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 ------- 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).