity compensation plan is as of the end of the fiscal year ended June 30, 2002:
- ------------------------- --------------------------- ---------------------------- ------------------------------ Number of securities to be Weighted-average Number of securities issued upon exercise of exercise price of options, available for future issuance outstanding options, warrants and rights under equity compensation warrants and rights plans (excluding securities reflected in column (a)) (n1) (a) (b) (c) Plan category - ------------------------- --------------------------- ---------------------------- ------------------------------ Equity compensation plans approved by security holders N/A N/A N/A - ------------------------- --------------------------- ---------------------------- ------------------------------ Equity compensation plans not approved by security holders 1,055,000 $0.846 1,040,000 - ------------------------- --------------------------- ---------------------------- ------------------------------ Total 1,055,000 $0.846 1,040,000 - ------------------------- --------------------------- ---------------------------- ------------------------------
20 (n1) The table does not reflect that additional options to acquire an aggregate of 1,030,000 shares at an exercise price of $1.00 per share were granted subsequent to the end of the fiscal year. As of June 30, 2002, the Company had one Employee Benefit and Consulting Services Compensation Plan in effect: On January 2, 2001, Integral adopted an employee benefit and consulting services compensation plan entitled the Integral Technologies, Inc. 2001 Stock Plan (the "2001 Plan"), which was amended on December 17, 2001. As amended, the 2001 Plan covers up to 3,500,000 shares of common stock. The 2001 Plan has not previously been approved by security holders. Under the 2001 Plan, Integral may issue common stock and/or options to purchase common stock to certain officers, directors and employees and consultants of Integral and its subsidiaries. The purpose of the 2001 Plan is to promote the best interests of Integral and its shareholders by providing a means of non-cash remuneration to eligible participants who contribute to operating progress and earning power of Integral. The 2001 Plan is administered by Integral's Board of Directors or a committee thereof which has the discretion to determine from time to time the eligible participants to receive an award; the number of shares of stock issuable directly or to be granted pursuant to option; the price at which the option may be exercised or the price per share in cash or cancellation of fees or other payment which Integral or its subsidiaries is liable if a direct issue of stock and all other terms on which each option shall be granted. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. - -------------------------------------------------------------- During the last two fiscal years, the company entered into the following transactions in with its officers and directors have a material interest: (a) In December 2000, the Company redeemed an aggregate of 100,000 shares of Series A Preferred Stock from Mr. Robinson (50,000 shares) and Mr. Ince (50,000 shares) at a predetermined redemption price of $2.00 per share. The stated value of the Series A Preferred Stock is $1.00 per share, which resulted in a redemption premium of $1.00 per share over the stated value. (b) In August 2001, the Company issued an aggregate of 700,000 shares of its common stock to Mr. Robinson (350,000) and Mr. Ince (350,000) upon exercise of options pursuant to the Employee Benefit and Consulting Services Compensation Plan. The options had exercise prices of $0.15 to $.23 per share. The Company issued the shares in consideration for a reduction of an aggregate of $124,200 of accrued salaries payable ($62,100 for Mr. Robinson and $62,100 for Mr. Ince). (c) In March 2002, the Company redeemed an aggregate of 124,800 shares of Series A Preferred Stock from Mr. Robinson (62,400 shares) and Mr. Ince (62,400 shares) at a predetermined redemption price of $2.50 per share. The stated value of the Series A Preferred Stock is $1.00 per share, which resulted in a redemption premium of $1.50 per share over the stated value. (d) A 5% dividend on the Series A Preferred Stock, payable in cash or shares of common stock at the election of the Company, has been accrued but not paid. As of the year ended June 30, 2002, $55,963 was accrued to Mr. Robinson and $26,758 was accrued to Mr. Ince. 21 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. - ------------------------------------------------- (a) List of Exhibits. Exhibit Number Description - --------------- ----------- 3.1 Articles of Incorporation, as amended and currently in effect. (Incorporated by reference to Exhibit 3.1 of Integral's registration statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.) 3.2 Bylaws, as amended and restated on December 31, 1997. (Incorporated by reference to Exhibit 3.2 of Integral's registration statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.) 4.3 Investment Agreement dated May 11, 2000, by and between Integral and Swartz Private Equity, LLC. (Incorporated by reference to Exhibit 4.1 of Integral's registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.) 4.4 Warrant to purchase common stock issued to Swartz Private Equity, LLC on May 11, 2000, exercisable to purchase an aggregate of 495,000 shares of common stock at $1.306 per share (subject to adjustment) until December 13, 2004, granted to Swartz in connection with the offering of securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of Integral's registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.) 4.5 Registration Rights Agreement, dated May 11, 2000, by and between Integral and Swartz Private Equity, LLC, related to the registration of the common stock to be sold pursuant to Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of Integral's registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.) 4.6 Warrant to Purchase Common Stock to be issued from time to time in connection with the offering of securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of Integral's registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.) 4.7 Warrant Side Agreement dated May 11, 2000 between Integral and Swartz related to the offering of securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of Integral's registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.) 10.12 Integral Technologies, Inc. 2001 Stock Plan dated January 2, 2001, as amended December 17, 2001. (Incorporated by reference to Exhibit 10.12 of Integral's registration statement on Form S-8 (file no. 333-76058).) 10.13 Employment Agreement between Integral and William S. Robinson dated July 1, 2002. (Filed herewith.) 10.14 Employment Agreement between Integral and William A. Ince dated July 1, 2002. (Filed herewith.) 21.3 List of Subsidiaries. (Incorporated by reference to Exhibit 21.3 of Integral's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2001.) (b) Reports on Form 8-K. No current reports on Form 8-K were filed during the last quarter of the fiscal year ended June 30, 2002. 22 ITEM 14. CONTROLS AND PROCEDURES - ------------------------------------ The Company's Chief Executive Officer and Chief Financial Officer have evaluated the Company's disclosure controls and procedures within 90 days prior to the date of filing of this Annual Report on Form 10-KSB. Management believes that the Company's current internal controls and procedures are effective and designed to ensure that information required to be disclosed by the Company in its periodic reports is recorded, processed, summarized and reported, within the appropriate time periods specified by the SEC, and that such information is accumulated and communicated to the Company's CEO and CFO as appropriate to allow timely decisions to be made regarding required disclosure. As of September 12, 2002, there were no significant corrective actions taken by the Company or other changes made to these internal controls. Management of the Company does not believe there were changes in other factors that could significantly affect these controls subsequent to the date of the evaluation. 23 SIGNATURES ---------- In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. INTEGRAL TECHNOLOGIES, INC Dated: October 11, 2002 /s/ William S. Robinson ---------------------------------- William S. Robinson, CEO /s/ William A. Ince ---------------------------------- William A. Ince, CFO Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date ---- ----- ---- /s/ William S. Robinson Chairman, CEO and October 11, 2002 - ----------------------- William S. Robinson Treasurer /s/ William A. Ince Director, President, Secretary October 11, 2002 - ------------------ William A. Ince and CFO 24 CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Solely for the purposes of complying with, and the extent required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies, in his capacity as the Chief Executive Officer of Integral Technologies, Inc., that, to his knowledge, the Annual Report of the company on Form 10-KSB for the period ended June 30, 2002, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the report fairly presents, in all material respects, the company's financial condition and results of operations. October 11, 2002 /s/ William S. Robinson - ------------------------------ William S. Robinson, Chief Executive Officer CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Solely for the purposes of complying with, and the extent required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies, in his capacity as the Chief Financial Officer of Integral Technologies, Inc., that, to his knowledge, the Annual Report of the company on Form 10-KSB for the period ended June 30, 2002, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the report fairly presents, in all material respects, the company's financial condition and results of operations. October 11, 2002 /s/ William A. Ince - ------------------------------ William A. Ince, Chief Financial Officer 25 CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, William S. Robinson, Chief Executive Officer of Integral Technologies, Inc., certify that: 1. I have reviewed this annual report on Form 10-KSB of Integral Technologies, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. October 11, 2002 /s/ William S. Robinson - ------------------------------ William S. Robinson, Chief Executive Officer 26 CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, William A. Ince, Chief Financial Officer of Integral Technologies, Inc., certify that: 1. I have reviewed this annual report on Form 10-KSB of Integral Technologies, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. October 11, 2002 /s/ William A. Ince - ------------------------------ William A. Ince, Chief Financial Officer 27 EXHIBIT INDEX Exhibit Number Description - --------------- ----------- 3.1 Articles of Incorporation, as amended and currently in effect. (Incorporated by reference to Exhibit 3.1 of Integral's registration statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.) 3.2 Bylaws, as amended and restated on December 31, 1997. (Incorporated by reference to Exhibit 3.2 of Integral's registration statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.) 4.3 Investment Agreement dated May 11, 2000, by and between Integral and Swartz Private Equity, LLC. (Incorporated by reference to Exhibit 4.1 of Integral's registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.) 4.4 Warrant to purchase common stock issued to Swartz Private Equity, LLC on May 11, 2000, exercisable to purchase an aggregate of 495,000 shares of common stock at $1.306 per share (subject to adjustment) until December 13, 2004, granted to Swartz in connection with the offering of securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of Integral's registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.) 4.5 Registration Rights Agreement, dated May 11, 2000, by and between Integral and Swartz Private Equity, LLC, related to the registration of the common stock to be sold pursuant to Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of Integral's registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.) 4.6 Warrant to Purchase Common Stock to be issued from time to time in connection with the offering of securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of Integral's registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.) 4.7 Warrant Side Agreement dated May 11, 2000 between Integral and Swartz related to the offering of securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of Integral's registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.) 10.12 Integral Technologies, Inc. 2001 Stock Plan dated January 2, 2001, as amended December 17, 2001. (Incorporated by reference to Exhibit 10.12 of Integral's registration statement on Form S-8 (file no. 333-76058).) 10.13 Employment Agreement between Integral and William S. Robinson dated July 1, 2002. (Filed herewith.) 10.14 Employment Agreement between Integral and William A. Ince dated July 1, 2002. (Filed herewith.) 21.3 List of Subsidiaries. (Incorporated by reference to Exhibit 21.3 of Integral's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2001.)