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, 2003
[ ] 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 incorporation or organization) (IRS Employer 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. $21,355.
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As of September 25, 2003, the aggregate market value of the voting stock
held by non-affiliates, approximately 29,985,185 shares of Common Stock, was
approximately $32.7 million based on an average of the bid and ask prices of
approximately $1.09 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 25, 2003 was 33,717,551 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.
ANTENNA PRODUCTS
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The Company is focusing its marketing efforts through to the end of
calendar 2004 on wireless market segments. The Company's 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. Presently, the
Company is focusing all of its resources on the researching, developing and
commercializing its Plastenna and Electriplast technologies.
1
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 Company has also been developing several new flat panel antenna designs
for use in different wireless technology markets.
Electriplast
The Company has recently developed a new family of innovative applications,
deemed "Electriplast", based upon the Company's extensive research and
development of its Plastenna technology. Electriplast is the utilization of
Integral's proprietary recipe of conductive materials, combined with a selection
of resins from various resin suppliers to conduct electricity in multiple
applications.
Patents on Antenna Technologies
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Integral has completed a patent review of the antenna technologies and has
filed 33 U.S. patent applications, 26 of which are currently provisional
patents, four are pending final approval, and three have been granted. 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 eight years
of accumulated research and design knowledge and trade secrets relating to
antenna design & components as well as proprietary manufacturing processes.
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.
2
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.
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.
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 Bellingham, Washington and
Vancouver, B.C., Canada.
ITEM 3. LEGAL PROCEEDINGS.
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In August 2003, the Company settled all claims by a former employee, Joffre J.
Rolland Jr., and his wife Robyn ("Rollands"). Pursuant to the settlement, the
Company paid the Rollands $10,000 and issued them 37,500 shares of restricted
common stock, and the Rollands provided a full release of any and all claims
against Integral. The Company also agreed to amend US patent number 6,320,548
B1 ("Dual-Disk Antenna") and US patent number 6,329,950 B1 ("Planar Antenna
Comprising Two Joined Conducting Regions With Coax") to add Mr. Rolland as an
inventor, and agreed that Mr. Rolland will be entitled to receive future
royalties of 1% on any sales of products covered by US patent number 6,320,548
B1 and US patent number 6,329,950 B1. The antenna technologies covered by these
patents have never been produced, marketed or sold by the Company. The Company
has no present intention of using these patents, and has no obligation to do so
under the terms of the settlement.
In April 2003, James E. Smith, a shareholder and co-founder of the Company,
filed suit against the Company and its transfer agent in the Circuit Court of
Monongalia County, West Virginia. The Complaint alleges breach of contract,
negligence and fraud claims, and alleges damages in excess of $1 million. Mr.
Smith is the holder of approximately 1.8 million shares of common stock and is
also attempting to force the removal of the transfer restrictions on these
shares. The Company was successful in having the case moved to federal court in
the U.S. District Court for the Northern District of West Virginia. The Company
filed an Answer denying the claims, and filed Counterclaims against Mr. Smith
for the following claims for relief: (1) Intentional Misrepresentation; (2)
Breach of Contract; (3) Negligent Misrepresentation; and (4) Rescission and
Restitution. The case is scheduled to go to trial in July 2004.
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, 2003.
3
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, 2002 and 2003.
Quarter Ended Low Bid High Bid
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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
September 30, 2002 $ 0.66 $ 1.06
December 31, 2002 $ 0.49 $ 0.88
March 31, 2003 $ 0.68 $ 1.26
June 30, 2003 $ 0.72 $ 1.05
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 24, 2003 there were approximately 177 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". As of August 6, 2003, there
were 4,233 "street-name" holders).
(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
4
received 175,000 shares of Series A Stock in lieu of $175,000 in accrued
salaries through September 30, 1999 and 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.
5
(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 857,860 $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
6
shares. The Company believes that each transaction was exempt from
registration pursuant to Rule 701 of the Securities Act.
(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.
(r) In January 2002, the Company issued an aggregate of 450,000 shares of
common stock to two employees in consideration of the execution of a
"Proprietary, Non-Disclosure and Non-Solicitation Agreement" by each
person. A restrictive legend was placed on each certificate evidencing the
shares. The Company believes that the transactions were exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended, and/or Rule 506 of Regulation D.
(s) In October 2002, the Company issued 144,793 shares of restricted common
stock to Swartz Private Equity, LLC ("Swartz"), pursuant to an agreement to
settle a non-use fee of $104,541.84 that had accrued pursuant to the
Investment Agreement between the Company and Swartz. 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.
(t) In November 2002, the Company completed a private placement with eight
investors and sold 1,684,000 shares of its common stock at $.50 per share
and warrants to purchase 842,000 shares of its common stock within two
years at an exercise price of $.75 per share. Aggregate proceeds from the
sale of the common stock was $842,000. In connection with the offering, the
Company agreed to use its best efforts to register the shares of common
stock (including the shares underlying the warrants) for resale by the
investors within 180 days after the close of the offering. 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
7
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.
(u) In February 2003, Swartz Private Equity, LLC ("Swartz") exercised a
portion of an outstanding warrant for $27,500 ($.50 per share) and the
Company issued to Swartz 55,000 shares of restricted common stock. 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.
(v) In May 2003 issued 200,000 shares of restricted common stock to The
Investor Relations Group, Inc. pursuant to a one-year service agreement
dated February 27, 2003. 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.
(w) In August 2003, the Company completed a private placement with ten
investors and sold 898,336 shares of its common stock at $.75 per share and
warrants to purchase 449,168 shares of its common stock within two years at
an exercise price of $1.00 per share. Aggregate proceeds from the sale of
the common stock was $673,752. In connection with the offering, the Company
agreed to use its best efforts to register the shares of common stock
(including the shares underlying the warrants) for resale by the investors
within 180 days after the close of the offering. 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.
(x) In September 2003, the Company issued 37,500 shares of restricted
common stock in connection with a settlement of a legal dispute with Joffre
J. Rolland, Jr. and Robyn Rolland, pursuant to a mutual release executed in
August 2003. 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) of the
Securities Act and/or Rule 506 of Regulation D.
ITEM 2. PLAN OF OPERATION.
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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, 2003, the Company has
accrued an accumulated deficit of approximately $14.6 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 Plastenna and Electriplast
technologies. 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.
The Company is focusing its marketing efforts through to the end of
calendar 2004 on wireless market segments. The Company's technology will be
marketed to manufacturers of such wireless devices as cellular phones, portable
phones, paging communicators, satellite communications, global positioning
systems (GPS) and
8
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. Presently, the Company is focusing
all of its resources on the researching, developing and commercializing its
Plastenna and Electriplast technologies.
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 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 Investment Agreement terminated
in May 2003.
In November 2002, the Company completed a private placement with eight
investors and sold 1,684,000 shares of its common stock at $.50 per share and
warrants to purchase 842,000 shares of its common stock within two years at an
exercise price of $.75 per share. Aggregate proceeds from the sale of the
common stock was $842,000. In connection with the offering, the Company agreed
to use its best efforts to register the shares of common stock (including the
shares underlying the warrants) for resale by the investors within 180 days
after the close of the offering. 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.
In August 2003, the Company completed a private placement with ten
investors and sold 898,336 shares of its common stock at $.75 per share and
warrants to purchase 449,168 shares of its common stock within two years at an
exercise price of $1.00 per share. Aggregate proceeds from the sale of the
common stock was $673,752. In connection with the offering, the Company agreed
to use its best efforts to register the shares of common stock (including the
shares underlying the warrants) for resale by the investors within 180 days
after the close of the offering. 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 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. There can be
no assurance, however, that market conditions will permit the Company to raise
sufficient funds or that additional financing will be available when needed or
on terms acceptable to the Company.
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.
9
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003, 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-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9-F-25
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, 2003 and 2002
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the years ended June 30, 2003, 2002 and
2001 and the cumulative totals for the development stage of operations from
February 12, 1996 (inception) through June 30, 2003. 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, 2003 and 2002 and
the consolidated results of its operations and its cash flows for each of the
years ended June 30, 2003, 2002 and 2001 and the cumulative totals for the
development stage of operations from February 12, 1996 (inception) through June
30, 2003 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, 2003. 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.
/s/ Pannell Kerr Forster
Chartered Accountants
Vancouver, Canada
September 3, 2003
F-1
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
JUNE 30
(U.S. DOLLARS)
=================================================================================
2003 2002
- ---------------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 174,210 $ 267,795
Accounts receivable 1,141 15,767
Prepaid expenses 11,844 15,093
- ---------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 187,195 298,655
PROPERTY AND EQUIPMENT (note 4) 54,282 78,583
INVESTMENTS (note 5) 1 1
- ---------------------------------------------------------------------------------
TOTAL ASSETS $ 241,478 $ 377,239
=================================================================================
LIABILITIES
CURRENT
Accounts payable and accruals (note 8) $ 472,254 $ 657,107
Due to West Virginia University Research
Corporation (note 10(a)) 397,296 397,296
Customer deposits 0 13,232
- ---------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 869,550 1,067,635
- ---------------------------------------------------------------------------------
CONTINGENCIES (note 10)
STOCKHOLDERS' DEFICIT (note 6)
PREFERRED STOCK AND PAID-IN CAPITAL IN EXCESS
OF $0.001 PAR VALUE
20,000,000 Shares authorized
439,610 (2002 - 439,610) Shares issued
and outstanding (note 6(b)) 439,610 439,610
COMMON STOCK AND PAID-IN CAPITAL IN EXCESS
OF $0.001 PAR VALUE
50,000,000 Shares authorized
32,923,855 (2002 - 30,787,562) Shares issued
and outstanding (note 6(a)) 13,335,752 12,116,450
PROMISSORY NOTES RECEIVABLE (note 6(e)) (66,500) (66,500)
SHARE SUBSCRIPTIONS 211,915 0
OTHER COMPREHENSIVE INCOME 46,267 46,267
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (14,595,116) (13,226,223)
- ---------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (628,072) (690,396)
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 241,478 $ 377,239
=================================================================================
F-2
See notes to consolidated financial statements.
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS)
===============================================================================================
PERIOD FROM
FEBRUARY 12,
1996
(INCEPTION)
YEARS ENDED JUNE 30, THROUGH
2003 2002 2001 JUNE 30, 2003
- -----------------------------------------------------------------------------------------------
REVENUE $ 21,355 $ 27,686 $ 15,209 $ 236,667
COST OF SALES 0 13,468 5,360 216,016
- -----------------------------------------------------------------------------------------------
21,355 14,218 9,849 20,651
- -----------------------------------------------------------------------------------------------
EXPENSES
Consulting 445,193 663,795 151,108 2,155,517
Salaries 467,093 547,272 1,273,094 3,256,448
Legal and accounting 151,651 169,247 390,034 1,176,169
Travel and entertainment 93,879 122,898 173,242 743,668
General and administrative 57,515 97,458 115,428 506,417
Settlement of lawsuit (note 10(b)) 45,250 0 0 45,250
Rent 31,838 34,102 73,578 253,618
Telephone 29,892 33,169 45,842 257,300
Bad debts 10,753 14,500 48,750 76,571
Advertising 9,360 13,348 139,961 271,255
Bank charges and
interest, net 1,498 10,053 (53,971) 107,855
Research and development 1,234 8,401 171,756 1,244,755
Remuneration pursuant to
proprietary, non-competition
agreement (note 6(a)(i)) 0 711,000 0 711,000
Financing fees (note 6(a)(ii)) 0 104,542 0 104,542
Write-down of license
and operating assets (note 1) 0 48,919 1,382,046 1,855,619
Interest on beneficial
conversion feature 0 0 0 566,456
Write-off of investments (note 5) 0 1,249,999 0 1,249,999
Depreciation and
amortization 23,032 21,706 99,150 270,104
- -----------------------------------------------------------------------------------------------
1,368,188 3,850,409 4,010,018 14,852,543
- -----------------------------------------------------------------------------------------------
LOSS BEFORE OTHER INCOME (1,346,833) (3,836,191) (4,000,169) (14,831,892)
OTHER INCOME
Cancellation of debt 0 0 0 602,843
- -----------------------------------------------------------------------------------------------
NET LOSS FOR PERIOD $(1,346,833) $(3,836,191) $(4,000,169) $ (14,229,049)
===============================================================================================
LOSS PER COMMON SHARE BEFORE
OTHER INCOME $ (0.04) $ (0.13) $ (0.15)
OTHER INCOME
PER COMMON SHARE 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------
NET LOSS PER COMMON SHARE $ (0.04) $ (0.13) $ (0.15)
===============================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 31,928,310 29,064,780 26,499,533
===============================================================================================
F-3
See notes to consolidated financial statements.
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(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
Share issue costs 0 (78,000) 0 0 0 0 0
Foreign currency
Translation 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 (DEFICIT)
- --------------------------------------------------------------
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) (344,843)
- --------------------------------------------------------------
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)
- --------------------------------------------------------------
F-4
See notes to consolidated financial statements.
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(U.S. DOLLARS)
=====================================================================================================================
COMMON PREFERRED
STOCK AND STOCK AND
SHARES OF PAID-IN SHARES OF PAID-IN
COMMON CAPITAL PREFERRED CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES SHARE
ISSUED OF PAR ISSUED OF PAR RECEIVABLE SUBSCRIPTIONS
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 12,575,396 $1,786,630 0 $ 0 $ 0 $ 0
SHARES ISSUED FOR
Cash 200,000 50,000 0 0 0 0
Exercise of stock options 445,000 80,500 0 0 0 0
Promissory note 1,683,789 252,568 0 0 (284,068) 0
Settlement of lawsuit 150,000 15,000 0 0 0 0
Services (provided by
officers and directors) 666,666 100,000 0 0 0 0
Share issue costs 0 (100,500) 0 0 0 0
Services 250,000 50,000 0 0 0 0
Conversion of convertible debentures 3,869,120 525,813 0 0 0 0
Acquisition of subsidiary 1,800,000 619,200 0 0 0 0
Held in escrow 447,091 0 0 0 0 0
Stock option benefit 0 70,600 0 0 0 0
Beneficial conversion feature 0 566,456 0 0 0 0
Foreign currency translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------
BALANCE JUNE 30, 1999 22,087,062 4,016,267 0 0 (284,068) 0
SHARES ISSUED FOR
Cash on private placement 2,650,000 3,975,000 0 0 0 0
Exercise of options 1,245,000 256,700 0 0 0 0
Release from escrow 0 75,558 0 0 0 0
Services 50,000 13,000 0 0 0 0
Settlement of debt 0 0 664,410 664,410 0 0
Stock option benefit 0 48,256 0 0 0 0
Promissory note repayment 0 0 0 0 225,568 0
Foreign currency translation 0 0 0 0 0 0
Net loss for the year 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 26,032,062 $8,384,781 664,410 $ 664,410 $ (58,500) $ 0
- ---------------------------------------------------------------------------------------------------------------------
=========================================================================================
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
INCOME STAGE EQUITY (DEFICIT)
- -----------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 $ 36,235 $ (2,104,433) $ (281,568)
SHARES ISSUED FOR
Cash 0 0 50,000
Exercise of stock options 0 0 80,500
Promissory note 0 0 (31,500)
Settlement of lawsuit 0 0 15,000
Services (provided by
officers and directors) 0 0 100,000
Share issue costs 0 0 (100,500)
Services 0 0 50,000
Conversion of convertible debentures 0 0 525,813
Acquisition of subsidiary 0 0 619,200
Held in escrow 0 0 0
Stock option benefit 0 0 70,600
Beneficial conversion feature 0 0 566,456
Foreign currency translation 8,444 0 8,444
Net loss for year 0 (1,404,021) (1,404,021)
- -----------------------------------------------------------------------------------------
BALANCE JUNE 30, 1999 44,679 (3,508,454) 268,424
SHARES ISSUED FOR
Cash on private placement 0 0 3,975,000
Exercise of options 0 0 256,700
Release from escrow 0 0 75,558
Services 0 0 13,000
Settlement of debt 0 0 664,410
Stock option benefit 0 0 48,256
Promissory note repayment 0 0 225,568
Foreign currency translation 1,614 0 1,614
Net loss for the year 0 (1,537,402) (1,537,402)
- -----------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 $ 46,293 $ (5,045,856) $ 3,991,128
- -----------------------------------------------------------------------------------------
F-5
See notes to consolidated financial statements.
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(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
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 26,032,062 $ 8,384,781 664,410 $ 664,410 $ (58,500) $ 0 $ 46,293
SHARES ISSUED FOR
Private placement 81,885 112,480 0 0 0 0 0
Exercise of options 517,000 91,515 0 0 0 0 0
For services 100,000 40,000 0 0 0 0 0
Held in escrow
(note 6(a)(ii)(b)(i)) 218,115 0 0 0 0 0 0
Stock option benefit 0 272,207 0 0 0 0 0
Dividends on preferred shares 0 0 0 0 0 0 0
Share subscriptions 0 0 0 0 0 50,000 0
Redeemed shares 0 0 (100,000) (100,000) 0 0 0
Foreign currency translation 0 0 0 0 0 0 (26)
Net loss for the year 0 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2001 26,949,062 8,900,983 564,410 564,410 (58,500) 50,000 46,267
SHARES ISSUED FOR
Proprietary non-competition
agreement (note 6(a)(i)) 450,000 711,000 0 0 0 0 0
Held in escrow 700,000 0 0 0 0 0 0
Exercise of options 2,263,500 971,200 0 0 (15,000) (10,000) 0
Exercise of warrants 325,000 130,000 0 0 0 0 0
Subscriptions 100,000 40,000 0 0 0 (40,000) 0
Stock option compensation 0 415,685 0 0 0 0 0
Shares released from escrow 0 954,582 0 0 0 0 0
Dividends on preferred shares 0 0 0 0 0 0 0
Redeemed shares 0 0 (124,800) (124,800) 0 0 0
Write-off of promissory
note receivable 0 (7,000) 0 0 7,000 0 0
Net loss for the year 0 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 30,787,562 $12,116,450 439,610 $ 439,610 $ (66,500) $ 0 $ 46,267
- ---------------------------------------------------------------------------------------------------------------------------------
================================================================
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY (DEFICIT)
- ----------------------------------------------------------------
BALANCE, JUNE 30, 2000 $ (5,045,856) $ 3,991,128
SHARES ISSUED FOR
Private placement 0 112,480
Exercise of options 0 1,515
For services 0 40,000
Held in escrow
(note 6(a)(ii)(b)(i)) 0 0
Stock option benefit 0 272,207
Dividends on preferred shares (30,720) (30,720)
Share subscriptions 0 50,000
Redeemed shares (100,000) (200,000)
Foreign currency translation 0 (26)
Net loss for the year (4,000,169) (4,000,169)
- ----------------------------------------------------------------
BALANCE, JUNE 30, 2001 (9,176,745) 326,415
SHARES ISSUED FOR
Proprietary non-competition
agreement (note 6(a)(i)) 0 711,000
Held in escrow 0 0
Exercise of options 0 946,200
Exercise of warrants 0 130,000
Subscriptions 0 0
Stock option compensation 0 415,685
Shares released from escrow 0 954,582
Dividends on preferred shares (26,087) (26,087)
Redeemed shares (187,200) (312,000)
Write-off of promissory
note receivable 0 0
Net loss for the year (3,836,191) (3,836,191)
- ----------------------------------------------------------------
BALANCE, JUNE 30, 2002 $(13,226,223) $ (690,396)
- ----------------------------------------------------------------
F-6
See notes to consolidated financial statements.
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(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
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 30,787,562 $12,116,450 439,610 $ 439,610 $ (66,500) $ 0 $ 46,267
SHARES ISSUED FOR
Private placement for cash 1,684,000 842,050 0 0 0 0 0
Settlement of debt 144,793 104,542 0 0 0 0 0
Services 200,000 196,000 0 0 0 0 0
Exercise of options 52,500 43,750 0 0 0 0 0
Exercise of warrants 55,000 27,500 0 0 0 0 0
Subscription received
(note 6(a)(vi)) 0 0 0 0 0 176,665 0
Stock option compensation 0 5,460 0 0 0 0 0
Settlement of lawsuit
(note 10(b)) 0 0 0 0 0 35,250 0
Dividends on preferred
shares 0 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2003 32,923,855 $13,335,752 439,610 $ 439,610 $ (66,500) $ 211,915 $ 46,267
===========================================================================================================================
===============================================================
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY (DEFICIT)
- ---------------------------------------------------------------
BALANCE, JUNE 30, 2002 $(13,226,223) $ (690,396)
SHARES ISSUED FOR
Private placement for cash 0 842,050
Settlement of debt 0 104,542
Services 0 196,000
Exercise of options 0 43,750
Exercise of warrants 0 27,500
Subscription received
(note 6(a)(vi)) 0 176,665
Stock option compensation 0 5,460
Settlement of lawsuit
(note 10(b)) 0 35,250
Dividends on preferred
shares (22,060) (22,060)
Net loss for year (1,346,833) (1,346,833)
- ---------------------------------------------------------------
BALANCE, JUNE 30, 2003 $(14,595,116) $ (628,072)
===============================================================
F-7
See notes to consolidated financial statements.
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS)
======================================================================================================================
PERIOD FROM
FEBRUARY 12, 1996
YEARS ENDED JUNE 30, (INCEPTION) THROUGH
2003 2002 2001 JUNE 30, 2003
- ----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $(1,346,833) $(3,836,191) $(4,000,169) $ (14,229,049)
Adjustments to reconcile net loss to
net cash used by operating activities
Write-down of investment 0 1,249,999 0 1,249,999
Cancellation of debt 0 0 0 (602,843)
Proprietary, non-competition
agreement (note 6(a)(i)) 0 711,000 711,000
Consulting services and financing fees 223,500 254,792 55,389 895,400
Depreciation and amortization 24,302 28,983 99,150 295,659
Stock option compensation 5,460 415,685 272,207 812,208
Interest on beneficial conversion 0 0 0 566,456
Settlement of lawsuit 45,250 0 0 60,250
Write-down of license and operating assets 0 46,842 1,382,046 1,853,542
Bad debt 10,752 14,500 48,750 76,571
Changes in non-cash working capital
Due from affiliated company 0 0 0 (116,000)
Notes and accounts receivable 3,873 (2,923) (453) (109,213)
Inventory 0 0 (21,842) (46,842)
Prepaid expenses 3,249 (14,928) 5,230 (11,844)
Deferred revenue and other (13,232) 0 0 (2,609)
Accounts payable and accruals (112,371) (95,852) 143,369 715,828
Due to West Virginia University
Research Corporation 0 0 0 397,296
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (1,156,050) (1,228,093) (2,016,323) (7,484,191)
- ----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, equipment and
intangibles assets 0 0 (66,401) (200,935)
Assets acquired and liabilities assumed
on purchase of subsidiary 0 0 0 (129,474)
Investment in and advances to affiliated companies 0 0 (950,000) (2,000,000)
License agreements 0 0 0 (124,835)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES 0 0 (1,016,401) (2,455,244)
- ----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayment of loan 0 0 (45,000) (45,000)
Advances from stockholders 0 0 0 1,078,284
Repayments to stockholders 0 0 0 (94,046)
Subscriptions received 176,665 0 50,000 226,665
Proceeds from issuance of common stock 885,800 1,426,332 188,606 8,528,895
Proceeds from convertible debentures 0 0 0 600,000
Share issue costs 0 0 0 (227,420)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,062,465 1,426,332 193,606 10,067,378
- ----------------------------------------------------------------------------------------------------------------------
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 0 0 (26) 46,267
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (93,585) 198,239 (2,839,144) 174,210
CASH, BEGINNING OF YEAR 267,795 69,556 2,908,700 0
- ----------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 174,210 $ 267,795 $ 69,556 $ 174,210
======================================================================================================================
Supplemental cash flow information (note 7)
F-8
See notes to consolidated financial statements.
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(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.
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.
2. GOING CONCERN
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United
States of America 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 $682,355 (2002 - $768,980) and has an
accumulated deficit during the development stage of $14,595,116 (2002 -
$13,226,223). 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-9
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(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
Wireless Inc. ("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 (note 5).
(b) 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
Molds - 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.
(c) 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.
(d) 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-10
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) 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.
(f) Foreign currency translation
Assets and liabilities of non-U.S. subsidiaries that operate in a
local currency environment are translated to U.S. dollars at year-end
exchange rates. Income and expense items are translated at
weighted-average rates of exchange prevailing during the year.
Translation adjustments are recorded in accumulated gains and losses
not affecting retained earnings within stockholders' equity (deficit).
Property and equipment and other non-monetary assets and liabilities
of non-U.S. subsidiaries and branches that operate in U.S. dollars, or
whose economic environment is highly inflationary, are translated at
approximate exchange rates prevailing when the Company acquired the
assets or liabilities. All other assets and liabilities are translated
at year-end exchange rates. Cost of sales and depreciation are
translated at historical exchange rates. All other income and expense
items are translated at the weighted-average rates of exchange
prevailing during the year. Gains and losses that result from
translation are included in the determination of net loss.
(g) Research and development
Research and development expenditures are charged to operations as
incurred.
(h) 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.
F-11
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Financial instruments
(a) Fair value
The carrying value of cash, accounts receivable, accounts payable
and accruals and due to West Virginia University Research
Corporation approximate their fair value because of the short
maturity of these financial instruments.
(b) Interest rate risk
The Company is not exposed to significant interest rate risk due
to the short-term maturity of its monetary current assets and
current liabilities.
(c) Credit risk
The Company's financial assets that are exposed to credit risk
consist primarily of cash which is placed with major financial
institutions.
(d) Translation risk
The Company translates the results of non-US operations into US
currency using rates approximating the average exchange rate for
the year. The exchange rate may vary from time to time. This risk
is considered nominal as the Company does not incur any
significant transactions in non-US currency.
(j) 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.
F-12
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Stock-based compensation
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options granted to employees, and
accordingly, compensation expense of $Nil (2002 - $7,800; 2001 -
$219,200) 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:
===========================================================================================
2003 2002 2001
-------------------------------------------------------------------------------------------
Net loss, as reported $(1,346,833) $(3,836,191) $(4,000,169)
Add: Stock-based employee compensation
expense under intrinsic value method included in
reporting net income, net of related tax effects 0 7,800 219,200
Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards, net of related tax effects (230,180) (320,640) (392,000)
-------------------------------------------------------------------------------------------
Net loss, pro-forma $(1,577,013) $(4,149,031) $(4,172,969)
===========================================================================================
Net loss per share, as reported $ (0.04) $ (0.13) $ (0.15)
Add: Stock-based employee compensation
expense under intrinsic value method included in
reporting net income, net of related tax effects 0.00 0.00 0.01
Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards, net of related tax effects (0.01) (0.01) (0.02)
-------------------------------------------------------------------------------------------
Net loss per share, pro-forma $ (0.05) $ (0.14) $ (0.16)
===========================================================================================
The Company applies SFAS 123 in accounting for its stock options
granted to non-employees, and accordingly, compensation expense of
$5,460 (2002 - $Nil; 2001 - $53,007) was recognized as consulting
expense.
F-13
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
(k) Stock based compensation (Continued)
The fair value of each option grant is calculated using the following
weighted average assumptions:
======================================================================
2003 2002 2001
----------------------------------------------------------------------
Expected life (years) 2.2 2 5
Interest rate 3.00% 4.38% 5.00%
Volatility 51.50% 71.86% 61.04%
Dividend yield 0.00% 0.00% 0.00%
======================================================================
(l) Comprehensive income
Other comprehensive income includes revenues and expenses and
unrealized gains and losses that under accounting principles generally
accepted in the United States of America are excluded from net income
(loss) and are recorded directly as an adjustment to stockholders'
equity, net of tax. When the unrealized 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.
(m) Recent accounting pronouncements
(i) In December 2002, FASB issued SFAS 148, "Accounting for
Stock-based Compensation - Transition and Disclosure, an
amendment to SFAS 123". SFAS 148 provides two additional
transition methods for entities that adopt the preferable method
of accounting for stock-based compensation. Further, the
statement requires disclosure of comparable information for all
companies regardless of whether, when, or how an entity adopts
the preferable, fair value method of accounting. These
disclosures are now required for interim periods in additional to
the traditional annual disclosure. The amendment to SFAS 123,
which provides for additional methods, are effective for the
periods beginning after December 15, 2002, although earlier
application is permitted. The amendments to the disclosure
requirements are required for financial reports containing
condensed financial statements for interim periods beginning
after December 15, 2002. The Company adopted these requirements
effective July 1, 2002.
F-14
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Recent accounting pronouncements (Continued)
(ii) In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51, Consolidated Financial
Statements. Interpretation 46 establishes accounting guidance for
consolidation of variable interest entities that function to
support the activities of the primary beneficiary. Interpretation
46 applies to any business enterprise both public and private,
that has a controlling interest, contractual relationship or
other business relationship with a variable interest entity. The
Company has no investment in or contractual relationship or other
business relationship with a variable interest entity and
therefore the adoption did not have any impact on the Company's
consolidated financial position, results of operations or cash
flows.
(iii)On April 30, 2003, the FASB issued Statement No. 149, Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities. Statement 149 is intended to result in more
consistent reporting of contracts as either freestanding
derivative instruments subject to Statement 133 in its entirety,
or as hybrid instruments with debt host contracts and embedded
derivative features. In addition, Statement 149 clarifies the
definition of a derivative by providing guidance on the meaning
of initial net investments related to derivatives. Statement 149
is effective for contracts entered into or modified after June
30, 2003. The Company believes the adoption of Statement 149 will
not have any effect on its consolidated financial position,
results of operations or cash flows.
(iv) On May 15, 2003, the FASB issued Statement No. 150, Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. Statement 150 establishes standards for
classifying and measuring as liabilities certain financial
instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. Statement 150
represents a significant change in practice in the accounting for
a number of financial instruments, including mandatorily
redeemable equity instruments and certain equity derivatives that
frequently are used in connection with share repurchase programs.
Statement 150 is effective for all financial instruments created
or modified after May 31, 2003, and to other instruments as of
September 1, 2003. The Company adopted Statement 150 on July 1,
2003 and believes the effect of adopting this statement will not
have any impact on its consolidated financial position, results
of operations or cash flows.
(v) On April 2002, the FASB issued statement No. 145, Rescission of
FASB No. 4 Reporting Gains and Losses from Extinguishment of
Debt, and amendment of FASB No. 64 Extinguishment of Debt made to
Satisfy Sinking-fund Requirements. This statement also rescinds
FASB No. 44 Accounting for intangible Assets of Motor Carriers
and also amends FASB No 13 Accounting for leases to eliminate an
inconsistency in accounting for sale-leaseback. The Company
adopted this statement effective July 1, 2002. The impact of
adopting this statement is the reclassification of cancellation
of debt, previously recorded as extraordinary item, to other
income.
F-15
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
4. PROPERTY AND EQUIPMENT
===========================================================================
2003 2002
---------------------------------------------------------------------------
Machinery, furniture and equipment $ 148,940 $ 148,940
Computer hardware and software 39,419 39,419
Molds 4,800 4,800
----------------------------------------------------------------------
193,159 193,159
Less: Accumulated depreciation (138,877) (114,576)
---------------------------------------------------------------------------
$ 54,282 $ 78,583
===========================================================================
5. INVESTMENTS
In July 2000, the Company executed a Stock Purchase Agreement with
Continental Divide Robatics Inc. ("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 during the year ended June 30, 2002, the
Company wrote down its investment in CDRI from $1,250,000 to a nominal
value of $1. This decision was made in consideration of the foregoing, and
in order to conform with accounting principles generally accepted 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-16
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
6. STOCKHOLDERS' EQUITY (DEFICIT)
(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
employees 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 called for periodic purchases
over a three year period of up to $25,000,000 of the
Company's common stock. This agreement expired May 2003.
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-17
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
6. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(a) Common stock (Continued)
(ii) Private placement agreement (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, 2003
has been waived as the agreement expired. The non-usage fee for
the year ended June 30, 2002 of $104,542 was settled in 2003 by
issuance of 144,793 shares of common stock. 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)(i)).
(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 (note 6(d)(ii).
(iii) During the year ended June 30, 2003, the Company
settled the non-usage fee of $104,542 due to Swartz by
issuing 144,793 shares of common stock.
(iv) Subsequent to June 30, 2003, the 142,140 shares in
escrow were returned to the Company and cancelled.
F-18
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
6. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(a) Common stock (continued)
(iii) During the year ended June 30, 2003, the Company entered into a
private placement agreement with various investors whereby the
Company issued 1,684,000 units consisting of one share of common
stock and one-half a share purchase warrant at a price of $0.50
per unit. Each whole warrant is exercisable at a price of $0.75
per share and expires two years after the date of grant.
(iv) During the year ended June 30, 2003, the Company entered into a
letter of agreement whereby the Company will pay a monthly fee of
$10,000 for investor relations and maintenance fees commencing
March 7, 2003 for a period of one year. For introductions for
private placement money, the Company will pay a three percent fee
for every one million dollars raised through this agreement.
As part of this agreement, the Company agreed to issue 200,000
common shares which was recognized as consulting expense at
market value on the date of the transaction totalling $196,000.
(v) During the year ended June 30, 2003, the Company issued 55,000
shares at a price of $0.50 per share on exercise of warrants.
(vi) Subsequent to June 30, 2003, the Company entered into a private
placement whereby the Company will issue a total of 898,336
shares at a price of $0.75 per share and 449,168 share purchase
warrants exercisable within two years with an exercise price of
$1.00 per share. As at June 30, 2003, $176,665 has been received
pursuant to this agreement.
(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 and $3.50 per share in each of the subsequent four years after
the date of issue.
F-19
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
6. STOCKHOLDERS' EQUITY (DEFICIT) (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.
The following table summarizes the Company's stock option activity for
the years ended June 30, 2003, 2002 and 2001:
=====================================================================
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
---------------------------------------------------------------------
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
Granted during the year
June 30, 2003 1,230,000 $ 100 $ 1.00
Exercised (52,500) $0.69 to $1.50 $ 0.83
Cancelled (575,000) $0.40 to $1.00 $ 0.66
---------------------------------------------------------------------
Balance, June 30, 2003 1,907,500 $0.40 to $1.50 $ 0.94
=====================================================================
F-20
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
6. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(c) Stock options (Continued)
The following summarizes the options outstanding at June 30, 2003 and
2002 all of which were fully vested at these dates:
============================================================================
Exercise Number of Shares
Expiry Date Price 2003 2002
----------------------------------------------------------------------------
August 31, 2003 $ 0.40 to $1.50 1,077,500 1,305,000
December 31, 2005 $1.00 830,000 0
============================================================================
Pursuant to the 2001 Plan:
(i) During the year ended June 30, 2003, the Company granted a total
of 1,230,000 stock options to officers, directors and key
employees at an exercise price of $1.00 per common share. 400,000
of these options are fully vested at the date of grant and expire
August 31, 2003 and 830,000 vested January 1, 2003 and 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.
Subsequent to June 30, 2003, the Company extended the options with an
expiry date of August 31, 2003 to August 31, 2004.
In April 2003, the Company adopted the "Integral Technologies, Inc.
2003 Stock Plan" (the "2003 Plan"), a non-qualified stock option plan
under which the Company may issue up to 1,500,000 stock options. As of
June 30, 2003, no options have been granted with respect to this plan.
(d) Stock purchase warrants
At June 30, 2003, the following stock purchase warrants were
outstanding:
(i) 440,000 (2002 - 495,000) with an adjusted exercise price of $0.50
exercisable before November 10, 2005;
(ii) 85,788 (2002 - 85,788) with exercise prices ranging from $0.51 to
$1.18 exercisable on or before November 10, 2005; and
(iii) 842,000 with exercise price of $0.75 exercisable before November
1, 2004.
Both (i) and (ii) 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.
F-21
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
6. STOCKHOLDERS' EQUITY (DEFICIT)(Continued)
(e) Promissory notes receivable at June 30, 2003 includes:
(i) $31,500 (2002 - $31,500) due on exercise of 210,000 stock
options, interest at 10% per annum, due November 1, 2002,
subsequently extended to June 30, 2003.
(ii) $20,000 (2002 - $20,000) due on exercise of 100,000 stock
options, interest at 8% per annum due June 6, 2002.
(iii) $15,000 (2002 - $15,000) due on exercise of 23,000 stock
options, interest at 10% per annum due June 30, 2003.
As at September 3, 2003, these notes have not been collected. Shares
issued on exercise of options are restricted for trading by the
Company. The restrictions will not be removed until the respective
notes are paid to the Company.
7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
===============================================================================================
PERIOD FROM
FEBRUARY 12,
1996
(INCEPTION)
THROUGH
2003 2002 2001 JUNE 30, 2003
-----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
SHARES ISSUED
For property and equipment $ 0 $ 18,000 $ 0 $ 23,000
For proprietary agreement 0 711,000 0 711,000
For settlement of accounts payable 104,542 124,200 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 223,500 150,250 45,265 634,911
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, 2003 includes $269,660 (2002 - $178,128)
due to two directors and officers of the Company.
(b) The Company incurred $340,000 (2002 - $312,000; 2001 - $276,000) for
wages due to two directors and officers of the Company.
F-22
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(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:
================================================================================================
2003 2002 2001
------------------------------------------------------------------------------------------------
Deferred income tax assets
Net operating loss
and credit
Carryforwards $ 3,900,000 $ 3,400,000 $ 2,400,000
Temporary differences
on property and
equipment depreciation (1,000) (1,000) (1,000)
------------------------------------------------------------------------------------------------
Gross deferred tax assets 3,899,000 3,399,000 2,399,000
Valuation allowance (3,899,000) (3,399,000) (2,399,000)
------------------------------------------------------------------------------------------------
$ 0 $ 0 $ 0
================================================================================================
As at June 30, 2003 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-23
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
10. CONTINGENCIES (Continued)
(b) 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 of 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. 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.
In a mutual release in full of all claims dated August 5, 2003, the
Rollands received the following consideration:
(a) Integral agreed to amend U.S. patent number 6,320,548 B1 and U.S.
patent number 6,329,950 B1 to add Joffre J. Rolland Jr. as an
inventor.
(b) Joffre J. Rolland Jr. will be entitled to receive future
royalties on any sales of products covered by U.S. patent number
6,320,548 B1 and U.S. patent number 6,329,950 B1.
(c) Joffre J. Rolland Jr. will receive $10,000 in cash and 37,500
shares of Integral common stock, issued pursuant to Rule 144.
The settlement has been recorded in the accounts at June 30, 2003.
These shares were issued subsequent to year end.
(c) On April 4, 2003, a suit was filed against the Company by James E.
Smith seeking damages in excess of one million dollars for claims for
relief of Breach of Contract, Quantum Mervit and/or Promissory
Estoppel, Fraud, Conversion and Negligence. The Company has denied
these allegations and asserted several Affirmative Defenses.
In addition, the Company filed counter-claims against James E. Smith
for relief of Intentional Misrepresentation, Breach of Contract
Negligence, Misrepresentation, Rescission and Restitution. The parties
have participated in mediation to resolve the litigation but no
resolution has been reached as at September 3, 2003. Trial is schedule
to commence July 26, 2004.
F-24
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
(U.S. DOLLARS)
================================================================================
11. COMPREHENSIVE LOSS
===========================================================================
PERIOD FROM
FEBRUARY 12,
1996
(INCEPTION)
THROUGH
2003 2002 2001 JUNE 30, 2003
---------------------------------------------------------------------------
Net loss $(1,346,833) $(3,836,191) $(4,000,169) $ (14,229,049)
Other
comprehensive
Income (loss) 0 0 (26) 46,267
---------------------------------------------------------------------------
Comprehensive
Loss $(1,346,833) $(3,836,191) $(4,000,195) $ (14,182,782)
===========================================================================
F-25
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 46 Chairman, CEO and Treasurer February 1996
William A. Ince 52 Director, President, Secretary and Chief February 1996
Financial Officer
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.
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.
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.
10
SIGNIFICANT EMPLOYEES OF THE COMPANY AND ITS SUBSIDIARIES
TOM AISENBREY, General Manager and 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.
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, 2003, all Section 16(a) filing requirements
applicable to its officers, directors and ten percent shareholders were complied
with by such persons.
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, 2003,
2002 and 2001.
Annual Compensation
--------------------------------
(a) (b) (c) (d) (e)
Name Other
And Year Annual
Principal Ended Salary Bonus Compensation
Position June 30 ($) ($) ($)
- ---------------------------------------------------------------------
William S. Robinson, 2003 $ 170,000 -0- -0-
Director, Chairman, CEO, 2002 $ 156,000 -0- -0-
Treasurer (n1) 2001 $ 138,000 -0- -0-
William A. Ince, 2003 $ 170,000 -0- -0-
Director, President, 2002 $ 156,000 -0- -0-
Secretary, CFO (n2) 2001 $ 138,000 -0- -0-
11
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,
Chairman, CEO, Treasurer (n1) 2003 -0- 415,000 -0- -0-
2002 -0- -0- -0- $ 93,600 (n3)
2001 -0- 240,000 -0- $ 50,000 (n4)
William A. Ince,
Director, President, Secretary, CFO (n2) 2003 -0- 415,000 -0- -0-
2002 -0- -0- -0- $ 93,600 (n3)
2001 -0- 240,000 -0- $ 50,000 (n4)
(n1) As of June 30, 2003, of the $170,000 salary earned for the year then
ended, the Company owed Mr. Robinson $103,275 of this amount as
accrued but unpaid salary for the year then ended.
(n2) As of June 30, 2003, of the $170,000 salary earned for the year then
ended, the Company owed Mr. Ince $127,375 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 $1.00 per share over
the stated value.
(c) Option/SAR Grants in Last Fiscal Year
The information provided in the table below provides information with
respect to individual grants of stock options for the year ended June 30, 2003
to each of the persons named in the Summary Compensation Table above. Integral
did not grant any stock appreciation rights for the year ended June 30, 2003.
12
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
% of Total
Number of Options/SARS
Securities Granted to
Underlying Employees Exercise or
Options/SARs in Fiscal Base Price Expiration
Name Granted (#) Year (n1) ($/Sh) Date
- -------------------------------------------------------------------------------------
William S. Robinson, 415,000 (n2) 34% $ 1.00 12/31/2005
Chairman, CEO, Treasurer
William A. Ince, Director, 415,000 (n3) 34% $ 1.00 12/31/2005
President, Secretary, CFO
(n1) The percentage of total options granted (1,230,000) 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, 2003.
(n2) William S. Robinson: On July 1, 2002, Mr. Robinson was granted 415,000
options under Integral's 2001 Stock Plan.
(n3) William A. Ince: On July 1, 2002, Mr. Ince was granted 415,000 options
under Integral's 2001 Stock Plan.
(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, 2003 by the persons named in the Summary Compensation Table and the
fiscal year end value of unexercised options.
(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 -0- N/A 415,000/-0- -0-/-0-
Director, Chairman,
CEO, Treasurer
William A. Ince -0- N/A 415,000/-0- -0-/-0-
Director, President,
Secretary, CFO
13
(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. At June 30, 2003, all options held by Messrs. Robinson and Ince were
out-of-the money (the exercise price of $1.00 was greater than the market price of $.82).
(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, 2003.
(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, 2003. 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.
14
(h) Employee Benefit and Consulting Services Compensation Plans
As of June 30, 2002, Integral had two Employee Benefit and Consulting
Services Compensation Plans 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.
On April 4, 2003, Integral adopted an employee benefit and consulting
services compensation plan entitled the Integral Technologies, Inc. 2003 Stock
Plan (the "2003 Plan). The 2003 Plan covers up to 1,500,000 shares of common
stock. The 2003 Plan has not previously been approved by security holders.
Under both Plans, 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 Plans 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 Plans are 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.
15
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 25, 2003 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. 2,373,533 7.0%
Vancouver, B.C. V6E 2N7
- ----------------------------------------------------------------------------------------------------
William A. Ince (5)
805 W. Orchard Dr., Suite #3 2,188,833 6.4%
Bellingham, WA 98225
- ----------------------------------------------------------------------------------------------------
James Smith
Route 4, Box E36 1,857,140 5.5%
Bruceton Mills, WV 26330
====================================================================================================
All officers and directors of Integral as a
group (2 persons) 4,562,366 13.2%
====================================================================================================
(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 ("Series A"), 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 25, 2003, the conversion rate was $1.09
per share, so Mr. Robinson's 329,797 shares of Series A were convertible
into 302,566 shares of common stock, and Mr. Ince's 109,813 shares of
Series A were convertible into 100,746 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 33,717,551 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 includes 415,000 shares
underlying options.
(5) Mr. Ince is an officer and director of Integral and each of its
subsidiaries. Beneficial ownership figure includes 415,000 shares
underlying options.
16
B. Series A Convertible Preferred Stock
The following table sets forth, as of September 25, 2003, 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 Owner (1) Beneficial Ownership(1) Percent of Class (2)
- -------------------------------------------------------------------------------------------
William S. Robinson (3)
#3 1070 West Pender St. 329,797 75%
Vancouver, B.C. V6E 2N7
- -------------------------------------------------------------------------------------------
William A. Ince (4
805 W. Orchard Dr., Suite #3 109,813 25%
Bellingham, WA 98225
===========================================================================================
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
plans is as of the end of the fiscal year ended June 30, 2003:
- --------------------------------------------------------------------------------------------------------------------
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))
(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 1,907,500 $0.94 1,687,500
- --------------------------------------------------------------------------------------------------------------------
Total 1,907,500 $0.94 1,687,500
- --------------------------------------------------------------------------------------------------------------------
17
As of June 30, 2002, Integral had two Employee Benefit and Consulting
Services Compensation Plans 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.
On April 4, 2003, Integral adopted an employee benefit and consulting
services compensation plan entitled the Integral Technologies, Inc. 2003 Stock
Plan (the "2003 Plan). The 2003 Plan covers up to 1,500,000 shares of common
stock. The 2003 Plan has not previously been approved by security holders.
Under both Plans, 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 Plans 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 Plans are 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 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).
(b) 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.
(c) 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, 2003, $72,513 was accrued to Mr. Robinson and $32,268
was accrued to Mr. Ince.
18
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
- -------------------------------------------------
(a) List of Exhibits.
Exhibit No. 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 4.3 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 on May 11, 2000, exercisable to purchase an
aggregate of 495,000 shares of common stock granted to Swartz in connection with the offering of
securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.4 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 related to the
offering of securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.5 of Integral's
registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.)
4.6 Warrant to Purchase Common Stock issued from time to time in connection with the offering of
securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.6 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 4.7 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. (Incorporated
by reference to Exhibit 10.13 of Integral's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2002.)
10.14 Employment Agreement between Integral and William A. Ince dated July 1, 2002. (Incorporated by
reference to Exhibit 10.13 of Integral's Annual Report on Form 10-KSB for the fiscal year ended June
30, 2002.)
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.)
31.1 Section 302 Certification by the Corporation's Chief Executive Officer. (Filed herewith).
31.2 Section 302 Certification by the Corporation's Chief Financial Officer. (Filed herewith).
32.1 Section 906 Certification by the Corporation's Chief Executive Officer. (Filed herewith).
32.2 Section 906 Certification by the Corporation's Chief Financial Officer. (Filed herewith).
19
(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, 2003.
ITEM 14. CONTROLS AND PROCEDURES
- ---------------------------------
Based on their most recent evaluation, which was completed as of the end of the
period covered by this periodic report on Form 10-KSB, the Company's Chief
Executive Officer and Chief Financial Officer believe the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are
effective to ensure that information required to be disclosed by the Company in
this report is accumulated and communicated to the Company's management,
including its principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. During the
last fiscal quarter to which this report relates, there were no significant
changes in the Company's internal controls or other factors that could
significantly affect these controls subsequent to the date of their evaluation
and there were no corrective actions with regard to significant deficiencies and
material weaknesses.
20
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: September 29, 2003 /s/ William S. Robinson
---------------------------------------------
William S. Robinson, Chief Executive Officer
/s/ William A. Ince
---------------------------------------------
William A. Ince, Chief Financial Officer
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 Director, Chief Executive Officer September 29, 2003
- -----------------------
William S. Robinson
/s/ William A. Ince Director, Chief Financial Officer September 29, 2003
- -----------------------
William A. Ince
21
EXHIBIT INDEX
Exhibit No. 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 4.3 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 on May 11, 2000, exercisable to purchase an
aggregate of 495,000 shares of common stock granted to Swartz in connection with the offering of
securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.4 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 related to the
offering of securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.5 of Integral's
registration statement on Form SB-2 (file no. 333-41938) filed July 21, 2000.)
4.6 Warrant to Purchase Common Stock issued from time to time in connection with the offering of
securities described in Exhibit 4.3. (Incorporated by reference to Exhibit 4.6 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 4.7 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. (Incorporated
by reference to Exhibit 10.13 of Integral's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2002.)
10.14 Employment Agreement between Integral and William A. Ince dated July 1, 2002. (Incorporated by
reference to Exhibit 10.13 of Integral's Annual Report on Form 10-KSB for the fiscal year ended June
30, 2002.)
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.)
31.1 Section 302 Certification by the Corporation's Chief Executive Officer. (Filed herewith).
31.2 Section 302 Certification by the Corporation's Chief Financial Officer. (Filed herewith).
32.1 Section 906 Certification by the Corporation's Chief Executive Officer. (Filed herewith).
32.2 Section 906 Certification by the Corporation's Chief Financial Officer. (Filed herewith).