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, 2005
[_] 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.
- --------------------------------------------------------------------------------
(Name of small business issuer as specified in its charter)
Nevada 98-0163519
- ----------------------------------- --------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
805 W. Orchard Drive, Suite 7, Bellingham, Washington 98225
- --------------------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (360) 752-1982
--------------
Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g) of the Exchange Act: Common Stock
------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
Check whether the issuer is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes [_] No [X]
State issuer's revenues for its most recent fiscal year. $-11,158-.
---------
As of September 15, 2005, the aggregate market value of the voting stock
held by non-affiliates, approximately 37,936,783 shares of Common Stock, was
approximately $13.8 million based on an average of the bid and ask prices of
approximately $.365 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 15, 2005 was 42,439,149 shares.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one):
Yes [_]; No [X]
PART I
------
CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO
DIFFER FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS
Readers of this document and any document incorporated by reference herein,
are advised that this document and documents incorporated by reference into this
document contain both statements of historical facts and forward looking
statements. Forward looking statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially for those
indicated by the forward looking statements. Examples of forward looking
statements include, but are not limited to (i) projections of revenues, income
or loss, earning or loss per share, capital expenditures, dividends, capital
structure and other financial items, (ii) statements of the plans and objectives
of the Company or its management or Board of Directors, including the
introduction of new products, or estimates or predictions of actions by
customers, suppliers, competitors or regulatory authorities, (iii) statements of
future economic performance, and (iv) statements of assumptions underlying other
statements and statements about the Company or its business.
This document and any documents incorporated by reference herein also
identify important factors which could cause actual results to differ materially
from those indicated by forward looking statements. These risks and
uncertainties include price competition, the decisions of customers, the actions
of competitors, the effects of government regulation, possible delays in the
introduction of new products and services, customer acceptance of products and
services, the Company's ability to secure debt and/or equity financing on
reasonable terms, and other factors which are described herein and/or in
documents incorporated by reference herein.
The cautionary statements made above and elsewhere by the Company should
not be construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company. Forward looking statements are beyond the
ability of the Company to control and in many cases the Company cannot predict
what factors would cause results to differ materially from those indicated by
the forward looking statements.
ITEM 1. DESCRIPTION OF BUSINESS.
- ---------------------------------
BUSINESS DEVELOPMENT
- ---------------------
Integral Technologies, Inc. ("Integral," the "Company" or the "Registrant")
is a development stage company, incorporated under the laws of the State of
Nevada on February 12, 1996. To date, Integral, directly and through its
subsidiaries, has expended its resources on the research and development of
several different types of technologies.
Presently, Integral is focusing substantially all of its resources on the
researching, developing and commercializing of its ElectriPlast technology,
which is comprised of over eighty applications including its new antenna
(PlasTenna). In addition, Integral applies a significant portion of its
resources to the protection of its intellectual property through patent filings.
To date, we have not realized any revenue from our efforts.
TECHNOLOGIES
- ------------
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.
1
ElectriPlast
Building on its PlasTenna technology, the Company has developed an
innovative, electrically-conductive resin-based material called "ElectriPlast."
The ElectriPlast Polymer is a patent-pending, compounded formulation of
resin-based materials, which are conductively loaded, or doped, with a
proprietary-controlled, balanced concentration of micron conductive materials,
then pelletized. The conductive loading or doping within this pellet is then
homogenized using conventional molding techniques and conventional molding
equipment. The end result is a product that can be molded into any of the
infinite shapes and sizes associated with plastics and rubbers, but which is as
electrically conductive as if it were metal.
Various examples of applications for ElectriPlast are shielding, lighting
circuitry, switch actuators, resistors, medical devices, thermal management and
cable connector bodies, to name just a few. Integral plans to introduce these
new products and the ElectriPlast Technology on a global scale.
The Company is focusing its marketing efforts on securing licensing
agreements for applications of its ElectriPlast technology. The Company's
technologies will be marketed to manufactures of products which would benefit
from the incorporation of any of the ElectiPlast applications into their
products.
Patents on Technologies
- -------------------------
Integral has completed a patent review of its ElectriPlast technologies,
and has filed 80 U.S. patent applications, 4 of which have been issued, 4 of
which have been allowed and are pending issuance, 45 which have been filed and
are pending final approval and 27 are provisional patents. 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 design(s)
described in each issued patent for the 18-year life of the patent.
The Company's intellectual property portfolio consists of over nine 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
- -----------------------------------------
The Company is not in the manufacturing business. The Company will rely on
third-party manufacturing companies to manufacture products.
Management anticipates that the Company's technologies will not be sold
directly to the general public, but rather to businesses and manufacturers who
will incorporate our technologies as components in the design of their products.
Barriers to Entry into Market Segment
- ------------------------------------------
In the antenna market, Integral will be competing with other established
antenna providers that are much larger and better capitalized than Integral. In
order to compete, management believes that Integral must demonstrate to
potential users that its antenna products have an advantage over other antennas
on the market in terms of performance and cost.
Integral will be attempting to introduce the ElectriPlast technology as an
alternative to metal for use as an electrically conductive material. The
process of educating potential customers about ElectriPlast may prove time
consuming and difficult.
2
EMPLOYEES
- ---------
Integral and its subsidiaries currently employ or contract a total of 5
people on a full-time basis. However, Integral also relies on the expertise of
several technical advisors who are consulted as needed on a part-time, contract
basis.
SEC REPORTS AVAILABLE ON WEBSITE
- ------------------------------------
The SEC maintains an Internet site (http://www.sec.gov) that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. Our Annual Reports on Form
10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and other
SEC filings are available on the SEC's website or by visiting our company
website at www.itkg.net.
ITEM 2. DESCRIPTION OF PROPERTY.
- -----------------------------------
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.
- ----------------------------
There are no pending legal proceedings involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ---------------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 2005.
3
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- -------------------------------------------------------------------------
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, 2005 and 2004.
Quarter Ended Low Bid High Bid
------------- ------- --------
September 30, 2003 $ 0.77 $ 1.40
December 31, 2003 $ 1.04 $ 1.50
March 31, 2004 $ 0.88 $ 1.54
June 30, 2004 $ 0.71 $ 1.26
September 30, 2004 $ 0.59 $ 1.20
December 31, 2004 $ 0.51 $ 1.12
March 31, 2005 $ 0.60 $ 0.92
June 30, 2005 $ 0.47 $ 0.69
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.
Holders
As of September 15, 2005 there were approximately 202 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").
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.
Recent Sales of Unregistered Securities
Information regarding the issuance and sales of securities of the Company
without registration during the fiscal year ended June 30, 2005, has previously
been included in Quarterly Reports on Forms 10-QSB and Current Reports on Form
8-K filed during the period covered by this report.
Repurchases of equity securities
The Company did not repurchase any of its outstanding equity securities during
the fourth quarter of the year ended June 30, 2005.
4
ITEM 6. MANAGEMENT'S PLAN OF OPERATION.
- -------------------------------------------
Statements contained herein that are not historical facts are
forward-looking statements as that term is defined by the Private Securities
Litigation Reform Act of 1995. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, the forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ from those projected. We caution investors that any
forward-looking statements made by us are not guarantees of future performance
and that actual results may differ materially from those in the forward-looking
statements. Such risks and uncertainties include, without limitation:
well-established competitors who have substantially greater financial resources
and longer operating histories, regulatory delays or denials, ability to compete
as a start-up company in a highly competitive market, and access to sources of
capital.
The following discussion and analysis should be read in conjunction with
our financial statements and notes thereto included elsewhere in this Form
10-KSB. Except for the historical information contained herein, the discussion
in this Form 10-KSB contains certain forward-looking statements that involve
risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. The cautionary statements made in this Form 10-KSB
should be read as being applicable to all related forward-looking statements
wherever they appear in this Form 10-KSB. The Company's actual results could
differ materially from those discussed here.
To date the Company has recorded nominal revenues from the sales of
prototypes. The Company is still considered a development stage company for
accounting purposes. From inception on February 12, 1996 through June 30, 2005,
the Company has accrued an accumulated deficit of approximately $19.3 million.
The Company's net loss for the year ended June 30, 2005 was $1,812,265,
compared to a net loss of $2,543,848 for the prior fiscal year. The net loss for
the year ended June 30, 2005 reflects the reversal of an accrual of $397,296 due
to West Virginia University, as a result of a global settlement of a lawsuit
during the year. The primary expenses during the year ended June 30, 2005 were
salaries ($588,930), consulting fees ($346,339) and legal and accounting
($967,581).
Legal fees have been exceptionally high for the past two years and
primarily related to costs associated with the protection of the Company's
intellectual property by pursuing and maintaining technology patent filings in
the U.S. as well as other countries. Legal fees (including associated filing
fees) related to patent filings was approximately $750,000 for the fiscal year
ended June 30, 2005 and approximately $550,000 for the fiscal year ended June
30, 2004. The Company has also incurred significant legal costs in defending
and settling the lawsuit filed by James E. Smith: the Company incurred legal
fees (including expert witness fees) of approximately $110,000 in respect of the
Smith lawsuit during the fiscal year ended June 30, 2005, and approximately
$210,000 during the fiscal year ended June 30, 2004. As a result of a global
settlement of the lawsuit in 2005 that also involved West Virginia University,
the Company reversed an accrual of $397,296 that had been previously accrued as
a payable to West Virginia University for research and development work that the
Company had disputed.
At June 30, 2005, current liabilities included $561,325 of accounts payable
and accruals, with payables for legal fees (including associated filing fees)
related to patent filings accounting for approximately $450,000 of the total.
In June 2005 the Company engaged The QuanStar Group LLC ("QuanStar") as an
advisor to render strategic and consulting services to the Company, primarily in
connection with the expected high growth worldwide commercialization of the
Company's proprietary ElectriPlast technology. The scope of services to be
provided to the Company by QuanStar may include: research of business channels,
strategic and negotiation consultation, distributor/client support, governmental
channels and research, manufacturing expansion, international licensees and
distributors, client introductions, and exit planning.
The term of the agreement with QuanStar is one year. Unless terminated by
either party at least thirty days prior to the end of the one year term, the
agreement shall automatically be renewed for successive one year periods.
During the term of the agreement, the Company agreed to pay to QuanStar a
monthly retainer of $15,000 and to reimburse QuanStar for all reasonable
out-of-pocket expenses. In addition the Company will pay to QuanStar a fee
5
equal to 5% of the Net Revenue actually paid to the Company by new clients or
other parties directly introduced by QuanStar. "Net Revenue" is defined to mean
revenue actually received by the Company from third parties in respect of sales
of the Company's products and/or services, license fees, or research grants, net
of taxes payable by the Company with respect to such amounts and all direct
costs incurred by the Company in generating such revenue.
The Company also issued 500,000 shares of restricted common stock (a
non-cash expense) to QuanStar in June 2005. The shares have been recorded at a
value of $270,000 (representing the market value of the shares on the date of
issuance) and are being expensed over a 12 month period at a rate of $22,500 per
month. At June 30, 2005, $262,500 of this amount is included in Prepaid
Expenses.
QuanStar is an active strategic management company that provides assistance
to companies who find themselves at a defining business juncture. QuanStar
represents its principals to be recognized leaders in their fields. QuanStar
will act as an extension of Integral's senior management team, with multilevel
involvement in both strategy development and execution.
Since its engagement with the Company, Quanstar has introduced Integral and
the ElectriPlast technology to a number of Fortune 500 companies with whom
Integral would not otherwise have been able to access independently.
Presently, the Company is focusing all of its resources on the researching,
developing and commercializing its PlasTenna and ElectriPlast technologies.
The Company's business strategy is to focus on leveraging its intellectual
property and its strengths in product design and material innovation. The
Company does not intend to manufacture products but rather license its
technology for incorporation into end products and in turn earn royalty income.
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. If necessary, the Company will rely on contract
manufacturers to produce products.
The Company's business strategy focuses on leveraging its intellectual
property rights. The Company is focusing its marketing efforts on securing
licensing agreements for applications of its PlasTenna and ElectriPlast
technologies with manufacturers of products which would benefit from the
incorporation of any of the PlasTenna or ElectriPlast applications.
The Company anticipates spending approximately $250,000 over the next
twelve months on ongoing research and development (primarily salaries and
consulting fees) of the different applications and uses of its technologies.
During the next twelve months, the Company does not anticipate increasing
its staff.
As of June 30, 2005, the Company had $1,791,442 in cash. Although the
Company's cash needs for the last two fiscal years has averaged approximately $2
million per year, management expects a notable reduction in legal fees over the
next 12 months due to the settlement of the Smith lawsuit and an anticipated
significant decrease in patent filings, and therefore believes that there is
adequate cash on hand to fund operations over the next twelve months.
6
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.
ITEM 8A. CONTROLS AND PROCEDURES.
- ----------------------------------
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report (the "Evaluation Date"),
the Company carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of the Evaluation Date, the Company's disclosure controls and
procedures were effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is
(i) recorded, processed, summarized and reported within the time periods
specified in applicable rules and forms, and (ii) accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding required disclosure.
INTERNAL CONTROL OVER FINANCIAL REPORTING
In preparation for the annual report of management regarding our evaluation
of our internal controls that is required to be included in our annual report
for the year ended June 30, 2008 by Section 404 of the Sarbanes-Oxley Act of
2002, we will need to assess the adequacy of our internal control, remediate any
weaknesses that may be identified, validate that controls are functioning as
documented and implement a continuous reporting and improvement process for
internal controls. We may discover deficiencies that require us to improve our
procedures, processes and systems in order to ensure that our internal controls
are adequate and effective and that we are in compliance with the requirements
of Section 404 of the Sarbanes-Oxley Act. If the deficiencies are not
adequately addresses, or if we are unable to complete all of our testing and any
remediation in time for compliance with the requirements of Section 404 of the
Sarbanes-Oxley Act and the SEC rules under it, we would be unable to conclude
that our internal controls over financial reporting are designed and operation
effectively, which could adversely affect our investor confidence in our
internal controls over financial reporting.
ITEM 8B. OTHER INFORMATION.
- ----------------------------
None.
7
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
INDEX PAGE
----- ----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity (Deficit) F4-F7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F9-F22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE DIRECTORS AND STOCKHOLDERS OF INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
We have audited the consolidated balance sheets of Integral Technologies, Inc.
(A Development Stage Company) as of June 30, 2005 and 2004 and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the years ended June 30, 2005, 2004 and 2003 and the cumulative totals for
the development stage of operations from February 12, 1996 (inception) through
June 30, 2005. 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 standard of the Public
Company Accounting Oversight Board (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, 2005 and 2004 and
the consolidated results of its operations and its cash flows for each of the
years ended June 30, 2005, 2004 and 2003 and the cumulative totals for the
development stage of operations from February 12, 1996 (inception) through June
30, 2005 in conformity with accounting principles generally accepted in the
United States of America.
"Pannell Kerr Forster"
(Registered with the PCAOB as "Smythe Ratcliffe")
Chartered Accountants
Vancouver, Canada
September 27, 2005
See notes to consolidated financial statements. F-1
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
JUNE 30
(US DOLLARS)
====================================================================================
2005 2004
- ------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 1,791,442 $ 3,905,773
Prepaid expenses (note 5(a)(ii)(b)) 272,142 26,091
- ------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,063,584 3,931,864
PROPERTY AND EQUIPMENT (note 3) 8,219 31,250
INVESTMENTS (note 4) 0 1
- ------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,071,803 $ 3,963,115
====================================================================================
LIABILITIES
CURRENT
Accounts payable and accruals (note 7) $ 561,325 $ 522,337
Due to West Virginia University Research
Corporation (note 9(a)) 0 397,296
- ------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 581,325 919,633
- ------------------------------------------------------------------------------------
CONTINGENCIES (note 9)
STOCKHOLDERS' EQUITY (note 5)
PREFERRED STOCK AND PAID-IN CAPITAL IN EXCESS
OF $0.001 PAR VALUE
20,000,000 Shares authorized
308,538 (2004 -321,038) Shares issued and
outstanding (note 5(b)) 308,538 321,038
COMMON STOCK AND PAID-IN CAPITAL IN EXCESS
OF $0.001 PAR VALUE
50,000,000 Shares authorized
42,439,149 (2004 -40,181,849) Shares issued and
outstanding (note 5(a)) 20,522,085 20,197,085
PROMISSORY NOTES RECEIVABLE (note 5(e)) (66,500) (66,500)
OTHER COMPREHENSIVE INCOME 46,267 46,267
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (19,319,912) (17,454,408)
- ------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,490,478 3,043,482
- ------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,071,803 $ 3,963,115
====================================================================================
See notes to consolidated financial statements. F-2
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(US DOLLARS)
==================================================================================================================
PERIOD FROM
FEBRUARY 12,
1996
(INCEPTION)
THROUGH
2005 2004 2003 JUNE 30, 2005
- ------------------------------------------------------------------------------------------------------------------
REVENUE $ 11,158 $ 1,483 $ 21,355 $ 249,308
COST OF SALES 0 0 0 216,016
- ------------------------------------------------------------------------------------------------------------------
11,158 1,483 21,355 33,292
OTHER INCOME 55,462 0 0 658,305
- ------------------------------------------------------------------------------------------------------------------
66,620 1,483 21,355 691,597
- ------------------------------------------------------------------------------------------------------------------
EXPENSES
Legal and accounting 967,581 909,398 151,651 3,053,148
Salaries 588,930 685,023 467,093 4,530,401
Consulting 346,339 536,728 445,193 3,038,584
General and administrative 154,338 123,596 57,515 784,351
Travel and entertainment 107,069 133,132 93,879 983,869
Rent 32,816 33,631 31,838 320,065
Telephone 29,312 38,375 29,892 324,987
Advertising 17,500 6,000 9,360 294,755
Bank charges and interest, net 9,264 55,374 1,498 172,493
Write-off of investments (note 4) 1 0 0 1,250,000
Financing fees 0 25,000 0 129,542
Non-competition agreement 0 0 0 711,000
Write-down of license and operating assets 0 0 0 1,855,619
Interest on beneficial conversion feature 0 0 0 566,456
Remuneration pursuant to proprietary,
Bad debts (recovery) 0 (23,958) 10,753 52,613
Settlement of lawsuit (note 9(b)) 0 0 45,250 45,250
Research and development (note 9(a)) (397,296) 0 1,234 847,459
Depreciation and amortization 23,031 23,032 23,032 316,167
- ------------------------------------------------------------------------------------------------------------------
1,878,885 2,545,331 1,368,188 19,276,759
- ------------------------------------------------------------------------------------------------------------------
NET LOSS FOR YEAR $ (1,812,265) $ (2,543,848) $ (1,346,833) $ (18,585,162)
==================================================================================================================
NET LOSS PER COMMON SHARE $ (0.04) $ (0.07) $ (0.04)
==================================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 40,490,001 36,391,491 31,928,310
==================================================================================================================
See notes to consolidated financial statements. F-3
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(US DOLLARS)
=====================================================================================================================
COMMON PREFERRED
SHARES STOCK AND SHARES OF STOCK AND
OF COMMON PAID-IN CAPITAL PREFERRED PAID-IN CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES
ISSUED OF PAR ISSUED OF PAR RECEIVABLE
- ---------------------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR
Cash 1,000,000 $ 10,000 0 $ 0 $ 0
Property and equipment
(to officers
and directors) 1,500,000 15,000 0 0 0
Services (provided by
officers and directors) 2,000,000 20,000 0 0 0
Services (others) 1,500,000 15,000 0 0 0
Foreign currency
translation 0 0 0 0 0
Net loss for year 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 6,000,000 60,000 0 0 0
SHARES ISSUED FOR
Cash 5,086,000 865,514 0 0 0
Share issue costs 0 (48,920) 0 0 0
Services 564,000 63,036 0 0 0
Acquisition of subsidiary 100,000 275,000 0 0 0
Foreign currency
translation 0 0 0 0 0
Net loss for year 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 11,750,000 1,214,630 0 0 0
SHARES ISSUED FOR
Cash 825,396 650,000 0 0 0
Share issue costs 0 (78,000) 0 0 0
Foreign currency
translation 0 0 0 0 0
Net loss for year 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 12,575,396 $ 1,786,630 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------
=======================================================================================================
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
SHARE COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
SUBSCRIPTIONS INCOME STAGE EQUITY (DEFICIT)
- -------------------------------------------------------------------------------------------------------
SHARES ISSUED FOR
Cash $ 0 $ 0 $ 0 $ 10,000
Property and equipment
(to officers
and directors) 0 0 0 15,000
Services (provided by
officers and directors) 0 0 0 20,000
Services (others) 0 0 0 15,000
Foreign currency
translation 0 (1,226) 0 (1,226)
Net loss for year 0 0 (344,843) (344,843)
- -------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 0 (1,226) (344,843) (286,069)
SHARES ISSUED FOR
Cash 0 0 0 865,514
Share issue costs 0 0 0 (48,920)
Services 0 0 0 63,036
Acquisition of subsidiary 0 0 0 275,000
Foreign currency
translation 0 12,601 0 12,601
Net loss for year 0 0 (822,217) (822,217)
- -------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 0 11,375 (1,167,060) 58,945
SHARES ISSUED FOR
Cash 0 0 0 650,000
Share issue costs 0 0 0 (78,000)
Foreign currency
translation 0 24,860 0 24,860
Net loss for year 0 0 (937,373) (937,373)
- -------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 $ 0 $ 36,235 $ (2,104,433) $ (281,568)
- -------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. F-4
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(U.S. DOLLARS)
=================================================================================================================================
COMMON PREFERRED
SHARES OF STOCK AND SHARES OF STOCK AND
COMMON PAID-IN CAPITAL PREFERRED PAID-IN CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES
ISSUED OF PAR ISSUED OF PAR RECEIVABLE
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 12,575,396 $ 1,786,630 0 $ 0 $ 0
SHARES ISSUED FOR
Cash 200,000 50,000 0 0 0
Exercise of stock options 445,000 80,500 0 0 0
Promissory note 1,683,789 252,568 0 0 (284,068)
Settlement of lawsuit 150,000 15,000 0 0 0
Services (provided by
officers and directors) 666,666 100,000 0 0 0
Share issue costs 0 (100,500) 0 0 0
Services 250,000 50,000 0 0 0
Conversion of convertible debentures 3,869,120 525,813 0 0 0
Acquisition of subsidiary 1,800,000 619,200 0 0 0
Held in escrow 447,091 0 0 0 0
Stock option benefit 0 70,600 0 0 0
Beneficial conversion feature 0 566,456 0 0 0
Foreign currency translation 0 0 0 0 0
Net loss for year 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE JUNE 30, 1999 22,087,062 4,016,267 0 0 (284,068)
SHARES ISSUED FOR
Cash on private placement 2,650,000 3,975,000 0 0 0
Exercise of options 1,245,000 256,700 0 0 0
Services 50,000 13,000 0 0 0
Settlement of debt 0 0 664,410 664,410 0
Shares released from escrow 0 75,558 0 0 0
Stock option benefit 0 48,256 0 0 0
Promissory note repayment 0 0 0 0 225,568
Foreign currency translation 0 0 0 0 0
Net loss for year 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 26,032,062 $ 8,384,781 664,410 $ 664,410 $ (58,500)
- ---------------------------------------------------------------------------------------------------------------------------------
=================================================================================================================
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
SHARE COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
SUBSCRIPTIONS INCOME STAGE EQUITY (DEFICIT)
- -----------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 $ 0 $ 36,235 $ (2,104,433) $ (281,568)
SHARES ISSUED FOR
Cash 0 0 0 50,000
Exercise of stock options 0 0 0 80,500
Promissory note 0 0 0 (31,500)
Settlement of lawsuit 0 0 0 15,000
Services (provided by
officers and directors) 0 0 0 100,000
Share issue costs 0 0 0 (100,500)
Services 0 0 0 50,000
Conversion of convertible debentures 0 0 0 525,813
Acquisition of subsidiary 0 0 0 619,200
Held in escrow 0 0 0 0
Stock option benefit 0 0 0 70,600
Beneficial conversion feature 0 0 0 566,456
Foreign currency translation 0 8,444 0 8,444
Net loss for year 0 0 (1,404,021) (1,404,021)
- -----------------------------------------------------------------------------------------------------------------
BALANCE JUNE 30, 1999 0 44,679 (3,508,454) 268,424
SHARES ISSUED FOR
Cash on private placement 0 0 0 3,975,000
Exercise of options 0 0 0 256,700
Services 0 0 0 13,000
Settlement of debt 0 0 0 664,410
Shares released from escrow 0 0 0 75,558
Stock option benefit 0 0 0 48,256
Promissory note repayment 0 0 0 225,568
Foreign currency translation 0 1,614 0 1,614
Net loss for year 0 0 (1,537,402) (1,537,402)
- -----------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 $ 0 $ 46,293 $ (5,045,856) $ 3,991,128
- -----------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. F-5
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(US DOLLARS)
=========================================================================================================================
COMMON PREFERRED
SHARES STOCK AND SHARES OF STOCK AND
OF COMMON PAID IN CAPITAL PREFERRED PAID- IN CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES
ISSUED OF PAR ISSUED OF PAR RECEIVABLE
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 26,032,062 $ 8,384,781 664,410 $ 664,410 $ (58,500)
SHARES ISSUED FOR
Cash on private placement 81,885 112,480 0 0 0
Exercise of options 517,000 91,515 0 0 0
Services 100,000 40,000 0 0 0
Held in escrow 218,115 0 0 0 0
Stock option benefit 0 272,207 0 0 0
Dividends on preferred shares 0 0 0 0 0
Share subscriptions 0 0 0 0 0
Redeemed shares 0 0 (100,000) (100,000) 0
Foreign currency translation 0 0 0 0 0
Net loss for year 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2001 26,949,062 8,900,983 564,410 564,410 (58,500)
SHARES ISSUED FOR
Proprietary non-competition
agreement 450,000 711,000 0 0 0
Held in escrow 700,000 0 0 0 0
Exercise of options 2,263,500 971,200 0 0 (15,000)
Exercise of warrants 325,000 130,000 0 0 0
Subscriptions 100,000 40,000 0 0 0
Stock option compensation 0 415,685 0 0 0
Shares released from escrow 0 954,582 0 0 0
Dividends on preferred shares 0 0 0 0 0
Redeemed shares 0 0 (124,800) (124,800) 0
Write-off of promissory
note receivable 0 (7,000) 0 0 7,000
Net loss for year 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 30,787,562 $ 12,116,450 439,610 $ 439,610 $ (66,500)
- -------------------------------------------------------------------------------------------------------------------------
=========================================================================================================
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
SHARE COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
SUBSCRIPTIONS INCOME STAGE EQUITY (DEFICIT)
- ---------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 $ 0 $ 46,293 $ (5,045,856) $ 3,991,128
SHARES ISSUED FOR
Cash on private placement 0 0 0 112,480
Exercise of options 0 0 0 91,515
Services 0 0 0 40,000
Held in escrow 0 0 0 0
Stock option benefit 0 0 0 272,207
Dividends on preferred shares 0 0 (30,720) (30,720)
Share subscriptions 50,000 0 0 50,000
Redeemed shares 0 0 (100,000) (200,000)
Foreign currency translation 0 (26) 0 (26)
Net loss for year 0 0 (4,000,169) (4,000,169)
- ---------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2001 50,000 46,267 (9,176,745) 326,415
SHARES ISSUED FOR
Proprietary non-competition
agreement 0 0 0 711,000
Held in escrow 0 0 0 0
Exercise of options (10,000) 0 0 946,200
Exercise of warrants 0 0 0 130,000
Subscriptions (40,000) 0 0 0
Stock option compensation 0 0 0 415,685
Shares released from escrow 0 0 0 954,582
Dividends on preferred shares 0 0 (26,087) (26,087)
Redeemed shares 0 0 (187,200) (312,000)
Write-off of promissory
note receivable 0 0 0 0
Net loss for year 0 0 (3,836,191) (3,836,191)
- ---------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 $ 0 $ 46,267 $ (13,226,223) $ (690,396)
- ---------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. F-6
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(US DOLLARS)
===============================================================================================================================
COMMON PREFERRED
SHARES STOCK AND SHARES OF STOCK AND
OF COMMON PAID-IN CAPITAL PREFERRED PAID IN-CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES
ISSUED OF PAR ISSUED OF PAR RECEIVABLE
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 30,787,562 $ 12,116,450 439,610 $ 439,610 $ (66,500)
SHARES ISSUED FOR 0
Cash on private placement 1,684,000 842,050 0 0 0
Settlement of debt 144,793 104,542 0 0 0
Services 200,000 196,000 0 0 0
Exercise of options 52,500 43,750 0 0 0
Exercise of warrants 55,000 27,500 0 0 0
Subscription received 0 0 0 0 0
Stock option compensation 0 5,460 0 0 0
Settlement of lawsuit (note 9(b)) 0 0 0 0 0
Dividends on preferred shares 0 0 0 0 0
Net loss for year 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2003 32,923,855 13,335,752 439,610 439,610 (66,500)
SHARES ISSUED FOR
Cash on private placement 6,609,336 6,042,935 0 0 0
Cash on exercise of options 25,000 25,000 0 0 0
Settlement of lawsuit (note 9(b)) 37,500 35,250 0 0 0
Services 25,000 21,873 0 0 0
Redemption of preferred shares 415,000 415,000 (118,572) (118,572) 0
Exercise of warrants 288,298 0 0 0 0
Shares returned to treasury for
cancellation (142,140) 0 0 0 0
Stock option compensation 0 321,275 0 0 0
Dividends on preferred shares 0 0 0 0 0
Net loss for year 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2004 40,181,849 20,197,085 321,038 321,038 (66,500)
SHARES ISSUED FOR
Settlement of debt 44,000 55,000 0 0 0
Cashless exercise of warrants 1,713,300 0 0 0 0
For services 500,000 270,000 0 0 0
Redemption of preferred shares 0 0 (12,500) (12,500) 0
Dividends on preferred shares 0 0 0 0 0
Net loss for year 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2005 42,439,149 $ 20,522,085 308,538 $ 308,538 $ (66,500)
===============================================================================================================================
==============================================================================================================
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
SHARE COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
SUBSCRIPTIONS INCOME STAGE EQUITY (DEFICIT)
- --------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 $ 0 $ 46,267 $ (13,226,223) $ (690,396)
SHARES ISSUED FOR
Cash on private placement 0 0 0 842,050
Settlement of debt 0 0 0 104,542
Services 0 0 0 196,000
Exercise of options 0 0 0 43,750
Exercise of warrants 0 0 0 27,500
Subscription received 176,665 0 0 176,665
Stock option compensation 0 0 0 5,460
Settlement of lawsuit (note 9(b)) 35,250 0 0 35,250
Dividends on preferred shares 0 0 (22,060) (22,060)
Net loss for year 0 0 (1,346,833) (1,346,833)
- --------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2003 211,915 46,267 258,182 (628,072)
SHARES ISSUED FOR
Cash on private placement (211,915) 0 0 5,831,020
Cash on exercise of options 0 0 0 25,000
Settlement of lawsuit (note 9(b)) 0 0 0 35,250
Services 0 0 0 21,873
Redemption of preferred shares 0 0 (296,428) 0
Exercise of warrants 0 0 0 0
Shares returned to treasury for
cancellation 0 0 0 0
Stock option compensation 0 0 0 321,275
Dividends on preferred shares 0 0 (19,016) (19,016)
Net loss for year 0 0 (2,543,848) (2,543,848)
- --------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2004 0 46,267 (17,454,408) 3,043,482
SHARES ISSUED FOR
Settlement of debt 0 0 0 55,000
Cashless exercise of warrants 0 0 0 0
For services 0 0 0 270,000
Redemption of preferred shares 0 0 (37,500) (50,000)
Dividends on preferred shares 0 0 (15,739) (15,739)
Net loss for year 0 0 (1,812,265) (1,812,265)
- --------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2005 $ 0 $ 46,267 $ (19,319,912) $ 1,490,478
==============================================================================================================
See notes to consolidated financial statements. F-7
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US DOLLARS)
=======================================================================================================================
PERIOD FROM
FEBRUARY 12, 1996
YEARS ENDED JUNE 30, (INCEPTION)
2005 2004 2003 JUNE 30, 2005
- -----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $ (1,812,265) $(2,543,848) $(1,346,833) $ (18,585,165)
Adjustments to reconcile net loss to
net cash used by operating activities
Write-down of investment 1 0 0 1,250,000
Other income (55,462) 0 0 (658,305)
Proprietary, non-competition
agreement 0 0 711,000
Consulting services and financing fees 7,500 61,873 223,500 964,773
Depreciation and amortization 23,031 23,032 24,302 341,722
Stock option compensation 0 321,275 5,460 1,133,483
Interest on beneficial conversion 0 0 0 566,456
Settlement of lawsuit 0 0 45,250 60,250
Write-down of license and operating assets 0 0 0 1,853,542
Bad debt 0 1,141 10,752 77,712
Due to West Virginia University
Research Corporation (397,296) 0 0 0
Changes in non-cash working capital
Due from affiliated company 0 0 0 (116,000)
Notes and accounts receivable 0 0 3,873 (109,213)
Inventory 0 0 0 (46,842)
Prepaid expenses 16,449 (14,247) 3,249 (9,642)
Deferred revenue and other 0 0 (13,232) (2,609)
Accounts payable and accruals 153,711 31,067 (112,371) 900,606
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (2,064,331) (2,119,707) (1,156,050) (11,668,229)
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, equipment and
Intangibles assets 0 0 0 (200,935)
Assets acquired and liabilities assumed
on purchase of subsidiary 0 0 0 (129,474)
Investment in and advances to affiliate companies 0 0 0 (2,000,000)
License agreements 0 0 0 (124,835)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES 0 0 0 (2,455,244)
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Redemption of preferred shares (50,000) 0 0 (50,000)
Repayment of loan 0 0 0 (45,000)
Advances from stockholders 0 0 0 1,078,284
Repayments to stockholders 0 0 0 (94,046)
Subscriptions received 0 0 176,665 226,665
Proceeds from issuance of common stock 0 5,851,270 885,800 14,380,165
Proceeds from convertible debentures 0 0 0 600,000
Share issue costs 0 0 0 (227,420)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (50,000) 5,851,270 1,062,465 15,868,648
EFFECT OF FOREIGN CURRENCY TRANSLATION
ON CASH 0 0 0 46,267
- -----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (2,114,331) 3,731,563 (93,585) 1,791,442
CASH, BEGINNING OF YEAR 3,905,773 174,210 267,795 0
- -----------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 1,791,442 $ 3,905,773 $ 174,210 $ 1,791,442
=======================================================================================================================
Supplemental cash flow information (note 6)
See notes to consolidated financial statements. F-8
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US 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. 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"), Antek Wireless
Inc. ("Antek") and Plastenna, Inc. ("Plastenna") a Delaware
corporation and its 76.625% owned subsidiary, Emergent Technologies
Corp. ("ETC"). All inter-company balances and transactions have been
eliminated.
(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
Basic 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 of diluted loss per share because their
effect would be anti-dilutive.
F-9
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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.
(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
Transactions and financial statements for the Company's operations
whose functional currency is the US dollar are translated into US
dollars at the exchange rates in effect at the balance sheet dates for
monetary assets and liabilities, and at historical exchange rates for
non-monetary assets and liabilities. Revenue and expenses are
translated at average rates for the period, except for amortization
and depreciation, which are translated on the same basis as the
related assets. Resulting translation gains or losses are reflected in
net earnings (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-10
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Financial instruments
(i) Fair value
The carrying value of cash, accounts payable and accruals
approximate their fair value because of the short maturity of
these financial instruments.
(ii) 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.
(iii) Credit risk
The Company's financial assets that are exposed to credit risk
consist primarily of cash which is placed with major financial
institutions.
(iv) Currency 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-11
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
2. 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. During the 2005
fiscal year the Company granted 1,000,000 stock options to an employee
and extended the expiry date of 790,000 options. In accordance with
FIN 44 options with extended expiry date have been re-measured at the
date of change. Accordingly, compensation expense of $Nil (2004 -
$136,750; 2003 - $Nil) 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:
=========================================================================================
2005 2004 2003
- -----------------------------------------------------------------------------------------
Net loss, as reported $(1,812,265) $(2,543,848) $(1,346,833)
Add: Stock-based employee
compensation expense under
intrinsic value method included in
reported net loss, net of related tax
effects 0 136,750 0
Deduct: Total stock-based
compensation expense determined
under fair value based method for all
awards, net of related tax effects (326,000) (14,159) (230,180)
- -----------------------------------------------------------------------------------------
Net loss, pro-forma $(2,138,265) $(2,421,257) $(1,577,013)
=========================================================================================
Net loss per share, as reported $ (0.04) $ (0.07) $ (0.04)
Add: Stock-based employee
compensation expense under
intrinsic value method included in
reported net loss, net of related tax
effects 0.00 0.00 0.00
Deduct: Total stock-based
compensation expense determined
under fair value based method for all
awards, net of related tax effects (0.01) 0.00 (0.01)
- -----------------------------------------------------------------------------------------
Net loss per share, pro-forma $ (0.05) $ (0.07) $ (0.05)
=========================================================================================
The Company applies SFAS 123 in accounting for its stock options
granted to non-employees, and accordingly, compensation expense of
$Nil (2004 - $184,525; 2003 - $5,460) was recognized as consulting
expense.
F-12
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(k) Stock based compensation (Continued)
The fair value of each option grant is calculated using the following
weighted average assumptions:
=======================================================
2005 2004 2003
- -------------------------------------------------------
Expected life (years) 1 1 2.2
Interest rate 3.45% 3.50% 3.00%
Volatility 75.00% 72.50% 51.50%
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 gains and losses from foreign currency translation
adjustments. For the years ended June 30, 2005, 2004 and 2003, there
was no comprehensive income components therefore net loss for the year
equals comprehensive loss for the year.
(m) Recent accounting pronouncements
(i) FAS 151, Inventory Costs. This Statement is effective for
inventory costs incurred during fiscal years beginning after June
15, 2005. Earlier application is permitted for inventory costs
incurred during fiscal years beginning after November 24, 2004.
The provisions of this Statement should be applied prospectively.
There is no impact on the Company's financial statements.
(ii) FAS 152, Accounting for Real Estate Time-Sharing Transactions.
This Statement is effective for financial statements for fiscal
years beginning after June 15, 2005. Restatement of previously
issued financial statements is not permitted. There is no impact
on the Company's financial statements.
(iii) FAS 153, Exchanges of Non-monetary Assets. The provisions of
this Statement are effective for non-monetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005.
Earlier application is permitted for non-monetary asset exchanges
occurring in fiscal periods beginning after December 16, 2004.
The provisions of this Statement should be applied prospectively.
There is no impact on the Company's financial statements.
F-13
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Recent accounting pronouncements (Continued)
(iv) FIN 46(R), Consolidation of Variable Interest Entities, applies
at different dates to different types of enterprises and
entities, and special provisions apply to enterprises that have
fully or partially applied Interpretation 46 or Interpretation
46(R) is required in financial statements of public entities that
have interests in variable interest entities or potential
variable interest entities commonly referred to as
special-purpose entities for periods ending after December 15,
2003. Application by public entities (other than small business
issuers) for all other types of entities is required in financial
statements for periods ending after March 15, 2004. Application
by small business issuers to entities other than special-purpose
entities and by non-public entities to all types of entities is
required at various dates in 2004 and 2005. In some instances,
enterprises have the option of applying or continuing to apply
Interpretation 46 for a short period of time before applying
Interpretation 46(R). There is no impact on the Company's
financial statements.
(v) In December 2004, the FASB issued Statement No. 123 (revised
2004), "Share-Based Payment" ("SFAS 123R)"), which requires the
measurement and recognition of compensation expense for all
stock-based compensation payments and supersedes the Company's
current accounting under APB 25.SFAS 123(R) is effective for all
annual periods beginning after June 15, 2005. In March 2005, the
Securities and Exchange Commission issued Staff Accounting
Bulletin No. 107 ("SAB 107") relating to the adoption of SFAS
123(R).
The Company will adopt SFAS 123(R) in the first quarter of fiscal
2006 and will continue to evaluate the impact of SFAS 123(R) on
its operating results and financial condition. The pro-forma
information presented above presents the estimated compensation
charges under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation". The Company's
assessment of the estimated compensation charges is affected by
the Company's stock price as well as assumptions regarding a
number of complex and subjective variables and the related tax
impact. These variables include, but are not limited to, the
Company's stock price volatility and employee stock option
exercise behaviours. The Company will recognize the compensation
cost for stock-based awards issued after June 30, 2005 on a
straight-line basis over the requisite service period for the
entire award.
3. PROPERTY AND EQUIPMENT
====================================================================
2005 2004
- --------------------------------------------------------------------
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 (184,940) (161,909)
- --------------------------------------------------------------------
$ 8,219 $ 31,250
====================================================================
F-14
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
4. INVESTMENTS
In July 2000, the Company executed a Stock Purchase Agreement with
Continental Divide Robotics Inc. ("CDRI") related to the acquisition of a
minority interest in CDRI. CDRI has developed certain proprietary hardware
and software systems that use 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.
During the year ended June 30, 2005 CDRI filed a plan of reorganization
under Chapter II of the bankruptcy code. Accordingly, the Company wrote off
the nominal value of this investment.
5. STOCKHOLDERS' EQUITY
(a) Common stock
(i) During the year ended June 30, 2004, the Company:
(a) entered into a private placement whereby the Company issued
898,336 shares at a price of $0.75 per share and 449,268
share purchase warrants exercisable within two years with an
exercise price of $1.00 per share of which 20,000 shares
were paid for with services valued at $15,000.
(b) received for cancellation 142,140 shares previously issued
and held in escrow under the Swartz agreement which expired
during the year ended June 30, 2003.
(c) issued 37,500 shares as part of the mutual release agreement
in settlement of all claims related to the Joffre J. Rolland
and Robin L. Rolland claims.
(d) issued 25,000 shares at a price of $1.00 per share on
exercise of options.
(e) redeemed 118,572 shares of Series A convertible preferred
stock from an officer of the Company. The redemption price
of $3.50 per share was used as consideration for the
exercise of 415,000 options to purchase common stock of the
Company at a price of $1.00 per share.
(f) issued 288,298 shares upon the exercise of warrants held by
Swartz. The warrants were exercised under a cashless
exercise provision. No cash consideration was received by
the Company.
(g) entered into a private placement whereby the Company issued
57,110 units at $100 per unit for gross proceeds of
$5,711,000 less a private placement fee of 6% of gross
proceeds. Each unit is comprised of 100 newly issued shares
of the Company's common stock and one warrant
F-15
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
5. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
convertible into 30 additional shares of common stock. Each
warrant may be exercised in whole or in part at any time,
during the period commencing on April 30, 2004 and expiring
on December 31, 2009, and entitles the holder to receive
shares of common stock for no additional consideration.
(ii) During the year ended June 30, 2005, the Company
(a) issued 44,000 shares to settle debt for $55,000.
(b) Issued 500,000 shares as partial consideration for
consulting services to be provided over 12 months. These
shares have been recorded at a value of $270,000
representing the market value of the shares at the date of
issuance. The amount was recorded as a prepaid expense to be
amortized over the term of the contract.
(c) Issued 1,713,300 shares on exercise of cashless warrants.
(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.
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, 2005, the Company redeemed 12,500 (2004
- 118,572) shares of Series A convertible preferred stock from two
officers of the Company. The board of directors offered to redeem the
preferred shares at a higher price than the original agreement of
$3.50. The board authorized the redemption of the preferred shares at
a value of $4.00 (2004 - $3.50) for a total payment of $50,000 (2004 -
$415,000).
(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
F-16
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
5. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(c) Stock options (Continued)
number of common share options which may be granted from 2,500,000 to
3,500,000 stock options. As at June 30, 2005, there are 88,500 options
available under this plan.
The following table summarizes the Company's stock option activity for
the years ended June 30, 2005, 2004 and 2003:
========================================================================
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
- ------------------------------------------------------------------------
Balance, June 30, 2002 1,305,000 $0.40 to $1.50 $ 0.76
Granted during the year
June 30, 2003 1,230,000 $ 1.00 $ 1.00
Exercised (52,500) $0.69 to $1.50 $ 0.41
Cancelled (575,000) $0.40 to $1.00 $ 0.66
- ------------------------------------------------------------------------
Balance, June 30, 2003 1,907,500 $0.40 to $1.50 $ 0.94
Granted during the year
June 30, 2004 255,000 $ 1.00 $ 1.00
Cancelled (175,000) $0.65 to $1.50 $ 0.77
Exercised (440,000) $ 1.00 $ 1.00
- ------------------------------------------------------------------------
Balance, June 30, 2004 1,547,500 $0.64 to $1.50 $ 0.94
Granted during the year
June 30, 2005 1,000,000 $ 1.00 $ 1.00
Cancelled (102,500) $0.65 to $1.50 $ 0.77
- ------------------------------------------------------------------------
Balance, June 30, 2005 2,445,000 $0.50 to $1.16 $ 0.76
========================================================================
The following summarizes the options outstanding and exercisable at
June 30, 2005 and 2004 all of which were fully vested at these dates:
=================================================================
Exercise Number of Shares
Expiry Date Price 2005 2004
- -----------------------------------------------------------------
August 31, 2004 $0.40 to $1.50 0 877,500
August 31, 2005 $ 1.00 1,030,000 255,000
December 31, 2005 $ 1.00 415,000 415,000
June 30, 2010 $ 0.50 1,000,000 0
- -----------------------------------------------------------------
Total $0.40 to $1.50 2,445,000 1,547,500
=================================================================
F-17
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
5. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(c) Stock options (Continued)
Pursuant to the 2001 Plan:
(i) During the year ended June 30, 2004, the Company granted a total
of 255,000 stock options to consultants at an exercise price of
$1.00 per common share. All options are fully vested at the date
of grant and expired August 31, 2005.
(ii) 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 fully vested at the date of grant and 830,000
vested January 1, 2003 and expire December 31, 2005.
(iii) During the year ended June 30, 2004, the expiry date of 790,000
options was extended to August 31, 2004 as such the options
became variable options. During the year ended June 30, 2004 the
expiry date of 775,000 of these options was extended to August
31, 2005 (note 2(k)). Subsequent to year-end, the expiry date of
the 775,000 options was extended again to August 31, 2006.
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, 2005, no options have been granted with respect to this plan.
During the year ended June 30, 2005 the Company granted a total of
1,000,000 stock options to an employee at an exercise price of $0.50
per common share. All options are fully vested at the date of grant
and expire June 30, 2010.
(d) Stock purchase warrants
At June 30, 2005 and 2004, the following stock purchase warrants were
outstanding:
=======================================================================
Exercise Number of Shares
Expiry Date Price 2005 2004
- -----------------------------------------------------------------------
November 10, 2005 $1.19 to $1.69 45,496 45,496
November 29, 2005 $ 0.50 842,000 842,000 *
September 25, 2005 $ 1.00 449,170 449,170 **
December 31, 2009 $ Nil 0 1,713,300
- -----------------------------------------------------------------------
Total $ Nil to $1.69 1,336,666 3,049,966
=======================================================================
* During the year the expiry date of these warrants was extended to
November 29, 2005 from the previous November 1, 2004 expiry date.
** Subsequent to the year-end, the expiry date of these warrants was
extended to June 30, 2006.
F-18
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
5. STOCKHOLDERS' EQUITY (DEFICIT)(Continued)
(e) Promissory notes receivable at June 30, 2005 includes:
(i) $31,500 (2004 - $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 (2004 - $20,000) due on exercise of 100,000 stock
options, interest at 8% per annum due June 6, 2002.
(iii) $15,000 (2004 - $15,000) due on exercise of 23,000 stock
options, interest at 10% per annum due June 30, 2003.
As at June 30, 2005, 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. No interest has been accrued on these
financial statements as of June 30, 2005.
6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
===========================================================================================================================
PERIOD FROM
FEBRUARY 12,
1996
(INCEPTION)
THROUGH
2005 2004 2003 JUNE 30, 2004
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
SHARES ISSUED
For redemption of preferred shares $ 0 $ 415,000 $ 0 $ 415,000
For property and equipment 0 0 0 23,000
For proprietary agreement 0 0 0 711,000
For settlement of accounts payable 55,000 0 104,542 228,742
For services (provided by officers
and directors) 0 0 0 120,000
For settlement of lawsuit 0 0 0 15,000
For services 270,000 61,873 223,500 696,784
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
===========================================================================================================================
F-19
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
7. RELATED PARTY TRANSACTIONS
(a) Accounts payable at June 30, 2005 includes $10,727 (2004 - $29,290;
2003 - $269,660) due to two directors and officers of the Company.
(b) The Company incurred $430,000 (2004 - $340,000; 2003 - $340,000) for
wages to two directors and officers of the Company.
(c) The Company incurred $Nil (2004 - $37,000; 2003 - $nil) for interest
paid to two directors and officers of the Company. This charge was
authorized by the board of directors for amounts owed since fiscal
year ended June 30, 2001.
8. 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:
=============================================================================
2005 2004 2003
- -----------------------------------------------------------------------------
Deferred income tax assets
Net operating loss and credit
carryforwards 5,300,000 4,700,000 3,900,000
Excess of tax value of long-term
investments and licenses over
net book value $ 692,000 $ 692,000 $ 692,000
Accrued liabilities 5,000 144,000 104,000
Temporary differences on property
property and equipment
depreciation (3,000) (3,000) (3,000)
- -----------------------------------------------------------------------------
Gross deferred tax assets 5,994,000 5,533,000 4,693,000
Valuation allowance (5,994,000) (5,533,000) (4,693,000)
- -----------------------------------------------------------------------------
$ 0 $ 0 $ 0
=============================================================================
As at June 30, 2005 the Company's net operating loss carryforwards for
income tax purposes were approximately $15,200,000 (2004 - $13,300,000;
2003 - $11,100,000). If not utilized, they will start to expire in 2012.
F-20
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
9. CONTINGENCIES
(a) During the year ended June 30, 2005, the Company settled all past and
present claims that the Company and Mr. James Smith and his personal
company, Integral Concepts, Inc., have against each other. All parties
will release all claims against each other. In addition, Mr. Smith
will return to the Company 40,000 shares of its common stock.
As part of a global settlement, the Company, West Virginia University
(WVU) and West Virginia University Research Corp. ("WVURC") have
mutually agreed to release all past and present claims that each has
against each other under the following terms:
(i) WVU and WVURC release all past and present claims it has against
the Company, including $397,296 in claimed amounts, vigorously
contested by the Company for past research and development work
performed by WVURC on the Plasma Ignition Technology, the
Colorvision Technology and the CTHA Technology;
(ii) Cancellation of the licensing agreement between WVU and Integral
Concepts, Inc., for the Plasma Ignition Technology, the
Colorvision Technology and the CTHA Technology, which had been
previously sub-licensed by Integral Concepts, Inc. to the Company
or its subsidiaries; and
(iii) WVU will issue new licensing agreements for the aforementioned
technologies directly to the Company.
In return, the Company agreed to issue 40,000 restricted shares of its
common stock to WVU.
As a result of this settlement, the Company reversed a prior accrual
of $397,296 and $21,492 previously included in accounts payable and
accruals.
(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
they 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.
F-21
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(US DOLLARS)
================================================================================
9. CONTINGENCIES (Continued)
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 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. received $10,000 in cash and 37,500 shares
of Integral common stock, issued pursuant to Rule 144.
The settlement was recorded in the accounts at June 30, 2003.
F-22
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 48 Director, Chairman, CEO and Treasurer February 1996
William A. Ince 54 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.
NON-EXECUTIVE OFFICERS / SIGNIFICANT EMPLOYEES
TOM AISENBREY
(General Manager, Vice President of Product Development and Chief Technology
Officer)
Mr. Aisenbrey 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, including design & development of multiple
computer oriented products, specializing in wireless products.
9
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT DISCLOSURE
The Company does not have a separately-designated standing audit committee
at this time because it is not required to do so. Accordingly, the Company does
not have an audit committee financial expert.
CODE OF ETHICS
On September 20, 2004, the Board of Directors established a written code of
ethics that applies to the Company's senior executive and financial officers. A
copy of the code of ethics is incorporated by reference as an exhibit to this
annual report. In addition, a copy of the code of ethics is posted on the
Company's website at www.itkg.net.
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, 2005, 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, 2005,
2004 and 2003.
Annual Compensation
-------------------------------------------------
(a) (b) (c) (d) (e)
Name Other
And Year Annual
Principal Ended Salary Bonus Compensation
Position June 30 ($) ($) ($)
- ------------------------ -------------- --------------- --------------- --------------
William S. Robinson, 2005 $ 180,000 $ 45,000
Director, Chairman, CEO, 2004 $ 170,000 $ 57,110 -0-
Treasurer 2003 $ 170,000 -0- -0-
William A. Ince, 2005 $ 180,000 $ 25,000 -0-
Director, President, 2004 $ 170,000 -0- -0-
Secretary, CFO 2003 $ 170,000 -0- -0-
9
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, 2005 -0- -0- -0- $ 49,926(n3)
Chairman, CEO, Treasurer 2004 -0- -0- -0- $ 368,943(n1,n2)
2003 -0- 415,000 -0- -0-
William A. Ince, Director, 2005 -0- -0- -0- $ 47,614(n3)
President, Secretary, CFO 2004 -0- -0- -0- $ 32,268 (n2)
2003 -0- 415,000 -0- -0-
(n1) In December 2003, the Board of Directors authorized the redemption of
118,572 shares of Series A Preferred Stock from Mr. Robinson at a
predetermined redemption price of $3.50 per share. The stated value of
the Series A Preferred Stock is $1.00 per share, which resulted in a
redemption premium of $2.50 per share over the stated value (an
aggregate of $296,430). Mr. Robinson tendered the shares of Series A
Preferred Stock in payment of the aggregate exercise price of $415,000
for the exercise of 415,000 options to purchase common stock, and no
cash was paid to Mr. Robinson.
(n2) A 5% dividend on the Series A Preferred Stock, payable in cash or
shares of common stock at the election of the Company, had been
accrued for the period from September 30, 1999 (date of issuance) to
June 30, 2003, and was paid in cash during the fiscal year end June
30, 2004, with $72,513 paid to William S. Robinson and $32,268 paid to
William A. Ince. For the year ended June 30, 2004, $13,536 was accrued
to Mr. Robinson and $5,491 was accrued to Mr. Ince, all of which was
paid in cash during the fiscal year end June 30, 2005. For the year
ended June 30, 2005, $2,640 was paid in cash to Mr. Robinson during
the fiscal year and an additional $7,765 was accrued to Mr. Robinson
at year end, and $1,373 was paid in cash to Mr. Ince during the fiscal
year and an additional $3,961 was accrued to Mr. Ince at year end. For
purposes of the chart, only amounts actually paid are included and are
shown in the year in which payments were made.
(n3) In January 2005, the Board of Directors authorized the redemption of
an aggregate of 12,500 shares of Series A Preferred Stock (6,250
shares from William S. Robinson and 6,250 shares from William A. Ince)
at a redemption price of $4.00 per share. The stated value of the
Series A Preferred Stock is $1.00 per share, which resulted in a
redemption premium of $3.00 per share over the stated value.
(n4) During the fiscal year ended June 30, 2004, the Board of Directors
authorized the payment of accrued interest on amounts since July 1,
2001 for loans made to the Company by officers and directors, at an
average annual interest rate of 8%. A total of $15,000 was accrued to
William S. Robinson and a total of $22,000 was accrued to William A.
Ince at June 30, 2004, all of which was paid during the fiscal year
end June 30, 2005. For purposes of the chart, the amounts are shown in
the year in which payments were made.
10
(c) Option/SAR Grants in Last Fiscal Year
The information provided in the table below provides information with
respect to individual grants of stock options for the year ended June 30, 2005
to each of the persons named in the Summary Compensation Table above. Integral
did not grant any stock appreciation rights for the year ended June 30, 2005.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
% of Total
Options/SARS
Number of Securities Granted to
Underlying Employees Exercise or
Options/SARs in Fiscal Base Price Expiration
Name Granted (#) Year (n1) ($/Sh) Date
- -------------------------- --------------- --------------- --------------- -------------
William S. Robinson,
Chairman, CEO, Treasurer -0- -0- N/A N/A
William A. Ince, Director,
President, Secretary, CFO -0- -0- N/A N/A
(n1) The percentage of total options granted in the fiscal year is based
upon all options granted to eligible participants, which includes
officers, directors, employees, consultants and advisors, under the
Integral Technologies, Inc. 2001 Stock Plan and the Integral
Technologies, Inc. 2003 Stock Plan during the year ended June 30,
2005.
(d) Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The information provided in the table below provides information with
respect to each exercise of stock options during most recent fiscal year ended
June 30, 2005 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 -0-/-0- -0-/-0-
Director, Chairman,
CEO, Treasurer
William A. Ince -0- N/A 415,000/-0- $ -0-/-0-
Director, President,
Secretary, CFO
11
(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. The options held by Mr.
Ince where out-of-the-money because the $1.00 per share exercise price
was greater than the fair market value of the common stock ($.52 per
share) on June 30, 2005.
(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, 2005.
(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, 2005. 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
As of the date of filing of this report, the current executive officers do
not have written employment contracts.
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.
(h) Employee Benefit and Consulting Services Compensation Plans
As of June 30, 2005, 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
12
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 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
- --------------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS..
- -------------------------------
A. Common Stock
The following table sets forth, as of September 15, 2005 the stock
ownership of each person known by Integral to be the beneficial owner of five
percent or more of Integral's common stock, each Officer and Director
individually and all Directors and Officers of Integral as a group. Each person
is believed to have sole voting and investment power over the shares except as
noted.
============================================ ================================ ====================
Name and Address of Amount and Nature of Beneficial
Beneficial Owner (1) Ownership(1)(2) Percent of Class (3)
- -------------------------------------------- -------------------------------- --------------------
William S. Robinson (4)
#3 1070 West Pender St.
Vancouver, B.C. V6E 2N7 2,373,533 5.6%
- -------------------------------------------- -------------------------------- --------------------
William A. Ince (5)
805 W. Orchard Dr., Suite #7 2,128,833 5.0%
Bellingham, WA 98225
- -------------------------------------------- -------------------------------- --------------------
All officers and directors of Integral as a
group (2 persons) 4,502,366 10.5%
============================================ ================================ ====================
(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 204,975 shares of Series A and Mr. Ince owns 103,563
shares of Series A. As of September 15, 2005, the conversion rate was $.33
per share, so Mr. Robinson's 204,975 shares of Series A were convertible
into 621,136 shares of common stock, and Mr. Ince's 103,563 shares of
Series A were convertible into 313,827 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 42,439,149 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 an aggregate of 200,000
shares held in the names of his spouse and his three minor children.
13
(5) Mr. Ince is an officer and director of Integral and each of its
subsidiaries. Beneficial ownership figure includes 415,000 shares
underlying options.
B. Series A Convertible Preferred Stock
The following table sets forth, as of September 15, 2005, 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.
Vancouver, B.C. V6E 2N7 204,975 66.4%
- ------------------------------------------------------- ----------------------- --------------------
William A. Ince (4) -
805 W. Orchard Dr., Suite #3 103,563 33.6%
Bellingham, WA 98225
- ------------------------------------------------------- ----------------------- --------------------
All officers and directors of Integral as a
group (2 persons) 308,538 100%
======================================================= ======================= ====================
(1) Unless otherwise indicated, all shares are directly beneficially owned and
investing power is held by the persons named.
(2) Based upon 308,538 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.
14
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, 2005:
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))
Plan category (a) (b) (c)
- ------------------------- --------------------------- ----------------------------- ------------------------------
Equity compensation plans
approved by security
holders N/A N/A N/A
- ------------------------- --------------------------- ----------------------------- ------------------------------
Equity compensation plans
not approved by security
holders 1,445,000 $ 0.94 1,588,500
- ------------------------- --------------------------- ----------------------------- ------------------------------
Total 1,445,000 $ 0.94 1,588,500
- ------------------------- --------------------------- ----------------------------- ------------------------------
As of June 30, 2005, 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) A 5% dividend on the Series A Preferred Stock, payable in cash or shares
of common stock at the election of the Company, had been accrued for the period
from September 30, 1999 (date of issuance) to June 30, 2003, and was paid in
cash during the fiscal year end June 30, 2004, with $72,513 paid to William S.
Robinson and $32,268 paid to William A. Ince. For the year ended June 30, 2004,
$13,536 was accrued to Mr. Robinson and $5,491 was accrued to
15
Mr. Ince, all of which was paid in cash during the fiscal year end June 30,
2005. For the year ended June 30, 2005, $2,640 was paid in cash to Mr.
Robinson during the fiscal year and an additional $7,765 was accrued to Mr.
Robinson at year end, and $1,373 was paid in cash to Mr. Ince during the fiscal
year and an additional $3,961 was accrued to Mr. Ince at year end.
(b) In December 2003, the Board of Directors authorized the redemption of
118,572 shares of Series A Preferred Stock from William S. Robinson at a
predetermined redemption price of $3.50 per share. The stated value of the
Series A Preferred Stock is $1.00 per share, which resulted in a redemption
premium of $2.50 per share over the stated value.
(c) During the fiscal year ended June 30, 2004, the Board of Directors
authorized the payment of accrued interest on amounts since July 1, 2001 for
loans made to the Company by officers and directors, at an average annual
interest rate of 8%. A total of $15,000 was accrued to William S. Robinson and
a total of $22,000 was accrued to William A. Ince at June 30, 2004, all of which
was paid during the fiscal year end June 30, 2005.
(d) In January 2005, the Board of Directors authorized the redemption of an
aggregate of 12,500 shares of Series A Preferred Stock (6,250 shares from
William S. Robinson and 6,250 shares from William A. Ince) at a redemption price
of $4.00 per share. The stated value of the Series A Preferred Stock is $1.00
per share, which resulted in a redemption premium of $3.00 per share over the
stated value.
(e) On June 17, 2005, the Company provided a Grant of Option to Thomas
Aisenbrey, the Company's General Manager, Vice President of Product Development
and Chief Technology Officer. Pursuant to the Grant of Option, Mr. Aisebrey was
granted an option to acquire 1,000,000 share of common stock of the Company at
an exercise price of $.50 per share, exercisable in whole or in part at any time
until June 30, 2010. The exercise price per share shall automatically be
adjusted down to $.001 per share in the event of a "triggering event," which is
defined as the termination of employment of Mr. Aisenbrey or a change in control
of the Company. A change in control of the Company shall be deemed to have
occurred if there is any sale, exchange or transfer of all or substantially all
of the assets of the Company, or if there is any merger or share exchange
involving the Company, which has the result of effecting a change in control of
the business through a change in management and/or officers and directors of the
Company.
The options and the underlying shares of common stock are subject to
restrictions on transfer, as required by applicable federal and state securities
laws. The option was not made under either of the Company's two existing equity
compensation plans described above in item 11.
ITEM 13. 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.)
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).)
10.15 Integral Technologies, Inc. 2003 Stock Plan dated April 4, 2003 (Incorporated by reference to Exhibit
10.15 of Integral's registration statement on Form S-8 (file no. 333-104522).)
10.16 Securities Purchase Agreement dated December 26, 2003, between the Registrant and Wellington
Management Company, LLP. (Incorporated by reference to Exhibit 10.16 of Integral's Current Report on
Form 8-K dated January 14, 2004 (filed January 28, 2004).)
16
10.18 Grant of Option dated June 17, 2005 between Integral and Thomas Aisenbrey. (Incorporated by
reference to Exhibit 10.18 of Integral's Current Report Form 8-K dated June 17,2005 (filed June 23,
2005).)
10.19 Agreement between the Company and The QuanStar Group, LLC dated June 20, 2005. (Incorporated by
reference to Exhibit 10.18 of Integral's Current Report Form 8-K dated June 17,2005 (filed June 23,
2005).)
14.1 Code of Ethics adopted September 20, 2004. (Incorporated by reference to Exhibit 14.1 of Integral's
annual report on Form 10-KSB for the period ended June 30, 2004.)
21.4 List of Subsidiaries. (Incorporated by reference to Exhibit 21.4 of Integral's annual report on Form 10-
KSB for the period ended June 30, 2004.)
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).
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -------------------------------------------------
The Company's board of directors reviews and approves audit and permissible
non-audit services performed by Pannell Kerr Forster, Vancouver, Canada ("PKF"),
as well as the fees charged by PKF for such services. In its review of
non-audit service fees and its appointment of PKF as the Company's independent
accountants, the board of directors considered whether the provision of such
services is compatible with maintaining PKF's independence. All of the services
provided and fees charged by PKF in the fiscal year ended June 30, 2005 were
pre-approved by the board of directors.
AUDIT FEES
The aggregate fees billed for professional services rendered by PKF for the
audit of our annual financial statements and the reviews of the financial
statements included in our quarterly reports on Form 10-QSB for fiscal years
ended June 30, 2005 and 2004 were $35,000 and $33,900, respectively.
AUDIT-RELATED FEES
There were no other fees billed by PKF during the last two fiscal years for
assurance and related services that were reasonably related to the performance
of the audit or review of the Company's financial statements and not reported
under "Audit Fees" above.
TAX FEES
The were no fees billed for professional services rendered by PKF for tax
compliance services in fiscal years ended June 30, 2005 and 2005.
ALL OTHER FEES
There were no other fees billed by PKF during the last two fiscal years for
products and services provided by PKF.
17
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INTEGRAL TECHNOLOGIES, INC
Dated: October 12, 2005 /s/ William S. Robinson
--------------------------------------------
William S. Robinson, Chief Executive Officer
/s/ William A. Ince
--------------------------------------------
William A. Ince, Chief Financial Officer and
Principal Accounting 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 October 12, 2005
- -------------------------
William S. Robinson
/s/ William A. Ince Director October 12, 2005
- -------------------------
William A. Ince
18
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.)
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).)
10.15 Integral Technologies, Inc. 2003 Stock Plan dated April 4, 2003 (Incorporated by reference to Exhibit
10.15 of Integral's registration statement on Form S-8 (file no. 333-104522).)
10.16 Securities Purchase Agreement dated December 26, 2003, between the Registrant and Wellington
Management Company, LLP. (Incorporated by reference to Exhibit 10.16 of Integral's Current Report on
Form 8-K dated January 14, 2004 (filed January 28, 2004).)
10.18 Grant of Option dated June 17, 2005 between Integral and Thomas Aisenbrey. (Incorporated by
reference to Exhibit 10.18 of Integral's Current Report Form 8-K dated June 17,2005 (filed June 23,
2005).)
10.19 Agreement between the Company and The QuanStar Group, LLC dated June 20, 2005. (Incorporated by
reference to Exhibit 10.18 of Integral's Current Report Form 8-K dated June 17,2005 (filed June 23,
2005).)
14.1 Code of Ethics adopted September 20, 2004. (Incorporated by reference to Exhibit 14.1 of Integral's
annual report on Form 10-KSB for the period ended June 30, 2004.)
21.4 List of Subsidiaries. (Incorporated by reference to Exhibit 21.4 of Integral's annual report on Form 10-
KSB for the period ended June 30, 2004.)
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).