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
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INTEGRAL TECHNOLOGIES, INC.
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(Name of small business issuer as specified in its charter)
Nevada 98-0163519
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
805 W. Orchard Drive, Suite 3, Bellingham, Washington 98225
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (360) 752-1982
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Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act: Common Stock
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $27,686.
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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
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CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO
DIFFER FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS
Readers of this document and any document incorporated by reference herein,
are advised that this document and documents incorporated by reference into this
document contain both statements of historical facts and forward looking
statements. Forward looking statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially for those
indicated by the forward looking statements. Examples of forward looking
statements include, but are not limited to (i) projections of revenues, income
or loss, earning or loss per share, capital expenditures, dividends, capital
structure and other financial items, (ii) statements of the plans and objectives
of the Company or its management or Board of Directors, including the
introduction of new products, or estimates or predictions of actions by
customers, suppliers, competitors or regulatory authorities, (iii) statements of
future economic performance, and (iv) statements of assumptions underlying other
statements and statements about the Company or its business.
This document and any documents incorporated by reference herein also
identify important factors which could cause actual results to differ materially
from those indicated by forward looking statements. These risks and
uncertainties include price competition, the decisions of customers, the actions
of competitors, the effects of government regulation, possible delays in the
introduction of new products and services, customer acceptance of products and
services, the Company's ability to secure debt and/or equity financing on
reasonable terms, and other factors which are described herein and/or in
documents incorporated by reference herein.
The cautionary statements made above and elsewhere by the Company should
not be construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company. Forward looking statements are beyond the
ability of the Company to control and in many cases the Company cannot predict
what factors would cause results to differ materially from those indicated by
the forward looking statements.
ITEM 1. DESCRIPTION OF BUSINESS.
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BUSINESS DEVELOPMENT
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Integral Technologies, Inc. ("Integral," the "Company" or the "Registrant")
is a development stage company, incorporated under the laws of the State of
Nevada on February 12, 1996. To date, Integral, directly and through its
subsidiaries, has expended its resources on the research and development of
several different types of technologies.
Presently, Integral is focusing substantially all of its resources on the
researching, developing and commercializing of new antenna technologies directly
and through its wholly-owned subsidiary, Antek Wireless, Inc.
EMPLOYEES
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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
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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
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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
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The Company is not in the manufacturing business. The Company relies on
third-party manufacturing companies to manufacture antenna products.
The Company's antenna products will not be sold directly to the general
public, but rather to businesses and manufacturers who will use the antennas in
their products.
Barriers to Entry into Market Segment
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In the antenna market, Integral will be competing with other established
antenna providers that are much larger and better capitalized than Integral. In
order to compete, management believes that Integral must demonstrate to
potential users that its antenna products have an advantage over other antennas
on the market in terms of performance and cost.
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
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(NEW SPARK PLUG)
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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.
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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.
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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.
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No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 2002.
6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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(a) Market Information
There is a limited public market for the common stock of the Company. The
Company's common stock is quoted on the NASD OTC Bulletin Board under the symbol
"ITKG."
The following table sets forth the range of high and low bid quotations for
the Company's common stock on the OTC Bulletin Board for each quarter of the
fiscal years ended June 30, 2001 and 2002.
Quarter Ended Low Bid High Bid
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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)
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09-28-2000 81,885 $ 1.25 $ 102,356 8,189 $ 0.5126
09-26-2001 67,635 $ 0.45 $ 30,436 6,764 $ 0.561
12-12-2001 547,865 $ 1.34 $ 734,139 54,787 $ 1.0406
01-23-2002 51,000 $ 1.30 $ 66,300 5,100 $ 0.814
02-28-2002 109,475 $ 1.13 $ 123,707 10,948 $ 1.188
TOTALS 857,960 $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.)