United States Securities and Exchange Commission
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES AT OF 1933
INTEGRAL TECHNOLOGIES, INC.
--------------------------------------------------------
(Name of small business issuer in its charter)
Nevada 3663 98-0163519
----------------------------------- -------------------------------- -------------------------------------
(State or jurisdiction of (Primary Standard Industrial I.R.S. Employer Identification No.
incorporation or organization Classification Code Number)
805 W. Orchard Drive, Suite 3
Bellingham, Washington 98225
(360) 752-1982
--------------
(Address and telephone number of principal executive offices)
805 W. Orchard Drive, Suite 3
Bellingham, Washington 98225
----------------------------
(Address of principal place of business or intended principal place of
business)
William A. Ince
805 W. Orchard Drive, Suite 3
Bellingham, Washington 98225
(360) 752-1982
--------------
(Name, address and telephone number of agent for service)
Copies to:
Troy A. Young, Esq.
Futro & Trauernicht LLC
1401 Seventeenth Street, 11th Floor
Denver, Colorado 80202
phone: (303) 295-3360
facsimile: (303) 295-1563
--------------------
Approximate date of proposed sale to the public: From time to time after the
effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ___
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box. X
---
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ___
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ___
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. ___
The Registrant is filing this Post-Effective Amendment to its Registration
Statement on Form SB-2, file number 333-41938, which was declared effective on
August 9, 2000, in order to meet its obligations pursuant to Rule 427 of the
General Rules and Regulations under the Securities Act of 1933 concerning the
date of our financial statements.
CALCULATION OF REGISTRATION FEE
==========================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of each Class of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered Registered Per Security (1) Price Fee
--------------------------------------------------------------------------------------------------------------------------
Common Stock, par $0.001(2) 12,000,000 $1.5775 $18,930,000 $4,997.52
Common Stock, par $0.001 (3) 495,000 $1.5775 $780,862.50 $206.15
Common Stock, par $0.001 (4) 2,650,000 $1.5775 $4,180,375 $1,103.62
Common Stock, par $0.001 (5) 1,325,000 $1.80 $2,385,000 $629.64
Total...........................................................................$26,276,237.50 $6,936.93(6)
==========================================================================================================================
(1) In accordance with Rule 457(c), the aggregate offering price of shares of
common stock of Integral is estimated solely for purposes of calculating the
registration fees payable pursuant hereto, as determined in accordance with Rule
457(c), using the average of the high and low sales price reported by the OTC
Bulletin Board for the Common Stock on July 14, 2000, which was $1.5775 per
share and, with respect to shares of common stock of Integral issuable upon
exercise of outstanding warrants, the higher of (1) such average sales price or
(2) the exercise price of such warrants.
(2) Includes up to 10,800,000 share of common stock held by certain selling
securityholders and issuable pursuant to an equity line investment agreement
with Swartz Private Equity, LLC and up to 1,200,000 shares upon the exercise of
common stock purchase warrants issuable to Swartz. The warrants are issuable to
Swartz from time to time when Integral exercises its put right to sell shares of
common stock to Swartz. Pursuant to the terms of the investment agreement,
Integral is required to issue Swartz warrants to purchase a number of shares of
common stock equal to 10% of the number of shares sold to Swartz pursuant to the
agreement. The exercise price of a warrant will initially be equal to 110% of
the market price on the date that Integral exercises its put right to sell
shares of its common stock to Swartz, but is subject to downward adjustment
under certain circumstances.
(3) Issuable upon the exercise of common stock commitment warrants issued to
Swartz Private Equity, LLC, on December 13, 1999. The exercise price of the
warrants is initially $1.306, was reset to $0.50 on June 13, 2001, and is
subject to downward adjustment under certain circumstances. On each six month
anniversary of the date of issuance, Integral will calculate a reset exercise
price that will be equal to 110% of the lowest closing bid price of the common
stock for the five trading days ending on each six month anniversary date. The
exercise price will be equal to the lowest reset exercise price determined on
any six month anniversary of the date of issuance preceding the date on which
the warrant is exercised, subject to anti-dilution adjustments.
(4) Represents outstanding shares of common stock held by certain selling
securityholders.
(5) Issuable upon the exercise of common stock purchase warrants held by certain
selling securityholders. The exercise price of the warrants is $1.80 per
underlying share.
(6) Previously paid with initial registration statement filed on July 21, 2000.
The company hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the company shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act or until the registration statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to said
section 8(a), may determine.
PROSPECTUS
INTEGRAL TECHNOLOGIES, INC.
The Resale of 16,470,000 Shares of Common Stock
The selling price of the shares will be determined by market factors at the time
of their resale.
-------------------------------------------
This prospectus relates to the resale by the selling shareholders of up to
16,470,000 shares of common stock. The selling shareholders may sell the stock
from time to time in the over-the-counter market at the prevailing market price
or in negotiated transactions. Of the shares offered:
- up to 12,000,000 shares have been issued or are issuable to
Swartz Private Equity, LLC pursuant to the Investment Agreement
between Swartz and Integral dated May 11, 2000;
- up to 495,000 shares are issuable upon the exercise of warrants
issued or issuable to Swartz under the Investment Agreement;
- 2,650,000 shares are outstanding and are held by other selling
securityholders; and
- up to 1,325,000 shares are issuable upon the exercise of
outstanding warrants held by other selling securityholders.
We will receive no proceeds from the sale of the shares by the selling
shareholders. However, we have received proceeds from the sale of shares that
are presently outstanding. We may receive up to $25 million of proceeds from the
sale of shares to Swartz pursuant to the investment agreement. In addition, we
may receive additional proceeds from the exercise of warrants held by Swartz and
other selling securityholders.
Our common stock is quoted on the over-the-counter Electronic Bulletin Board
under the symbol ITKG.
Investing in the common stock involves a high degree of risk. You should invest
in the common stock only if you can afford to lose your entire investment. See
"Risk Factors" beginning on page 6 of this prospectus.
Please read this prospectus carefully. It describes our company, finances,
products and services. Federal and state securities laws require that we include
in this prospectus all the important information that you will need to make an
investment decision.
You should rely only on the information contained or incorporated by reference
in this prospectus to make your investment decision. We have not authorized
anyone to provide you with different information. The selling shareholders are
not offering these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front page of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------------------------------
The date of this prospectus is November __, 2001
1
The following table of contents has been designed to help you find important
information contained in this prospectus. We encourage you to read the entire
prospectus.
TABLE OF CONTENTS
SECTION PAGE
------- ----
1. Prospectus Summary........................................................................3
2. Cautionary Statement Concerning Forward Looking Statements................................3
3. Risk Factors..............................................................................4
4. Use of Proceeds.......................................................................... 8
5. Description of Integral...................................................................8
6. Legal Proceedings .......................................................................12
7. Description of Property..................................................................13
8. Market for Common Stock and Related Shareholder Matters..................................13
9. Plan of Operation........................................................................14
10. Directors and Executive Officers.........................................................15
11. Ownership of Securities by Beneficial Owners and Management..............................17
12. Executive Compensation...................................................................18
13. Certain Relationships and Related Transactions...........................................24
14. Selling Securityholders..................................................................25
15. Plan of Distribution.....................................................................29
16. Description of Securities, Debentures and Warrants.......................................29
17. Interest of Named Experts and Counsel....................................................31
18. Indemnification Disclosure...............................................................31
19. Changes In and Disagreements With Accountants............................................31
20. Where You Can Find More Information......................................................31
21. Index to Financial Statements............................................................33
2
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and does not contain all of the information you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and the financial
statements and related notes.
Unless the context otherwise requires, the terms "we," "our," "us," and
"Integral" refer to Integral Technologies, Inc., a Nevada corporation. Our
principal offices are located at 805 West Orchard Drive, Suite 3, Bellingham,
Washington 98225. Our telephone number is (360) 752-1982. The address of our Web
site is www.itkg.net. Information contained on our Web site is not a part of
this prospectus.
The Offering
- ------------
Securities Offered 16,470,000 shares of Common Stock.
Offering Price The shares being registered hereunder are being
offered by the selling securityholders from time
to time at the then current market price.
Dividend Policy Integral does not anticipate paying dividends on its
Common Stock in the foreseeable future.
Use of Proceeds The shares offered herein are being sold by the
selling securityholders and as such, Integral will
not receive any of the proceeds of the offering (see,
"Use of Proceeds" section).
Material Risk Factors This offering involves a high degree of risk,
elements of which include possible lack of
profitability, competition, breach of leasing
agreements, death or incapacity of management and
inadequate insurance coverage. There is a risk to
investors due to the speculative nature of this
investment, historical losses from operations, a
shortage of capital, lack of dividends, dilution
factors, control by present shareholders and economic
conditions in general. There is a material risk that
we may have insufficient funding to engage in any or
all of the proposed activities.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus and documents incorporated by reference contain forward-looking
statements. Forward-looking statements relate to our future operations. They
estimate the occurrence of future events and are not based on historical facts.
Forward-looking statements may be identified by terms such as:
- believes
- intends
- projects
- forecasts
- predicts
- may
- will
- expects
- estimates
- anticipates
- probable
- continue
This list is not comprehensive. Similar terms, variations of those terms, and
the negative of those terms may also identify forward-looking statements.
3
The risk factors discussed in this prospectus are cautionary statements. They
identify some of the factors that could cause actual results to be significantly
different from those predicted in the forward-looking statements. The
forward-looking statements and documents incorporated by reference were compiled
by Integral based upon assumptions it considered reasonable. These assumptions
are subject to significant business, economic, and competitive uncertainties and
contingencies, many of which are beyond our control. Therefore, forecasted and
actual results will likely vary, and these variations may be material.
There can be no assurance that the statements, estimates, and projections
contained in this prospectus will be achieved. Thus, Integral makes no
representation or warranty as to their accuracy or completeness. In addition,
Integral cannot guarantee that any forecast in this prospectus will be achieved.
These forward-looking statements were compiled as of the date of this prospectus
or the date of the documents incorporated by reference, as the case may be.
Integral does not intend to update these statements, except as required by law.
Therefore, you should evaluate them by considering any changes that may have
occurred after the date these forward-looking statements appear.
Integral cannot guarantee the assumptions relating to the forward-looking
statements or the documents incorporated by reference will prove to be accurate.
Therefore, while these forward-looking statements contain Integral's best good
faith estimates as of the date of this prospectus, Integral urges you and your
advisors to review these forward-looking statements, to consider the assumptions
upon which they are based, and to ascertain their reasonableness.
RISK FACTORS
An investment in our common stock involves major risks. The Investor should
carefully consider the following risk factors, in addition to all of the other
information available to the Investor, in determining whether to purchase shares
of our stock.
WE ARE A HIGHLY SPECULATIVE INVESTMENT. Integral has been operating at a loss
since inception, and you cannot assume that Integral's plans will either
materialize or prove successful. There is no assurance that Integral's
operations will become profitable. In the event Integral's plans are
unsuccessful, you may lose all or a substantial part of your investment. For
these and other reasons, the purchase of Integral's stock must be considered a
highly speculative investment.
WE HAVE A HISTORY OF OPERATING LOSSES AND FINANCIAL INSTABILITY. For the year
ended June 30, 2001, Integral had a net loss of $4,000,169. Losses are expected
to continue for an undetermined time. As of June 30, 2001, Integral had
stockholders' equity of $326,415 and an accumulated deficit of $9,176,745. The
long term financial success of Integral will depend largely upon facts related
to Integral's operations. A report by Integral's independent auditors for the
period ended June 30, 2001 stated that there is substantial doubt as to whether
Integral will be able to continue operations. There can be no assurance as to
whether Integral will be able to achieve profitable operations or sustained
revenues.
WE LACK FUNDS AND CANNOT BE SURE THAT FUTURE CAPITAL WILL BE AVAILABLE. We do
not currently have adequate funds available to fund our operations over the next
twelve months, and we continue to require substantial funds for capital
expenditures and related operating expenses in pursuit of our business plans.
The timing and amount of such spending is difficult to predict accurately and
will depend upon many factors. To the extent required, Integral may seek
additional funds through additional private placements that will be exempt from
registration. Any such additional private placements will not require prior
shareholder approval and may include offerings of equity securities such as
common stock or preferred stock which is convertible into common stock, or debt
securities such as notes or debentures convertible into common stock. If
additional funds are raised by issuing equity or debt securities, further
dilution to shareholders could occur. Additionally, investors purchasing future
equity or debt securities could be
4
granted registration rights by Integral. There can be no assurance that
additional financing will be available when needed or on terms acceptable to
Integral.
WE DEPEND ON EXISTING MANAGEMENT; NO ADDITIONAL LIFE INSURANCE ON KEY PERSONNEL
IS CARRIED. Integral's future success depends in a significant part upon the
continued service of certain key management personnel. Competition for such
personnel is intense, and there can be no assurance that Integral can retain its
key managerial personnel or that it can attract, assimilate or retain other
highly qualified managerial personnel in the future. The loss of key personnel,
especially if without advance notice, or the inability to hire or retain
qualified personnel could have a material adverse effect upon Integral's
business, financial condition and result of operations. Integral does not
currently maintain additional life insurance on the life of any of its key
officers, directors, employees or consultants. To date, Integral has relied on
loans from management and management's ability to raise capital through debt and
equity private placement financings to fund its operations.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Integral's by-laws provide that
Integral will indemnify a current or past director or officer, or person who has
acted in such capacity for another corporation at the request of Integral, (and
such person's heirs and legal representatives) against all reasonably incurred
costs and amounts paid to settle an action, in a proceeding where he has been
named as a party because of his role.
Integral has been advised that while indemnification may be invoked to disclaim
liability for damages by directors, officers or persons controlling Integral
under these circumstances, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy and is therefore
unenforceable.
PATENTS AND PROPRIETARY RIGHTS SUBJECT TO UNCERTAINTY; POSSIBLE INFRINGEMENT BY
INTEGRAL. Integral relies on a combination of patents, trademarks, copyright and
trade secret laws, confidentiality procedures and licensing arrangements to
protect its intellectual property rights. There can be no assurance that any
patents held by Integral will not be challenged and invalidated, that patents
will issue from any of the Integral's pending applications or that any claims
allowed from existing or pending patents will be of sufficient scope or strength
or be issued in all countries where Integral's products can be sold so as to
provide meaningful protection or any commercial advantage to Integral.
Competitors of Integral may also be able to design around its patents.
Integral obtained its rights to some of its technologies pursuant to a chain of
agreements and sublicenses. Accordingly, there can be no assurance Integral will
not be subject to claims from prior parties related to these technologies or
that any such parties will not attempt to exploit the technology independently
of Integral's rights to do so. There is no assurance that Integral's
technologies or products do not and will not infringe the patents or proprietary
rights of third parties.
Problems with patents or other rights could potentially increase the cost of
Integral's products or delay or preclude new product development and
commercialization by Integral. If infringement claims against Integral are
deemed valid it may seek licenses that might not be available on acceptable
terms or at all. Litigation could be costly and time-consuming but may be
necessary to protect Integral's technology and could have a materially adverse
effect on Integral and its business prospects. There can be no assurance that
any application of Integral's technologies will not infringe upon the
proprietary rights of others or that licenses required by Integral from others
will be available on commercially reasonable terms, if at all.
PREFERRED STOCK. The Articles of Incorporation of Integral authorize the
issuance of 20,000,000 shares of preferred stock. The preferred stock may be
divided into one or more series. The board of directors is authorized to
determine the rights, provisions, privileges and restrictions and number of
authorized shares of any series of preferred stock. Additionally, the preferred
stock can have other rights, including voting and economic rights that are
senior to the common stock. The issuance of preferred stock could adversely
affect the market value of the common stock.
5
1,000,000 shares of preferred stock have been designated as Series A Convertible
Preferred Stock of which 564,410 are issued and outstanding, and held by two
insiders of Integral. Each share of Series A Convertible Preferred Stock:
- - has a stated value and liquidation preference of $1.00;
- - has a 5% annual dividend, payable in cash or shares of common stock;
- - may be converted into shares of common stock (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);
- - may be redeemed by Integral within one year after issue at $1.50, after
one year but less than two years at $2.00, after two years but less than
three years at $2.50, after three years but less than four years at
$3.00, and after four years but less than five years at $3.50;
- - may be voted on all matters on an as-converted basis; and
- - may be voted as a class on any merger, share exchange, recapitalization,
dissolution, liquidation or change in control of Integral.
The details of the dividend rates, liquidation preferences, redemption
provisions, conversion rights, voting rights, and other rights, preferences,
privileges and restrictions are set forth in the "Designation of Rights and
Preferences of Series A Convertible Preferred Stock," that was filed as an
amendment to the Articles of Incorporation on November 16, 1999.
WE HAVE NEVER PAID DIVIDENDS. The board of directors of Integral has the sole
authority to determine whether cash dividends will be paid. This decision will
depend on many factors including Integral's earnings, capital requirements and
financial condition. Integral has not paid cash dividends in the past and does
not anticipate paying cash dividends in the near future.
HOW FUTURE ISSUANCES OF COMMON STOCK PURSUANT TO OUR STOCK OPTION PLANS WILL
AFFECT YOU. Integral has two non-qualified stock option plans in effect. As of
October 31, 2001, a total of approximately 2,600,000 shares are available under
these plans for issuance either directly or pursuant to options, to officers,
directors, employees and consultants of Integral and its subsidiaries. As of
October 31, 2001, of the 2,600,000 shares available, approximately 2,195,000 are
under option, at exercise prices ranging between $.40 to $2.00 per share. When
additional shares are issued under this plan, your stock ownership may be
diluted. Additional stock or options to acquire stock of Integral can be granted
at any time by the board of directors, usually without shareholder approval.
HOW FUTURE SALES OF COMMON STOCK MAY AFFECT YOU. Future sales of common stock by
management personnel and others may be made under Rule 144 of the 1933 Act. In
general, under Rule 144, a person who has held their stock for one year may,
under certain circumstances, sell within any three-month period a number of
shares which is not greater than one percent of the then outstanding shares of
common stock or (if qualified) the average weekly trading volume in shares
during the four calendar weeks immediately prior to such sale. Under certain
circumstances, the sale of shares which have been held for two years by a person
who is not affiliated with Integral is also permitted. Management personnel and
others have or may acquire shares of common stock which are exempt from
registration pursuant to Rule 701 or may be registered on Form S-8 and which may
be sold in compliance with state securities laws without restriction by
non-affiliates in, and by those affiliated with Integral either (i) under Rule
144 but without the one-year holding period or (ii) pursuant to an effective
reoffer prospectus filed for the Form S-8. Future sales of common stock may have
an adverse effect on the current market price of the common stock and adversely
affect Integral's ability to obtain future funding as well as create a potential
market overhang.
6
OUR STOCK HAS BEEN LIMITED IN ITS PUBLIC TRADING; VOLATILITY OF STOCK. There has
been a limited public trading market for the common stock of Integral, and there
can be no assurance that an active trading market will be sustained upon the
completion of the offering. The issuance of common stock on conversion of the
debentures or exercise of the warrants and the subsequent sale of the common
stock pursuant to this prospectus can dilute the common stock and adversely
affect the market price of the common stock. There can be no assurance that the
market price of the stock will not decline below its current price. The market
price for securities of telecommunications and internet companies have
historically been highly volatile. Integral believes that fluctuations in its
operating results and even mild expressions of interest on a particular day
(being traded on the OTC Bulletin Board) can cause the market price of its
shares to fluctuate, perhaps substantially. The stock can expect to experience
substantial price changes in short periods of time, owing to the
unpredictability of the Bulletin Board. Stock markets in the United States have,
from time to time, experienced significant price and volume fluctuations which
are not necessarily related to Integral net worth or any other established
criteria of value. It can be expected that substantial price swings will occur
in the stock for the foreseeable future, and percentage changes in stock indices
(such as the Dow Jones Industrial Average) could be magnified, particularly in
downward movements of the markets. These fluctuations may adversely affect the
price of the common stock.
RESTRICTIONS ON SECONDARY TRADING. While it is posted on the OTC Bulletin Board
and trades below $5.00 per share, Integral's common stock will be subject to
restrictions imposed by law that limit the ability of broker-dealers which sell
such securities to anyone other than established customers and investors which
meet certain sophisticated investor tests. These restrictions can affect the
ability of broker-dealers to sell Integral's stock and can also affect your
ability to resell your stock in any trading market that may develop.
TECHNOLOGIES IN VARIOUS STAGES OF DEVELOPMENT; NO ASSURANCE OF COMPLETION; MAY
BE SUBJECT TO ADDITIONAL DELAYS. Integral's technologies and products are in
various stages of development. There can be no assurance that additional
products can be introduced or technologies completed to production or
marketability due to the inherent risks of new product and technology
development, limitations on financing, competition, obsolescence, loss of key
personnel and other factors. Integral has generated virtually no revenues from
its various technologies to date and there is no assurance of revenues in the
future. Integral's development projects are high risk in nature, where
unanticipated technical obstacles can arise at any time and result in lengthy
and costly delays or in a determination that a further development is not
feasible.
The development of Integral's technologies has taken longer than anticipated by
management and could be subject to additional delays. Therefore, there can be no
assurance of timely completion and introduction of these technologies on a
cost-effective basis, or that such technologies, if introduced, will achieve
market acceptance.
FUTURE DEPENDENCE ON MARKET ACCEPTANCE OF INTEGRAL'S TECHNOLOGIES AND PRODUCTS.
The future of Integral is dependent upon the success of the current and future
generations of one or more of Integral's technologies. There can be no assurance
that Integral can introduce any of its technologies or new products or that, if
introduced, they will achieve market acceptance such that in combination with
existing products they will sustain Integral or allow it to achieve profitable
operations.
SIGNIFICANT COMPETITION AND POSSIBLE OBSOLESCENCE. Technological competition
from other and longer established antenna companies is significant and expected
to increase. Most of the companies with which Integral competes and expects to
compete have far greater capital resources and more significant research and
development staffs, marketing and distribution programs and facilities, and many
of them have substantially greater experience in the production and marketing of
products. Integral's ability to compete effectively may be adversely affected by
the ability of these competitors to devote greater resources to the sale and
marketing of their products than are available to Integral. In addition, one or
more of Integral's competitors may succeed or may have already succeeded in
developing technologies and products that are more effective than any of those
offered or being developed by Integral, rendering Integral's technology and
products obsolete or noncompetitive.
7
DEPENDENCE ON OUTSIDE MANUFACTURERS AND SUPPLIERS. Currently, we rely, and
intend to continue to rely, on outside suppliers for raw materials and
components used in our antenna products. We also rely on outside manufacturers
to assemble our antenna products. There can be no assurance that these suppliers
and manufacturers will be able to meet our cost and performance requirements in
the future. In the event that any of our suppliers or manufacturers should
become too expensive or suffer from quality control problems or financial
difficulties, we would have to find alternative sources, which could disrupt our
business and have an adverse effect on our financial condition.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
securityholders. Any net proceeds from the exercise of warrants are intended to
be used for general corporate purposes
DESCRIPTION OF INTEGRAL
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. Integral is in the business of
researching, developing and commercializing new antenna technologies directly
and through its wholly owned subsidiary, Antek Wireless, Inc.
To date, Integral, directly and through its subsidiaries, has expended
its resources on the research and development of four types of technologies:
(1) Flat Panel Antennas;
(2) Contrawound Toroidal Helical Antennas;
(3) Three Dimensional ("3D") Color Machine Vision;
(4) Two Dimensional ("2D") Color Machine Vision (Counterfeit Currency/Document
Detection); and
(5) RF Plasma Injection System (New Spark Plug).
Each of these technologies are described later in this section.
Through its wholly owned subsidiary Antek Wireless, Inc. ("Antek"),
Integral has been researching and developing six new flat panel antenna
technologies.
Through its subsidiary Emergent Technologies Corp., Integral had been
researching and developing the Contrawound Toroidal Helical Antenna ("CTHA")
technology, initially developed by West Virginia University.
Through its subsidiary Integral Vision Systems, Inc. ("Integral
Vision"), Integral had been researching and developing the 3D and 2D Color
Machine Vision technology.
Integral had directly been researching and developing the RF Plasma
Injection System technology.
EMPLOYEES
Integral and its subsidiaries currently employ a total of seven people
on a full-time basis. Research and development activities are conducted
primarily by two employees. However, Integral also
8
relies on the expertise of several technical advisors who are consulted as
needed on a part-time, contract basis.
RECENT DEVELOPMENTS - FOCUS ON FLAT PANEL ANTENNA PRODUCTS
As a result of the developments with Antek and the commercial interest
in its antenna products, Integral presently intends to focus substantially all
of its resources on the commercialization and sales of the Antek flat panel
antenna products.
SUBSIDIARIES
SUBSIDIARY - ANTEK WIRELESS, INC.
Antek Wireless, Inc. ("Antek"), a wholly-owned subsidiary of Integral,
was incorporated in the State of Delaware on November 2, 1999 as
NextAntennas.Com, Inc. The change of name to Antek became effective July 7,
2000. Antek develops and commercializes new flat panel antenna technologies. The
focus of Antek will be to continue to develop and commercialize new flat panel
antenna technologies designed to meet the needs of the wireless
telecommunications industry.
Antenna Products
Antek has developed six new flat panel antenna designs for use in
different wireless technology markets:
- - the "GPS" antenna is used in radio receivers on the ground to receive 1.5
GHz signals from global positioning satellites orbiting the earth at an
altitude of approximately 23,000 miles;
- - the "LEO" antenna is used for the VHF function in radio
transmitters/receivers on the ground, to transmit/receive signals in the
145 MHz frequency range to Low Earth Orbit satellites, orbiting the earth
at an approximate altitude of 450 miles;
- - the "GPS/LEO" antenna, as the name indicates is a dual purpose antenna;
- - the "CDPD" antenna is used in transmission/reception of signals in the
824-894MHz/1.5MHz range. The Cellular Digital Packet Data network is
currently one technology on the market today which facilitates wireless
internet access;
- - the "GPS/CDPD" antenna, as the name indicates is a dual purpose antenna;
and
- - the "portable phone" antenna is used in cellular and cordless phones,
transmitting and receiving signals in the 820 MHz to 960 MHz range as well
as the 1.5 GHz frequency range.
The GPS antenna is for use with asset "tracking" and/or location
identification technologies. The FCC has mandated that by 2002, US wireless
carriers provide their subscribers with the technology that will enable the
carrier to identify the subscriber's location in the event of an emergency such
as a vehicle crash in which the occupant is injured and possibly rendered
unconscious.
The LEO antenna is for use with asset tracking systems which handles
short bursts of data from such assets as shipping containers, tractor trailers
and electricity meters. As opposed to the GPS technology which only identifies
location, the LEO technology allows for the transmission of data. Such data
would indicate such things as to whether a tractor trailer is full, the doors
are open, or even that a refrigeration unit on a trailer is malfunctioning.
The CDPD antenna is for use in wireless internet access technologies.
9
The "portable phone" antenna is for use in digital cordless phones and
cellular phones operating in the 920MHz and 820-890MHz frequency ranges
respectively.
PATENTS ON ANTEK ANTENNA PRODUCTS
Integral has completed a patent review of the antenna technologies and
has filed eight U.S. patent applications, five of which are currently
provisional patents, one is pending approval, and two have been approved. No
assurances can be given that all patent applications will be approved; however,
to the extent that patents are not granted, Integral will continue to attempt to
commercialize these technologies through Antek without the protection of
patents. As patents are issued, Integral will have the exclusive right to use in
the U.S. the antenna design(s) described in each issued patent for the 20-year
life of the patent.
Product Manufacturing and Distribution
Antek is not in the manufacturing business. Antek relies on third-party
manufacturing companies to manufacture Antek's antenna products.
Antek antenna products will not be sold directly to the general public,
but rather to businesses and manufacturers who will use the antennas in their
products.
Barriers to Entry into Market Segment
In the antenna market, Integral will be competing with other
established antenna providers that are much larger and better capitalized than
Integral. In order to compete, management believes that Integral must
demonstrate to potential users that the Antek antenna products have an advantage
over other antennas on the market in terms of performance and cost.
SUBSIDIARY - EMERGENT TECHNOLOGIES CORP.
Emergent Technologies Corp. ("Emergent") was incorporated in the State
of West Virginia on September 29, 1995 for the purpose of developing the
Contrawound Toroidal Helical Antenna ("CTHA") for commercialization to
government and/or military applications worldwide. Emergent's rights to
commercialize the CTHA technology is limited to these applications.
The CTHA technology was created at the Center for Industrial Research
Applications ("CIRA"), a research center run by West Virginia University
Research Corporation ("WVURC"), which is a subsidiary of West Virginia
University ("WVU"). The technology was developed by students at WVU under the
direction of Dr. James Smith, who is a Director of CIRA and a professor at WVU
and was also a co-founder of Integral. The exclusive rights to commercialize the
CTHA technology were licensed by WVURC to a private company called Integral
Concepts, Inc., which is wholly-owned by Dr. Smith. On January 2, 1996, Integral
Concepts sublicensed the exclusive, worldwide rights to commercialize the CTHA
technology for governmental and military applications to Emergent, which was at
that time owned by Dr. Smith and Denzel Jack Parsons (a former director of
Integral). Pursuant to the sublicense agreement, a modest annual minimum royalty
payment is due from Emergent to Integral Concepts.
On March 1, 1996, Integral acquired a 10% equity interest in Emergent
from Emergent in exchange for $100,000. By an agreement dated December 10, 1997,
Integral acquired an additional 70% equity interest in Emergent from Messrs.
Smith and Parsons (which represented 100% of their ownership of Emergent) in
exchange for 1,800,000 shares of common stock of Integral (see "Item 12. Certain
Relationships and Related Transactions" below for additional details), which
resulted in Integral owning 80% of Emergent. Presently, Integral owns 76.625% of
Emergent, as a result of the conversion of promissory notes into shares of
common stock of Emergent by non-affiliated minority shareholders of Emergent.
10
Emergent's rights to commercialize the CTHA technology are limited to
government and/or military applications worldwide. While several U.S.
governmental agencies and military contractors have tested prototypes of the
CTHA for various applications, the time delays caused by the requirement to
comply with governmental and military specifications and procedures have been
significant, and there is no way for Integral to predict when or if revenue will
be realized. There is also the possibility that additional research and
development will be required.
Presently, Integral is not pursuing further development of CTHA
technology and is focusing its research and development resources on other
antenna technologies.
SUBSIDIARY - INTEGRAL VISION SYSTEMS INC.
Integral Vision Systems Inc. ("Integral Vision") was incorporated in
the State of West Virginia on January 20, 1994, for the purpose of researching,
developing and commercializing Color Machine Vision technology, which is
described below.
The Color Machine Vision technology was created at the Center for
Industrial Research Applications ("CIRA"), a research center run by West
Virginia University Research Corporation ("WVURC"), which is a subsidiary of
West Virginia University ("WVU"). This technology was developed by students at
WVU under the direction of Dr. James Smith, who is a Director of CIRA and a
professor at WVU and was also a co-founder of Integral. The exclusive rights to
commercialize this technology was licensed by WVURC to a private company called
Integral Concepts, Inc., which is wholly owned by Dr. Smith. On February 5,
1994, Integral Concepts sublicensed the exclusive, worldwide (excluding Canada)
rights to commercialize this technology to Integral Vision, which was at that
time owned by Mr. Smith and two other persons. Pursuant to the sublicense
agreement, a modest annual minimum royalty payment is due from Integral Vision
to Integral Concepts.
In March 1997, Integral acquired a 100% equity interest in Integral
Vision from Dr. Smith and two other persons in exchange for 100,000 shares of
common stock of Integral (see "Item 12. Certain Relationships and Related
Transactions" below for additional details).
A. 3D MACHINE VISION COLORIMETRY (ENSURES COLOR QUALITY CONTROL IN A
MANUFACTURING ENVIRONMENT).
Originally licensed to Integral Concepts from WVU on January 19, 1993,
all worldwide (excluding Canada) commercialization rights to the 3D machine
vision colorimetry technology were sub-licensed to Integral Vision on February
15, 1994.
The 3D Machine Vision Colorimetry technology is a system whereby
computers can be given three-dimensional "eyesight" to look for specific colors
and physical characteristics to ensure quality control in a manufacturing
environment. The technology is protected by US patent number 5,485,429 issued on
February 27, 1996.
Presently, Integral is not pursuing further development of 3D Machine
Vision Colorimetry technology and is focusing its research and development
resources on antenna technologies.
B. 2D COLOR MACHINE VISION (COUNTERFEIT CURRENCY/DOCUMENT DETECTION)
Originally licensed to Integral Concepts from WVU, on January 19, 1993,
all worldwide (excluding Canada) commercialization rights were sub-licensed to
Integral on February 15, 1994.
The 2D Color Machine Vision technology is a system whereby computers
can be programmed to scan and authenticate currency and other types of documents
and to detect counterfeits.
11
Presently, Integral is not pursuing further development of the 2D Color
Machine Vision technology and is focusing its research and development resources
on antenna technologies.
TECHNOLOGY UNDER LICENSE DIRECTLY BY INTEGRAL - RF
PLASMA INJECTION SYSTEM (NEW SPARK PLUG)
Integral has directly (rather than through subsidiaries) acquired the
rights to commercialize the RF Plasma Ignition System technology, which is
described below. This technology was created at the Center for Industrial
Research Applications ("CIRA"), a research center run by West Virginia
University Research Corporation ("WVURC"), which is a subsidiary of West
Virginia University ("WVU"). This technology was developed by students at WVU
under the direction of Dr. James Smith, who is a Director of CIRA and a
professor at WVU and was also a co-founder of Integral. The exclusive rights to
commercialize this technology were licensed by WVURC to a private company called
Integral Concepts, Inc., which is wholly owned by Dr. Smith. On February 15,
1996, Integral Concepts sublicensed the exclusive, worldwide rights to
commercialize these technologies to Integral. Pursuant to the sublicense
agreements, a modest annual minimum royalty payment is due from Integral to
Integral Concepts.
The RF Plasma Injection System technology is a system whereby microwave
radio frequency emissions create a plasma (a small cloud of ions) in a
clean-burning combustion cylinder. A potential application for the system could
be to replace conventional spark plugs used in electronic ignition systems. The
technology is protected by US patent number 5,361,737 issued on November 8,
1994.
Presently, Integral is not pursuing further development of the RF Plasma
Ignition System technology and is focusing its research and development
resources on antenna technologies.
INVESTMENT IN CONTINENTAL DIVIDE ROBOTICS
On July 21, 2000, Integral executed a Stock Purchase Agreement with
Continental Divide Robotics, Inc. ("CDR") related to the acquisition of a
minority interest in CDR. CDR has developed certain proprietary hardware and
software systems that use the radio-navigation, satellite-based Global
Positioning System to track individuals. The technology is currently being
field-tested in the criminal justice system for the purpose of tracking
parolees. Future implementations of the technology include consumer and military
applications.
Pursuant to the agreement, Integral invested an aggregate of
$1,250,000, which currently represents a 20.3309% equity interest in CDR.
LEGAL PROCEEDINGS
A. Possible claim: a dispute exists between WVU and Integral with respect
to the development work performed by WVU on the Plasma Ignition System and
Counterfeit Detection Technology. The dispute in the amount of $354,244 relates
to the following:
- - WVU advised Integral that development work had been halted as of August 1,
1997, but continued to bill Integral for $127,442 in costs for the period
August 1, 1997 to December 31, 1999;
- - WVU billed Integral $226,802 for equipment related to the development work
done for Integral. WVU claims that it is entitled to retain ownership of
the equipment while Integral believes that title to the equipment should be
transferred to Integral if Integral is to pay for the equipment; and
- - To date Integral has paid $398,434 for development work to WVU, but WVU has
failed to deliver required prototypes.
Included in current liabilities is the amount of $397,296 alleged to be
owing to WVU for the development of the Plasma Ignition System and the
Counterfeit Detection Technology. For the reasons
12
described above, it is the opinion of management of Integral that the balance
owing to West Virginia University as reflected in these financial statements of
$397,296 should be reduced by at least $354,244 (the amount in dispute), to an
amount no greater than $43,052.
No lawsuit has been filed, and Integral is engaged in negotiations with
WVU. Integral intends to continue its efforts to resolve this matter without
resorting to litigation unless necessary.
B. Arbitration: 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 Emergent Technologies in October
2000 in the Circuit Court of Harrison County, West Virginia. The Rollands'
Complaint alleges that the Rollands suffered damages due to the breach of two
employment contracts. The Company has denied the allegations and maintains that
the lawsuit is improper because (1) it violates the Nevada State Court Order
requiring arbitration; and (2) it violates the employment contracts, which
require the parties to arbitrate any dispute. The Company filed a petition in
the U.S. District Court, District of Nevada, for an order compelling
arbitration. On June 6, 2001, the U.S. District Court in Nevada order the
dispute between the parties be arbitrated in Nevada, and that the action pending
before the West Virginia State Court be stayed pending completion of the
arbitration. The parties are beginning the process of arbitration.
DESCRIPTION OF PROPERTY
Neither the Company nor its subsidiaries own any real property. The Company and
its subsidiaries lease office space in Vancouver, B.C., Canada, and Bellingham,
Washington.
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
(a) Market Information
There is a limited public market for the common stock of the Company.
The Company's common stock is quoted on the NASD OTC Bulletin Board under the
symbol "ITKG."
The following table sets forth the range of high and low bid quotations for
the Company's common stock on the OTC Bulletin Board for each quarter of the
fiscal years ended June 30, 2000 and 2001.
Quarter Ended Low Bid High Bid
------------- ------- --------
September 30, 1999 $0.234 $0.438
December 31, 1999 $0.34 $1.47
March 31, 2000 $0.687 $8.25
June 30, 2000 $1.50 $5.50
September 30, 2000 $1.25 $2.593
December 31, 2000 $0.296 $1.812
March 31, 2001 $0.359 $1.48
June 30, 2001 $0.406 $0.60
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.
13
(b) Holders
As of September 28, 2001 there were approximately 126 holders of record
of the Company's common stock (this number does not include beneficial owners
who hold shares at broker/dealers in "street-name").
(c) Dividends
To date, the Company has not paid any dividends on its common stock and does not
expect to declare or pay any dividends on such common stock in the foreseeable
future. Payment of any dividends will be dependent upon future earnings, if any,
the financial condition of the Company, and other factors as deemed relevant by
the Company's Board of Directors.
PLAN OF OPERATION
To date the Company has recorded nominal revenues from operations. The
Company is still considered a development stage company for accounting purposes.
From inception on February 12, 1996 through September 30, 2001, the Company has
accrued an accumulated deficit of approximately $9.7 million.
For the fiscal year ended June 30, 2001, the Company incurred a
one-time write-down of approximately $1.4 million, which represents all
previously capitalized costs associated with the acquisition of a controlling
interest in its subsidiary, Emergent Technologies Corp., and its rights to the
Contrawound Toriodal Helical Antenna technology. This write-down was required
under applicable generally accepted accounting principals because the Company
does not intend to further develop or market this technology in the foreseeable
future.
As a result of the commercial interest in the antenna products of the
Company's subsidiary, Antek Wireless, Inc., the Company presently intends to
focus substantially all of its resources on the commercialization and sales of
the Antek antenna products. As a result, the Company does not anticipate
devoting any of its resources on the research, development and commercialization
of its other technologies during the next twelve months.
The Company's ability to fully-implement its plan of operation
over the past 16 months was disrupted due to the burden of defending the lawsuit
filed against the Company by IAS Communications, Inc. in May 2000. The lawsuit
was dismissed with prejudice in September 2001, which means that the litigation
has ended and IAS is precluded from pursuing its claims.
The Company expects to now be able to focus on its marketing efforts
through to the end of calendar 2002 on several wireless market segments through
its wholly-owned subsidiary, Antek Wireless, Inc. The primary wireless segment
that the Company will focus on will be mobile asset tracking, facilitated
through the Orbcomm LLC constellation of 35 low-earth orbit ("LEO") satellites.
Potential customers include trucking companies, railway operators and boat/ship
owners. Marketing efforts will also be focused on the wireless office ("local
area network" or "LAN"), cellular and global positioning system ("GPS") markets
utilizing the Company's new line of flat panel antennas.
The Company anticipates spending approximately $250,000 over the next
twelve months on ongoing research and development of the different applications
and uses Antek antenna products.
The Company is not in the manufacturing business and does not expect to
make any capital purchases of a manufacturing plant or significant equipment in
the next twelve months. The Company will be relying on contract manufacturers to
produce the antenna products.
In April 2000, Antek opened a sales and operations facility in San
Jose, California. In June 2001, the Company determined that these functions
could be handled from the Bellingham, Washington office
14
and the facility was closed. As a result, the Company has reduced its monthly
operating costs by approximately $80,000 through the elimination of the San Jose
facility.
During the next twelve months, the Company's subsidiary, Antek,
anticipates increasing its staff by approximately two to four people in order to
further enhance its management team.
To date, the Company has relied on loans from management and
management's ability to raise capital through debt and equity private placement
financings to fund its operations. During the past two fiscal years, the Company
completed the following financing transactions:
1. In March 2000, the Company completed a private placement of
common stock and common stock purchase warrants which resulted in aggregate cash
proceeds to the Company of nearly $4 million.
2. In May 2000, the Company entered into an Investment Agreement
with Swartz Private Equity, LLC ("Swartz"). Pursuant to the terms of the
Investment Agreement, the Company may, in its sole discretion and subject to
certain restrictions, periodically sell ("Put") shares of common stock to Swartz
for up to $25,000,000. Pursuant to the terms of the Investment Agreement, the
Put share price will be determined and paid to the Company twenty business days
after the date of the Put. The terms of the Investment Agreement are more fully
described in Item 1 (Description of Business) under the subsection entitled
"Investment Agreement with Swartz Private Equity, LLC." The Company received net
proceeds of $102,356 from a Put of 81,885 shares to Swartz during the fiscal
year ended June 30, 2001, and an additional $30,436 from a Put of 67,635 shares
to Swartz that was completed in October 2001.
The Company does not currently have adequate funds available to fund its
operations over the next twelve months. If the Company does not earn adequate
revenues to sufficiently fund operations during this time period, the Company
will attempt to raise capital through the sale of its securities pursuant to the
Investment Agreement with Swartz. There can be no assurance, however, that
market conditions will permit the Company to raise sufficient funds pursuant to
the Investment Agreement with Swartz or that additional financing will be
available when needed or on terms acceptable to the Company.
DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers of Registrant. The Company has a Board of
Directors which is currently comprised of two members. Each director holds
office until the next annual meeting of shareholders or until a successor is
elected or appointed. The members of the Board and the executive officers of the
Company and their respective age and position are as follows:
Director of
Name Age Position with Registrant Registrant Since
- ------------------------------------------------------------------------------------------------------------------------
William S. Robinson 45 Chairman, CEO and Treasurer February 1996
William A. Ince 51 Director, President, Secretary and Chief
Financial Officer February 1996
Directors and Executive Officers of Antek. Integral's subsidiary, Antek, has a
Board of Directors which is comprised of four members who hold 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 Antek and
their respective age and position are as follows:
15
Director of
Name Age Position with Antek Antek Since
- ---------------------------------------------------------------------------------------------------------------------
William S. Robinson 45 Chairman, CEO and Treasurer November 1999
William A. Ince 51 Director, President, Secretary and Chief
Financial Officer November 1999
Abraham Wei 41 Director July 2000
Joseph Jeng 46 Director July 2000
(b) Family Relationships. None.
(c) Involvement in Certain Legal Proceedings. None.
DIRECTORS AND EXECUTIVE OFFICERS OF INTEGRAL
WILLIAM ROBINSON
(Chairman, CEO and Treasurer)
As a co-founder and significant shareholder of Integral, Mr. Robinson has been
responsible since the inception of Integral for securing funding in order to
ensure the ongoing operations of Integral and its subsidiaries. Together with
Mr. Ince, he has been responsible for the development and implementation of
corporate strategies.
During the period 1988 to 1996, Mr. Robinson was President of Achieva
Development Corporation, a mining company which is publicly traded on the
Canadian Venture Exchange.
Mr. Robinson brings many years of management experience in finance, banking and
corporate development. Previously, he acted as a director of a number of
companies involved in natural resources, sales and marketing, and computer
technologies.
WILLIAM A. INCE
(Director, President, Secretary and Chief Financial Officer)
Mr. Ince, a co-founder and significant shareholder of the Company, is
responsible, along with Mr. Robinson, for the development and implementation of
corporate strategies. He is also responsible for the accounting and financial
systems and record-keeping of Integral and its subsidiaries.
Prior to his engagement with the Company, Mr. Ince was a self-employed
management consultant for a period of five years.
Mr. Ince brings with him a background as a professional accountant and
experience from management positions in finance and operations in several
private companies. He has consulted to both private and public companies in the
areas of marketing and finance, as well as turn-around situations. Mr. Ince has
been responsible for "team building" efforts to ensure that each project is
brought to fruition on a timely basis.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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
16
("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, 2001, all Section 16(a) filing requirements
applicable to its officers, directors and ten percent shareholders were complied
with by such persons, except as follows: 1) the Company cannot determine whether
Denzel Jack Parsons, a former director of the Company who resigned in December
2000, filed the required forms to report sales of common stock; and 2) The
Annual Statement of Changes in Beneficial Ownership of Form 5 for both Messrs.
Ince and Robinson were not timely filed.
OWNERSHIP OF SECURITIES BY BENEFICIAL OWNERS AND MANAGEMENT
A. Common Stock
The following table sets forth, as of September 28, 2001 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 2,048,533 7.2%
- -----------------------------------------------------------------------------------------------------------------
William A. Ince (5)
805 W. Orchard Dr., Suite #3
Bellingham, WA 98225 2,003,333 7.1%
- -----------------------------------------------------------------------------------------------------------------
James Smith
Route 4, Box E36
Bruceton Mills, WV 26330 1,857,140 6.6%
==================================================================================================================
All officers and directors of Integral as a
group (2 persons) 4,051,866 14.2%
==================================================================================================================
(1) Unless otherwise indicated, all shares are directly beneficially owned
and investing power is held by the persons named.
(2) Includes vested options beneficially owned but not yet exercised and
outstanding. The table does not include the effects of conversion by
Mr. Robinson and Mr. Ince of their shares of Series A Convertible
Preferred Stock, which are convertible into shares of common stock at a
conversion rate that varies with the market price of the common stock
at the time of conversion. The conversion rate is determined by
dividing the number of shares of Series A being converted by the
average of the high and low bid prices of Integral's common stock
reported by the OTC Bulletin Board over the ten trading days preceding
the date of conversion. Mr. Robinson owns 392,197 shares of Series A
and Mr. Ince owns 172,213 shares of Series A. 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.
17
(3) Based upon 28,132,562 shares issued and outstanding, plus the amount of
shares each person or group has the right to acquire within 60 days
pursuant to options, warrants, conversion privileges or other rights.
(4) Mr. Robinson is an officer and director of Integral and each of its
subsidiaries. Beneficial ownership figure includes 240,000 shares
underlying options granted but not yet exercised.
(5) Mr. Ince is an officer and director of Integral and each of its
subsidiaries. Beneficial ownership figure includes 240,000 shares
underlying options granted but not yet exercised.
B. Series A Convertible Preferred Stock
The following table sets forth, as of September 28, 2001, 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 392,197 69.5%
- -----------------------------------------------------------------------------------------------------------------
William A. Ince (4) -
805 W. Orchard Dr., Suite #3
Bellingham, WA 98225 172,213 30.5%
==================================================================================================================
All officers and directors of Integral as a
group (2 persons) 564,410 100%
==================================================================================================================
(1) Unless otherwise indicated, all shares are directly beneficially owned
and investing power is held by the persons named.
(2) Based upon 564,410 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.
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, during the fiscal years ended June 30,
18
2001, 2000 and 1999 to or for Integral's Chief Executive Officer and each of the
other executive officers of Integral, and two individuals who are not executive
officers but for whom disclosure is required due to the amount of compensation
they received.
Annual Compensation
------------------------------------------------------
(a) (b) (c) (d) (e)
Name Other
And Year Annual
Principal Ended Salary Bonus Compensation
Position June 30 ($) ($) ($)
- ----------------------------------------------------------------------------------------------------
William S. Robinson, 2001 $156,000 -0- -0-
Director, Chairman, 2000 $120,000 -0- -0-
CEO, Treasurer (n1) 1999 $105,000 -0- -0-
William A. Ince, 2001 $156,000 -0- -0-
Director, President, 2000 $120,000 -0- -0-
Secretary (n2) 1999 $105,000 -0- -0-
Daniel Harrell, 2001 $115,600 -0- -0-
Vice President of Antek 2000 $81,830 -0- -0-
(subsidiary) (n3) 1999 $66,000 -0- -0-
Jeffry Phillips, former 2001 $120,000 -0- -0-
Vice President of Antek 2000 $30,000 -0- -0-
(subsidiary) (n4) 1999 N/A N/A N/A
Long Term Compensation
-----------------------------------------------------
Awards Payouts
------------------------------------ ----------------
(a) (b) (f) (g) (h) (i)
Name Restricted
And Year Stock Shares LTIP All Other
Principal Ended Award(s) Underlying Payouts Compensation
Position June 30 ($) Options ($) ($)
- ------------------------------- ----------------- ------------------ ----------------- --------------- -------------------
William S. Robinson, 2001 -0- 240,000 -0- $50,000 (n6)
Chairman, CEO, 2000 -0- 120,000 -0- -0-
Treasurer (n1) 1999 -0- 230,000(n5) -0- -0-
William A. Ince, 2001 -0- 240,000 -0- $50,000 (n6)
Director, President, 2000 -0- 120,000 -0- -0-
Secretary (n2) 1999 -0- 230,000(n5) -0- -0-
Daniel Harrell, 2001 -0- -0- -0- -0-
Vice President of Antek 2000 -0- 100,000 -0- -0-
(subsidiary) (n3) 1999 -0- -0- -0- -0-
Jeffry Phillips, former 2001 -0- -0- -0- -0-
Vice President of Antek 2000 -0- -0- -0- -0-
(subsidiary) (n4) 1999 N/A N/A N/A N/A
19
(n1) Pursuant to an employment agreement entered into between
Integral and William Robinson, accrued salary for the fiscal
year end June 30, 2000 was $120,000, of which no payments were
made; accrued salary for the fiscal year ended June 30, 1999
was $105,000 of which no payments were made; and accrued
salary for the fiscal year end June 30, 1998 was $90,000, of
which no payments were made. Portions of Mr. Robinson's
accrued salary were converted into shares of common stock of
Integral. In April 1999, Mr. Robinson received 333,333 shares
of common stock in lieu of $50,000 salaries accrued in fiscal
year ending June 30, 1998. In September 1999, Mr. Robinson
received 175,000 shares of Series A Convertible Preferred
Stock in lieu of $175,000 in accrued salaries ($40,000 from
1998, $105,000 from 1999, and $30,000 from 2000). As of June
30, 2000, an aggregate of $90,000 remained accrued and payable
to Mr. Robinson, and was paid in the fiscal year ended June
30, 2001. In January 2001, a new employment agreement was
executed, which provided for an annual salary of $156,000;
however, only $18,000 of salary was actually paid in the
fiscal year ended June 30, 2001, leaving an aggregate of
$138,000 accrued and payable as of June 30, 2001. In August
2001, Mr. Robinson exercised an aggregate of 350,000 options,
and the aggregate exercise price of $62,100 was paid by
reducing the accrued salary payable to Mr. Robinson by that
amount. Simple interest on salaries owed has been accruing at
a rate of 10% per annum, but has not been paid and is
therefore not included in the table.
(n2) Pursuant to an employment agreement entered into between
Integral and William Ince, accrued salary for the fiscal year
end June 30, 2000 was $120,000, of which no payments were
made; accrued salary for the fiscal year ended June 30, 1999
was $105,000 of which no payments were made; and accrued
salary for the fiscal year end June 30, 1998 was $90,000, of
which no payments were made. Portions of Mr. Ince's accrued
salary were converted into shares of common stock of Integral.
In April 1999, Mr. Ince received 333,333 shares of common
stock in lieu of $50,000 salaries accrued in fiscal year
ending June 30, 1998. In September 1999, Mr. Ince received
175,000 shares of Series A Convertible Preferred Stock in lieu
of $175,000 in accrued salaries ($40,000 from 1998, $105,000
from 1999, and 30,000 from 2000). As of June 30, 2000, an
aggregate of $90,000 remained accrued and payable to Mr. Ince;
and was paid in the fiscal year ended June 30, 2001. In
January 2001, a new employment agreement was executed, which
provided for an annual salary of $156,000; however, only
$18,000 of salary was actually paid in the fiscal year ended
June 30, 2001, leaving an aggregate of $138,000 accrued and
payable as of June 30, 2001. In August 2001, Mr. Ince
exercised an aggregate of 350,000 options, and the aggregate
exercise price of $62,100 was paid by reducing the accrued
salary payable to Mr. Ince by that amount. Simple interest on
salaries owed has been accruing at a rate of 10% per annum,
but has not been paid and is therefore not included in the
table.
(n3) Mr. Harrell is not considered an executive officer of Integral
or its subsidiaries.
(n4) Mr. Phillips is not considered an executive officer of
Integral or its subsidiaries. Mr. Phillips' employment ended
in August 2001.
(n5) 1999 option figures include options previously granted in 1997
with an original exercise price of $.50 per share that were
repriced in 1999 to provide for an exercise price of $.15 per
share.
(n6) In December 2000, the Company redeemed an aggregate of 100,000
shares of Series A Preferred Stock from Mr. Robinson (50,000
shares) and Mr. Ince (50,000 shares) at a predetermined
redemption price of $2.00 per share. The stated value of the
Series A Preferred Stock is $1.00 per share, which resulted in
a redemption premium of $1.00 per share over the stated value.
A 5% dividend on the Series A Preferred Stock, payable in cash
or shares of common stock at the election of the Company, has
been accrued but not paid and is therefore not reflected in
the table. For the year ended June 30, 2000, interest of
20
$16,582 was accrued to Mr. Robinson and $8,332 to Mr. Ince.
For the year ended June 30, 2001, additional interest of
$20,860 was accrued to Mr. Robinson and $9,860 to Mr. Ince.
(c) Option/SAR Grants in Last Fiscal Year
The information provided in the table below provides information with
respect to individual grants of stock options for the year ended June 30, 2001
to each of the persons named in the Summary Compensation Table above. Integral
did not grant any stock appreciation rights for the year ended June 30, 2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
% of Total
Number of Options/SARS
Securities Granted to
Underlying Employees Exercise or
Options/SARs in Fiscal Base Price Expiration
Name Granted (#) Year (n1) ($/Sh) Date
- ---------------------------------- ------------------- ------------------- ------------------- -----------------
William S. Robinson, 240,000(n2) 50% $.65 12/31/05
Chairman, CEO, Treasurer
William A. Ince, Director, 240,000(n3) 50% $.65 12/31/05
President, Secretary
Daniel Harrell, -0- -0- N/A N/A
Vice President of Antek
(subsidiary) (n4)
Jeffry Phillips, former Vice -0- -0- N/A N/A
President of Antek (subsidiary)
(n5)
(n1) The percentage of total options granted (480,000) in the
fiscal year is based upon all options granted to eligible
participants, which includes officers, directors, employees,
consultants and advisors, under Integral's 2001 Stock Plan
during the year ended June 30, 2001.
(n2) William S. Robinson: On January 2, 2001, Mr. Robinson was
granted 240,000 options under Integral's 2001 Stock Plan. The
options have an exercise price of $.65 per share, became fully
vested on February 1, 2001, and expire on December 31, 2005.
(n3) William A. Ince: On January 2, 2001, Mr. Ince was granted
240,000 options under Integral's 2001 Stock Plan. The options
have an exercise price of $.65 per share, became fully vested
on February 1, 2001, and expire on December 31, 2005.
(n4) Mr. Harrell is not considered an executive officer of Integral
or its subsidiaries. Subsequent to the end of the fiscal year
ended June 30, 2001, in August 2001, Mr. Harrell was granted
options to acquire 300,000 shares of common stock, at an
exercise price of $.40 per share, until December 31, 2003.
(n5) Mr. Phillips is not considered an executive officer of
Integral or its subsidiaries. Mr. Phillips' employment ended
in August 2001.
21
(d) Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The information provided in the table below provides information with
respect to each exercise of stock options during most recent fiscal year ended
June 30, 2001 by the persons named in the Summary Compensation Table and the
fiscal year end value of unexercised options.
(a) (b) (c) (d) (e)
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Value FY-End (#) FY-End($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(n1) Unexercisable Unexercisable(n1)
- -------------------------- --------------- -------------- ------------------------- -----------------------------
William S. Robinson -0- -0- 590,000/-0- $253,700/-0-
Director, Chairman, CEO,
Treasurer (n2)
William A. Ince -0- -0- 590,000/-0- $253,700/-0-
Director, President,
Secretary (n3)
Daniel Harrell, -0- -0- -0-/-0- -0-
Vice President of Antek
(subsidiary) (n4)
Jeffry Phillips, former -0- -0- -0-/-0- -0-
Vice President of Antek
(subsidiary) (n5)
(n1) The aggregate dollar values in columns (c) and (e) are
calculated by determining the difference between the fair
market value of the common stock underlying the options and
the exercise price of the options at exercise or fiscal year
end, respectively.
(n2) Subsequent to the end of the fiscal year ended June 30, 2001,
in August 2001, Mr. Robinson exercised options to acquire
120,000 shares at an exercise price of $.23 per share, and
230,000 shares at $.15 per share.
(n3) Subsequent to the end of the fiscal year ended June 30, 2001,
in August 2001, Mr. Ince exercised options to acquire 120,000
shares at an exercise price of $.23 per share, and 230,000
shares at $.15 per share.
(n4) Mr. Harrell is not considered an executive officer of Integral
or its subsidiaries. Subsequent to the end of the fiscal year
ended June 30, 2001, in August 2001, Mr. Harrell was granted
options to acquire 300,000 shares of common stock, at an
exercise price of $.40 per share, until December 31, 2003.
(n5) Mr. Phillips is not considered an executive officer of
Integral or its subsidiaries. Mr. Phillips' employment ended
in August 2001.
22
(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, 2001.
(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, 2001. There are no
other formal or informal understandings or arrangements relating to
compensation; however, Directors may be reimbursed for all reasonable expenses
incurred by them in conducting Integral's business. These expenses would include
out-of-pocket expenses for such items as travel, telephone, and postage.
(g) Employment Contracts and Termination of Employment and
Change-in-Control Arrangements
On January 2, 2001, Integral executed employment agreements with
William S. Robinson, the Chairman, CEO and Treasurer of Integral and William A.
Ince, a director and the President, Secretary and CFO of Integral. Each
employment agreement provides for a two year term, an annual salary of $156,000
and options to purchase 240,000 shares of Integral's common stock at an exercise
price of $0.65 per share, which fully-vested on February 1, 2001.
Pursuant to the employment agreements, in the event Integral terminates
the employment of the executive without cause, then the executive shall be
entitled to severance pay equal to twelve month's base salary based on the base
salary then in effect at the termination. In addition, the employment agreements
provide that in the event Integral is indebted to the executive for a minimum of
three months salary, the executive shall have the option to convert such unpaid
salary into shares of common stock of Integral at market price (average daily
closing over the previous month).
Integral's Board of Directors has complete discretion as to the
appropriateness of (a) key-man life insurance, (b) obtaining officer and
director liability insurance, (c) employment contracts with and compensation of
executive officers and directors, (d) indemnification contracts, and (e)
incentive plan to award executive officers and key employees.
Integral's Board of Directors is responsible for reviewing and
determining the annual salary and other compensation of the executive officers
and key employees of Integral. The goals of Integral are to align compensation
with business objectives and performance and to enable Integral to attract,
retain and reward executive officers and other key employees who contribute to
the long-term success of Integral. Integral intends to provide base salaries to
its executive officers and key employees sufficient to provide motivation to
achieve certain operating goals. Although salaries are not specifically tied
into performance, incentive bonuses may be available to certain executive
officers and key employees. In the future, executive compensation may include
without limitation cash bonuses, stock option grants and stock reward grants.
Employee Benefit and Consulting Services Compensation Plans
The Company currently has two Employee Benefit and Consulting Services
Compensation Plans in effect:
1. On February 20, 1997, the Company adopted an employee benefit
and consulting services compensation plan (the "Plan"), which, as amended,
covers up to 15% of the shares of Integral's outstanding common stock on any
given date. Under the Plan, Integral may issue common stock and/or options to
purchase common stock to certain officers, directors and employees and
consultants of Integral and its subsidiaries. The purpose of the Plan is to
promote the best interests of Integral and its shareholders by providing a means
of non-cash remuneration to eligible participants who contribute to
23
operating progress and earning power of Integral. The Plan is administered by
Integral's Board of Directors or a committee thereof which has the discretion to
determine from time to time the eligible participants to receive an award; the
number of shares of stock issuable directly or to be granted pursuant to option;
the price at which the option may be exercised or the price per share in cash or
cancellation of fees or other payment which Integral or its subsidiaries is
liable if a direct issue of stock and all other terms on which each option shall
be granted. No options may be granted on or after the effective date of the
Company's registration statement on Form 10-SB (February 1, 2000). As of the
fiscal year ended June 30, 2001, options to acquire 958,500 shares covered by
the Plan were outstanding, all at exercise prices ranging from $.15 to $2.00 per
share, and are fully vested. Subsequent to the end of the fiscal year, in August
2001, 858,500 of these options were exercised, leaving 100,000 options
outstanding.
Shares of common stock issued pursuant to the Plan are deemed to be
issued pursuant to Rule 701 of the Securities Act of 1933 and are restricted
securities as defined in Rule 144(a)(3) of the Securities Act of 1933. Pursuant
to Rule 701, participants in the Plan, including affiliates, may sell their
shares in accordance with the exemption provided by Rule 701 without being bound
by the one year holding period under Rule 144(d).
2. On January 2, 2001, Integral adopted a new employee benefit
and consulting services compensation plan entitled the Integral Technologies,
Inc. 2001 Stock Plan (the "2001 Plan"), which covers up to 2,500,000 shares of
common stock. Under the 2001 Plan, Integral may issue common stock and/or
options to purchase common stock to certain officers, directors and employees
and consultants of Integral and its subsidiaries. The purpose of the 2001 Plan
is to promote the best interests of Integral and its shareholders by providing a
means of non-cash remuneration to eligible participants who contribute to
operating progress and earning power of Integral. The 2001 Plan is administered
by Integral's Board of Directors or a committee thereof which has the discretion
to determine from time to time the eligible participants to receive an award;
the number of shares of stock issuable directly or to be granted pursuant to
option; the price at which the option may be exercised or the price per share in
cash or cancellation of fees or other payment which Integral or its subsidiaries
is liable if a direct issue of stock and all other terms on which each option
shall be granted. As of the fiscal year ended June 30, 2001, options to acquire
480,000 shares covered by the 2001 Plan were outstanding, all at an exercise
price of $.65 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) On February 16, 1996, in connection with the formation of Integral, the
following affiliates were issued shares of common stock.
Name Shares Consideration Received
---- ------ ----------------------
William A. Ince 1,500,000 services valued at $15,000
William S. Robinson 1,500,000 cash of $10,000 and services valued at $5,000
Dr. James E. Smith 1,500,000 services valued at $15,000
(b) Between July 1996 and October 1996, Integral issued 175,000 shares to
each of Dr. James Smith and Denzel Jack Parsons, each being affiliates of
Integral. These shares were issued for cash at a price of approximately $.11 per
share. These transactions were exempt from Registration under Section 504 of
Regulation D of the Securities Act of 1933, as amended.
(c) Pursuant to an agreement and plan of reorganization between Integral
and Integral Vision, dated March 11, 1997, pursuant to which Integral Vision
became a wholly-owned subsidiary of Integral, Dr. James Smith was issued 57,140
shares of common stock of Integral in exchange for his 57.14% interest in
Integral Vision.
24
(d) In February 1997, in anticipation of Integral acquiring a controlling
interest in Emergent, Integral issued 1,800,000 shares of Common Stock, all of
which were held in escrow. Prior to closing, Integral agreed to release to
Denzel Jack Parsons 300,000 shares. Upon closing of the acquisition in April
1999, 300,000 shares were delivered to Dr. James E. Smith, and 1,200,000 shares
were delivered to Denzel Jack Parsons.
(e) Dr. James E. Smith is a significant shareholder of Integral. He is a
professor of West Virginia University ("WVU"). Dr. Smith is also the sole
shareholder of Integral Concepts. Integral is a party to various agreements with
Integral Concepts, WVU and the West Virginia University Research Corporation
("WVURC").
On April 12, 1994, WVURC granted an exclusive license to Integral
Concepts: (1) to manufacture CTHAs and to license others to do so; and (2) to
sublicense others to manufacture, market, sell copies of, license and distribute
CTHAs. The consideration for the license was: (1) $1.00 and (2) a royalty of
$3,000 per year or 10% of the net revenues received by Integral Concepts
whichever is greater.
On January 2, 1996, Integral Concepts entered into a sublicense with
Registrant's subsidiary, Emergent, wherein Integral Concepts granted to Emergent
the exclusive worldwide right to manufacture, sell copies of, sublicense to and
distribute the process and equipment related to the design, construction and
operation of the CTHA and to further sublicense to others the rights to
manufacture, sell copies of, license and distribute the same, to military and
government applications worldwide. The term of the license agreement granted by
Integral Concepts is perpetual and requires the payment of a minimum annual
royalty of $3,000. Further, Emergent will pay a minimum annual royalty of 10% of
the net royalties derived from sales, licenses or sublicenses of the CTHA
technology with a credit for the minimum royalty.
(f) In April 1999, Integral issued a total of 666,666 shares of its common
stock, 333,333 to each of William S. Robinson and William A. Ince, in
consideration of management fees owing in the amount of $50,000 to each of them.
Messrs. Robinson and Ince are officers and directors of Integral.
(g) In September 1999, Integral issued an aggregate 654,401 shares of its Series
A Convertible Preferred Stock to officers and directors of Integral. William S.
Robinson received 175,000 shares of Series A in lieu of $175,000 in accrued
salaries through September 30, 1999 and 267,197 shares of Series A in repayment
of $267,197 in loans made to Integral. William A. Ince received 175,000 shares
of Series A in lieu of $175,000 in accrued salaries through September 30, 1999
and 47,213 shares of Series A in repayment of $47,213 in loans made to Integral.
(h) In December 2000, Integral redeemed an aggregate of 100,000 shares of Series
A Preferred Stock from Mr. Robinson (50,000 shares) and Mr. Ince (50,000 shares)
at a predetermined redemption price of $2.00 per share. The stated value of the
Series A Preferred Stock is $1.00 per share, which resulted in a redemption
premium of $1.00 per share over the stated value. A 5% dividend on the Series A
Preferred Stock, payable in cash or shares of common stock at the election of
the Company, has been accrued but not paid. For the year ended June 30, 2000,
$16,582 was accrued to Mr. Robinson and $8,332 to Mr. Ince. For the year ended
June 30, 2001, an additional $20,860 was accrued to Mr. Robinson and an
additional $9,860 to Mr. Ince.
(i) In August 2001, the Company issued an aggregate of 700,000 shares of its
common stock to Mr. Robinson (350,000) and Mr. Ince (350,000) upon exercise of
options pursuant to the Employee Benefit and Consulting Services Compensation
Plan. The options had exercise prices of $0.15 to $.23 per share. The Company
issued the shares in consideration for a reduction of an aggregate of $124,200
of accrued salaries payable ($62,100 for Mr. Robinson and $62,100 for Mr. Ince).
SELLING SECURITYHOLDERS
The following table provides certain information with respect to the selling
shareholders' beneficial ownership of our common stock as of August 9, 2000,
which was the effective date of the original
25
registration statement, and as adjusted to give effect to the sale of all of the
shares offered hereby. To the best of our knowledge, none of the selling
shareholders currently is an affiliate of ours, and none of them has had a
material relationship with us during the past three years. None of the selling
shareholders are or were affiliated with registered broker-dealers (see "Plan of
Distribution"). The selling shareholders possess sole voting and investment
power with respect to the securities shown.
SHARES
MAXIMUM BENEFICIALLY
SHARES SHARES OWNED AFTER
BENEFICIALLY OFFERED IN OFFERING(2)
NAME OF SELLING OWNED PRIOR OFFERING ------------
SECURITYHOLDER TO OFFERING(1)(3) NUMBER(3) NUMBER PERCENT
- -------------- ------------------ --------- ------ -------
Swartz Private Equity, LLC 12,495,000 12,495,000 0 0
Donald R. Sheldon 1,500,000 1,500,000 0 0
Sundar Nari LLC 1,500,000 1,500,000 0 0
Guardian Capital Ventures Ltd. 180,000 180,000 0 0
Regulus Capital Corporation 300,000 300,000 0 0
David Vandy 189,000 75,000 114,000 *
Pamela Vandy 575,250 150,000 425,250 1.01%
Carmen Aisentat 60,000 60,000 0 0
Sandi Wahlroth 30,000 30,000 0 0
Gus Wahlroth 30,000 30,000 0 0
Patrick Robinson 150,000 150,000 0 0
(1) Represents the maximum number of shares of common stock that
we may sell to Swartz in connection with the investment
agreement, shares issuable to Swartz upon exercise of its
common stock commitment warrant and upon the exercise by
Swartz of the maximum number of purchase warrants issuable in
connection with the investment agreement. Represents common
stock held by other selling securityholders or issuable upon
exercise of warrants held by such selling securityholders. It
is expected that neither Swartz nor other selling
securityholders will own beneficially more than 9.9% of our
outstanding common stock at any time.
(2) Assumes that all shares being registered for resale will be
resold by the selling shareholders and none will be held by
the selling shareholders for their own accounts.
(3) Some of the selling shareholders have already sold some of the
shares listed after their names and under the columns "Shares
Beneficially Owned Prior to Offering" and "Maximum Shares
Offered In Offering" pursuant to the Prospectus for the
original registration statement.
* represents less than 1% of outstanding shares of Integral
common stock.
We are registering the shares for resale by the selling securityholders
in accordance with registration rights granted to the selling securityholders.
We will pay the registration and filing fees, printing expenses, listing fees,
blue sky fees, if any, and fees and disbursements of our counsel in
26
connection with this offering, but the selling securityholders will pay any
underwriting discounts, selling commissions and similar expenses relating to the
sale of the shares, as well as the fees and expenses of their counsel. In
addition, we have agreed to indemnify the selling securityholders and certain
affiliated parties, against certain liabilities, including liabilities under the
Securities Act, in connection with the offering. Certain selling securityholders
have agreed to indemnify Integral against certain losses. Insofar as
indemnification for liabilities under the Securities Act may be permitted to our
directors or officers, or persons controlling the company, the company has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
INVESTMENT AGREEMENT WITH SWARTZ PRIVATE EQUITY, LLC
On May 11, 2000, the Company entered into an Investment Agreement and a
Registration Rights Agreement with Swartz Private Equity, LLC ("Swartz").
Pursuant to the terms of the Investment Agreement, the Company may, in its sole
discretion and subject to certain restrictions, periodically sell ("Put") shares
of its common stock for up to $25,000,000 to Swartz, beginning on the effective
registration of such Put shares and continuing for a period of thirty-six (36)
months thereafter. The Investment Agreement allows the Company to choose to sell
common stock to Swartz at times which it decides is advantageous. The Investment
Agreement is not a debt instrument. Any Put exercised by the Company is a sale
of common stock and not a loan.
PUT RIGHTS. An advance put notice must be delivered to Swartz at least ten
business days prior to the date that the Company intends to sell the common
stock to Swartz. The advance put notice must state the put date as well as the
number of shares of common stock that the Company intends to put to Swartz. At
the Company's option, the notice may also state a minimum purchase price per
share which cannot be greater than 80% of the closing bid price of its common
stock on the date of the advance put notice.
After the registration statement is declared effective, the number of
shares of common stock sold to Swartz in a put may not exceed the lesser of (i)
the maximum put amount set forth in the Company's Advance Put Notice; (ii)
$2,000,000 worth of common stock; (iii) 15% of the aggregate reported trading
volume of the Company's common stock, excluding block trades of 20,000 or more
shares of its common stock, during the 20 business days after the date of the
Company's put notice, excluding any trading days in which the common stock
trades below a minimum price, if any, that the Company specifies in its put
notice; (iv) 15% of the aggregate daily reported trading volume of the Company's
common stock, excluding block trades of 20,000 or more shares of its common
stock, during the 20 business days before the put date; or (v) a number of
shares that, when added to the number of shares acquired by Swartz under the
investment agreement during the 31 days preceding the put date, would exceed
9.99% of the Company's total number of shares of common stock outstanding (as
calculated under Section 13(d) of the Securities Exchange Act of 1934).
PUT PRICE. The purchase price for the Put Shares will be equal to the lesser of
the Market Price for such Put minus $.25 or 91% of the Market Price (lowest
closing bid price for the Common Stock on the principal market during the twenty
day pricing period following the date of the Put Notice), but in no event can it
be less than our designated minimum put share price, if any, as set forth in the
Advance Put Notice.
PURCHASE WARRANTS. At the time of each Put, Swartz will be issued a Purchase
Warrant which will give the holder the right to purchase up to ten percent (10%)
of the number of Put shares issued to Swartz in that Put. Each Purchase Warrant
will be exercisable at a price equal to 110% of the Market Price for such put.
Each Purchase Warrant will be immediately exercisable and will terminate on a
date which is five years after the date of issuance. The terms of the Purchase
Warrants allow for a non-cash exercise (so long as the shares underlying the
warrants are not registered pursuant to an effective registration statement).
Each Purchase Warrant contains a reset provision, whereby the exercise price may
be lowered to 110% percent of the five-day average of the Market Price on every
six-month anniversary of the issuance date. The shares underlying the Purchase
Warrants are registered pursuant to the registration statement.
27
COMMITMENT WARRANTS. In partial consideration of the Investment Agreement, we
issued warrants to Swartz (the "Commitment Warrants") to purchase 495,000 shares
of our Common Stock. The Commitment Warrants were initially exercisable at the
price of $1.306 per share, were reset to $0.50 on June 13, 2001, and is subject
to downward adjustment in certain circumstances. Each Commitment Warrant is
immediately exercisable and terminates five years after the date of issuance.
Each Commitment Warrant contains a reset provision, whereby the exercise price
may be lowered to 110% percent of the five-day average of the Market Price on
every six-month anniversary of the issuance date. The shares underlying the
Commitment Warrants are registered pursuant to the registration statement.
SHORT SALES. Swartz and its affiliates are prohibited from engaging in short
sales of our Common Stock unless they have received a Put Notice and the amount
of shares involved in a short sale does not exceed the number of shares
specified in the Put Notice.
CANCELLATION OF PUTS. The Company must cancel a particular put if between the
date of the advance put notice and the last day of the pricing period:
- - The Company discovers an undisclosed material fact that would cause the
registration statement to need to be amended or supplemented in order
to remain current and effective;
- - the registration statement registering resales of the Common Shares
becomes ineffective; or
- - shares are delisted from the then primary exchange.
The pricing period for that Put shall end as of the preceding business day, and
the Put shall remain effective for the shortened pricing period.
NON-USAGE FEE. If the Company has not put a minimum of $1,000,000 in aggregate
Put Dollar Amount during any six month period of time during the term of the
Investment Agreement, the Company will be required to pay Swartz a non-usage fee
equal to the difference of $100,000 minus 10% of the aggregate Put Dollar Amount
of the Put Shares put to Swartz during such six month period. In the event that
the Company delivers a termination notice to Swartz or an automatic termination
occurs, the Company must pay Swartz a termination fee the greater of the
non-usage fee for the applicable period or the difference of $200,000 minus 10%
of the aggregate Put Dollar Amount of the Put Shares put to Swartz during all
Puts to such date. The non-usage fee for the period prior to August 3, 2001 has
been waived by Swartz.
SHAREHOLDER APPROVAL. The Company may issue more than 20% of our outstanding
shares. If the Company becomes listed on the Nasdaq Small Cap Market or Nasdaq
National Market, then it must get shareholder approval to issue more than 20% of
its outstanding shares. Since the Company is currently a bulletin board company,
it does not need shareholder approval.
TERMINATION OF INVESTMENT AGREEMENT. The Company may also terminate its right to
initiate further puts or terminate the Investment Agreement by providing Swartz
with notice of such intention to terminate; however, any such termination will
not affect any other rights or obligations the Company has concerning the
Investment Agreement or any related agreement.
RESTRICTIVE COVENANTS. During the term of the Investment Agreement and for a
period of six months thereafter, the Company is prohibited from certain
transactions. These include the issuance of any equity securities in a private
transaction, or any debt in a private transaction which are convertible or
exercisable into shares of Common Stock at a price based on the trading price of
the Common Stock. The Company is also prohibited from entering into any private
equity line type agreements similar to the Investment Agreement without
obtaining Swartz's prior written approval.
RIGHT OF FIRST REFUSAL. Swartz has a right of first refusal to purchase equity
securities offered by the Company in a private transaction or any debt
securities in a private transaction which closes on or prior to six (6) months
after the termination of the Investment Agreement.
SWARTZ'S RIGHT OF INDEMNIFICATION. The Company is obligated to indemnify Swartz
(including their stockholders, officers, directors, employees and agents) from
all liability and losses resulting from any
28
misrepresentations or breaches the Company made in connection with the
Investment Agreement, its Registration Rights Agreement and other related
agreements or the registration statement.
As required under the Registration Rights Agreement with Swartz, in
July 2000, the Company filed a registration statement to register for resale
shares of its common stock by Swartz and certain other selling shareholders who
had similar registration rights. This registration statement was declared
effective by the U.S. Securities and Exchange Commission on August 9, 2000.
PLAN OF DISTRIBUTION
Each selling shareholder is free to offer and sell his or her common
shares at such times, in such manner and at such prices as he or she may
determine. The types of transactions in which the common shares are sold may
include transactions in the over-the-counter market (including block
transactions), negotiated transactions, the settlement of short sales of common
shares or a combination of such methods of sale. The sales will be at market
prices prevailing at the time of sale or at negotiated prices. Such transactions
may or may not involve brokers or dealers. The selling shareholders have advised
us that they have not entered into agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their shares. The
selling shareholders do not have an underwriter or coordinating broker acting in
connection with the proposed sale of the common shares.
The selling shareholders may sell their shares directly to purchasers
or to or through broker-dealers, which may act as agents or principals. These
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders. They may also receive compensation
from the purchasers of common shares for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). Swartz
is, and each remaining selling shareholder and any broker-dealer that assists in
the sale of the common stock may be deemed to be, an underwriter within the
meaning of Section 2(a)(11) of the Securities Act. Any commissions received by
such broker-dealers and any profit on the resale of the common shares sold by
them while acting as principals might be deemed to be underwriting discounts or
commissions.
Because Swartz is and the remaining selling shareholders may be deemed
to be "underwriters" within the meaning of Section 2(a)(11) of the Securities
Act, the selling shareholders will be subject to prospectus delivery
requirements.
We have informed the selling shareholders that the anti-manipulation
rules of the SEC, including Regulation M promulgated under the Securities and
Exchange Act, may apply to their sales in the market and we have provided the
selling shareholders with a copy of such rules and regulations.
Selling shareholders also may resell all or a portion of the common
shares in open market transactions in reliance upon Rule 144 under the
Securities Act, provided they meet the criteria and conform to the requirements
of such Rule.
We are responsible for all costs, expenses and fees incurred in
registering the shares offered hereby. The selling shareholders are responsible
for brokerage commissions, if any, attributable to the sale of such securities.
DESCRIPTION OF SECURITIES
(a) Capital Stock
Integral is presently authorized to issue 50,000,000 shares of its
common stock, with a par value of $0.001 per share, and 20,000,000 shares of
Preferred Stock, $.001 par value, of which 1,000,000 have been designated as
Series A Convertible Preferred. As of October 31, 2001, 24,560,696 shares of
29
common stock are issued and outstanding, and 564,410 Series A Convertible
Preferred shares are issued and outstanding.
(b) Common Stock
The holders of the common stock are entitled to one vote per share on
each matter submitted to a vote at any meeting of shareholders. Shares of common
stock do not carry cumulative voting rights and, therefore, a majority of the
outstanding shares of common stock will be able to elect the entire Board of
Directors and, if they do so, minority shareholders would not be able to elect
any members to the Board of Directors.
Shareholders of Integral have no preemptive rights to acquire
additional shares of common stock or other securities. The common stock is not
subject to redemption and carries no subscription or conversion rights. In the
event of liquidation of Integral, the shares of common stock are entitled to
share equally in corporate assets after satisfaction of all liabilities.
The outstanding shares of common stock are fully paid and
non-assessable. There are no outstanding options, warrants or rights to purchase
shares of Integral's common stock, other than disclosed in this Registration
Statement.
(c) Preferred Stock
Integral's Articles of Incorporation authorize Integral to issue
20,000,000 shares of preferred stock, $.001 par value. The preferred stock may
be divided into and issued in one or more series as may be determined by
resolution of the board of directors. The board of directors is authorized,
without any further action by the shareholders, to determine dividend rates,
liquidation preferences, redemption provisions, sinking fund provisions,
conversion rights, voting rights, and other rights, preferences, privileges and
restrictions of any wholly unissued series of preferred stock and the number of
shares constituting any such series. In addition, such preferred stock could
have other rights, including voting and economic rights senior to the common
stock so that the issuance of such preferred stock could adversely affect the
market value of the common stock. The creation of one or more series of
preferred stock also may have the effect of delaying, deferring or preventing a
change in control of Integral without any action by shareholders.
Integral has designated 1,000,000 of the shares of preferred stock
as Series A Convertible Preferred Stock, of which 564,410 shares are
outstanding. Each share of Series A:
- has a stated value and liquidation preference of $1.00;
- has a 5% annual dividend, payable in cash or shares of common
stock;
- may be converted into shares of common stock (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);
- may be redeemed by Integral within one year after issue at
$1.50, after one year but less than two years at $2.00, after
two years but less than three years at $2.50, after three
years but less than four years at $3.00, and after four years
but less than five years at $3.50;
- may be voted on all matters on an as-converted basis; and
- may be voted as a class on any merger, share exchange,
recapitalization, dissolution, liquidation or change in
control of Integral.
30
The details of the dividend rates, liquidation preferences, redemption
provisions, conversion rights, voting rights, and other rights, preferences,
privileges and restrictions are set forth in the "Designation of Rights and
Preferences of Series A Convertible Preferred Stock," that was filed as an
amendment to Integral's Articles of Incorporation on November 8, 1999.
INTEREST OF NAMED EXPERTS AND COUNSEL
The validity of the securities offered by the prospectus is being
passed upon for the company by the law firm of Futro & Trauernicht LLC,
attorneys and counselors at law, 1401 - 17th Street, Suite 1150, Denver, CO
80202. A member of the law firm has been granted an option to purchase 100,000
shares of common stock at an exercise price of $.50 per share. The option is
exercisable at any time until August 31, 2003.
INDEMNIFICATION DISCLOSURE FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
company pursuant to the Nevada General Corporation Law or the provisions of the
company's Articles of Incorporation, as amended, or Bylaws, or otherwise, the
company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for the indemnification
against such liabilities (other than the payment by the company of expenses
incurred or paid by a director, officer or controlling person of the company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the Securities and Exchange
Commission (the "Commission). You may read and copy any document we file at the
Public Reference Room of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Regional Offices of the Commission at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Please call
1-800-SEC-0330 for further information concerning the Public Reference Room. Our
filings also are available to the public from the Commission's website at
www.sec.gov.
We are not required to deliver an annual report to shareholders;
however, upon request, we will provide at no cost to our shareholders, annual
reports containing audited financial statements.
You may request a copy of these filings, at no cost, by writing or
calling us at:
Attention: Shareholder Relations
805 W. Orchard Drive, Suite 3
Bellingham, Washington 98225
(360) 752-1982
31
FINANCIAL STATEMENTS
The consolidated balance sheets of Integral Technologies, Inc. (A
Development Stage Company) as of June 30, 2001 and 2000 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years ended June 30, 2001, 2000 and 1999 and the cumulative totals
for the development stage of operations from February 12, 1996 (inception)
through June 30, 2001 have been audited by Pannell Kerr Forster, Vancouver,
Canada, an independent public accounting firm, as indicated in its report
thereto, and are included herein in reliance upon the authority of Pannell Kerr
Forster, as experts in accounting and auditing and in giving said reports.
32
INDEX TO FINANCIAL STATEMENTS
INTEGRAL TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Financial Statements
June 30, 2001 and 2000
(Audited)
Page
----
Report of Independent Accountants ............................................................F-1
Consolidated Balance Sheets...................................................................F-2
Consolidated Statements of Operations.........................................................F-3
Consolidated Statements of Stockholders' Equity.........................................F-4 - F-6
Consolidated Statements of Cash Flows.........................................................F-7
Notes to Consolidated Financial Statements.............................................F-8 - F-23
Consolidated Financial Statements
September 30, 2001
(Unaudited)
Page
----
Consolidated Balance Sheets..................................................................F-24
Consolidated Statements of Operations........................................................F-25
Consolidated Statements of Stockholders' Equity..............................................F-26
Consolidated Statements of Cash Flows........................................................F-27
Notes to Consolidated Financial Statements............................................F-28 - F-29
33
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE DIRECTORS AND STOCKHOLDERS OF
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
We have audited the accompanying consolidated balance sheets of Integral
Technologies, Inc. (A Development Stage Company) as of June 30, 2001 and 2000
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years ended June 30, 2001, 2000 and 1999 and the
cumulative totals for the development stage of operations from February 12, 1996
(inception) through June 30, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements of Integral Technologies Inc. from February 12, 1996 (inception)
through June 30, 1996 were audited by other auditors whose report dated November
20, 1996, expressed an unqualified opinion on those statements. Our opinion
insofar as it relates to the cumulative totals for development stage operations
from February 12, 1996 (inception) through June 30, 1996, is based solely on the
report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as at June
30, 2001 and 2000 and the consolidated results of its operations and its cash
flows for each of the years ended June 30, 2001, 2000 and 1999 and the
cumulative totals for the development stage of operations from February 12, 1996
(inception) through June 30, 2001 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the Company has minimal capital resources
available and has incurred substantial losses to June 30, 2001. The Company must
obtain additional financing to meet its cash flow requirements. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plan in regard to these matters is also described in note
2. These financial statements do not include any adjustments that may result
from the outcome of these uncertainties.
"Pannell Kerr Forster"
Chartered Accountants
Vancouver, Canada
September 7, 2001, except as to note 12(b)
which is as of September 24, 2001
F-1
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
2001 2000
----------- -----------
ASSETS
CURRENT
Cash $ 69,556 $ 2,908,700
Accounts receivable 27,344 75,641
Inventory 46,842 25,000
Prepaid expenses 165 5,395
----------- -----------
TOTAL CURRENT ASSETS 143,907 3,014,736
PROPERTY AND EQUIPMENT (note 5) 89,566 41,580
LICENSE AGREEMENTS AND INTANGIBLES
(notes 1, 4(a), 6 and 12) 0 1,462,781
INVESTMENTS (note 4(b)) 1,250,000 300,000
----------- -----------
TOTAL ASSETS $ 1,483,473 $ 4,819,097
=========== ===========
LIABILITIES
CURRENT
Accounts payable and accruals (note 9) $ 746,530 $ 372,441
Due to West Virginia University Research
(note 12(a)) 397,296 397,296
Customer deposits 13,232 13,232
Short-term loan 0 45,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,157,058 827,969
----------- -----------
CONTINGENCIES (note 12)
STOCKHOLDERS' EQUITY (note 7)
PREFERRED STOCK AND PAID-IN CAPITAL IN EXCESS OF $0.001 PAR VALUE
20,000,000 Shares authorized
564,410 (2000 - 664,410) Issued and
outstanding (note 7(c)) 564,410 664,410
COMMON STOCK AND PAID-IN CAPITAL IN EXCESS OF $0.001 PAR VALUE
50,000,000 Shares authorized
26,949,062 (2000 - 26,032,062)
Issued and outstanding 8,900,983 8,384,781
PROMISSORY NOTES RECEIVABLE (note 7(g)) (58,500) (58,500)
SHARE SUBSCRIPTIONS 50,000 0
OTHER COMPREHENSIVE INCOME 46,267 46,293
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (9,176,745) (5,045,856)
TOTAL STOCKHOLDERS' EQUITY 326,415 3,991,128
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,483,473 $ 4,819,097
=========== ===========
</Table>
See notes to consolidated financial statements
F-2
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 2001
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
FEBRUARY 12,
1996
(INCEPTION)
YEAR ENDED JUNE 30, THROUGH
2001 2000 1999 JUNE 30, 2001
------------ ------------ ------------ -------------
REVENUE $ 15,209 $ 172,417 $ 0 $ 187,626
COST OF SALES 5,360 197,188 0 202,548
------------ ------------ ------------ -------------
9,849 (24,771) 0 (14,922)
------------ ------------ ------------ -------------
EXPENSES
Salaries 1,273,094 454,630 280,600 2,242,083
Legal and accounting 390,034 217,336 106,051 855,271
Travel and entertainment 173,242 86,259 34,085 526,891
Research and development 171,756 155,250 64,521 1,235,120
Consulting 151,108 282,426 214,068 1,046,529
Advertising 139,961 24,455 7,615 248,547
General and administrative 115,428 94,679 20,656 351,444
Rent 73,578 44,746 18,905 187,678
Bad debts 48,750 2,568 0 51,318
Telephone 45,842 44,468 26,341 194,239
Interest on beneficial
conversion feature (note 11) 0 0 566,456 566,456
Bank charges and
interest, net (53,971) 13,932 55,760 96,304
Write-down of license
and operating assets (note 1) 1,382,046 0 0 1,806,700
Depreciation and
amortization 99,150 91,882 8,963 225,366
------------ ------------ ------------ -------------
4,010,018 1,512,631 1,404,021 9,633,946
------------ ------------ ------------ -------------
LOSS BEFORE EXTRAORDINARY ITEM (4,000,169) (1,537,402) (1,404,021) (9,648,868)
EXTRAORDINARY ITEM
Cancellation of debt 0 0 0 602,843
------------ ------------ ------------ -------------
NET LOSS FOR PERIOD $ (4,000,169) $ (1,537,402) $ (1,404,021) $ (9,046,025)
============ ============ ============ =============
LOSS PER COMMON
SHARE
EXTRAORDINARY
ITEM $ (0.15) $ (0.07) $ (0.08)
EXTRAORDINARY ITEM
PER COMMON SHARE 0.00 0.00 0.00
------------ ------------ ------------ -------------
NET LOSS PER
COMMON SHARE $ (0.15) $ (0.07) $ (0.08)
============ ============ ============ =============
WEIGHTED AVERAGE
NUMBER OF
COMMON SHARES OUTSTANDING 26,499,533 23,133,541 17,285,785
============ ============ ============ =============
</Table>
See notes to consolidated financial statements
F-3
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) THROUGH JUNE 30, 2001
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
COMMON PREFERRED
STOCK AND STOCK AND
SHARES PAID-IN SHARES OF PAID-IN
OF COMMON CAPITAL PREFERRED CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES SHARE
ISSUED OF PAR ISSUED OF PAR RECEIVABLE SUBSCRIPTIONS
------------ ------------ ------------ ------------ ------------ -------------
SHARES ISSUED FOR
Cash 1,000,000 $ 10,000 0 $ 0 $ 0 $ 0
Property and equipment
(to officers
and directors) 1,500,000 15,000 0 0 0 0
Services (provided by
officers and directors) 2,000,000 20,000 0 0 0 0
Services 1,500,000 15,000 0 0 0 0
Foreign currency
translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
------------ ------------ ------------ ------------ ------------ -------------
BALANCE, JUNE 30, 1996 6,000,000 60,000 0 0 0 0
SHARES ISSUED FOR
Cash 5,086,000 865,514 0 0 0 0
Share issue costs 0 (48,920) 0 0 0 0
Services 564,000 63,036 0 0 0 0
Acquisition of
subsidiary 100,000 275,000 0 0 0 0
Foreign currency
translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
------------ ------------ ------------ ------------ ------------ -------------
BALANCE, JUNE 30, 1997 11,750,000 1,214,630 0 0 0 0
SHARES ISSUED FOR
Cash 825,396 650,000 0 0 0 0
Share issue costs 0 (78,000) 0 0 0 0
Foreign currency
translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
------------ ------------ ------------ ------------ ------------ -------------
BALANCE, JUNE 30, 1998 12,575,396 $ 1,786,630 0 $ 0 $ 0 $ 0
------------ ------------ ------------ ------------ ------------ -------------
<Caption>
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
INCOME STAGE EQUITY
------------- ----------- -------------
SHARES ISSUED FOR
Cash $ 0 $ 0 $ 10,000
Property and equipment
(to officers
and directors) 0 0 15,000
Services (provided by
officers and directors) 0 0 20,000
Services 0 0 15,000
Foreign currency
translation (1,226) 0 (1,226)
Net loss for year 0 (344,843) (344,843)
------------- ----------- -------------
BALANCE, JUNE 30, 1996 (1,226) (344,843) (286,069)
SHARES ISSUED FOR
Cash 0 0 865,514
Share issue costs 0 0 (48,920)
Services 0 0 63,036
Acquisition of
subsidiary 0 0 275,000
Foreign currency
translation 12,601 0 12,601
Net loss for year 0 (822,217) (822,217)
------------- ----------- -------------
BALANCE, JUNE 30, 1997 11,375 (1,167,060) 58,945
SHARES ISSUED FOR
Cash 0 0 650,000
Share issue costs 0 0 (78,000)
Foreign currency
translation 24,860 0 24,860
Net loss for year 0 (937,373) (937,373)
------------- ----------- -------------
BALANCE, JUNE 30, 1998 $ 36,235 $(2,104,433) $ (281,568)
------------- ----------- -------------
</Table>
See notes to consolidated financial statements
F-4
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) THROUGH JUNE 30, 2001
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
COMMON PREFERRED
STOCK AND STOCK AND
SHARES OF PAID-IN SHARES OF PAID-IN
COMMON CAPITAL PREFERRED CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES SHARE
ISSUED OF PAR ISSUED OF PAR RECEIVABLE SUBSCRIPTIONS
----------- ----------- ----------- ----------- ----------- -------------
BALANCE, JUNE 30, 1998 12,575,396 $ 1,786,630 0 $ 0 $ 0 $ 0
SHARES ISSUED FOR
Cash 200,000 50,000 0 0 0 0
Exercise of stock options 445,000 80,500 0 0 0 0
Promissory note 1,683,789 252,568 0 0 (284,068) 0
Settlement of lawsuit 150,000 15,000 0 0 0 0
Services (provided by
officers and directors) 666,666 100,000 0 0 0 0
Share issue costs 0 (100,500) 0 0 0 0
Services 250,000 50,000 0 0 0 0
Conversion of convertible
debentures 3,869,120 525,813 0 0 0 0
Acquisition of subsidiary 1,800,000 619,200 0 0 0 0
Held in escrow 447,091 0 0 0 0 0
Stock option benefit 0 70,600 0 0 0 0
Beneficial conversion feature 0 566,456 0 0 0 0
Foreign currency translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -------------
BALANCE JUNE 30, 1999 22,087,062 4,016,267 0 0 (284,068) 0
SHARES ISSUED FOR
Cash on private placement 2,650,000 3,975,000 0 0 0 0
Exercise of options 1,245,000 256,700 0 0 0 0
Release from escrow 0 75,558 0 0 0 0
Services 50,000 13,000 0 0 0 0
On settlement of debt 0 0 664,410 664,410 0 0
Stock option benefit 0 48,256 0 0 0 0
Promissory note repayment 0 0 0 0 225,568 0
Foreign currency translation 0 0 0 0 0 0
Net loss for year 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -------------
BALANCE, JUNE 30, 2000 26,032,062 $ 8,384,781 664,410 $ 664,410 $ (58,500) $ 0
----------- ----------- ----------- ----------- ----------- -------------
<Caption>
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
INCOME STAGE EQUITY
------------- ----------- -------------
BALANCE, JUNE 30, 1998 $ 36,235 $(2,104,433) $ (281,568)
SHARES ISSUED FOR
Cash 0 0 50,000
Exercise of stock options 0 0 80,500
Promissory note 0 0 (31,500)
Settlement of lawsuit 0 0 15,000
Services (provided by
officers and directors) 0 0 100,000
Share issue costs 0 0 (100,500)
Services 0 0 50,000
Conversion of convertible
debentures 0 0 525,813
Acquisition of subsidiary 0 0 619,200
Held in escrow 0 0 0
Stock option benefit 0 0 70,600
Beneficial conversion feature 0 0 566,456
Foreign currency translation 8,444 0 8,444
Net loss for year 0 (1,404,021) (1,404,021)
------------- ----------- -------------
BALANCE JUNE 30, 1999 44,679 (3,508,454) 268,424
SHARES ISSUED FOR
Cash on private placement 0 0 3,975,000
Exercise of options 0 0 256,700
Release from escrow 0 0 75,558
Services 0 0 13,000
On settlement of debt 0 0 664,410
Stock option benefit 0 0 48,256
Promissory note repayment 0 0 225,568
Foreign currency translation 1,614 0 1,614
Net loss for year 0 (1,537,402) (1,537,402)
------------- ----------- -------------
BALANCE, JUNE 30, 2000 $ 46,293 $(5,045,856) $ 3,991,128
------------- ----------- -------------
</Table>
See notes to consolidated financial statements
F-5
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) THROUGH JUNE 30, 2001
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
COMMON PREFERRED
STOCK AND STOCK AND
SHARES OF PAID-IN SHARES OF PAID-IN
COMMON CAPITAL PREFERRED CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS NOTES SHARE
ISSUED OF PAR ISSUED OF PAR RECEIVABLE SUBSCRIPTIONS
----------- ----------- ----------- ----------- ----------- -------------
BALANCE, JUNE 30, 2000 26,032,062 $ 8,384,781 664,410 $ 664,410 $ (58,500) $ 0
SHARES ISSUED FOR
Private placement 81,885 112,480 0 0 0 0
Exercise of options 517,000 91,515 0 0 0 0
For services 100,000 40,000 0 0 0 0
Held in escrow
(note 7(b)) 218,115 0 0 0 0 0
Stock option benefit 0 272,207 0 0 0 0
Dividends on preferred
shares 0 0 0 0 0 0
Share subscriptions 0 0 0 0 0 50,000
Redeemed shares 0 0 (100,000) (100,000) 0 0
Foreign currency
translation 0 0 0 0 0 0
Net loss for the period 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -------------
BALANCE, JUNE 30, 2001 26,949,062 $ 8,900,983 564,410 $ 564,410 $ (58,500) $ 50,000
=========== =========== =========== =========== =========== =============
<Caption>
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
INCOME STAGE EQUITY
------------- ------------- -------------
BALANCE, JUNE 30, 2000 $ 46,293 $ (5,045,856) $ 3,991,128
SHARES ISSUED FOR
Private placement 0 0 112,480
Exercise of options 0 0 91,515
For services 0 0 40,000
Held in escrow
(note 7(b)) 0 0 0
Stock option benefit 0 0 272,207
Dividends on preferred
shares 0 (30,720) (30,720)
Share subscriptions 0 0 50,000
Redeemed shares 0 (100,000) (200,000)
Foreign currency
translation (26) 0 (26)
Net loss for the period 0 (4,000,169) (4,000,169)
------------- ------------- -------------
BALANCE, JUNE 30, 2001 $ 46,267 $ (9,176,745) $ 326,415
============= ============= =============
</Table>
See notes to consolidated financial statements
F-6
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 2001
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
FEBRUARY 12, 1996
(INCEPTION)
YEAR ENDED JUNE 30, THROUGH
2001 2000 1999 JUNE 30, 2001
------------ ------------ ------------ -----------------
OPERATING ACTIVITIES
Net loss $ (4,000,169) $ (1,537,402) $ (1,404,021) $ (9,046,025)
Adjustments to reconcile net loss to
net cash used by operating activities
Extraordinary item 0 0 0 (602,843)
Consulting services and financing fees 55,389 113,683 150,000 417,108
Depreciation and amortization 99,150 104,388 13,466 242,375
Stock option compensation 272,207 48,256 70,600 391,063
Interest on beneficial conversion 0 0 566,456 566,456
Settlement of lawsuit 0 0 15,000 15,000
Write-down of license and operating assets 1,382,046 0 0 1,806,700
Changes in non-cash working capital
Due from affiliated company 0 0 0 (116,000)
Notes and accounts receivable 48,297 176,926 (284,068) (58,845)
Inventory (21,842) (25,000) 0 (46,842)
Prepaid expenses 5,230 (5,395) 0 (165)
Deferred revenue 0 13,232 0 13,232
Other 0 0 0 (2,609)
Accounts payable and accruals 143,369 236,171 217,967 924,051
Due to West Virginia University
Research Corporation 0 0 0 397,296
Due to affiliated companies 0 0 0 0
Due to officers and directors 0 0 (33,229) 0
NET CASH USED BY OPERATING ACTIVITIES (2,016,323) (875,141) (687,829) (5,100,048)
------------ ------------ ------------ -----------------
INVESTING ACTIVITIES
Purchase of property, equipment and
intangibles assets (66,401) (22,995) (33,908) (200,935)
Assets acquired and liabilities assumed
on purchase of subsidiary 0 0 (129,474) (129,474)
Investment in and advances to affiliated
companies (950,000) (300,000) 0 (2,000,000)
License agreements 0 0 0 (124,835)
NET CASH USED BY INVESTING ACTIVITIES (1,016,401) (322,995) (163,382) (2,455,244)
------------ ------------ ------------ -----------------
FINANCING ACTIVITIES
Repayment of loan (45,000) 0 0 (45,000)
Advances from stockholders 0 0 79,412 1,078,284
Repayments to stockholders 0 0 (94,046) (94,046)
Subscriptions received 50,000 0 (25,000) 50,000
Proceeds from issuance of common stock 188,606 4,104,575 383,068 6,216,763
Proceeds from convertible debentures 0 0 600,000 600,000
Share issue costs 0 0 (100,500) (227,420)
------------ ------------ ------------ -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 193,606 4,104,575 842,934 7,578,581
------------ ------------ ------------ -----------------
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH (26) 1,614 8,444 46,267
------------ ------------ ------------ -----------------
INCREASE (DECREASE) IN CASH (2,839,144) 2,908,053 167 69,556
CASH, BEGINNING OF PERIOD 2,908,700 647 480 0
------------ ------------ ------------ -----------------
CASH, END OF PERIOD $ 69,556 $ 2,908,700 $ 647 $ 69,556
============ ============ ============ =================
</Table>
Supplemental cash flow information (note 8)
See notes to consolidated financial statements
F-7
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
1. INCORPORATION AND NATURE OF OPERATIONS
The Company was incorporated under the laws of the State of Nevada on
February 12, 1996 and has its head office in Bellingham, Washington,
U.S.A. The Company is in the development stage as more fully defined in
Statement No. 7 of the Financial Accounting Standards Board. The
Company is in the business of researching, developing and
commercializing new antenna technologies directly and through its
wholly-owned subsidiary Antek Wireless, Inc. ("Antek").
Integral had previously been developing three other technologies which
it had acquired from West Virginia University, through sub-license
agreements. During the year ended June 30, 2001, the Company did not
expend any of its resources on the development of those technologies.
(a) Through its subsidiary Emergent Technologies Corp. ("ETC"),
Integral had been researching and developing the Contrawound
Toroidal Helical Antenna technology, initially developed by
West Virginia University.
(b) Through another subsidiary, Integral Vision Systems, Inc.
("IVSI"), Integral had been researching and developing the 3D
and 2D Color Machine Vision technology, initially developed by
West Virginia University.
(c) Integral had directly been researching and developing the RF
Plasma Injection System technology, initially developed by
West Virginia University.
The Company will be devoting all of its resources to the research,
development and commercialization of its antenna technologies as
developed by its wholly-owned subsidiary, Antek. As a consequence, the
value for the license of the technologies in note 6 above have been
written off in 2001 for an amount aggregating $1,382,046.
2. GOING CONCERN
These consolidated financial statements have been prepared by
management in accordance with generally accepted accounting principles
on a going concern basis. This presumes funds will be available to
finance on-going development, operations and capital expenditures and
the realization of assets and the payment of liabilities in the normal
course of operations for the foreseeable future.
The Company has minimal capital resources presently available to meet
obligations which normally can be expected to be incurred by similar
companies and has an accumulated deficit during the development stage
of $9,176,745 (2000 - $5,045,856). These factors raise substantial
doubt about the Company's ability to continue as a going concern and is
dependent on its ability to obtain and maintain an appropriate level of
financing on a timely basis and to achieve sufficient cash flows to
cover obligations and expenses. Management is continuously working to
obtain financing (note 7). The outcome of these matters cannot be
predicted. These consolidated financial statements do not give effect
to any adjustments to the amounts and classification of assets and
liabilities which might be necessary should the Company be unable to
continue its operations as a going concern.
F-8
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
These financial statements include the accounts of Integral
Technologies, Inc. (a development stage company), its
wholly-owned subsidiaries, IVSI and Antek and its 76.625%
owned subsidiary ETC. All intercompany balances and
transactions have been eliminated. Investment in Continental
Divide Robotics, Inc. ("CDRI") is accounted for using the cost
method since the Company exerts no significant influence.
(b) Inventories
Inventories are stated at the lower of cost and market. Cost
is determined using the first-in-first-out method.
(c) Depreciation
Depreciation is provided using the straight-line method based
on the following estimated useful lives:
<Table>
Machinery, furniture and equipment - 5 Years
Computer hardware and software - 5 Years
Molds - 5 Years
</Table>
The Company reviews long-term assets to determine if the
carrying amount is recoverable based on the estimate of future
cash flow expected to result from the use of the asset and its
eventual disposition. If in this determination there is an
apparent shortfall, the loss will be recognized as a current
charge to operations.
(d) Loss per share
Loss per share computations are based on the weighted average
number of common shares outstanding during the period. Common
share equivalents consisting of stock options and warrants are
not considered in the computation because their effect would
be anti-dilutive.
(e) Stock issued in exchange for services
The valuation of the common stock issued in exchange for
services is valued at an estimated fair market value as
determined by officers and directors of the Company based upon
other sales and issuances of the Company's common stock within
the same general time period.
F-9
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Revenue recognition
As the Company is continuing development of its technologies,
no significant revenues have been earned to date. The Company
recognizes revenues at the time of delivery of the product to
the customers.
(g) Foreign currency translation
Amounts recorded in foreign currency are translated into
United States dollars as follows:
(i) Monetary assets and liabilities are translated at the
rate of exchange in effect at the balance sheet date;
and,
(ii) Revenues and expenses, at the average rate of
exchange for the year.
Gains and losses arising from this translation of foreign
currency are excluded from net loss for the period and
accumulated as a separate component of stockholders' equity.
(h) License agreements and intangibles
The Company is in the development stage with respect to the
technologies acquired pursuant to the license agreements. At
such time as commercial production commences, those costs will
be charged to operations using the straight-line method over a
20 year period. When there is little prospect of further
development of the technology by the Company, the costs of
that license agreement will be charged to operations.
(i) Research and development
Research and development expenditures are charged to
operations as incurred.
(j) 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.
(k) Financial instruments
The Company's financial instruments include cash, accounts
receivable, promissory notes receivable, investments, accounts
payable and accruals, due to West Virginia University Research
Corporation (note 12(a)), and short-term loan. Unless
otherwise noted, in the opinion of management, the carrying
value of these financial instruments approximates their fair
market values and the Company is not exposed to significant
credit, interest or currency risk.
F-10
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(l) 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.
(m) Stock based compensation
The Company applies APB Opinion No. 25 and related
interpretations in accounting for its employee stock option
plans. Compensation expense is recorded when options are
granted to management at discounts to market.
(n) Interest on beneficial conversion
The beneficial conversion features relating to the 2%
convertible debenture (note 11) and promissory note are
accounted for as interest. This policy conforms to the
accounting for these transactions announced by the SEC staff
in March, 1997.
(o) Recent accounting pronouncements
(i) Beginning July 1, 2000 the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), and the corresponding
amendments under SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging
Activities - an amendment of SFAS No. 133" ("SFAS
138"), establishes accounting and reporting standards
for derivative instruments. It requires a company to
recognize all derivatives as either assets or
liabilities in the statement of financial position
and to measure those instruments at fair value.
Additionally, the fair value adjustments will effect
either stockholders' equity or net income depending
on whether the derivative instrument qualifies as a
hedge for accounting purposes and, if so, the nature
of the hedging activity. Adoption of this standard
did not change the Company's existing accounting
policies or disclosures.
(ii) In December 1999, the SEC issued Staff Accounting
Bulletin ("SAB") 101, "Revenue Recognition," which
outlines the basic criteria that must be met to
recognize revenue and provides guidance for
presentation of revenue and for disclosure related to
revenue recognition policies in financial statements
filed with the SEC. The Company believes the adoption
of SAB 101 will not have a material impact on the
Company's financial position and results of
operations.
F-11
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(iii) In March 2000 the Financial Accounting Standards
Board issued "Interpretation #44, Accounting for
Certain Transactions Involving Stock Compensation".
Among other issues, this interpretation clarifies:
(a) The definition of employee for purposes of
applying APB Opinion No. 25.
(b) The criteria for determining whether a plan
qualifies as a noncompensatory plan.
(c) The accounting consequence of various
modifications of the terms of a previously
fixed stock option award, and
(d) The accounting for an exchange of stock
compensation awards in a business
combination.
In relation to (c) the interpretation states, "if the
exercise price of a fixed stock option award is
reduced, the award shall be accounted for as a
variable from the date of the modification to the
date the award is exercised, is forfeited, or expired
unexercised, the exercise price of an option award
has been reduced if the fair value of the
consideration required to be remitted pursuant to the
award's original terms."
(iv) In March 2000, the Emerging Issues Task Force
("EITF") of the FASB reached a consensus on EITF
Issue 00-2, "Accounting for Web Site Development
Costs." This consensus provides guidance on what
types of costs incurred to develop Web sites should
be capitalized or expensed. The Company adopted this
consensus for the year ended June 30, 2001.
(v) In September 2000, the EITF reached a final consensus
on EITF Issue 00-10, "Accounting for Shipping and
Handling Fees and Costs." This consensus requires
that all amounts billed to a customer in a sale
transaction related to shipping and handling, if any,
represent revenue and should be classified as
revenue. Adoption of this consensus did not change
the Company's existing accounting policies or
disclosures.
(vi) In July 2001, FASB Issued Financial Accounting
Standard No. 142, Goodwill and Other Intangible
Assets. This statement includes requirements to test
good will and indefinite lived intangible assets for
impairment rather than amortization. This statement
will be effective for years beginning December 15,
2001. Early adoption is permitted for companies with
fiscal years beginning after March 15, 2001. The
Company will adopt this statement effective July 1,
2001. This statement will have minimal impact on the
Company's operations.
F-12
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
4. ACQUISITIONS
(a) In September 1996, the Company entered into a letter agreement
to acquire a 10% interest in ETC (a development stage company)
from two related parties of the Company for consideration of
$100,000. The Company had an option to acquire the remaining
90% interest in ETC by issuing 1,800,000 shares of common
stock of the Company and by funding ETC's research and
development of the Contrawound Toroidal Helical Antenna for
government and military applications to a minimum of
$1,200,000 (of which the Company advanced a total of
$650,000). The Company issued 1,800,000 shares which at the
1998 year-end were held by ETC's attorney in escrow subject to
the closing of the final agreement (which was closed March 11,
1999). The shares were released from escrow and are recorded
in these financial statements at $0.344 per share, the closing
market trading price on the NASD market on March 11, 1999. The
1,800,000 shares and the $650,000 advanced entitles the
Company to a further 70% interest in ETC.
During the year ended June 30, 1999, third party investors
contributed $470,588 in cash for a 20% interest in ETC. The
same investors contributed a further $79,412 which they
converted into common stock of ETC during the year ended June
30, 2000. This amount was recorded as due to minority interest
at June 30, 1999. This transaction diluted the Company's
ownership interest in ETC to 76.625%. No gain or loss was
recorded on the transaction. Any change resulting from this
transaction was recorded as an adjustment to the cost of
license.
(b) During the year ended June 30, 2000 the Company entered into a
stock purchase agreement with CDRI, whereby the Company would
acquire a total of 17,610 shares in common stock of CDRI
representing a 30% ownership interest. Consideration for this
acquisition is as follows:
(i) Upon payment of $500,000 issuance of 8,407 shares. As
at June 30, 2000 the Company had paid $300,000.
During the year ended June 30, 2001, the Company paid
additional $200,000 and obtained the 8,407 shares of
CDRI.
(ii) As at June 30, 2001 the Company had paid a total of
$1,250,000 shares representing 21% ownership of CDRI.
With a 21% ownership interest, the Company does not
exert significant influence.
5. PROPERTY AND EQUIPMENT
<Table>
<Caption>
2001 2000
---------- ----------
Machinery, furniture and equipment $ 148,940 $ 79,577
Computer hardware and software 21,419 21,419
Mould 4,800 0
---------- ----------
175,159 100,996
Less: Accumulated depreciation (85,593) (59,416)
---------- ----------
$ 89,566 $ 41,580
========== ==========
</Table>
F-13
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
6. LICENSE AGREEMENTS
(a) Toroidal Helical Antenna
ETC was formed to develop, commercialize, market and
manufacture certain proprietary Toroidal Helical Antenna
Technology ("the Technology"). The Company obtained an
exclusive sub-license to the technology from Integral
Concepts, Inc. ("ICI"), a company 100% controlled by a former
shareholder of ETC (note 4(a)), a significant shareholder of
the Company, and an employee of West Virginia University
Research Corporation ("WVURC") of its right, title and
interest in and to all worldwide government and military
applications and resulting procurement interests in the
Technology. ICI obtained the license to the Technology from
WVURC. WVURC has the proprietary interest in and holds the
patents to the technology.
Pursuant to an agreement dated January 2, 1996 with ICI, ETC
acquired the right to manufacture and market the Toroidal
Helical Antenna Technology. The Company is obligated to pay a
$3,000 minimum annual royalty to WVURC to maintain the license
in good standing. In addition, a further 10% royalty of any
net revenues is payable to WVURC on behalf of ICI, such
royalties to be reduced by the $3,000 minimum annual royalty
payment. To date there have been no net revenues.
The license is automatically renewed for one year periods each
December 31 as long as the required minimum royalty payments
described above are paid to WVURC on behalf of ICI.
Either party may terminate this agreement upon 90 days written
notice. The Company is responsible for the reimbursement of
project development costs incurred by WVURC.
The Company does not intend to further develop this technology
in the foreseeable future. All costs associated with the
acquisition of this technology have been written off.
(b) Plasma Ignition System
Pursuant to an agreement dated February 15, 1996 with ICI, the
Company acquired the rights to manufacture and market the
Plasma Ignition System, an ignition system for internal
combustion engines, for a license fee of $8,251. The Company
is obligated to pay a $3,000 minimum annual royalty to WVURC
on behalf of ICI to maintain the license in good standing. In
addition, a further 10% royalty of any net revenues is payable
to WVURC on behalf of ICI and a 1% royalty of any gross
revenues is payable to ICI. Such royalties are to be reduced
by the $3,000 minimum annual royalty. To date there have been
no net revenues.
The license is automatically renewed for one year periods each
December 31 as long as the required minimum royalty payments
described above are paid to WVURC on behalf of ICI.
Pursuant to an agreement dated February 9, 1996 with WVURC,
the Company is responsible for the reimbursement of project
development costs which are incurred by WVURC. To June 30,
2001, $445,570 (2000 - $445,570) of project development costs
has been paid or is payable to WVURC (note 12). Either party
may terminate this agreement upon 90 days written notice.
F-14
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
6. LICENSE AGREEMENTS (Continued)
The Company does not intend to further develop this technology
in the foreseeable future. All costs associated with the
acquisition of this technology have been written off.
(c) 2D Machine Vision Colorimetry
Pursuant to an agreement dated February 9, 1996 with ICI, the
Company acquired through IVSI, the right to manufacture and
market the 2D Machine Vision Colorimetry, a counterfeit
currency determination software. The Company is obligated to
pay a $3,000 minimum annual royalty to WVURC to maintain the
license in good standing. In addition, a further 10% royalty
of any net revenues is payable to WVURC on behalf of ICI, such
royalties to be reduced by the $3,000 minimum annual royalty
payment. To date there have been no net revenues.
The license is automatically renewed for one year periods each
December 31 as long as the required minimum royalty payments
described above are paid to WVURC on behalf of ICI.
Pursuant to an agreement dated February 9, 1996 with WVURC,
the Company is responsible for the reimbursement of project
development costs incurred by WVURC. To June 30, 2000,
$350,151 (1999 - $350,151) of project development costs has
been paid or is payable to WVURC (note 12). Either party may
terminate this agreement upon 90 days written notice.
The Company does not intend to further develop this technology
in the foreseeable future. All costs associated with the
acquisition of this technology have been written off.
(d) 3D Machine Vision Colorimetry
The Company's subsidiary, IVSI, acquired the right to
manufacture and market the 3D Machine Vision Colorimetry, a
color quality control software. IVSI is obligated to pay a
$3,000 minimum annual royalty to WVURC to maintain the license
in good standing. In addition, a further 10% royalty of any
net revenues is payable to WVURC on behalf of ICI, such
royalties to be reduced by the $3,000 minimum annual royalty
payment. To date there have been no net revenues.
The license is automatically renewed for one year periods each
December 31 as long as the required minimum royalty payments
described above are paid to WVURC on behalf of ICI. Either
party may terminate this agreement upon 90 days written
notice.
The operations of IVSI have ceased. The Company does not
intend to further develop this technology in the foreseeable
future. All costs associated with the acquisition of this
technology have been written off.
F-15
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
7. STOCKHOLDERS' EQUITY
(a) Common stock
During the year ended June 30, 2000, the Company completed a
private placement whereby 2,650,000 shares of common stock
were issued at a price of $1.50 per share and 1,325,000 share
purchase warrants for $0.001 per warrant exercisable into
common stock at a price of $1.80 for a period of two years.
The warrants may be redeemed by the Company at $0.01 per
warrant if the market value of the common stock of the Company
trades above $10.00 for 10 consecutive days.
(b) During the year ended June 30, 2000, the Company entered into
a private placement agreement with Swartz Private Equity, LLC
("Swartz") which calls for periodic purchases over the next
three years of up to $25,000,000 of the Company's common
stock. Each periodic purchase ("put") will have a purchase
price equal to the lesser of the market price minus $0.25, or
91% of the market price, but no less than a stated minimum
purchase price which cannot be greater than 80% of the market
price on that date.
Each put cannot exceed:
(i) $2,000,000 worth of common stock;
(ii) 15% of the aggregate reported trading volume of the
Company's common stock during the 20 business days
before and after the date of notice to exercise each
put; and,
(iii) a number of shares acquired in a 31 day period would
exceed 9.99% of the Company's total number of shares
of common stock outstanding at that time.
At the time of each put, the Company will issue Swartz a
purchase warrant which will give Swartz the right to purchase
up to 10% of the number of shares issued in the put, each
warrant will be immediately exercisable for a five year period
for a price equal to 110% of the market price for such put.
Pursuant to this agreement the Company issued 300,000 shares
to be held in escrow to exercise a put. Of these, 81,885
shares were released on the exercise of the put and 218,115
are held in escrow for future put exercises.
As partial consideration of the investment agreement the
Company issued warrants to Swartz to purchase 495,000 shares
of common stock (note 7(e)(ii)).
(c) Authorized preferred stock
The preferred stock may be issued in one or more series. The
distinguishing features of each series including preference,
rights and restrictions are to be determined by the Company's
Board of Directors upon the establishment of each such series.
F-16
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
7. STOCKHOLDERS' EQUITY (Continued)
During the year ended June 30, 2000, the Company designated
1,000,000 of its authorized 20,000,000 preferred shares as
Series A Convertible Preferred Stock with a par value of
$0.001 each and a stated value and liquidation preference of
$1.00 per share. Cumulative dividends are accrued at the rate
of 5% annually, payable at the option of the Company. The
shares may be converted to restricted shares of common stock
at the average trading price ten days prior to conversion, and
entitled to votes equal to the number of shares of common
stock into which each series of preferred stock may be
converted. Each Series A Convertible Preferred Stock may be
redeemed by the Company for $1.50 each within one year after
the date of issue, and for $2.00, $2.50, $3.00 per share and
$3.50 in each of the subsequent four years after date of
issue.
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, 2001 the Company redeemed
100,000 preferred shares for $200,000.
(d) Stock options
Pursuant to the Company's 1996 Incentive Compensation Plan as
subsequently amended in 1997, the Company may issue stock
options and stock bonuses for common stock of the Company to
provide incentives to officers, directors, key employees and
other persons who contribute to the success of the Company.
In January 2001 the Company adopted a non-qualified stock
option plan. "Integral Technologies, Inc. 2001 Stock Plan"
(the "2001 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.
F-17
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
7. STOCKHOLDERS' EQUITY (Continued)
The following table summarizes the Company's stock option
activity for the years ended June 30, 2001, 2000 and 1999:
<Table>
<Caption>
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
------------ ---------------- --------
BALANCE JUNE 30, 1998 1,990,000 $ 0.15 to $ 2.00 $ 0.24
AND 1997
Granted during the year
June 30,1999 1,635,000 $ 0.15 to $ 0.25 $ 0.17
Cancelled (1,260,000) $ 0.15 $ 0.15
Exercised (445,000) $ 0.15 to $ 0.25 $ 0.18
------------ ---------------- --------
BALANCE JUNE 30, 1999 1,920,000 $ 0.15 to $ 2.00 $ 0.26
Granted during the
year June 30, 2000 960,000 $ 0.15 to $ 0.40 $ 0.19
Cancelled (25,000) $ 0.15 $ 0.15
Exercised (1,245,000) $ 0.15 to $ 0.40 $ 0.21
------------ ---------------- --------
BALANCE JUNE 30, 2000 1,610,000 $ 0.15 to $ 2.00 $ 0.27
Granted during the
year June 30, 2001 689,500 $ 0.15 to $ 0.65 $ 0.50
Cancelled (209,000) $ 0.15 $ 0.15
Expired (235,000) $ 0.15 to $ 2.00 $ 0.66
Exercised (517,000) $ 0.15 to $ 0.20 $ 0.17
------------ ---------------- --------
BALANCE,
JUNE 30, 2001 1,338,500 $ 0.15 to $ 0.65 $ 0.35
============ ================ ========
</Table>
The following summarizes the options outstanding at June 30,
2001 and 2000 all of which were fully vested at these dates:
<Table>
<Caption>
Exercise Number of Shares
Expiry Date Price 2001 2000
----------------- ---------------- -------- ----------
January 30, 2001 $ 0.20 0 240,000
February 7, 2001 $ 2.00 0 100,000
January 30, 2002 $ 0.15 to $ 0.33 858,500 1,270,000
December 30, 2005 $ 0.65 480,000 0
================ ======== ==========
</Table>
Pursuant to the Company's 1996 Incentive Compensation plan as
subsequently amended in 1997, the Company granted 368,000
(2000 - 460,000) stock options, and at the same time cancelled
368,000 stock options previously granted. The 368,000 new
stock options were granted to consultants and have been
recognized applying SFAS 123 using the Black-Scholes option
pricing model which resulted in additional legal and
consulting fees of $53,007 (2000 - $37,455)
F-18
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
7. STOCKHOLDERS' EQUITY (Continued)
The Company extended the expiration date for 700,000 stock
options expiring January 30, 2001 to January 30, 2002. As a
result of this change, these options became variable and an
additional compensation expense of $251,120 was charged to
operations.
Pursuant to the 2001 Plan, the Company granted a total of
480,000 fully vested stock options to two directors of the
Company at an exercise price of $0.65 per share which will
expire December 31, 2005. Subsequent to June 30, 2001 the
Company granted 1,600,000 options to employees at exercise
prices ranging from $0.40 to $1.20, expiring August 31, 2003.
The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock options granted to
employees, and accordingly, compensation expense of $219,200
(2000 - $10,800; 1999 - $9,200) was recognized as salaries
expense. Had compensation expense been determined as provided
in SFAS 123 using the Black-Scholes option - pricing model,
the pro-forma effect on the Company's net loss and per share
amounts would have been as follows:
<Table>
<Caption>
2001 2000
----------- -----------
Net loss, as reported $(4,000,169) $(1,537,402)
Net loss, pro-forma (4,172,969) (1,568,842)
Net loss per share, as reported $ (0.15) $ (0.07)
Net loss per share, pro-forma $ (0.16) $ (0.07)
=========== ===========
</Table>
The fair value of each option grant is calculated using the
following weighted average assumptions:
<Table>
<Caption>
2001 2000
----------- -----------
Expected life (years) 5 3
Interest rate 5.00% 6.00%
Volatility 61.04% 81.19%
Dividend yield 0.00% 0.00%
=========== ===========
</Table>
(e) Subsequent to June 30, 2001, officers and directors exercised
700,000 options for a total of $124,200 for settlement of debt
and 158,500 options to a consultant for $52,300.
F-19
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
7. STOCKHOLDERS' EQUITY (Continued)
(f) At June 30, 2001, the following stock purchase warrants were
outstanding:
(i) 1,325,000 (2000 - 1,325,000) with an exercise price
of $1.80 expiring March 15, 2002. During the year,
the exercise price was reduced to $0.40 per share if
exercised prior to September 30, 2001 and exercisable
at $1.80 per share from October 1, 2001 to March 15,
2002. Subsequent to June 30, 2001, 325,000 warrants
were exercised at $0.40 per share to net the Company
$130,000;
(ii) 495,000 (2000 - 495,000) with an exercise price of
$1.306 exercisable on or before November 10, 2005;
and
(iii) 8,189 (2000 - Nil) with an exercise price of $1.44
exercisable on or before November 10, 2005.
Both (ii) and (iii) above have reset provisions, whereby the
exercise price is adjusted to 110% of the five day average on
every month's anniversary of the warrants.
(g) Promissory notes receivable includes:
(i) $31,500 due on exercise of 210,000 stock options,
interest at 10% per annum, due November 1, 2002; and,
(ii) $27,000 due on exercise of 135,000 stock options,
interest at 8% per annum, due June 6, 2002.
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<Table>
<Caption>
PERIOD FROM
FEBRUARY 12,
(INCEPTION)
YEAR ENDED JUNE 30, THROUGH
2001 2000 1999 JUNE 30, 2001
------------ ------------ ------------ -----------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Issue of common stock
For property and equipment $ 0 $ 0 $ 0 $ 15,000
For services (provided by
officers and directors) 0 0 100,000 120,000
For settlement of lawsuit 0 0 15,000 15,000
For services 45,265 113,125 50,000 261,161
For acquisition of subsidiary 0 0 619,200 894,200
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 0 0 0 81,111
Income tax paid 0 0 0 0
============ ============ ============ =================
</Table>
F-20
INTEGRAL TECHNOLOGIES, INC.
A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
(a) Accounts payable at June 30, 2001 include $228,722 (2000 -
$23,001) due to two directors and officers of the Company.
(b) The Company incurred $276,000 (2000 - $240,000; 1999 -
$290,000) for wages to two directors and officers of the
Company and $nil (2000 - $42,000; 1999 - $93,500) for interest
for amounts owed to these directors. Of the 1999 amount,
$100,000 was settled by issue of 666,666 shares of common
stock.
10. INCOME TAXES
Deferred income taxes reflect the tax effects 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:
<Table>
<Caption>
2001 2000 1999
------------ ------------ ------------
Deferred income tax assets
Net operating loss
and credit
carryforwards $ 3,000,000 $ 1,933,000 $ 1,460,000
Temporary differences
on property and
equipment depreciation (1,000) (600) 2,600
------------ ------------ ------------
Gross deferred tax assets 2,999,000 1,932,400 1,462,600
Valuation allowance (2,999,000) (1,932,400) (1,462,600)
------------ ------------ ------------
$ 0 $ 0 $ 0
============ ============ ============
</Table>
As at June 30, 2001 the Company's net operating loss carryforwards for
income tax purposes were approximately $8,500,000. If not utilized,
they will start to expire in 2017.
11. INTEREST ON BENEFICIAL CONVERSION
During the year ended June 30, 1999 the Company converted debt into
common stock. The difference between the market value of the Company's
shares on the date of conversion and the conversion rate pursuant to
$525,000 of the convertible debenture issued during the year ended June
30, 1999 was $398,077.
During the year ended June 30, 1999 the Company issued 1,683,789 shares
of common stock for a promissory note in the amount of $252,568. The
difference between the market value of the Company's shares and the
issue price of 1,683,789 shares for a promissory note in the amount of
$252,568 was $168,379. These amounts have been recorded as interest
expense in the statements of operations.
F-21
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
12. CONTINGENCIES
(a) A dispute exists between WVURC and the Company with respect to
the development work performed by WVURC on the Plasma Ignition
System and the Counterfeit Detection Technology. The Company
has included in its accounts the amount alleged by WVURC to be
owing to WVURC of $397,296, however, it is the opinion of
management that this amount should be reduced to an amount not
greater than $43,052. Management intends to defend this
position. As the actual outcome cannot be determined at this
time, any adjustments required will be recorded by the Company
when settlement occurs.
(b) Integral Technologies, Inc., Antek, ETC. and Jack Parsons, a
director of the Company, were defendants in a lawsuit filed in
May 2000 in the United States District Court for the Northern
District of West Virginia by IAS Communications, Inc. ("IAS").
IAS claimed that, pursuant to agreement by and among IAS, ICI
and ETC, IAS acquired the exclusive right to commercial
applications of certain patented and proprietary antenna
technology developed at West Virginia University and ETC
acquired exclusive rights to military applications of such
technology. IAS claimed that ETC breached its agreement by
pursuing commercial applications of the technology. IAS
further claimed that all defendants misappropriated certain
trade secrets and interfered with IAS's economic relations. In
addition, IAS claimed that Jack Parsons breached certain
fiduciary duties. IAS sought injunctive relief prohibiting the
defendants from disclosing certain information related to the
technology; an order requiring defendants to account for any
profits from the alleged conduct, return any proprietary
materials to IAS and destroy all devices created in violations
of IAS's rights; and a money judgement in an amount to be
determined at trial, but no less than $15,000,000.
On September 6, 2001, the United States District Court
Magistrate Judge recommended that the action filed by IAS
against the Company and its subsidiaries be dismissed with
prejudice. The Magistrate Judge entered his order after IAS
failed to appear at prior court hearings, failed to provide
information ordered to be produced by the Magistrate Judge and
ordered IAS to pay certain costs and attorney's fees to the
Company and its subsidiaries. By Court Order dated September
24, 2001, the U.S. District Court Judge adopted the Magistrate
Judge's recommendation and ordered the case be dismissed with
prejudice from the Court's docket. Accordingly, no further
claims by IAS Communications against the Company and its
subsidiaries exist in this litigation.
(c) On October 12, 2000, Joffre J. Rolland and Robin L. Rolland
filed a suit against the Company and its subsidiary ETC
seeking to recover damages for various claims involving an
alleged breach of two written employment contracts. Management
intends to vigorously defend against these claims. As the
outcome of this litigation cannot be determined at this time,
any adjustments required will be recorded by the Company when
the outcome becomes determinable.
F-22
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
13. COMPREHENSIVE LOSS
<Table>
<Caption>
PERIOD FROM
FEBRUARY 12,
1996
(INCEPTION)
THROUGH
YEAR ENDED JUNE 30, JUNE 30,
2001 2000 1999 2001
----------- ----------- ----------- ------------
Net loss $(4,000,169) $(1,537,402) $(1,404,021) $ (9,046,025)
Other
comprehensive
income (loss) (26) 1,614 8,444 46,267
----------- ----------- ----------- ------------
Comprehensive
loss $(4,000,195) $(1,535,788) $(1,395,577) $ (8,999,758)
=========== =========== =========== ============
</Table>
F-23
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(U.S. DOLLARS)
<Table>
<Caption>
SEPTEMBER 30, JUNE 30,
2001 2001
------------- ------------
ASSETS
CURRENT
Cash $ 88,105 $ 69,556
Accounts receivable 12,844 27,344
Inventory 46,842 46,842
Prepaid expenses 165 165
------------ ------------
TOTAL CURRENT ASSETS 147,956 143,907
PROPERTY AND EQUIPMENT 84,266 89,566
INVESTMENTS 1,250,000 1,250,000
------------ ------------
TOTAL ASSETS $ 1,482,222 $ 1,483,473
============ ============
LIABILITIES
CURRENT
Accounts payable and accruals $ 721,034 $ 746,530
Due to West Virginia University Research Corporation 397,296 397,296
Customer deposits 13,232 13,232
------------ ------------
TOTAL CURRENT LIABILITIES 1,131,562 1,157,058
------------ ------------
STOCKHOLDERS' EQUITY
PREFERRED STOCK AND PAID-IN CAPITAL IN EXCESS OF $0.001 PAR VALUE
20,000,000 Shares authorized 564,410 (June 30, 2001 - 564,410)
issued and outstanding 564,410 564,410
COMMON STOCK AND PAID IN CAPITAL IN EXCESS OF $0.001 PAR VALUE
50,000,000 Shares authorized 28,132,562 (June 30, 2001 - 26,949,062)
issued and outstanding 9,383,493 8,900,983
SUBSCRIPTIONS RECEIVABLE 100,000 50,000
PROMISSORY NOTES RECEIVABLE (58,500) (58,500)
OTHER COMPREHENSIVE INCOME 46,267 46,267
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (9,685,010) (9,176,745)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 350,660 326,415
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,482,222 $ 1,483,473
============ ============
</Table>
See notes to consolidated financial statements.
F-24
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(U.S. DOLLARS)
<Table>
<Caption>
PERIOD FROM
FEBRUARY 16, 1996
THREE MONTHS ENDED (INCEPTION)
SEPTEMBER 30, TO
2001 2000 SEPTEMBER 30, 2001
------------ ------------ ------------------
REVENUE $ 20,882 $ 0 $ 208,508
COST OF SALES 11,968 0 214,516
------------ ------------ ------------
8,914 0 (6,008)
------------ ------------ ------------
EXPENSES
Consulting 213,256 35,700 1,259,785
Salaries and benefits 188,369 255,812 2,430,452
Legal and accounting 27,435 83,116 882,706
Travel and entertainment 24,749 42,399 551,640
Bad debts 14,500 0 65,818
General and administrative 10,145 34,826 361,589
Rent 9,831 21,343 197,509
Telephone 7,887 15,365 202,126
Research and development 4,691 55,447 1,239,811
Bank charges and interest, net 3,082 (30,601) 99,386
Advertising 2,698 45,145 251,245
Interest on beneficial
conversion feature 0 10,124 566,456
Write-down of license and
operating assets 0 0 1,806,700
Depreciation and amortization 3,481 23,151 228,847
------------ ------------ ------------
510,124 591,827 10,144,070
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM 501,210 591,827 10,150,078
EXTRAORDINARY ITEM
Cancellation of debt 0 0 (602,843)
------------ ------------ ------------
NET LOSS FOR PERIOD $ 501,210 $ 591,827 $ 9,547,235
============ ============ ============
NET LOSS PER COMMON SHARE $ (0.02) $ (0.02)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 27,064,839 26,033,842
============ ============ ============
</Table>
See notes to consolidated financial statements.
F-25
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(U.S. DOLLARS)
<Table>
<Caption>
COMMON PREFERRED
STOCK AND STOCK AND
SHARES PAID-IN SHARES OF PAID-IN
OF COMMON CAPITAL PREFERRED CAPITAL PROMISSORY
STOCK IN EXCESS STOCK IN EXCESS SUBSCRIPTIONS NOTES
ISSUED OF PAR ISSUED OF PAR RECEIVABLE RECEIVABLE
------------ ------------ ------------ ------------ ------------- ------------
BALANCE, JUNE 30, 2000 26,032,062 $ 8,384,781 664,410 $ 664,410 $ (58,500) $ 0
Shares issued for
Private placement 81,885 112,480 0 0 0 0
Exercise of options 517,000 91,515 0 0 0 0
For services 100,000 40,000 0 0 0 0
Held in escrow 218,115 0 0 0 0 0
Stock option compensation 0 272,207 0 0 0 0
Dividends on preferred shares 0 0 0 0 0 0
Share subscriptions 0 0 0 0 0 50,000
Redeemed shares 0 0 (100,000) (100,000) 0 0
Foreign currency translation 0 0 0 0 0 0
Net loss for period 0 0 0 0 0 0
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 2001 26,949,062 8,900,983 564,410 564,410 (58,500) 50,000
Shares issued for
Exercise of options 858,500 174,200 0 0 0 0
Exercise of warrants 325,000 130,000 0 0 0 0
Stock option compensation 0 178,310 0 0 0 0
Dividends on preferred shares 0 0 0 0 0 0
Share subscriptions 0 0 0 0 0 50,000
Net loss for period 0 0 0 0 0 0
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2001 28,132,562 $ 9,383,493 564,410 $ 564,410 $ (58,500) $ 100,000
============ ============ ============ ============ ============ ============
<Caption>
DEFICIT
ACCUMULATED
OTHER DURING THE TOTAL
COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
INCOME STAGE EQUITY
------------- ------------ -------------
BALANCE, JUNE 30, 2000 $ 46,293 $ (5,045,856) $ 3,991,128
Shares issued for
Private placement 0 0 112,480
Exercise of options 0 0 91,515
For services 0 0 40,000
Held in escrow 0 0 0
Stock option compensation 0 0 272,207
Dividends on preferred shares 0 (30,720) (30,720)
Share subscriptions 0 0 50,000
Redeemed shares 0 (100,000) (200,000)
Foreign currency translation (26) 0 (26)
Net loss for period 0 (4,000,169) (4,000,169)
------------ ------------ ------------
BALANCE, JUNE 30, 2001 46,267 (9,176,745) 326,415
Shares issued for
Exercise of options 0 0 174,200
Exercise of warrants 0 0 130,000
Stock option compensation 0 0 178,310
Dividends on preferred shares 0 (7,055) (7,055)
Share subscriptions 0 0 50,000
Net loss for period 0 (501,210) (501,210)
------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2001 $ 46,267 $ (9,685,010) $ 350,660
============ ============ ============
</Table>
See notes to consolidated financial statements.
F-26
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(U.S. DOLLARS)
<Table>
<Caption>
PERIOD FROM
FEBRUARY 12,
1996
THREE MONTHS ENDED (INCEPTION)
SEPTEMBER 30, THROUGH
2001 2000 SEPTEMBER 30, 2001
------------ ------------ ------------------
OPERATING ACTIVITIES
Net loss $ (501,210) $ (591,827) $ (9,566,910)
Item not involving cash
Depreciation and amortization 5,300 26,276 247,675
Extraordinary item 0 0 (602,843)
Consulting services and financing fees 0 0 417,108
Stock option compensation benefit 178,310 0 589,048
Interest on beneficial conversion 0 10,124 566,456
Settlement of lawsuit 0 0 15,000
Write-down of license and operating assets 0 0 1,806,700
Bad debts 14,500 0 14,500
CHANGES IN NON-CASH WORKING CAPITAL
Due from affiliated company 0 0 (116,000)
Notes and account receivable 0 (1,002) (58,845)
Inventory 0 0 (46,842)
Prepaid expenses 0 5,230 (165)
Deferred revenue 0 0 13,232
Other 0 0 (2,609)
Accounts payable and accruals 91,649 (32,229) 1,015,701
Due to West Virginia University Research Corporation 0 0 397,296
Short-term loans 0 0 0
Loans payable 0 0 0
------------ ------------ ------------
CASH USED IN OPERATING ACTIVITIES (211,451) (583,428) (5,311,498)
------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of property, equipment and intangible assets 0 (4,800) (200,936)
Assets acquired and liabilities assumed on
purchase of subsidiary 0 0 (129,474)
Investment purchase 0 (575,000) (2,000,000)
License agreement 0 0 (124,835)
------------ ------------ ------------
CASH USED IN INVESTING ACTIVITIES 0 (579,800) (2,455,245)
------------ ------------ ------------
FINANCING ACTIVITIES
Repayment of loan 0 0 (45,000)
Repayments to stockholders 0 0 (94,046)
Issuance of common stock 180,000 0 6,396,763
Advances from stockholders (net of repayments) 0 0 1,078,284
Share issue cost 0 0 (227,420)
Subscriptions received 50,000 0 100,000
Proceeds from convertible debentures 0 0 600,000
------------ ------------ ------------
CASH PROVIDED BY FINANCING ACTIVITIES 230,000 0 7,808,581
------------ ------------ ------------
EFFECT OF FOREIGN CURRENCY TRANSLATION
ON CASH 0 225 46,267
------------ ------------ ------------
INFLOW (OUTFLOW) OF CASH 18,549 (1,163,003) 88,105
CASH, BEGINNING OF PERIOD 69,556 2,908,700 0
------------ ------------ ------------
CASH, END OF PERIOD $ 88,105 $ 1,745,697 $ 88,105
============ ============ ============
</Table>
See notes to consolidated financial statements.
F-27
INTEGRAL TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
(U.S. DOLLARS)
1. BASIS OF PRESENTATION
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States for interim financial information. These financial statements
are condensed and do not include all disclosures required for annual
financial statements. The organization and business of the Company,
accounting policies followed by the Company and other information are
contained in the notes to the Company's audited consolidated financial
statements filed as part of the Company's June 30, 2001 Form 10-KSB.
In the opinion of the Company's management, these consolidated
financial statements reflect all adjustments necessary to present
fairly the Company's consolidated financial position at September 30,
2001 and June 30, 2001 and the consolidated results of operations and
the consolidated statements of cash flows for the three months ended
September 30, 2000 and 2001. The results of operations for the three
months ended September 30, 2001 are not necessarily indicative of the
results to be expected for the entire fiscal year.
2. STOCKHOLDERS' EQUITY
During the period, the Company:
(a) Pursuant to the 2001 Plan, the Company granted a total of
1,600,000 fully vested stock options to employees and
consultants of the Company at an exercise price ranging from
$0.40 to $1.20 per share which will expire August 31, 2003.
1,060,000 of the 1,600,000 options were granted to consultants
and have been recognized applying FASB 123 using the
Black-Scholes option pricing model which resulted in
additional consulting expense of $173,510.
(b) Issued 858,500 shares on exercise of stock options for total
proceeds of $50,000 and repayment of amounts due to directors
of $124,200.
(c) The following table summarizes the Company's stock option
activity for the period:
<Table>
<Caption>
2001
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
------------ ---------------- ------------
Balance, June 30, 2001 1,338,500 $ 0.15 to $ 0.65 $ 0.35
Granted during the period 1,600,000 $ 0.40 to $ 1.20 0.64
Exercised (858,500) $ 0.15 to $ 0.32 0.20
------------ ---------------- ------------
Balance, September 30, 2001 2,080,000 $ 0.40 to $ 1.20 $ 0.65
============ ================ ============
</Table>
F-28
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
(U.S. DOLLARS)
2. STOCKHOLDERS' EQUITY (Continued)
(d) The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock options granted to
employees, and accordingly, compensation expense of $4,800 was
recognized as wages 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:
<Table>
Net loss, as reported $ (501,210)
Net loss, pro-forma (794,325)
Net loss per share, as reported $ (0.02)
Net loss per share, pro-forma $ (0.03)
</Table>
The fair value of each option grant is calculated using the
following weighted average assumption:
<Table>
Expected life (years) 2
Interest rate 5.00%
Volatility 59.538
Dividend yield 0.00%
</Table>
(e) issued 325,000 shares on exercise of stock warrants for total
proceeds of $130,000.
F-29
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Integral's Articles of Incorporation and Bylaws provided Integral may
indemnify a controlling person, officer or director from liability for acting in
such capacities, to the full extent permitted by the law of the State of Nevada.
The Articles of Incorporation further provide that, to the full extent permitted
by the Nevada Corporation Code, as the same exists or may hereafter be amended,
a director or officer of Integral shall not be liable to Integral or its
shareholders for monetary damages for breach of fiduciary duty as a director or
officer.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution
of the securities being registered, other than underwriting compensation, are:
SEC filing fee for Registration Statement: $6,936.93
Accounting Fees $10,000
Legal Fees and Expenses $45,000
Miscellaneous $5,000
Total: $66,936.93
All of the expenses above have been or will be paid by the company.
RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding the issuance and sales of securities of
Integral without registration within the past three years.
(a) In August 1998, the Company issued 50,000 shares of its common stock to one
person who was not an affiliate of the Company for consulting services rendered
to the Company and valued at $10,000. This transaction did not involve any
public offering, no sales commissions were paid, and a restrictive legend was
placed on each certificate evidencing the shares. The Company believes this
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act.
(b) In November 1998, the Company issued 200,000 shares to two persons who were
not affiliates of the Company as compensation for services rendered, valued at
$39,000. This transaction did not involve any public offering and the offering
was conducted in accordance with Regulation D of the Securities Act of 1933, as
amended. No sales commissions were paid. The Company believes that this
transaction was exempt from registration under Section 504 of Regulation D.
(c) In December 1998, the Company sold 200,000 shares to one person who was not
an affiliate of the Company for $50,000 cash. This transaction did not involve
any public offering and the offering was conducted in accordance with Regulation
D of the Securities Act of 1933, as amended. No sales commissions were paid. The
Company believes that this transaction was exempt from registration under
Section 504 of Regulation D.
(d) In January 1999, the Company issued and sold 1,683,788 shares of common
stock to one person in consideration of a $250,000 promissory note. The
promissory note was fully-secured, paid interest at the rate of 6% per annum,
and was due in two years. By December 1999, the note had been pre-paid in full.
This transaction did not involve any public offering and the offering was
conducted in accordance with Regulation D of the Securities Act of 1933, as
amended. No sales commissions were paid. The Company believes that this
transaction was exempt from registration under Section 504 of Regulation D.
34
(e) Between January 1999 and March 1999, the Company issued and sold Convertible
Debentures totaling $600,000. A management fee of 6% ($36,000) was paid in
connection with the sale of the Debentures. By July of 1999, the Debentures and
all accrued interest had been converted into 4,316,212 shares of common stock.
This transaction did not involve any public offering and the offering was
conducted in accordance with Regulation D of the Securities Act of 1933, as
amended. The Company believes that this transaction was exempt from registration
under Section 504 of Regulation D.
(f) In April 1999, the Company issued a total of 666,666 shares of its common
stock, 333,333 each to William S. Robinson and William A. Ince in consideration
of management fees owing in the amount of $50,000 each to William S. Robinson
and William A. Ince. Messrs. Robinson and Ince are officers and directors of the
Company and are therefore considered accredited investors under applicable
securities laws. This transaction did not involve any public offering, no sales
commissions were paid, and a restrictive legend was placed on each certificate
evidencing the shares. The Company believes this transaction was exempt from
registration pursuant to Section 4(2) of the Securities Act.
(g) In April 1999, the Company issued a total of 150,000 shares of its common
stock, valued at $15,000, jointly to two persons who were not affiliates of the
Company in settlement of a litigation matter. This transaction did not involve
any public offering, no sales commissions were paid and a restrictive legend was
placed on each certificate evidencing the shares. The Company believes this
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act.
(h) In May 1999, the Company issued a total of 445,000 shares of its common
stock to members of its employee benefit and consulting services plan who
exercised, in April, their options which were previously granted under the plan.
The exercise price of the issued shares was between $.15 and $.25 per share and
each person paid the exercise price in cash of an aggregate amount of $80,500.
This transaction did not involve any public offering, the securities were issued
under a Plan structured in compliance with Rule 701 of the Securities Act, no
sales commissions were paid and a restrictive legend was placed on each
certificate evidencing the shares. The Company believes that transaction was
exempt from registration pursuant to Rule 701 of the Securities Act.
(i) In July 1999, the Company issued 50,000 shares of its common stock to one
person for consulting services rendered to the Company which were valued at
$12,500. This transaction did not involve any public offering, no sales
commissions were paid and a restrictive legend was placed on each certificate
evidencing the shares. The Company believes this transaction was exempt from
registration pursuant to Section 4(2) of the Securities Act.
(j) In September 1999, the Company issued an aggregate 654,401 shares of its
Series A Convertible Preferred Stock ("Series A Stock") to its officers and
directors. William S. Robinson received 175,000 shares of Series A Stock in lieu
of $175,000 in accrued salaries through September 30, 1999 and 267,197 shares of
Series A Stock as repayment of $267,197 in loans made to the Company. William A.
Ince received 175,000 shares of Series A Stock in lieu of $175,000 in accrued
salaries through September 30, 1999 and 47,213 shares of Series A Stock in
repayment of $47,213 in loans made to the Company. Messrs. Robinson and Ince as
officers and directors of the Company are therefore considered accredited
investors under applicable securities laws. This transaction did not involve any
public offering, no sales commissions were paid and a restrictive legend was
placed on each certificate evidencing the shares. The Company believes this
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act.
(k) In November 1999, the Company issued a total of 405,000 shares of its common
stock to members of its employee benefit and consulting services plan who
exercised, in July and September 1999, their options previously granted under
the plan. The exercise price of the issued shares ranged between $.15 and $.20
per share. One person paid the exercise price in the form of services rendered
which was valued at $11,250 and the other persons paid the exercise price in
cash in an aggregate amount of $65,750. This transaction did not involve any
public offering, the securities were issued under a plan structured in
compliance with Rule 701 of the Securities Act, no sales commissions were paid
and a restrictive legend
35
was placed on each certificate evidencing the shares. The Company believes that
the transaction was exempt from registration pursuant to Rule 701 of the
Securities Act.
(l) In February 2000, the Company issued 50,000 shares of its common stock
pursuant to its employee benefit and consulting services plan to one person. The
exercise price of the issued shares was $.15 per share and the exercise price
was paid in cash. The transaction did not involve any public offering, the
securities were issued under a plan structured in compliance with Rule 701 of
the Securities Act, no sales commissions were paid and a restrictive legend was
placed on each certificate evidencing the shares. The Company believes that the
transaction was exempt from registration pursuant to Rule 701 of the Securities
Act.
(m) In February 2000, the Company issued 200,000 shares of its common stock
pursuant to its employee benefit and consulting services plan to one person. The
exercise price of the issued shares was $.20 per share and the exercise price
was paid in cash. The transaction did not involve any public offering, the
securities were issued under a plan structured in compliance with Rule 701 of
the Securities Act, no sales commissions were paid and a restrictive legend was
placed on each certificate evidencing the shares. The Company believes that the
transaction was exempt from registration pursuant to Rule 701 of the Securities
Act.
(n) In March 2000, the Company issued 87,500 shares of its common stock pursuant
to its employee benefit and consulting services plan to one person. The exercise
price of the issued shares was $.23 per share and the exercise price was paid in
the form of services rendered and valued at $20,125. The transaction did not
involve any public offering, the securities were issued under a plan structured
in compliance with Rule 701 of the Securities Act, no sales commissions were
paid and a restrictive legend was placed on each certificate evidencing the
shares. The Company believes that the transaction was exempt from registration
pursuant to Rule 701 of the Securities Act.
(o) In March 2000, the Company completed a private placement with 10 investors
and sold 2,650,000 shares of its common stock and warrants in order to purchase
1,325,000 shares of its common stock at an exercise price of $1.80 per share.
Aggregate proceeds were $3,976,325. The transaction did not involve any public
offering, no sales commissions were paid and a restrictive legend was placed on
each certificate evidencing the shares. The Company believes that the
transaction was exempt from registration pursuant to Section 4(2) and Section
4(6) of the Securities Act and/or Rule 506 of Regulation D.
(p) In April 2000, the Company issued 287,500 shares of its common stock
pursuant to its employee benefit and consulting services plan to one person. The
exercise price of the shares ranged between $.15 and $.40 per share and the
exercise price was paid in the form of services rendered and valued at $65,000.
The transaction did not involve any public offering, the securities were issued
under a plan structured in compliance with Rule 701 of the Securities Act, no
sales commissions were paid and a restrictive legend was placed on each
certificate evidencing the shares. The Company believes that the transaction was
exempt from registration pursuant to Rule 701 of the Securities Act.
(q) In April 2000, the Company issued 80,000 shares of its common stock pursuant
to its employee benefit and consulting services plan to one person. The exercise
price of the shares was $.20 per share and the exercise price was paid in cash.
The transaction did not involve any public offering, the securities were issued
under a plan structured in compliance with Rule 701 of the Securities Act, no
sales commissions were paid and a restrictive legend was placed on each
certificate evidencing the shares. The Company believes that the transaction was
exempt from registration pursuant to Rule 701 of the Securities Act.
(r) In May 2000, the Company entered into an Investment Agreement and a
Registration Rights Agreement with Swartz Private Equity, LLC ("Swartz").
Pursuant to the terms of the Investment Agreement, the Company may, in its sole
discretion and subject to certain restrictions, periodically sell shares of
common stock to Swartz for up to $25,000,000. The Company believes that the
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act and/or Rule 506 of Regulation D.
36
(s) In June 2000, the Company issued 135,000 shares pursuant to its employee
benefit and consulting services plan to two individuals in consideration for two
one year promissory notes bearing an 8% interest rate. The exercise price was
$.20 per share. One promissory note is in the amount of $20,000 and the other is
in the amount of $7,500. These transactions did not involve any public offering,
the securities were issued under a plan structured in compliance with Rule 701
of the Securities Act, no sales commissions were paid and a restrictive legend
was placed on each certificate evidencing the shares. The Company believes that
transactions were exempt from registration pursuant to Rule 701 of the
Securities Act.
(t) On December 28, 2000, the Company issued 20,000 shares of its common stock
to one person upon exercise of options pursuant to the Employee Benefit and
Consulting Services Compensation Plan. The Company issued the shares in
consideration for the payment of $3,000. This transaction did not involve any
public offering, the securities were issued under a plan structured in
compliance with Rule 701 of the Securities Act, no sales commissions were paid,
and a restrictive legend was placed on each certificate evidencing the shares.
The Company believes that the transaction was exempt from registration pursuant
to Rule 701 of the Securities Act.
(u) In January 2001, the Company issued an aggregate of 517,000 shares of its
common stock to six persons upon exercise of options pursuant to the Employee
Benefit and Consulting Services Compensation Plan. The options had various
exercise prices, ranging from $0.15 to $1.16 per share. The Company issued the
shares in consideration for an aggregate of $91,500. These transactions did not
involve any public offering, the securities were issued under a plan structured
in compliance with Rule 701 of the Securities Act, no sales commissions were
paid, and a restrictive legend was placed on each certificate evidencing the
shares. The Company believes that each transaction was exempt from registration
pursuant to Rule 701 of the Securities Act.
(v) In April 2001, Integral issued 100,000 shares of its common stock to one
person upon exercise of options pursuant to the Employee Benefit and Consulting
Services Compensation Plan. The exercise price of the shares was $.40 per share,
and the exercise price was paid in the form of services rendered (valued at
$40,000). The transaction did not involve any public offering, the securities
were issued under a plan structured in compliance with Rule 701 of the
Securities Act, no sales commissions were paid, and a restrictive legend was
placed on each certificate evidencing the shares. Integral believes that the
transaction was exempt from registration pursuant to Rule 701 of the Securities
Act.
(w) In August 2001, the Company issued an aggregate of 858,500 shares of its
common stock to 3 persons (including two officers) upon exercise of options
pursuant to the Employee Benefit and Consulting Services Compensation Plan. The
options had various exercise prices, ranging from $0.15 to $.33 per share. The
Company issued the shares in consideration for an aggregate of $52,305 in cash
and $124,200 in lieu of accrued salaries payable. These transactions did not
involve any public offering, the securities were issued under a plan structured
in compliance with Rule 701 of the Securities Act, no sales commissions were
paid, and a restrictive legend was placed on each certificate evidencing the
shares. The Company believes that each transaction was exempt from registration
pursuant to Rule 701 of the Securities Act.
(x) In September 2001, the Company issued an aggregate of 325,000 shares to
eight persons pursuant to the exercise of warrants previously issued in
connection with a private placement in March 2000, for aggregate proceeds of
$130,000. In August 2001, the exercise price of the warrants had been
temporarily reduced from $1.80 to $.40 per share through September 2001. The
transaction did not involve any public offering, no sales commissions were paid
and a restrictive legend was placed on each certificate evidencing the shares.
The Company believes that the transaction was exempt from registration pursuant
to Section 4(2) and Section 4(6) of the Securities Act and/or Rule 506 of
Regulation D.
37
LIST OF EXHIBITS
Exhibit Number Description
- -------------- -----------
2.1 Agreement and Plan of Reorganization between Integral and
Integral Vision Systems, Inc. dated March 11, 1997.
(Incorporated by reference to Exhibit 2.1 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
2.2 Agreement and Plan of Reorganization between Integral and
Emergent Technologies Corporation dated December 10, 1997.
(Incorporated by reference to Exhibit 2.2 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
3.1 Articles of Incorporation, as amended and currently in effect.
(Incorporated by reference to Exhibit 3.1 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
3.2 Bylaws, as amended and restated on December 31, 1997.
(Incorporated by reference to Exhibit 3.2 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
4.1 Form of Securities Purchase Agreement between Integral and
certain parties related to the purchase of Integral common stock
to be registered pursuant to this offering. (Incorporated by
reference to Exhibit 4.1 of Integral's registration statement on
Form SB-2 (file no. 333-41938) filed July 21, 2000.)
4.2 Form of Common Stock Purchase Warrant related to the offering of
securities described in Exhibit 4.1. (Incorporated by reference
to Exhibit 4.1 of Integral's registration statement on Form SB-2
(file no. 333-41938) filed July 21, 2000.)
4.3 Investment Agreement dated May 11, 2000, by and between Integral
and Swartz Private Equity, LLC. (Incorporated by reference to
Exhibit 4.1 of Integral's registration statement on Form SB-2
(file no. 333-41938) filed July 21, 2000.)
4.4 Warrant to purchase common stock issued to Swartz Private
Equity, LLC on May 11, 2000, exercisable to purchase an
aggregate of 495,000 shares of common stock at $1.306 per share
(subject to adjustment) until December 13, 2004, granted to
Swartz in connection with the offering of securities described
in Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of
Integral's registration statement on Form SB-2 (file no.
333-41938) filed July 21, 2000.)
4.5 Registration Rights Agreement, dated May 11, 2000, by and
between Integral and Swartz Private Equity, LLC, related to the
registration of the common stock to be sold pursuant to Exhibit
4.3. (Incorporated by reference to Exhibit 4.1 of Integral's
registration statement on Form SB-2 (file no. 333-41938) filed
July 21, 2000.)
4.6 Warrant to Purchase Common Stock to be issued from time to time
in connection with the offering of securities described in
Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of
Integral's registration statement on Form SB-2 (file no.
333-41938) filed July 21, 2000.)
4.7 Warrant Side Agreement dated May 11, 2000 between Integral and
Swartz related to the offering of securities described in
Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of
Integral's registration statement on Form SB-2 (file no.
333-41938) filed July 21, 2000.)
4.9 Form of Addendum Letter dated August 16, 2001 sent by Integral
to the ten holders of warrants issued March 31, 2000 in
connection with the offering described in Exhibits 4.1
38
and 4.2. (Incorporated by reference to Exhibit 4.9 of the
Company's Form 10-KSB for the year ended June 30, 2001.)
5.2 Legal opinion of Futro & Trauernicht LLC (filed herewith).
10.1 Sublicense Agreement between Integral's subsidiary, Emergent
Technologies Corporation, and Integral Concepts, Inc., dated
January 2, 1996, relating to the Toroidal Helical Antenna.
(Incorporated by reference to Exhibit 10.1 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
10.2 Agreement between Integral and West Virginia University Research
Corporation on Behalf of West Virginia University dated February
9, 1996, relating to RF Quarter-Wave Coaxial Cavity Resonator.
(Incorporated by reference to Exhibit 10.2 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
10.3 Agreement between Integral and West Virginia University Research
Corporation on Behalf of West Virginia University dated February
9, 1996, relating to Counterfeit Currency Determination
Prototype. (Incorporated by reference to Exhibit 10.3 of
Integral's registration statement on Form 10-SB (file no.
0-28353) filed December 2, 1999.)
10.4 Sublicense Agreement between Integral Concepts, Inc. and
Integral dated February 15, 1996, relating to the design,
construction and operation of a Plasma Ignition System.
(Incorporated by reference to Exhibit 10.4 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
10.7 Employee Benefit and Consulting Services Compensation Plan, as
restated January 10, 1999. (Incorporated by reference to Exhibit
10.7 of Integral's registration statement on Form 10-SB (file
no. 0-28353) filed December 2, 1999.)
10.8 Sublicense Agreement between Integral's subsidiary, Integral
Vision Systems, Inc., and Integral Concepts, Inc., dated
February 15, 1994, relating to vision system technologies.
(Incorporated by reference to Exhibit 10.8 of Integral's
registration statement on Form 10-SB/A-1 (file no. 0-28353)
filed February 8, 2000.)
10.9 Employment Agreement between Integral and William S. Robinson
dated January 2, 2001. (Incorporated by reference to Exhibit
10.9 on Integral's Form 10-QSB for the quarter ended December
31, 2000 filed February 14, 2001.)
10.10 Employment Agreement between Integral and William A. Ince dated
January 2, 2001. (Incorporated by reference to Exhibit 10.10 on
Integral's Form 10-QSB for the quarter ended December 31, 2000
filed February 14, 2001.)
10.11 Integral Technologies, Inc. 2001 Stock Plan dated January 2,
2001. (Incorporated by reference to Exhibit 10.11 on Integral's
Form 10-QSB for the quarter ended December 31, 2000 filed
February 14, 2001.)
21.3 List of Subsidiaries. (Incorporated by reference to Exhibit 21.3
of the Registrant's Form 10-KSB for the year ended June 30,
2001.)
23.3 Consent of Pannell Kerr Forster. (Filed herewith.)
23.4 Consent of Futro & Trauernicht LLC. (Incorporated by reference
to Exhibit 5.2 (filed herewith.)
39
UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and (iii) To include any additional or changed material information on the plan
of distribution.
(2) For the purpose of determining any liability under the
Securities Act, to treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of such securities at that
time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the termination of the offering.
(b) The undersigned Registrant, hereby requesting acceleration of the
effective date of the registration statement under Rule 461 under the Securities
Act, hereby undertakes to include the following:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of the expenses
incurred or paid by a director, officer, or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
40
SIGNATURES
In accordance with the Securities Act of 1933, the company certifies
that it has reasonable grounds to believe that it meets all of the requirements
of filing on Form SB-2 and authorized this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
INTEGRAL TECHNOLOGIES, INC.
/s/ William S. Robinson
By: ___________________ Date: November 16, 2001
William S. Robinson, Chairman
In accordance with the Securities Act of 1933, this registration
statement was signed by the following persons in the capacities and on the dates
stated:
Name Title Date
- ---- ----- ----
/s/ William S. Robinson
____________________ Chairman, Chief Executive
William S. Robinson Officer, Treasurer and Director November 16, 2001
/s/ William A. Ince
____________________ President, Secretary, Chief Financial
William A. Ince Officer and Director November 16, 2001
41
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
2.1 Agreement and Plan of Reorganization between Integral and
Integral Vision Systems, Inc. dated March 11, 1997.
(Incorporated by reference to Exhibit 2.1 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
2.2 Agreement and Plan of Reorganization between Integral and
Emergent Technologies Corporation dated December 10, 1997.
(Incorporated by reference to Exhibit 2.2 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
3.1 Articles of Incorporation, as amended and currently in effect.
(Incorporated by reference to Exhibit 3.1 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
3.2 Bylaws, as amended and restated on December 31, 1997.
(Incorporated by reference to Exhibit 3.2 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
4.1 Form of Securities Purchase Agreement between Integral and
certain parties related to the purchase of Integral common stock
to be registered pursuant to this offering. (Incorporated by
reference to Exhibit 4.1 of Integral's registration statement on
Form SB-2 (file no. 333-41938) filed July 21, 2000.)
4.2 Form of Common Stock Purchase Warrant related to the offering of
securities described in Exhibit 4.1. (Incorporated by reference
to Exhibit 4.1 of Integral's registration statement on Form SB-2
(file no. 333-41938) filed July 21, 2000.)
4.3 Investment Agreement dated May 11, 2000, by and between Integral
and Swartz Private Equity, LLC. (Incorporated by reference to
Exhibit 4.1 of Integral's registration statement on Form SB-2
(file no. 333-41938) filed July 21, 2000.)
4.4 Warrant to purchase common stock issued to Swartz Private
Equity, LLC on May 11, 2000, exercisable to purchase an
aggregate of 495,000 shares of common stock at $1.306 per share
(subject to adjustment) until December 13, 2004, granted to
Swartz in connection with the offering of securities described
in Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of
Integral's registration statement on Form SB-2 (file no.
333-41938) filed July 21, 2000.)
4.5 Registration Rights Agreement, dated May 11, 2000, by and
between Integral and Swartz Private Equity, LLC, related to the
registration of the common stock to be sold pursuant to Exhibit
4.3. (Incorporated by reference to Exhibit 4.1 of Integral's
registration statement on Form SB-2 (file no. 333-41938) filed
July 21, 2000.)
4.6 Warrant to Purchase Common Stock to be issued from time to time
in connection with the offering of securities described in
Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of
Integral's registration statement on Form SB-2 (file no.
333-41938) filed July 21, 2000.)
4.7 Warrant Side Agreement dated May 11, 2000 between Integral and
Swartz related to the offering of securities described in
Exhibit 4.3. (Incorporated by reference to Exhibit 4.1 of
Integral's registration statement on Form SB-2 (file no.
333-41938) filed July 21, 2000.)
4.9 Form of Addendum Letter dated August 16, 2001 sent by Integral
to the ten holders of warrants issued March 31, 2000 in
connection with the offering described in Exhibits 4.1
and 4.2. (Incorporated by reference to Exhibit 4.9 of the
Company's Form 10-KSB for the year ended June 30, 2001.)
5.2 Legal opinion of Futro & Trauernicht LLC (filed herewith).
10.1 Sublicense Agreement between Integral's subsidiary, Emergent
Technologies Corporation, and Integral Concepts, Inc., dated
January 2, 1996, relating to the Toroidal Helical Antenna.
(Incorporated by reference to Exhibit 10.1 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
10.2 Agreement between Integral and West Virginia University Research
Corporation on Behalf of West Virginia University dated February
9, 1996, relating to RF Quarter-Wave Coaxial Cavity Resonator.
(Incorporated by reference to Exhibit 10.2 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
10.3 Agreement between Integral and West Virginia University Research
Corporation on Behalf of West Virginia University dated February
9, 1996, relating to Counterfeit Currency Determination
Prototype. (Incorporated by reference to Exhibit 10.3 of
Integral's registration statement on Form 10-SB (file no.
0-28353) filed December 2, 1999.)
10.4 Sublicense Agreement between Integral Concepts, Inc. and
Integral dated February 15, 1996, relating to the design,
construction and operation of a Plasma Ignition System.
(Incorporated by reference to Exhibit 10.4 of Integral's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
10.7 Employee Benefit and Consulting Services Compensation Plan, as
restated January 10, 1999. (Incorporated by reference to Exhibit
10.7 of Integral's registration statement on Form 10-SB (file
no. 0-28353) filed December 2, 1999.)
10.8 Sublicense Agreement between Integral's subsidiary, Integral
Vision Systems, Inc., and Integral Concepts, Inc., dated
February 15, 1994, relating to vision system technologies.
(Incorporated by reference to Exhibit 10.8 of Integral's
registration statement on Form 10-SB/A-1 (file no. 0-28353)
filed February 8, 2000.)
10.9 Employment Agreement between Integral and William S. Robinson
dated January 2, 2001. (Incorporated by reference to Exhibit
10.9 on Integral's Form 10-QSB for the quarter ended December
31, 2000 filed February 14, 2001.)
10.10 Employment Agreement between Integral and William A. Ince dated
January 2, 2001. (Incorporated by reference to Exhibit 10.10 on
Integral's Form 10-QSB for the quarter ended December 31, 2000
filed February 14, 2001.)
10.11 Integral Technologies, Inc. 2001 Stock Plan dated January 2,
2001. (Incorporated by reference to Exhibit 10.11 on Integral's
Form 10-QSB for the quarter ended December 31, 2000 filed
February 14, 2001.)
21.3 List of Subsidiaries. (Incorporated by reference to Exhibit 21.3
of the Registrant's Form 10-KSB for the year ended June 30,
2001.)
23.3 Consent of Pannell Kerr Forster. (Filed herewith.)
23.4 Consent of Futro & Trauernicht LLC. (Incorporated by reference
to Exhibit 5.2 (filed herewith.)