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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A-3
File No. 0-28353
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of The Securities Exchange Act of 1934
INTEGRAL TECHNOLOGIES, INC.
(Name of Small Business Issuer in its charter)
NEVADA 98-0163519
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
#3 - 1070 West Pender St.
Vancouver, British Columbia, Canada V6E 2N7
(Address, including postal code, of principal executive offices)
(604) 685-9933
(Issuer's telephone number)
Copy to:
Futro & Trauernicht LLC
Attorneys and Counselors at Law
1401 17th Street, Suite 1150
Denver, Colorado 80202
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Securities to be registered under Section 12(b) of the Exchange Act: NONE
Securities to be registered under Section 12(g) of the Exchange Act: COMMON STOCK
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INTEGRAL TECHNOLOGIES, INC.
FORM 10-SB/A-1
TABLE OF CONTENTS
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Page
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PART I
Cautionary Statement Concerning Forward Looking Statements.....................................................1
Item 1. Description of Business.............................................................................1
Item 2. Plan of Operation..................................................................................10
Item 3. Description of Property............................................................................11
Item 4. Security Ownership of Certain Beneficial Owners and Management.....................................12
Item 5. Directors and Executive Officers, Promoters and Control Persons....................................14
Item 6. Executive Compensation.............................................................................18
Item 7. Certain Relationships and Related Transactions.....................................................22
Item 8. Description of Securities..........................................................................23
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters....................................................................25
Item 2. Legal Proceedings..................................................................................25
Item 3. Changes in and Disagreements with Accountants......................................................26
Item 4. Recent Sales of Unregistered Securities............................................................26
Item 5. Indemnification of Directors and Officers..........................................................28
PART F/S
Financial Statements.........................................................................................F-1
PART III
Item 1. Index to Exhibits and Description..................................................................29
SIGNATURES....................................................................................................31
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PART I
CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO
DIFFER FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS
Readers of this document and any document incorporated by reference herein, are
advised that this document and documents incorporated by reference into this
document contain both statements of historical facts and forward looking
statements. Forward looking statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially for those
indicated by the forward looking statements. Examples of forward looking
statements include, but are not limited to: (i) projections of revenues, income
or loss, earning or loss per share, capital expenditures, dividends, capital
structure and other financial items, (ii) statements of the plans and objectives
of the Company or its management of Board of Directors, including the
introduction of new products, or estimates or predictions of actions by
customers, suppliers, competitors or regulatory authorities, (iii) statements of
future economic performance, and (iv) statements of assumptions underlying other
statements and statements about the Company or its business.
This document and any documents incorporated by reference herein also identify
important factors which could cause actual results to differ materially from
those indicated by forward looking statements. These risks and uncertainties
include price competition, the decisions of customers, the actions of
competitors, the effects of government regulation, possible delays in the
introduction of new products, customer acceptance of products and services, and
other factors which are described herein and/or in documents incorporated by
reference herein.
The cautionary statements made above and elsewhere by the Company should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company. Forward looking statements are beyond the
ability of the Company to control and in many cases the Company cannot predict
what factors would cause results to differ materially from those indicated by
the forward looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
Integral Technologies, Inc. (the "Company" or the "Registrant") is a development
stage company, incorporated under the laws of the State of Nevada on February
12, 1996. The Registrant is in the business of researching, developing and
commercializing various technologies directly and through its three
subsidiaries, each of which is described later in this section.
To date, the Registrant, directly and through its subsidiaries, has expended its
resources on the research and development of four types of technologies:
1. Antennas;
2. Three Dimensional ("3D") Color Machine Vision;
3. Two Dimensional ("2D") Color Machine Vision (Counterfeit
Currency/Document Detection); and
4. RF Plasma Injection System (New Spark Plug).
Each of these technologies are described in detail later in this section.
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Through two of its subsidiaries, NextAntennas.Com, Inc. ("NEXT") and Emergent
Technologies Corp. ("Emergent"), the Registrant has been researching and
developing six new antenna technologies.
Through a third subsidiary, Integral Vision Systems, Inc. ("Integral Vision"),
the Registrant has been researching and developing the 3D and 2D Color Machine
Vision technology.
The Registrant has directly been researching and developing the RF Plasma
Injection System technology.
Financial Condition
As a development stage company, the Registrant has had no revenues from
inception (February 12, 1996) through the end of the first quarter of its
current fiscal year (September 30, 1999), and has incurred a net loss of
approximately $3.7 million for that period. To date, the Registrant has relied
on loans from management and management's ability to raise capital through debt
and equity private placement financings to fund its operations. The current
financial condition of the Registrant raises doubt as to its ability to continue
as a going concern.
In December 1999, NextAntennas.com, Inc. ("NEXT"), a subsidiary of the
Registrant, received its first commercial, revenue-generating order for its
GPS/LEOS antenna (a detailed description of NEXT and its antenna products is set
forth below in the subsection entitled "NextAntennas.com, Inc.") from ARINC,
Inc., an operator of communication and processing systems for the aviation and
transportation industry. The Registrant expects that this order will be filled
and revenue of approximately $180,000 will be recorded for this first time in
the third fiscal quarter of the current fiscal year (the first calendar quarter
of 2000). The terms of the order required a 35% deposit, which has been
received, and the balance due within 15 days after delivery. Management has had
approximately six meetings and multiple telephonic conversations with ARINC, and
ARINC has indicated verbally that the pending order represents approximately
one-fourth of the number of NEXT's GPS/LEOS antennas that ARINC anticipates
ordering during the calendar year 2000. ARINC indicated that it anticipates
ordering additional antennas in subsequent years, but did not discuss specific
terms or requirements with management. Although there is currently no written
contract with ARINC and no assurances can be given, in the opinion of
management, based upon its discussions with ARINC, NEXT will receive orders for
an additional $500,000 of antennas from ARINC during calendar 2000, on similar
terms to the pending order.
Although no assurances can be given, management believes that, based on the
existing antenna order and potential future orders from ARINC as described
above, revenues from the sales of NEXT antenna products will allow the
Registrant to meet some of its projected cash needs of approximately $1.2
million over the next twelve months. However, unless additional sales are made
and additional revenue is received on an ongoing basis, the Registrant will not
be able to meet all of its cash needs during the next twelve months or
thereafter, and the Registrant will need to continue to rely on management's
ability to raise additional capital through debt or equity financings.
Recent Developments
As a result of the developments with NEXT and the commercial interest in its
antenna products, specifically the first commercial order that will result in
revenue, the Registrant presently intends to focus substantially all of its
resources on the commercialization and sales of the NEXT antenna products.
SUBSIDIARIES
NEXTANTENNAS.COM, INC.
Company Background
NextAntennas.Com, Inc. ("NEXT"), a wholly-owned subsidiary of the Registrant,
was incorporated in the State of Delaware on November 2, 1999, for the purpose
of developing and commercializing new antenna technologies. The focus of NEXT
will be to continue to develop and commercialize new antenna technologies which
will meet the needs of the wireless telecommunications industry.
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The Antenna Industry
NEXT has developed six new antenna designs for use in different wireless
technology markets.
NEXT Antenna Technologies
The Registrant's subsidiary, NEXT, has developed the following six new antennae
designs:
o 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;
o 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;
o the "GPS/LEO" antenna, as the name indicates is a dual purpose
antenna;
o 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; and
o the "GPS/CDPD" antenna, as the name indicates is a dual purpose
antenna;
o 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 research and development costs associated with the development of these new
"antenna solutions" has been funded by the Registrant.
The PGS 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 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.
The "portable phone" antenna is for use in digital cordless phones and cellular
phones operating in the 920MHz and 820-890MHz frequency ranges respectively.
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Patents on NEXT Antenna Products
The Registrant has completed a patent review of each of these technologies and
has commenced preparation of U.S. patent applications, three of which have been
filed (two applications have been assigned U.S. Provisional Patent Application
Serial Nos. 60/168,732 and 60/168,775, the third application has not yet been
assigned a serial number). No assurances can be given that the Registrant will
be granted any patents on its technologies; however, in the event that patents
are not granted, NEXT will continue to attempt to commercialize these
technologies without the protection of a patent. In the event that any patents
are issued, NEXT 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
NEXT is not in the manufacturing business. NEXT relies on third-party
manufacturing companies to manufacture NEXT'S antenna products on a timely
basis, while protecting the intellectual properties of NEXT'S products and
providing the customer with a high quality product.
NEXT antenna products will not be sold directly to the general public, but
rather to businesses and manufacturers who will buy in large quantities and use
the antennas in their products.
Barriers to Entry into Market Segment
In the antenna market, the Registrant will be competing with other established
antenna providers that are much larger and better capitalized than the
Registrant. In order to compete, management believes that the Registrant must
demonstrate to potential users that the NEXT antenna products have an advantage
over other antennas on the market in terms of performance and cost.
EMERGENT TECHNOLOGIES CORP.
Company Background
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 is also a co-founder of the Registrant. 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 Denzil Jack Parson, who
is presently a director of the Registrant. Pursuant to the sublicense agreement,
a modest annual minimum royalty payment is due from Emergent to Integral
Concepts.
On March 1, 1996, the Registrant acquired a 10% equity interest in Emergent from
Emergent in exchange for $100,000. By an agreement dated December 10, 1997, the
Registrant 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 the Registrant (see "Item 7.
Certain Relationships and Related Transactions" below for additional details),
which resulted in the Registrant owning 80% of Emergent. Presently, the
Registrant 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.
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Product Development and Proprietary Rights
The patented CTHA technology was initially developed and patented at WVU in
1994. The first antennae were made by hand from wood, plastic, rope, wires, and
duct tape. Over time, the antenna took on different shapes and sizes and many
different materials were used.
The CTHA technology has received patent protection, with WVU as assignee, under
US Patent numbers 5,654,723 dated August 5, 1997 and 5,442,369 dated August 15,
1995.
Concurrent with the physical development, the research team at Emergent created
a computer model to simulate and predict the behavior of the CTHA. This model
offers a numerical benchmark against which observations can be weighed.
In 1997, researchers at Emergent developed a circuit-board-based CTHA which can
be printed directly onto radio printed circuit boards.
Research over the past three years was conducted both within WVU and at the
Emergent labs. Since the inception of Emergent in September of 1995, almost $2
million has been spent on CTHA research and development.
Product Description
The CTHA is a low profile antenna which has a toroidal (donut-shaped) surface
and a cross-polarized field pattern. This is a radical change in design when
compared to traditional antennas, and allows the CTHA to emit and receive a
signal that is omni-directional, allowing it to operate with equal efficiency
regardless of position or orientation.
Competitive Comparison
The CTHA will be competing with monopole and dipole antennae. Monopoles and
dipoles are the long pieces of wire with which we are all familiar. The length
of the wire depends on the frequency being used and the sensitivity required.
Using conventional technology, cellular telephone antennae are about six inches
long, AM/FM antennae are about two feet long, while HF (high frequency) antennae
are up to 100 feet long.
Since the CTHA is an omni-directional radiator, it will not be competing for the
fixed-system point-to-point market dominated by highly-directional antennae.
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 been testing 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 the Registrant to predict when or if revenue will
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be realized. There is also the possibility that additional research and
development will be required. While the Registrant is waiting for further
feedback from these agencies and contractors, the Registrant is directing only
minimal resources on the commercialization of this technology.
INTEGRAL VISION SYSTEMS INC.
Company Background
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 the Registrant. 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, the Registrant 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 the Registrant (see "Item 7. 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.
Development and Proprietary Rights
The 3D Machine Vision Colorimetry technology is protected by US patent number
5,485,429 issued on February 27, 1996.
Product Description
The 3D Color Machine Vision is a system whereby computers can be given
"eyesight" to look for specific physical events or characteristics. For
instance, the system can be programmed to detect color inconsistencies, or to
detect optical inconsistencies in glass and plastic manufacturing processes. In
addition, the system uses extremely sophisticated pattern detection and
analysis, which can be used to find camouflaged shapes and patterns. The unit is
a combination of generic hardware (mini-lasers and computer processors) and
proprietary software. The scanning and analysis process is patented.
The Market
This technology is intended to be used to ensure the color consistency of any
product that comes off a production line.
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Commercialization Objective
Management believes that additional research and development will be required
before the 3D Color Machine Vision Technology will be ready for
commercialization. Currently the Registrant is directing minimal resources on
this technology due to the Registrant's financial situation and limited
resources, but is seeking strategic partners who would be interested in
financing the commercialization of this technology.
Competitive Comparison
Examples of existing machine vision products include photoelectric counters,
laser measurement systems, and product speed calibration systems. Management
believes that none of these systems have the ability to perform qualitative
analysis on the objects in real time.
The color machine vision market is segmented along two lines:
o Spectrophotometers - devices which measure the ratio of reflected
light to incident light for one or many wavelengths in the visible
spectrum; but work only on flat surfaces.
o Human observers - still the preferred method despite obvious
shortcomings.
B. 2D Color Machine Vision (Counterfeit Currency/Document Detection)
Development and Proprietary Rights
Originally licensed to Integral Concepts from WVU, on January 19, 1993, all
worldwide (excluding Canada) commercialization rights were sub-licensed to the
Registrant on February 15, 1994.
Product Description
The 2D Color Machine Vision system is a small, laser-based computerized device
which can be programmed to scan and validate printed documents, including
currencies, passports, tickets, and other secure or valuable documents. The
unique algorithms employed by the system make it possible to even allow for wear
and tear and fading. The entire device can be produced in a package roughly the
size of a credit card swipe unit. Scan rates of up to 1 per second have been
achieved in early prototypes; speeds of 10 per second are thought possible
within a year. The unit is a combination of generic hardware (mini-lasers and
computer processors) and proprietary software.
The Market
This device employs spectral analysis and sophisticated numerical algorithms. As
a digital device, the Registrant's counterfeit detector can be programmed and
reprogrammed to change its processes.
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Commercialization Objective
Management believes that additional research and development will be required
before the 2D Color Machine Vision Technology will be ready for
commercialization. Currently the Registrant is directing minimal resources on
this technology due to the Registrant's financial situation and limited
resources, but is seeking strategic partners who would be interested in
financing the commercialization of this technology.
Competitive Comparison
Currently available counterfeit detection instruments fall into these broad
categories:
o Chemical agents which react with the paper
o Devices which identify specific ink taggants (additives), usually
metallic
o Devices which identify magnetic elements in the printed document
The Registrant's device relies on patented sophisticated spectral analysis
processes. The unit can be programmed to analyze any printed document. A
multi-function system is planned which would allow a single scanner to be used
for multiple currency and documents.
Technology Under License Directly By The Registrant
The Registrant 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 the Registrant. 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 the Registrant. Pursuant to the
sublicense agreements, a modest annual minimum royalty payment is due from
Integral Vision to Integral Concepts.
RF Plasma Ignition System (New Spark Plug)
Originally licensed to Integral Concepts from WVU on April 12, 1994, all
worldwide commercialization rights to the RF Plasma Injection System were
sub-licensed to the Registrant on February 15, 1996.
Development and Proprietary Rights
The RF Plasma Injection System technology is protected by US patent number
5,361,737 issued on November 8, 1994.
Product Description
Using a patented process, microwave radio frequency emissions create a plasma at
the end of the emitter. A plasma is a small cloud of ions. It appears to the eye
as an electrical flame. The size of the plasma is in relation to the power
applied and the size of the emitter. The plasma can be created instantaneously,
or held for a sustained period and can be produced in mid-air, in a combustion
cylinder, a smokestack, etc.
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The Market
In the opinion of management, the technology could offer an alternative to
conventional sparkplugs used in combustion engines. The emitter would be
manufactured to resemble the structure of a conventional spark plug. The
conventional electronic ignition system would be modified to activate the
RF-generation system, which would then send energy to the emitters.
The technology can also be used to produce and sustain a large plasma area. Such
large plasmas can be used for electronics cleaning, smokestack scrubbing
operations, and other industrial applications.
Commercialization Objective
Management believes that additional research and development will be required
before the RF Plasma Ignition System will be ready for commercialization.
Currently the Registrant is directing minimal resources on this technology due
to the Registrant's financial situation and limited resources, but is seeking
strategic partners who would be interested in financing the commercialization of
this technology.
Employees
The Registrant and its subsidiaries currently employ a total of nine people. Two
of these employees are officers of the Registrant and are responsible for sales,
marketing and business development, three of these people are responsible for
general and administrative functions, and four of these employees are engaged in
research and development activities.
Research and development activities are conducted primarily by four employees.
However, the Registrant also relies on the expertise of several technical
advisors who are consulted as needed on a part-time, contract basis. Please see
Item 5 below for additional information on each of the Registrant's officers and
its significant employees, consultants and advisors.
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ITEM 2. PLAN OF OPERATION
As a development stage company, the Registrant has had no revenues from
inception (February 12, 1996) through the end of the first quarter of its
current fiscal year (September 30, 1999), and has incurred a net loss of
approximately $3.7 million for that period. To date, the Registrant has relied
on loans from management and management's ability to raise capital through debt
and equity private placement financings to fund its operations. The current
financial condition of the Registrant raises doubt as to its ability to continue
as a going concern.
In December 1999, NextAntennas.com, Inc. ("NEXT"), a subsidiary of the
Registrant, received its first commercial, revenue-generating order for its
GPS/LEOS antenna (a detailed description of NEXT and its antenna products is set
forth in Item 1 under the subsection entitled "NextAntennas.com, Inc.") from
ARINC, Inc., an operator of communication and processing systems for the
aviation and transportation industry. The Registrant expects that this order
will be filled and revenue of approximately $180,000 will be recorded for this
first time in the third fiscal quarter of the current fiscal year (approximately
February 2000). The terms of the order required a 35% deposit, which has been
received, and the balance due within 15 days after delivery. Management has had
approximately six meetings and multiple telephonic conversations with ARINC, and
ARINC has indicated verbally that the pending order represents approximately
one-fourth of the number of NEXT's GPS/LEOS antennas that ARINC anticipates
ordering during the calendar year 2000. ARINC indicated that it anticipates
ordering additional antennas in subsequent years, but did not discuss specific
terms or requirements with management. Although there is currently no written
contract with ARINC and no assurances can be given, in the opinion of
management, based upon its discussions with ARINC, NEXT will receive orders for
an additional $500,000 of antennas from ARINC during calendar 2000, on similar
terms to the pending order.
Presently, management projects that its cash requirements over the next twelve
months will be approximately $100,000 per month. Management believes that it can
satisfy its cash requirements until approximately May 2000 based on current cash
reserves, after which time it will either need to raise additional funds or
realize additional revenue from the sales of its products sufficient to meet
these cash requirements. If it is necessary to raise additional funds sufficient
to meet cash requirements after May 2000, management believes that it will be
able to raise sufficient funds through a private placement of common stock with
a few interested investors. Of course, no assurances can be given that
management will in fact be successful in securing any such financing.
Although no assurances can be given, management believes that, based on the
existing antenna order and potential future orders from ARINC as described
above, revenues from the sales of NEXT antenna products will allow the
Registrant to meet some of its projected cash needs of approximately $1.2
million over the next twelve months. However, unless additional sales are made
and additional revenue is received on an ongoing basis, the Registrant will not
be able to meet all of its cash needs during the next twelve months or
thereafter, and the Registrant will need to continue to rely on management's
ability to raise additional capital through debt or equity financings.
In anticipation of the possibility that more funds than originally projected
will be required to enable the Registrant to fulfill future antenna orders on a
timely basis, management has begun negotiating with a merchant banking
institution for an equity line of credit that would allow the Registrant to sell
shares of common stock to the investor from time to time, and the investor would
be obligated to purchase the shares, up to a maximum amount. However, no firm
agreement has been made and no assurances can be given that the Registrant will
be able to secure this type of financing.
As a result of the developments with NEXT and the commercial interest in its
antenna products, specifically the first commercial order that will result in
revenue, the Registrant presently intends to focus substantially all of its
resources on the commercialization and sales of the NEXT antenna products. As a
result, the Registrant will devote only a limited amount of its resources on the
research, development and commercialization of its other technologies during the
next twelve months.
While management believes that each of the NEXT antenna products is ready to be
commercialized, ongoing research and development will be necessary over the next
twelve months and will be focused on adapting and "fine-tuning" the antenna
products for different applications and uses. The Registrant anticipates
spending approximately $500,000 over the next twelve months on this ongoing
research and development. Also, the Registrant has filed three provisional
patent applications with the U.S. patent
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office for various NEXT antenna products, and anticipates filing additional
provisional patent applications as warranted over the next twelve months.
The Registrant 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 Registrant will be relying on contract manufacturers to
produce the antenna products.
During the next twelve months, the Registrant does not expect any significant
changes in the number of employees, but may add one or two qualified sales
people, if the Registrant is in a financial position to do so.
The most significant current liabilities relate to salaries and consulting
fees. In the event that the Registrant is not able to pay these current
liabilities as they become due, the Registrant will be unable to retain key
personnel who are responsible for research, development and marketing. These
functions are critical to the operations of the Registrant.
Various factors affecting the Registrant and its subsidiaries raise doubt as to
their ability to continue as a going concern. There can be no assurance that the
Company will be able to continue as a going concern, or achieve material
revenues and profitable operations. As described above, the Registrant may
require additional financing. If required, no assurances can be given that
financing will be available to the Registrant in the amounts required, or that,
if available, the financing will be available on terms satisfactory to the
Registrant.
ITEM 3. DESCRIPTION OF PROPERTY
Neither the Registrant nor its subsidiaries own any real property. The
Registrant and its subsidiaries lease office space in Vancouver, B.C., Canada,
Bellingham, Washington, and Mt. Clare, West Virginia, respectively.
11
<PAGE> 14
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. Common Stock
The following table sets forth, as of January 24, 2000, the stock ownership of
each person known by the Registrant to be the beneficial owner of five percent
or more of the Registrant's common stock, each Officer and Director individually
and all Directors and Officers of the Registrant as a group. Each person is
believed to have sole voting and investment power over the shares except as
noted.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership(1)(2) Percent of Class (3)
- -------------------- -------------------------- --------------------
<S> <C> <C>
William S. Robinson (4)
#3 - 1070 West Pender St.
Vancouver, B.C. V6E 2N7 1,958,533 8.5%
William A. Ince (5)
#3 - 1070 West Pender St.
Vancouver, B.C. V6E 2N7 1,863,333 8.1%
James Smith
Route 4, Box E36
Bruceton Mills, WV 26330 1,857,140 8.2%
Denzel Jack Parsons
209 Joy Lane
Bridgeport, WV 26330 1,250,000 5.5%
All officers and directors of the
Registrant as a group (3 persons) 5,071,866 21.6%
</TABLE>
(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 the Registrant's common stock
reported by the OTC Bulletin Board over the ten trading days preceding
the date of conversion. As of January 24, 2000, the conversion rate was
$.9928, so the 442,197 shares of Series A owned by Mr. Robinson were
convertible into 445,404 shares of common stock, and the 212,213 shares
of Series A owned by Mr. Ince were convertible into 213,752 shares of
common stock. The actual number of shares of common stock receivable by
Messrs. Robinson and Ince upon conversion would depend on the actual
conversion rate in effect at the time of conversion.
(3) Based upon 22,542,062 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 the Registrant and each of
its subsidiaries. Beneficial ownership figure includes 450,000 shares
underlying options granted but not yet exercised.
(5) Mr. Ince is an officer and director of the Registrant and each of its
subsidiaries. Beneficial ownership figure includes 450,000 shares
underlying options granted but not yet exercised.
12
<PAGE> 15
B. Series A Convertible Preferred Stock
The following table sets forth, as of January 24, 2000, the stock ownership of
each person known by the Registrant to be the beneficial owner of five percent
or more of the Registrant's Series A Convertible Preferred Stock, each Officer
and Director individually and all Directors and Officers of the Registrant as a
group. Each person is believed to have sole voting and investment power over the
shares except as noted.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership(1) Percent of Class (2)
- -------------------- ----------------------- --------------------
<S> <C> <C>
William S. Robinson (3)
#3 - 1070 West Pender St.
Vancouver, B.C. V6E 2N7 442,197 67.6%
William A. Ince (4)
#3 - 1070 West Pender St.
Vancouver, B.C. V6E 2N7 212,213 32.4%
All officers and directors of the
Registrant as a group (2 persons) 654,410 100%
</TABLE>
(1) Unless otherwise indicated, all shares are directly beneficially owned
and investing power is held by the persons named.
(2) Based upon 654,410 Series A Convertible Preferred shares issued and
outstanding.
(3) Mr. Robinson is an officer and director of the Registrant and each of
its subsidiaries.
(4) Mr. Ince is an officer and director of the Registrant and each of its
subsidiaries.
13
<PAGE> 16
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Directors and Executive Officers of Registrant. The Registrant has a
Board of Directors which is currently comprised of three 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 Registrant and their respective age and
position are as follows:
<TABLE>
<CAPTION>
Director of
Name Age Position with Registrant Registrant Since
- ---- --- ------------------------ ----------------
<S> <C> <C> <C>
William S. Robinson 43 Chairman, CEO and Treasurer February 1996
William A. Ince 49 Director, President, Secretary and Chief February 1996
Financial Officer
Denzel Jack Parsons 53 Director October 4, 1999
</TABLE>
(b) Directors and Executive Officers of NEXT. The Registrant's subsidiary,
NEXT, has a Board of Directors which is comprised of two 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 NEXT and their respective age and position are as
follows:
<TABLE>
<CAPTION>
Director of
Name Age Position with NEXT NEXT Since
- ---- --- ------------------ -------------
<S> <C> <C> <C>
William S. Robinson 43 Chairman, CEO and Treasurer November 1999
William A. Ince 49 Director, President, Secretary and Chief November 1999
Financial Officer
</TABLE>
(c) Directors and Executive Officers of Emergent. The Registrant's
subsidiary, Emergent, has a Board of Directors which is comprised of
three 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 Emergent and their
respective age and position are as follows:
<TABLE>
<CAPTION>
Director of
Name Age Position with Emergent Emergent Since
- ---- --- ---------------------- --------------
<S> <C> <C> <C>
Denzel Jack Parsons 53 Director and President October 1995
William S. Robinson 43 Director and Treasurer December 1997
William A. Ince 49 Director and Secretary December 1997
</TABLE>
14
<PAGE> 17
(d) Directors and Executive Officers of Integral Vision. The Registrant's
subsidiary, Integral Vision, has a Board of Directors which is
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
Integral Vision and their respective age and position are as follows:
<TABLE>
<CAPTION>
Director of
Integral Vision
Name Age Position with Integral Vision Since
- ---- --- ----------------------------- ---------------
<S> <C> <C> <C>
William S. Robinson 43 Chairman, CEO and Treasurer March 11, 1997
William A. Ince 49 Director, President, Secretary and Chief March 11, 1997
Financial Officer
</TABLE>
(b) Family Relationships. None.
(c) Involvement in Certain Legal Proceedings. None.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
WILLIAM ROBINSON: (CHAIRMAN AND CEO): As a co-founder, and significant
shareholder of the Registrant, Mr. Robinson has been responsible since the
inception of the Registrant of securing funding, including the commitment of
personal funds, in order to ensure the ongoing operations of the Registrant 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. Achieva is a mining company with properties located in
various counties throughout the world.
Mr. Robinson brings many years of management experience in finance, banking and
corporate development. Previously, he acted as a director of a number of private
and public 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 Registrant, is
responsible, along with Mr. Robinson for the development and implementation of
corporate strategies. He is responsible for cash management of the Registrant
and its subsidiaries.
Prior to his engagement with the Registrant, 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 held significant equity positions in companies in
various industries. 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.
JACK PARSONS (DIRECTOR): Mr. Parsons' career began as a member of the US Army
Special Forces from 1967-1981, serving in multiple countries, including Vietnam.
From 1981 to 1987, Mr. Parsons served in numerous leadership roles with the
Joint Communications Unit, including Requirements Manager for the Communications
Enhancement Program for Joint Special Operations Forces. Following military
retirement, as a program manager for Tracor Inc., Mr. Parsons established and
managed the Field Technical Unit for the direct support to US Joint Special
Operations Forces. In his role with Tracor, Mr. Parsons was responsible for the
development and fielding of Light Weight Deployable Communications
15
<PAGE> 18
and Table Top Base Station for Special Forces' use. Mr. Parsons led the
deployment of these systems in support of Operation Desert Storm.
In 1991, Mr. Parsons established Wintec, Inc. to provide engineering development
services to the government base, relying on his knowledge of government contract
and procurement procedures. Wintec has secured, and continues to secure,
multi-million dollar, multi-year contracts with the Department of Defense. In
1995, Mr. Parsons left Wintec and has since served as President of the
Registrant's subsidiary, Emergent.
SIGNIFICANT EMPLOYEES, CONSULTANTS AND ADVISORS
ROBERT M. CALIS (GENERAL MANAGER; INTEGRAL, VICE PRESIDENT, SALES AND MARKETING
NEXT): The Company has retained Mr. Calis as General Manager to Integral and as
Vice President, Sales and Marketing of Integral's subsidiary, NEXT. Mr. Calis
will assist Mr. Robinson and Mr. Ince in their efforts to move the Company
forward through the commercialization of the technologies in which it has an
interest.
Mr. Calis' background includes over 12 years of successful experience in the
telecommunications industry in the areas of invisioneering, business
development, marketing, operations, product management, sales and financial
management. Most recently, Mr. Calis was President and CEO of Inevitable
Technologies Inc., a leading supplier and developer of collaborative Video
Conferencing Systems.
In his role of General Manager and Managing Director, Mr. Calis will initially
develop and assist in the execution of a cohesive marketing effort for the
commercialization of NEXT's antenna products and technologies. Mr. Calis will
also assist the Company in the identification of potential strategic partners
and licensees for its other technologies.
DANIEL HARRELL (VICE PRESIDENT PRODUCT DEVELOPMENT AND OPERATIONS, NEXT): Mr.
Harrell is responsible for directing the daily activities of the development
team, in its research and development activities, in order to meet the market
needs. In addition, he is responsible for identification of new products, and
subsequently moving them from the conceptual to production stage.
Mr. Harrell enjoyed a 17 year career with the US Army. In his 8 year engagement
with HQ US Southcom, he was stationed in Panama. During his engagement as Site
Commander, Project Officer and Intelligence Collector, he received the Joint
Merious Service medal for outstanding performance during "Operation Just Cause"
in Panama.
During his last 4 years in the military, Mr. Harrell was Director of
Operations/Program Manager at HQ USA INSCOM, Ft. Belvoir, Virginia. In his
capacity, he planned, executed and managed a $4 million annual budget to include
a $1 million operational budget. He significantly improved resource utilization
during a period of fiscal reduction and reduced manpower.
THOR LARSEN: (VICE PRESIDENT INTELLECTUAL PROPERTY INTEGRAL AND NEXT): Mr.
Larsen brings to Integral and specifically, its new antenna technologies,
valuable insight into the potential role of these antennas in the
telecommunications industry and the possibilities for its technological marriage
with other evolving wireless technologies. Another role for Mr. Larsen will be
to protect the proprietary nature of the new antenna technologies developed by
Integral and its subsidiaries. He will assist the Registrant in drafting
documents for patent applications.
Mr. Larsen's career with IBM began in 1962 after his graduation from Columbia
University with a Masters of Science in Electrical Engineering. During his
career with IBM, he has been involved in a variety of projects with the focus
being on developing and implementing leading edge technologies which provide for
advancements in the data communication industry. He has been granted eleven US
patents. Since 1986, Mr. Larsen held the position of Senior Technical Staff
Member at IBM. From 1995 until his
16
<PAGE> 19
retirement from IBM on February 28, 1999, he has been responsible for developing
new application for IBM's silicon germanium technology in wireless and wired
communications.
ABRAHAM WEI: Mr. Wei serves as an advisor to the Registrant on a variety of
issues relating to market opportunities, product manufacturing and ongoing
corporate development of the company.
As the CEO and founder of V-Packet.Com, Inc., Mr. Wei brings 15 years of diverse
business experience in engineering, manufacturing and sales in the networking
industry. Mr. Wei has held various positions with increasing scope and
responsibility over the past 7 years at Ascend Communications, Inc. most
recently as Vice President, Worldwide Sales Operations. Prior to this, Mr. Wei
held the position of Vice President of Manufacturing Operations for Ascend in
which he managed Ascend's manufacturing operations throughout the Company's
astronomical growth from $40.0 million in sales in 1994 to $1.2 billion in sales
in 1997. As a former Director of Ascend Communications, Mr. Wei maintains a
personal and professional relationship with the executive management of Ascend.
Mr. Wei holds an MBA from Pepperdine University and Bachelor of Science degree
in Computer Science University of California, Berkley. Mr. Wei participated in
Ascend's successful initial public offering in 1994.
RICHARD SLEZAK: Mr. Slezak continues to advise the Registrant on a variety of
issues relating to market opportunities and ongoing corporate development of the
Company.
Mr. Slezak manages the Enterprise Networking Unit product portfolio including
routers, ATM, VPN and Enterprise Network Switch products worldwide for Lucent
Technologies, Inc.
Prior to his engagement at Lucent, Mr. Slezak spent over twenty years at AT&T.
In his last position there he had managed the Advanced Intelligent Networks
business with annual revenues of over $600 million.
Mr. Slezak holds an MBA in International Business from the University of
Pittsburgh and is an Advisory Board Member of Telecommunications Magazine.
17
<PAGE> 20
ITEM 6. 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 Registrant for all
services rendered in all capacities to the Registrant and its subsidiaries. No
executive officer of the Registrant or its subsidiaries received a total annual
salary and bonus exceeding $100,000 for the fiscal year ended June 30, 1999, or
otherwise meets the reporting requirements of Item 402 of Regulation S-B.
(b) Summary Compensation Table
The following table The following table sets forth all compensation, including
bonuses, stock option awards and other payments, paid or accrued by the
Registrant and/or its subsidiaries, during the fiscal years ended June 30, 1999,
1998 and 1997 to or for the Registrant's Chief Executive Officer and each of the
other executive officers of the Registrant.
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------
(a) (b) (c) (d) (e)
Name Other
And Year Annual
Principal Ended Salary Bonus Compensation
Position June 30 ($) ($) ($)
--------- ------- -------- ----- ------------
<S> <C> <C> <C> <C>
William S. Robinson, 1999 $105,000 -0- -0-
Director, Chairman, 1998 $ 90,000 -0- -0-
CEO, Treasurer (n1) 1997 -0- -0- -0-
William A. Ince, 1999 $105,000 -0- -0-
Director, President, 1998 $ 90,000 -0- -0-
Secretary, (n2) 1997 $ 32,476 -0- -0-
</TABLE>
(n1) Pursuant to an employment agreement entered into between the
Registrant and William Robinson, accrued salary for the fiscal year
end 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 common stock of the Registrant. 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.
Subsequent to fiscal year end, the balance of Mr. Robinson's accrued
salary was converted into shares of Series A Convertible Preferred
Stock. In September 1999, Mr. Robinson received 175,000 shares of
Series A in lieu of $175,000 in accrued salaries. See, Item 4, Sales
of Unregistered Securities, subparagraph (n).
(n2) Pursuant to an employment agreement entered into between the
Registrant and William Ince, accrued salary for the fiscal year end
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 payments of $9,100 were made and $89,900 was accrued. Portions
of Mr. Ince's accrued salary were converted into shares common stock
of the Registrant. 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. Subsequent to fiscal year end, the balance of Mr.
Ince's accrued salary was converted into shares of Series A
Convertible Preferred Stock. In September 1999, Mr. Ince received
175,000 shares of Series A in lieu of $175,000 in accrued salaries.
See, Item 4, Sales of Unregistered Securities, subparagraph (n).
18
<PAGE> 21
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------------------
Awards Payouts
----------------------------- -------
(a) (b) (f) (g) (h) (i)
Name Restricted
And Year Stock Shares LTIP All Other
Principal Ended Award(s) Underlying Payouts Compensation
Position June 30 ($) Options ($) ($)
--------- ------- ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C>
William S. Robinson, 1999 -0- 230,000(n1) -0- -0-
Chairman, CEO, Treasurer 1998 -0- -0- -0- -0-
1997 -0- 230,000 -0- -0-
William A. Ince, 1999 -0- 230,000(n1) -0- -0-
Director, President, 1998 -0- -0- -0- -0-
Secretary, 1997 -0- 230,000 -0- -0-
</TABLE>
(n1) 1999 option figures include repriced options previously
granted in 1997 and not yet exercised. See details in notes to
the following table for Option/SAR Grants In Last Fiscal Year.
(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, 1999 to each of
the executive officers named in the Summary Compensation Table above. The
Registrant did not grant any stock appreciation rights for the year ended June
30, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
(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
---- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
William S. Robinson, 230,000(n2) 10.1% $.15 01/30/01
Chairman, CEO, Treasurer
William A. Ince, 230,000(n3) 10.1% $.15 01/30/01
Director, President,
Secretary
</TABLE>
(n1) The percentage of total options granted (1,635,000) and
repriced (630,000) in the fiscal year is based upon all
options granted to eligible participants, which includes
officers, directors, employees, consultants and advisors,
under the Registrant's employee stock option plan in fiscal
1999.
(n2) William S. Robinson: Reflects repricing of 230,000 options
granted on January 31, 1997, with an original exercise price
of $.50 per share, repriced to $.15 per share on January 13,
1999. The options are fully vested. Subsequent to fiscal year
end, on August 10, 1999, Mr.
19
<PAGE> 22
Robinson was granted 120,000 options under Registrant's
employee stock option plan at an exercise price of $.23,
expiring on January 30, 2001, which options are not reflected
in the above chart.
(n3) William A. Ince: Reflects repricing of 230,000 options granted
on January 31, 1997, with an original exercise price of $.50
per share, repriced to $.15 per share on January 13, 1999. The
options are fully vested. Subsequent to fiscal year end, on
August 10, 1999, Mr. Ince was granted 120,000 options under
Registrant's employee stock option plan at an exercise price
of $.23, expiring on January 30, 2001, which options are not
reflected in the above chart.
(d) Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The information provided in the table below provides information with respect to
each exercise of stock options during most recent fiscal year by the executive
officers named in the Summary Compensation Table and the fiscal year end value
of unexercised options.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Value FY-End (#) FY-End($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(n1) Unexercisable Unexercisable(n1)
---- ------------ -------- --------------------- -----------------
<S> <C> <C> <C> <C>
William S. Robinson -0- -0- 230,000/-0- $25,300/-0-
Director, Chairman, CEO,
Treasurer
William A. Ince -0- -0- 230,000/-0- $25,300/-0-
Director, President,
Secretary,
</TABLE>
(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. In calculating the dollar value realized
upon exercise, the value of any payment of the exercise price
is not included.
(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 fiscal
1999.
(f) Compensation of Directors
No compensation was paid by the Registrant to its Directors for any service
provided as a Director during the fiscal year ended June 30, 1999. 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 the Registrant's business. These expenses would
include out-of-pocket expenses for such items as travel, telephone, and postage.
20
<PAGE> 23
(g) Employment Contracts and Termination of Employment and
Change-in-Control Arrangements
The Registrant has entered into employment agreements with William S. Robinson
and William A. Ince. The term of both employment contracts is for five years
beginning July 1, 1997 and ending June 30, 2002. Pursuant to each agreement,
annual salary to each of William Robinson and William Ince is as follows:
July 1, 1997 to June 30, 1998 $ 90,000
July 1, 1998 to June 30, 1999 $105,000
July 1, 1999 to June 30, 2000 $120,000
July 1, 2000 to June 30, 2001 $120,000
July 1, 2001 to June 30, 2002 $120,000
Pursuant to the employment agreements, in the event the Registrant 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 the Registrant 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 the Registrant at market price
(average daily closing over the previous month).
The Registrant'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.
The Registrant's Board of Directors is responsible for reviewing and determining
the annual salary and other compensation of the executive officers and key
employees of the Registrant. The goals of the Registrant are to align
compensation with business objectives and performance and to enable the
Registrant to attract, retain and reward executive officers and other key
employees who contribute to the long-term success of the Registrant. The
Registrant intends to provide base salaries to its executive officers and key
employees sufficient to provide motivation to achieve certain operating goals.
Although salaries are not specifically tied into performance, incentive bonuses
may be available to certain executive officers and key employees. In the future,
executive compensation may include without limitation cash bonuses, stock option
grants and stock reward grants.
(h) Employee Benefit and Consulting Services Compensation Plan
On February 20, 1997, the Registrant adopted an employee benefit and consulting
services compensation plan (the "Plan"), which, as amended, covers up to 15% of
the shares of the Registrant's outstanding common stock on any given date. Under
the Plan, the Registrant may issue common stock and/or options to purchase
common stock to certain officers, directors and employees and consultants of the
Registrant and its subsidiaries. The purpose of the Plan is to promote the best
interests of the Registrant and its shareholders by providing a means of
non-cash remuneration to eligible participants who contribute to operating
progress and earning power of the Registrant. The Plan is administered by the
Registrant'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 the Registrant 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, 1999, options
to acquire 3,300,000 shares covered by the Plan were outstanding, all at
exercise prices ranging from $.15 to $2.00 per share, and are fully vested,
including grants to the following Officers and Directors of the Registrant to
acquire the number of shares indicated: William S. Robinson, 230,000 options at
$0.15 per share; and William A. Ince, 230,000 options at $0.15 per share.
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
21
<PAGE> 24
1933. Ninety days after the effective date of this registration statement,
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).
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) On February 16, 1996, in connection with the formation of the Registrant,
the following affiliates were issued shares of common stock.
<TABLE>
<CAPTION>
Name Shares Consideration Received
---- ------ ----------------------
<S> <C> <C>
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
</TABLE>
(b) Between July 1996 and October 1996, the Registrant issued 175,000 shares to
each of Dr. James Smith and Denzel Jack Parsons, each being affiliates of the
Registrant. 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 the Registrant
and Integral Vision, pursuant to which Integral Vision became a wholly-owned
subsidiary of the Registrant, Dr. James Smith was issued 57,140 shares of common
stock of the Registrant in exchange for his 57.14% interest in Integral Vision.
(d) In February 1997, in anticipation of the Registrant acquiring a controlling
interest in Emergent, the Registrant issued 1,800,000 shares of Common Stock,
all of which were held in escrow. Prior to closing, the Registrant 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 Denzil Jack Parsons.
(e) Dr. James E. Smith is a significant shareholder of the Registrant. He is a
professor of West Virginia University ("WVU"). Dr. Smith is also the sole
shareholder of Integral Concepts. The Registrant 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.
22
<PAGE> 25
ITEM 8. DESCRIPTION OF SECURITIES
(a) Capital Stock
The Registrant 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. At January 24, 2000, 22,542,062 shares of common stock
are issued and outstanding, and 654,410 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 the Registrant 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 the Registrant, 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 the
Registrant's common stock, other than disclosed in this Registration Statement.
(c) Preferred Stock
The Registrant's Articles of Incorporation authorize the Registrant 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 the Registrant without any action by shareholders.
The Registrant has designated 1,000,000 of the shares of preferred stock as
Series A Convertible Preferred Stock, of which 654,410 shares have been issued.
Each share of Series A:
o has a stated value and liquidation preference of $1.00;
o has a 5% annual dividend, payable in cash or shares of common stock;
o 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 the Registrant's common stock reported by
the OTC Bulletin Board over the ten trading days preceding the date of
conversion);
o may be redeemed by the Registrant 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;
23
<PAGE> 26
o may be voted on all matters on an as-converted basis; and
o may be voted as a class on any merger, share exchange,
recapitalization, dissolution, liquidation or change in control of the
Registrant.
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 Registrant's Articles of Incorporation on November 8, 1999.
24
<PAGE> 27
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is a limited public market for the common stock of the Registrant which
historically has traded on the NASD OTC Bulletin Board under the symbol "ITKG"
where it has been traded since February 27, 1997. Presently, the common stock of
the Registrant is quoted on the NASD "Pink Sheets," but is expected to resume
trading on the OTC Bulletin Board after this registration statement has cleared
the review of the SEC.
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 1998 and
1999.
<TABLE>
<CAPTION>
Low Bid High Bid
--------- --------
<S> <C> <C>
1st Qtr. 1998 $ 0.422 $1.422
2nd Qtr. 1998 $ 0.625 $1.313
3rd Qtr. 1998 $ 0.25 $0.906
4th Qtr. 1998 $ 0.125 $0.688
1st Qtr. 1999 $ 0.141 $0.438
2nd Qtr. 1999 $ 0.25 $0.484
3rd Qtr. 1999 $ 0.234 $0.438
4th Qtr 1999 $ 0.34 $1.47
</TABLE>
The source of this information is America Online quotation services and
broker-dealers making a market in the Company's Common Stock. These prices
reflect inter-dealer prices, without retail markup, markdown or commission and
may not represent actual transactions.
As of January 24, 2000, there were approximately 99 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").
To date, the Registrant 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 Registrant, and other factors
as deemed relevant by the Registrant's Board of Directors.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any pending material legal proceeding.
Although no litigation is pending, a dispute exists between WVU and the
Registrant 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:
o WVU advised the Registrant that development work had been halted as of
August 1, 1997, but continued to bill the Registrant for $127,442 in
costs for the period August 1, 1997 to December 31, 1999;
o WVU billed the Registrant $226,802 for equipment related to the
development work done for the Registrant. WVU claims that it is
entitled to retain ownership of the equipment while the Registrant
believes that title to the equipment should be transferred to the
Registrant if the Registrant is to pay for the equipment; and
25
<PAGE> 28
o To date the Registrant 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 owing to WVU for the
development of the Plasma Ignition System and the Counterfeit Detection
Technology. For the reasons described above, it is the opinion of management of
the Registrant that the balance owing to West Virginia University as reflected
in these financial statements of $397,296 should be reduced by $354,244 (the
amount in dispute), down to $43,052.
The effect of this write down of the amount owing to WVU on the Balance Sheet of
the Company as at June 30, 1999, would be to reduce current liabilities from
$1,009,020 to $654,776, thereby decreasing Stockholders' Deficit from $(547,492)
to $(193,248).
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding the issuance and sales of securities of
the Registrant without registration since formation of the Registrant.
(a) On February 16, 1996 the Registrant issued a total of 6,000,000 shares of
Common Stock to four persons who were founders of the Registrant. Of the
6,000,000 shares issued: 1,000,000 shares were issued for $10,000 cash;
1,500,000 were issued for property and equipment valued at $15,000; and
3,500,000 were issued for services valued at $35,000. 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 Registrant
believes that issuance of the shares of Common Stock was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
(b) Between July 1996 and October 1996, the Registrant made a private placement
of 5,650,000 shares of Common Stock at prices ranging from $.11 to $1.13 per
share. Of the 5,650,000 shares issued: 559,000 shares were issued in
consideration of services valued at $61,605 ($.11 per share); 5,091,000 shares
were issued in consideration of $906,381 in cash. All investors were
non-affiliates of the Registrant. 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
Registrant believes that this transaction was 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 the Registrant
and Integral Vision dated March 11, 1997, pursuant to which Integral Vision
became a wholly-owned subsidiary of the Registrant, three persons owning 100% of
Integral Vision were issued a total of 100,000 shares of Common Stock of the
Registrant (valued at $275,000) in exchange for their interest in Integral
Vision. 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 Registrant believes that the transaction was
consummated in reliance on Section 4(2) and/or Section 506 of Regulation D of
the Securities Act of 1933.
(d) In October 1997, the Registrant issued a total of 825,396 shares of its
common stock at $0.7875 per share to one person who was not an affiliate of the
Registrant, resulting in gross proceeds of $650,000. Commissions of 12% of the
gross proceeds ($78,000) were paid to a placement agent. 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 Registrant
believes that this transaction was exempt from registration under Section 504 of
Regulation D.
(e) Pursuant to an agreement and plan of reorganization between the Registrant
and Emergent dated
26
<PAGE> 29
December 10, 1997, pursuant to which Emergent became a controlled subsidiary of
the Registrant, two persons owning 100% of Emergent were issued a total of
1,800,000 shares of Common Stock of the Registrant (valued at $619,200) in
exchange for their interest in Emergent. 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 Registrant believes that
the transaction was consummated in reliance on Section 4(2) and/or Section 506
of Regulation D of the Securities Act of 1933.
(f) In August 1998, the Registrant issued 50,000 shares of its common stock to
one person who was not an affiliate of the Registrant for consulting services
rendered to the Registrant 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 Registrant
believes this transaction was exempt from registration pursuant to Section 4(2)
of the Securities Act.
(g) In November 1998, the Registrant issued 200,000 shares to two persons who
were not affiliates of the Registrant 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 Registrant believes that
this transaction was exempt from registration under Section 504 of Regulation D.
(h) In December 1998, the Registrant sold 200,000 shares to one person who was
not an affiliate of the Registrant 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 Registrant believes that this transaction was exempt from
registration under Section 504 of Regulation D.
(i) In January 1999, the Registrant 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 Registrant believes that this
transaction was exempt from registration under Section 504 of Regulation D.
(j) Between January 1999 and March 1999, the Registrant 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 Registrant believes that this transaction was exempt from
registration under Section 504 of Regulation D.
(k) In April 1999, the Registrant 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
William S. Robinson and William A. Ince. Messrs. Robinson and Ince are officers
and directors of the Registrant 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 Registrant believes this
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act.
(l) In April 1999, the Registrant 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
Registrant 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 Registrant
believes this transaction was exempt from registration pursuant to Section 4(2)
of the Securities Act.
(m) In May 1999, the Registrant issued a total of 445,000 shares of its common
stock to members of the Registrant's employee benefit and consulting services
plan who exercised in April their options previously granted under the plan. The
exercise price of the shares issued was between $.15 and $.25
27
<PAGE> 30
per share, and each person paid the exercise price in cash (an aggregate 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 Registrant believes that
transaction was exempt from registration pursuant to Rule 701 of the Securities
Act.
(n) In July 1999, the Registrant issued 50,000 shares of its common stock to one
person for consulting services rendered to the Registrant and value 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 Registrant believes this transaction was exempt from registration
pursuant to Section 4(2) of the Securities Act.
(o) In September 1999, the Registrant issued an aggregate 654,401 shares of its
Series A Convertible Preferred Stock to officers and directors of the
Registrant. 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 the Registrant. 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 the Registrant. Messrs. Robinson and Ince are officers and
directors of the Registrant 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 Registrant believes this transaction
was exempt from registration pursuant to Section 4(2) of the Securities Act.
(p) In November 1999, the Registrant issued a total of 405,000 shares of its
common stock to members of the Registrant's 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 shares issued ranged between
$.15 and $.20 per share, and each person paid the exercise price in cash (an
aggregate of $80,750). 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 was
placed on each certificate evidencing the shares. The Registrant believes that
transaction was exempt from registration pursuant to Rule 701 of the Securities
Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation and Bylaws provided the Registrant
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 the Registrant shall not be
liable to the Registrant or its shareholders for monetary damages for breach of
fiduciary duty as a director or officer.
28
<PAGE> 31
PART F/S
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C>
1. Audited Consolidated Financial Statements
June 30, 1999 and 1998 F-2
2. Unaudited Consolidated Financial Statements
September 30, 1999 and 1998 F-18
</TABLE>
F-1
<PAGE> 32
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(U.S. DOLLARS)
<TABLE>
<CAPTION>
INDEX PAGE
----- ----
<S> <C>
Report of Independent Accountants F-3
Financial Statements
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity (Deficiency) F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-17
</TABLE>
F-2
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE DIRECTORS AND SHAREHOLDERS 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, 1999 and 1998
and the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for each of the years ended June 30, 1999, 1998 and
1997. 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.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. 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, 1999 and 1998 and the consolidated results of their operations and cash
flows for each of the years ended June 30, 1999, 1998 and 1997 in conformity
with generally accepted accounting principles in the United States.
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, 1999. 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. These financial statements do not include any adjustments that may
result from the outcome of these uncertainties.
The financial statements of the Company for the period from February 12, 1996
(inception) through June 30, 1996 were audited by other auditors. We have
compiled the cumulative amounts for the period from February 12, 1996
(inception) to June 30, 1999 from audited financial statements for the period
from February 12, 1996 (inception) to June 30, 1996 and the audited consolidated
financial statements for the years ended June 30, 1999, 1998 and 1997.
/s/ Pannell Kerr Forster
Chartered Accountants
Vancouver, Canada
November 4, 1999
F-3
<PAGE> 34
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
(U.S. DOLLARS)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT
Cash $ 647 $ 480
Due from affiliated company 0 116,000
------------ ------------
TOTAL CURRENT ASSETS 647 116,480
PROPERTY AND EQUIPMENT (note 6) 42,238 21,796
INVESTMENT IN AND ADVANCES TO AFFILIATED COMPANY 0 750,000
LICENSE AGREEMENTS AND INTANGIBLES (notes 5 and 7) 1,622,928 8,254
------------ ------------
TOTAL ASSETS $ 1,665,813 $ 896,530
============ ============
LIABILITIES
CURRENT
Accounts payable and accruals (note 10) $ 544,511 $ 326,544
Due to West Virginia University Research Corporation (note 14) 397,296 397,296
Due to officers and directors 0 33,229
Due to minority interest (note 5) 79,412 0
Liability to stockholder 0 25,000
------------ ------------
TOTAL CURRENT LIABILITIES 1,021,219 782,069
LONG-TERM DEBT (note 8) 376,170 396,029
------------ ------------
TOTAL LIABILITIES 1,397,389 1,178,098
------------ ------------
CONTINGENCY (note 14)
STOCKHOLDERS' EQUITY (DEFICIENCY) (note 9)
PREFERRED STOCK, $0.001 Par Value, 20,000,000 shares authorized, no
shares issued and outstanding
COMMON STOCK AND PAID IN CAPITAL IN EXCESS OF $0.001 PAR VALUE
50,000,000 Shares authorized
22,087,062 (1998 - 14,375,396) issued and outstanding 4,016,267 1,786,630
PROMISSORY NOTES RECEIVABLE (note 9) (284,068) 0
OTHER COMPREHENSIVE INCOME 44,679 36,235
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (3,508,454) (2,104,433)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 268,424 (281,568)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 1,665,813 $ 896,530
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 35
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 1999
(U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12,
1996
YEAR ENDED YEAR ENDED YEAR ENDED (INCEPTION)
JUNE 30, JUNE 30, JUNE 30, THROUGH
1999 1998 1997 JUNE 30, 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
EXPENSES
Interest on beneficial
conversion feature (note 12) $ 566,456 0 $ 0 $ 566,456
Consulting 214,068 233,317 97,434 612,995
Salaries 280,600 233,759 0 514,359
Legal and accounting 106,051 79,091 59,391 247,901
Research and development 64,521 258,384 356,118 908,114
Bank charges and interest, net 55,760 41,385 39,726 136,343
Travel and entertainment 34,085 93,043 118,372 267,390
Telephone 26,341 42,319 35,269 103,929
General and administrative 20,656 54,284 51,505 141,337
Rent 18,905 26,095 17,631 69,354
Advertising 7,615 39,885 36,631 84,131
Write-down of license and
operating assets (note 5(a)) 0 424,654 0 424,654
Depreciation and amortization 8,963 14,000 10,140 34,334
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (1,404,021) (1,540,216) (822,217) (4,111,297)
EXTRAORDINARY ITEM
Cancellation of debt (note 8) 0 602,843 0 602,843
------------ ------------ ------------ ------------
NET LOSS FOR PERIOD $ (1,404,021) $ (937,373) $ (822,217) $ (3,508,454)
============ ============ ============ ============
LOSS PER COMMON SHARES
BEFORE EXTRAORDINARY ITEM $ (0.08) $ (0.12) $ (0.09)
EXTRAORDINARY ITEM PER COMMON
SHARE 0.00 0.05 0.0
------------ ------------ ------------
NET LOSS PER COMMON SHARE $ (0.08) $ (0.07) $ (0.09)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 17,285,785 12,343,346 8,894,110
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 36
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 1996
(U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12,
1996
YEAR ENDED YEAR ENDED YEAR ENDED (INCEPTION)
JUNE 30, JUNE 30, JUNE 30, THROUGH
1999 1998 1997 JUNE 30, 1996
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
SHARES OF COMMON STOCK ISSUED
Balance, beginning of year 12,575,396 11,750,000 6,000,000 0
Issued for
Cash 200,000 825,396 5,086,000 1,000,000
Exercise of stock options 445,000 0 0 0
Promissory note 1,683,789 0 0 0
Settlement of lawsuit 150,000 0 0 0
Property and equipment (to officers
and directors) 0 0 0 1,500,000
Services (provided by officers and
directors) 666,666 0 0 2,000,000
Services 250,000 0 564,000 1,500,000
Conversion of convertible debenture 3,869,120 0 0 0
Acquisition of subsidiary 1,800,000 0 100,000 0
Held in escrow 447,091 0 0 0
------------ ------------ ------------ ------------
Balance, end of year 22,087,062 12,575,396 11,750,000 6,000,000
============ ============ ============ ============
COMMON STOCK AND PAID-IN CAPITAL IN EXCESS OF PAR
Balance, beginning of year $ 1,786,630 $ 1,214,630 $ 60,000 $ 0
Issued for
Cash 50,000 650,000 865,514 10,000
Exercise of stock options 80,500 0 0 0
Promissory notes receivable 252,568 0 0 0
Settlement of lawsuit 15,000 0 0 0
Property and equipment (to officers
and directors 0 0 0 15,000
Services (provided by officers and
directors) 100,000 0 0 20,000
Share issue costs (100,500) (78,000) (48,920) 0
Services 50,000 0 63,036 15,000
Conversion of convertible debenture 525,813 0 0 0
Acquisition of subsidiary 619,200 0 275,000 0
Stock option compensation benefit 70,600 0 0 0
Interest on beneficial conversion 566,456 0 0 0
------------ ------------ ------------ ------------
Balance, end of year $ 4,016,267 $ 1,786,630 $ 1,214,630 $ 60,000
============ ============ ============ ============
PROMISSORY NOTES RECEIVABLE
Balance, beginning of year $ 0 $ 0 $ 0 $ 0
Issued during year (284,068) 0 0 0
------------ ------------ ------------ ------------
Balance, end of year $ (284,068) $ 0 $ 0 $ 0
============ ============ ============ ============
OTHER COMPREHENSIVE INCOME
Balance, beginning of year $ 36,235 $ 11,375 $ (1,226) $ 0
Foreign currency translation 8,444 24,860 12,601 (1,226)
------------ ------------ ------------ ------------
Balance, end of year $ 44,679 $ 36,235 $ 11,375 $ (1,226)
============ ============ ============ ============
DEFICIT ACCUMULATED DURING
DEVELOPMENT STAGE
Balance, beginning of year $ (2,104,433) $ (1,167,060) $ (344,843) $ 0
Net loss for year (1,404,021) (937,373) (822,217) (3,508,454)
------------ ------------ ------------ ------------
Balance, end of year $ (3,508,454) $ (2,104,433) $ (1,167,060) $ (3,508,454)
============ ============ ============ ============
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) $ 268,424 $ (281,568) $ 58,945 $ (3,449,680)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 37
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 1999
(U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12,
1996
YEAR ENDED YEAR ENDED YEAR ENDED (INCEPTION)
JUNE 30, JUNE 30, JUNE 30, THROUGH
1999 1998 1997 JUNE 30, 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,404,021) $ (937,373) $ (822,217) $ (3,508,454)
Adjustments to reconcile net loss to
net cash used in operating activities
Extraordinary item 0 (602,843) 0 (602,843)
Consulting services and financing fees 150,000 0 63,036 248,036
Depreciation and amortization 13,466 14,000 10,140 38,837
Stock option compensation benefit 70,600 0 0 70,600
Interest on beneficial conversion 566,456 0 0 566,456
Settlement of lawsuit 15,000 0 0 15,000
Write-down of license and operating assets 0 424,654 0 424,654
Changes in non-cash working capital
Due from affiliated company 0 (112,922) (3,078) (116,000)
Promissory notes receivable (284,068) 0 0 (284,068)
Other 0 757 (1,173) (2,612)
Accounts payable and accruals 217,967 208,737 110,919 544,511
Due to West Virginia University
Research Corporation 0 157,384 22,821 397,296
Due to affiliated companies 0 (50,000) 41,749 3
Due to officers and directors (33,229) 23,229 7,186 0
------------ ------------ ------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (687,829) (874,377) (570,617) (2,208,584)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of property, equipment and
intangibles assets (33,908) 0 (56,568) (111,539)
Assets acquired and liabilities assumed
on purchase of subsidiary (129,474) 0 0 (129,474)
Investment in and advances to affiliated
companies 0 0 (660,000) (750,000)
License agreements 0 0 (116,581) (124,835)
------------ ------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (163,382) 0 (833,149) (1,115,848)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Advances from stockholders 79,412 240,705 758,167 1,078,284
Repayments to stockholders (94,046) 0 0 (94,046)
Liability to issue common stock (25,000) 25,000 (249,429) 0
Proceeds from issuance of common stock 383,068 650,000 865,514 1,923,582
Proceeds from convertible debentures 600,000 0 0 600,000
Share issue costs (100,500) (78,000) 0 (227,420)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 842,934 837,705 1,374,252 3,280,400
------------ ------------ ------------ ------------
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 8,444 24,860 12,601 44,679
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH 167 (11,812) (16,913) 647
CASH, BEGINNING OF PERIOD 480 12,292 29,205 0
------------ ------------ ------------ ------------
CASH, END OF PERIOD $ 647 $ 480 $ 12,292 $ 647
============ ============ ============ ============
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) 100,000 0 0 120,000
For settlement of lawsuit 15,000 0 0 15,000
For services 50,000 0 63,036 148,036
For acquisition of subsidiary 619,200 0 275,000 894,200
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 0 41,385 39,726 81,111
Income tax paid 0 0 0 0
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 38
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 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. The Company is in the development stage as more
fully defined in Statement No. 7 of the Financial Accounting Standards
Board. Planned principal operations of the Company have not yet
commenced.
The Company intends to capitalize on new, patented or patent pending
technologies or advancements in technologies. Pursuant to an agreement
dated November 8, 1995 between three individuals, including two
officers and directors of the Company, and Integral Concepts Inc.
("ICI"), a company 100% controlled by a significant shareholder of the
Company and an employee of West Virginia University Research
Corporation ("WVURC"), the Company has been assigned the rights of the
three individuals which include the first right of refusal to acquire
the marketing and manufacturing rights to all technologies assigned to
ICI by WVURC. ICI obtains the manufacturing and marketing rights to all
technologies developed by WVURC pursuant to an exclusive agreement,
however, West Virginia University retains all proprietary rights to the
technologies.
To June 30, 1999, the Company has acquired or is in the process of
acquiring certain rights to further develop, manufacture and market
worldwide four new technologies originally assigned to ICI:
a) Contrawound Toroidal Helical Antenna - government and military
applications (note 7(a))
b) Plasma Ignition System (note 7(b))
c) 2D Machine Vision Colorimetry (note 7(c))
d) 3D Machine Vision Colorimetry (note 7(d))
The Company's head office is located in Vancouver, Canada. However, all
further development of the above technologies is being done either
directly by the Company or WVURC at West Virginia University.
2. GOING CONCERN
These 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 $3,508,454; (1998 - $2,104,433). 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 (note 12). The outcome of these matters
cannot be predicted. These 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
<PAGE> 39
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 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 subsidiary, Integral Vision Systems, Inc.
("IVSI") (a development stage company) and in 1999, its 80%
owned subsidiary Emergent Technology Corporation ("ETC") (a
development stage company). All intercompany balances and
transactions have been eliminated.
(b) Depreciation and amortization
Depreciation and amortization are provided using the
straight-line method based on the following estimated useful
lives:
<TABLE>
<S> <C>
Machinery, furniture and equipment - 5 Years
Computer hardware and software - 5 Years
Leasehold improvements - 3 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.
(c) Loss per share
Loss per share computations are based on the weighted average
number of common shares outstanding during the period. Common
share equivalents consisting of stock options are not
considered in the computation because their effect would be
anti-dilutive.
(d) Shares issued in exchange for services
The valuation of the common shares 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 shares
within the same general time period.
(e) Revenue recognition
As the Company is continuing to develop its technologies, no
revenues have been earned to date. Once sales have been earned
by the Company, the Company will recognize such revenues at
the time of delivery of the product to the customers.
(f) 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 shareholder's equity
(deficiency).
F-9
<PAGE> 40
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 1999
(U.S. DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) 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 on a unit-of-production method based
on estimated future sales. 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.
(h) Research and development
Research and development expenditures are charged to
operations as incurred.
(i) Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates and would impact future results of operations
and cash flows.
(j) Financial instruments
The Company's financial instruments include cash, amounts due
from/to affiliated company, note receivable, investment in and
advances to affiliated company, accounts payable and accruals,
due to West Virginia University Research Corporation,
long-term debt and minority interest. 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.
(k) Income taxes
The Company uses the asset and liability approach in its
method of accounting for income taxes which requires the
recognition of deferred tax liabilities and assets for
expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and
liabilities. A valuation allowance against deferred tax assets
is recorded if, based upon weighted available evidence, it is
more likely than not that some or all of the deferred tax
assets will not be realized.
(l) Stock based compensation
The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plans.
Compensation expense is recorded when options are granted to
management at discounts to market.
(m) Interest on beneficial conversion
The beneficial conversion features relating to the 2%
convertible debenture (note 8) 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.
F-10
<PAGE> 41
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 1999
(U.S. DOLLARS)
4. COMPARATIVE FIGURES
Certain of the comparative figures were reclassified to conform with
the current year's presentation.
5. ACQUISITIONS
(a) By agreement dated March 11, 1997 (the effective date of
acquisition), the Company acquired a 100% interest in Integral
Vision Systems, Inc. ("IVSI") (a development stage company)
for 100,000 common shares of the Company at a deemed value of
$2.75 per share (equal to one-half the closing market trading
price of the Company's shares on the NASD market on March 11,
1997). The shares were issued pursuant to an exemption from
registration under the Securities Act of 1933 and are
"restricted securities" as that term is defined in Rule 144.
The Company advanced $158,000 to IVSI prior to the acquisition
date. The acquisition has been accounted for by the purchase
method.
The cost of the acquisition has been allocated in these
financial statements as follows:
<TABLE>
<S> <C>
Purchase price - 100,000 common shares $275,000
Funds advanced to IVSI prior to acquisition 158,000
--------
433,000
Fair market value of net assets acquired 41,419
--------
Purchase price discrepancy allocated to
license agreement (note 7(d)) $391,581
========
</TABLE>
IVSI's net loss from operations for the year ended June 30,
1998 amounted to $83,853 (1997 loss of $137,601) and these
operating results are included in the consolidated statement
of operations.
The operations of IVSI have ceased while management seeks a
new technology partner. Accordingly, the Company's investment
in the license agreement of $391,581 has been written off and
the net operating assets of IVSI amounting to $33,073 have
been written off.
(b) 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 (as at June 30, 1998 this investment was accounted
for at cost). The Company had an option to acquire the
remaining 90% interest in ETC by issuing 1,800,000 common
shares of the Company and by funding ETC's research and
development of the Contrawound Toroidal Helical Antenna for
government and military applications (note 1) 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 of the Company's shares 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, a third party investor contributed $470,588
in cash for a 20% interest in ETC. The same investor
contributed a further $79,412 which they intend to convert
into shares of ETC. This will dilute the Company's ownership
interest in ETC to 76.625%.
F-11
<PAGE> 42
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 1999
(U.S. DOLLARS)
5. ACQUISITIONS (Continued)
The cost of the acquisition has been allocated in these financial
statements as follows:
<TABLE>
<S> <C>
Purchase price (1,800,000 shares) $ 619,200
10% investment acquired in prior year 100,000
----------
719,200
Net assets (liabilities) acquired (895,474)
----------
Purchase price discrepancy allocated to
license agreement (note 7(a)) $1,614,674
==========
</TABLE>
6. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998
------------ ----
ACCUMULATED
AMORTIZATION
AND
COST DEPRECIATION NET NET
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Machinery, furniture and equipment $ 56,583 $ 22,634 $ 33,949 $ 11,263
Computer hardware and software 20,825 12,536 8,289 9,311
Leasehold improvements 3,667 3,667 0 1,222
---------- ---------- ---------- ----------
$ 81,075 $ 38,837 $ 42,238 $ 21,796
========== ========== ========== ==========
</TABLE>
7. LICENSE AGREEMENTS
(a) Toroidal Helical Antenna
ETC was formed to develop, commercialize, market and
manufacture certain proprietary Toroidal Helical Antenna
Technology ("the Technology") (note 1). 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, a significant shareholder of the Company,
and an employee of 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.
All development of the Technology is being done by the Company
or WVURC at West Virginia University.
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.
F-12
<PAGE> 43
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 1999
(U.S. DOLLARS)
7. LICENSE AGREEMENTS (Continued)
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.
(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 (note 1), 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,
1999, $445,570 of project development costs has been paid or
is payable to WVURC (note 14). Either party may terminate this
agreement upon 90 days written notice.
(c) 2D Machine Vision Colorimetry
Pursuant to an agreement dated February 9, 1996 with ICI, the
Company acquired the right to manufacture and market the 2D
Machine Vision Colorimetry (note 1), 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, 1999,
$350,151 of project development costs has been paid or is
payable to WVURC (note 14). Either party may terminate this
agreement upon 90 days written notice.
F-13
<PAGE> 44
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 1999
(U.S. DOLLARS)
7. LICENSE AGREEMENTS (Continued)
(d) 3D Machine Vision Colorimetry
The Company's subsidiary, IVSI, acquired the right to
manufacture and market the 3D Machine Vision Colorimetry (note
1), 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.
On June 10, 1995, IVSI entered into an "Exclusive Limited
Sublicense Agreement" with REGI U.S., INC. ("REGI"), whereby
REGI obtained an exclusive sublicense to market and distribute
the 3D Machine Vision Colorimetry in Canada. The sublicense
requires REGI to pay to IVSI 2% of the "Net Revenues" (as
defined in the sublicense) that REGI derives from the
technology. Minimum royalty payments are as follows:
<TABLE>
====================================================================
<S> <C>
1997 $3,000
1998 4,500
1999 6,000
Every year thereafter 6,000
====================================================================
</TABLE>
REGI shall have the option to renew the sublicense for
successive one year periods so long as REGI is not in default
of the terms of the sublicense and the Company's license is
renewed by its licensor.
As described in note 5(a), IVSI has ceased operations while it
seeks a new technology partner.
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
2% convertible debenture, due January 2004 convertible at the holder's
option into common stock of the Company $ 75,000 $ 0
10% Loan repayable on demand with one year's notice to two officers and
directors of the Company 301,170 396,029
-------- --------
$376,170 $396,029
======== ========
</TABLE>
During the year ended June 30, 1999, the Company issued $600,000, 2%
convertible debentures. Of this amount $525,000 was converted to
3,869,120 common shares (note 13(a)(ii)).
During the year ended June 30, 1998, all rights, title and interest in
a revolving line of credit, due to an officer and director of the
Company was conveyed to the Company for $1 and the loan was cancelled.
The line of credit balance of $563,843 and accrued interest of $39,000
is recorded as an extraordinary item in the consolidated statement of
operations for the year ended June 30, 1998.
F-14
<PAGE> 45
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 1999
(U.S. DOLLARS)
9. STOCKHOLDERS' EQUITY (DEFICIENCY)
(a) Authorized preferred shares
The preferred shares 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
(note 13).
(b) 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 shares in the capital stock of
the Company to provide incentives to officers, directors, key
employees and other persons who contribute to the success of
the Company. The exercise price of the Incentive Options
(employees of the Company or its subsidiaries) is no less than
the fair market value of the stock at the date of the grant
and for non-employees the exercise price is no less than 80%
of the fair value (defined as the most recent closing sale
price reported by NASDAQ) on the date of the grant.
The following table summarizes the Company's stock option
activity for the years ended June 30, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
NUMBER PRICE EXERCISE
OF SHARES PER SHARE PRICE
----------- ---------------- --------
<S> <C> <C> <C>
BALANCE, JUNE 30, 1996 $ 0 $ $ 0.00
Granted during year ended
June 30, 1997 1,990,000 $ 0.15 - $ 0.25 $ 0.24
------------ ---------------- ------
BALANCE JUNE 30, 1998 AND 1997 1,990,000 $ 0.15 to $ 2.00 $ 0.24
Granted during year ended
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 $ 0.20
------------ ---------------- ------
BALANCE JUNE 30, 1999 1,920,000 $ 0.15 to $ 2.00 $ 0.26
============ ================ ======
</TABLE>
The exercise price per share at June 30, 1998 and 1997 were
$0.50 to $2.00. During the year ended June 30, 1999, 1,260,000
of the 1,990,000 stock options were cancelled, and 630,000
stock options were repriced to $0.15 to $0.25. These changes
have been retroactively adjusted above.
Subsequent to June 30, 1999, 87,500 and 665,000 additional
share options were issued under the plan for exercise prices
of $0.40 and $0.23 respectively.
The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plan, and
accordingly, compensation expense of $70,600 was recognized as
salaries expense during the year ended June 30, 1999.
F-15
<PAGE> 46
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 1999
(U.S. DOLLARS)
9. STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
(c) Included in promissory notes receivable are:
(i) $31,500 on exercise of 210,000 stock options,
interest at 10% per annum, due November 1, 1999; and,
(ii) $252,568 for issue of 1,683,789 common shares,
interest at 6% per annum, due January 17, 2001.
10. RELATED PARTY TRANSACTIONS
(a) The Company's acquisition of IVSI and ETC as described in
notes 5(a) and 5(b) respectively were acquired from two
significant shareholders of the Company.
(b) Accounts payable at June 30, 1999 includes $383,500 (1998 -
$220,000) due to two directors and officers of the Company.
This amount includes $290,000 (1998 - $180,000) of accrued
management salaries which bears interest at 10% per annum, due
based on normal commercial terms. The remaining balance of
$93,500 (1998 - $40,000) represents accrued interest on the
accrued management salaries and long-term debt (note 8). See
note 13(b) for settlement of debt subsequent to the year ended
June 30, 1999.
(c) Long-term debt includes $301,170 (1998 - $396,029) due to
officers and two directors of the Company (notes 8 and 13(b)).
(d) The Company accrued salaries and interest payable of $263,500
(1998 - $220,000; 1997 - $Nil) due to two directors and
officers of the Company. Of the 1999 amount, $100,000 was
settled by issue of 666,666 common shares.
(e) The Company paid $23,670 (1998 - $9,100; 1997 - $23,707) to
two officers and directors for consulting fees.
(f) The Company advanced $6,000 (1998 - $6,000, 1997 - $3,000) to
ICI for royalties and was charged $Nil (1998 - $257,384; 1997
- $313,026) by WVURC for reimbursement of research and
development expenditures.
11. INCOME TAXES
A deferred tax asset stemming from the Company's net operating loss
carry forward, has been reduced by a valuation account to zero due to
uncertainties regarding the utilization of the deferred assets. At June
30, 1999 the Company has available a net operating loss carry forward
of approximately $2,448,000 which it may use to offset future federal
taxable income. The net operating loss carry forward if not utilized,
will begin to expire in 2011.
12. INTEREST ON BENEFICIAL CONVERSION
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 was $398,077.
The difference between the market value of the Company's shares and the
issue price of 1,683,789 common shares for a promissory note in the
amount of $252,568 was $168,379. These amounts have been recorded as
interest expense in the statement of operations.
F-16
<PAGE> 47
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND PERIOD FROM FEBRUARY 12, 1996
(INCEPTION) THROUGH JUNE 30, 1999
(U.S. DOLLARS)
13. SUBSEQUENT EVENTS
(a) Share issuances subsequent to June 30, 1999 were as follows:
(i) 405,000 shares on exercise of stock options for a
total value of $87,500.
(ii) 447,091 shares released from escrow on conversion of
convertible debenture of $75,000 (note 8).
(iii) 50,000 shares in lieu of services at an ascribed
value of $13,000.
(b) Subsequent to June 30, 1999, 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 of $1.00 each. Cumulative dividends are
accrued at the rate of 5% annually, payable at the option of
the Company. The shares may be converted to restricted common
shares at the average trading price ten days prior to
conversion, and entitled to votes equal to the number of
common shares 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, or $2.00, $2.50, $3.00 and $3.50 in each of
the subsequent four years after date of issue.
The Company intends to settle $383,229 included in accounts
payable and $281,182 included in long-term debt, both amounts
due to two officers and directors of the Company, by issue of
$664,411 Series A Convertible Preferred Stock subsequent to
June 30, 1999.
14. CONTINGENCY
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 owing to WVURC of $397,296, however, it is the
opinion of management that this amount should be reduced to $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.
15. COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12,
1996
(INCEPTION)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (1,404,021) $ (937,373) $ (822,217) $ (3,508,454)
Other
comprehensive
income 8,444 24,860 12,601 44,679
------------ ------------ ------------ ------------
Comprehensive
loss $ (1,395,577) $ (912,513) $ (809,616) $ (3,463,775)
============ ============ ============ ============
</TABLE>
F-17
<PAGE> 48
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(U.S. DOLLARS)
<TABLE>
<CAPTION>
INDEX PAGE
----
<S> <C>
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-19
Consolidated Statements of Loss F-20
Consolidated Statements of Cash Flow Position F-21
Consolidated Statements of Changes in Stockholders' Equity F-22
Notes to Consolidated Financial Statements F-23 - F-31
</TABLE>
F-18
<PAGE> 49
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
AS AT AS AT
SEPT 30/99 SEPT 30/98
------------ ------------
<S> <C> <C>
ASSETS
CURRENT
Cash $ 3,334 $ (450)
Advances to Emergent Technologies Corp. 0 113,000
------------ ------------
TOTAL CURRENT ASSETS 3,334 112,550
------------ ------------
FIXED
Fixed assets, cost 81,073 39,392
Less: accumulated depreciation (40,835) (19,596)
------------ ------------
TOTAL FIXED ASSETS (40,238) 19,796
------------ ------------
OTHER
Investment in and advances to Emergent Technologies Corp. 750,000
License agreement 1,622,929 399,832
Intangibles (net) 1 1
------------ ------------
TOTAL OTHER ASSETS 1,622,930 1,149,833
------------ ------------
TOTAL ASSETS (1,666,502) 1,282,179
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable 304,527 514,180
Due to West Virginia University 397,296 397,296
Due to minority interest 79,412 0
------------ ------------
TOTAL CURRENT LIABILITIES 781,235 911,466
------------ ------------
LONG TERM
Liability to Issue Common Stock 60,000 0
Loans Payable 0 351,579
------------ ------------
TOTAL LONG TERM LIABILITIES 60,000 351,579
------------ ------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
PREFERRED SHARES AND PAID IN CAPITAL
IN EXCESS OF $0.001 PAR VALUE
$0.001 par value; 20,000,000 shares authorized
664,410 (1998-none issued and outstanding) 664,410 0
COMMON SHARES AND PAID IN CAPITAL
IN EXCESS OF $0.001 PAR VALUE
50,000,000 shares authorized
22,137,062 (1998-12,576,000) issued and outstanding 4,147,698 2,428,374
PROMISSORY NOTES RECEIVABLE (284,068) 0
OTHER COMPREHENSIVE INCOME 44,679 42,540
DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE (3,747,452) (2,451,780)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 825,267 19,134
------------ ------------
TOTAL LIABILITIES &
SHAREHOLDERS EQUITY (DEFICIENCY) (1,666,502) 1,282,179
------------ ------------
</TABLE>
F-19
<PAGE> 50
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
CONSOLIDATED STATEMENTS OF LOSS
FOR THE QUARTER ENDED
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
QUARTER QUARTER INCEPTION TO
ENDED ENDED (FEBRUARY 16/96)
SEPT 30/99 SEPT 30/98 TO SEPTEMBER 30/99
------------ ------------ ------------------
<S> <C> <C> <C>
REVENUE $ 21,797 $ 21,797
------------ ------------------
EXPENSES
Interest on beneficial
conversion feature 12,500 566,456
Write-down of license and
Operating assets 424,654
Research and development 908,113
Travel and entertainment 13,858 281,248
Consulting 50,700 9,550 663,695
Salaries and benefits 24,412 328,771
Management fees 60,000 52,500 270,000
Legal and accounting 7,000 247,901
Bank charges and interest, net 84,150 215 220,493
Advertising (385) 84,131
Telephone 3,062 8,016 106,991
General and administrative 13,528 3,983 154,866
Rent 9,085 1,707 78,439
Depreciation and
Amortization 2,000 2,000 36,334
------------ ------------ ------------------
Total expenses 260,795 97,086 4,372,092
------------ ------------ ------------------
Loss before
Extraordinary item 4,350,295
Extraordinary item
Cancellation of debt (602,843)
------------------
NET LOSS FOR THE PERIOD 238,998 97,086 3,747,452
------------------
DEFICIT, BEG OF PERIOD 3,508,454 2,354,694
------------ ------------
DEFICIT END OF PERIOD 3,747,452 2,451,780
------------ ------------
NET LOSS
PER COMMON SHARE $ .01 $ .01
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 22,076,306 12,576,000
</TABLE>
F-20
<PAGE> 51
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
CONSOLIDATED STATEMENTS OF CASH FLOW POSITION
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
AS AT AS AT
SEPT 30/99 SEPT 30/98
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (238,998) $ (90,781)
Item not involving cash
Depreciation and amortization 2,000 2,000
---------- ----------
(236,998) (88,781)
---------- ----------
CHANGES IN NON-CASH WORKING CAPITAL
Accounts payable (239,982) 57,088
Advances to Emergent Technologies Corp. 3,000
Short term loans 31,100 27,763
Loans payable (376,170) 0
---------- ----------
(616,152) 87,851
---------- ----------
(853,150) (930)
---------- ----------
FINANCING ACTIVITIES
Liability to issue common shares 60,000 0
Issuance of common shares 131,428 0
Issuance of preference shares 664,410 0
---------- ----------
855,841 0
---------- ----------
INCREASE (DECREASE) IN CASH 2,691 (930)
CASH, BEGINNING OF PERIOD 643 480
---------- ----------
CASH, END OF PERIOD 3,334 (450)
---------- ----------
</TABLE>
F-21
<PAGE> 52
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Series A Convertible
Preferred Stock Common Stock Other Total
--------------------------- --------------------------- Promissory Comprehensive Acc. Stockholders
Shares Amount Shares Amount Note Income Deficit Equity'
------------ ------------ ------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE
BEGINNING 0 0 22,087,062 $ 4,016,267 $ (284,068) $ 44,679 $ (3,508,454) $ 268,424
COMMON
SHARES ISSUES
For cash 50,000 12,500 12,500
Conversion
Of debenture 118,931 118,931
Net loss
for the period (238,998) (238,998)
PREFERRED
SHARE ISSUES
Conversion of
Debt 281,182 $ 281,182 281,182
Conversion of
Accounts
Payable 383,228 $ 383,228 383,228
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, END
OF PERIOD 664,410 $ 664,410 22,137,062 $ 4,147,698 $ (284,068) $ 44,679 $ (3,747,452) $ 825,267
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
F-22
<PAGE> 53
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
1. INCORPORATION AND NATURE OF OPERATIONS
The Company was incorporated under the laws of the State of Nevada on February
12, 1996. The Company is in the development stage as more fully defined in
Statement No. 7 of the Financial Accounting Standards Board. Planned principal
operations of the Company have not yet commenced.
The Company intends to capitalize on new, patented technologies or advancements
in technologies. Pursuant to an agreement dated November 8, 1995 between three
individuals, including officers and directors of the Company, and Integral
Concepts Inc. ("ICI"), a company 100% controlled by a significant shareholder of
the Company and an employee of West Virginia University Research Corporation
("WVRUC"), the Company has been assigned the rights of the three individuals
which include the first right of refusal to acquire the marketing and
manufacturing rights to all technologies assigned to ICI by WVRUC pursuant to an
exclusive agreement, however, West Virginia University retains all proprietary
rights to the technologies.
To September 30, 1999, the Company has acquired or is in the process of
acquiring certain rights to further develop, manufacture and market worldwide
four new technologies originally assigned to ICI.
a) Contrawound Toroidal Helical Antenna-government and military applications
(note 7(a)
b) Plasma Ignition System (note 7 (b))
c) 2D Machine Vision Colorimetry (note (c))
d) 3D Machine Vision Colorimetry (note 7(d))
The Company's head office is located in Vancouver, Canada. However, all further
development of the above technologies is being done either directly by the
Company or WVRUC at West Virginia University.
2. GOING CONCERN
These 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 of $3,745,452; (1998-$2,451,780). 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. The outcome of these matters cannot be
predicted. These 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-23
<PAGE> 54
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
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 subsidiary, Integral Vision
Systems, Inc ("IVSI") ( a development stage company) and its 80% owned
subsidiary Emergent Technologies Corp. ("ETC") (a development stage company).
All inter-company balances and transactions have been eliminated.
(b) Depreciation and amortization
Depreciation and amortization are provided using the straight-line method based
on the following estimated useful lives:
<TABLE>
<S> <C>
Machinery, furniture and equipment -5years
Computer hardware and software -5years
Leasehold improvements -3years
</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 form
the use of the asset and its eventual disposition. If in this determination
there is an apparent shortfall, the loss will be recognized as a current charge
to operations.
(c) Loss per share
Loss per share computations are based on the weighted average number of common
shares outstanding during the period. Common share equivalents consisting of
stock options are not considered in the computation because their effect would
be anti-dilutive.
(d) Shares issued in exchange for services
The valuation of the common shares issued in exchange for services is valued at
an estimated fair market value as determined by the officers and directors of
the Company based upon other sales and issuances of the Company's common shares
within the same general time period.
(e) 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 the net loss for the period and accumulated as a separate component of
shareholders' equity (deficiency).
F-24
<PAGE> 55
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(f) 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, these costs will be charged to operations on a
unit-of-production method based on estimated future sales. 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.
(g) Research and development
Research and development expenditures are charged to operations as incurred.
(h) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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 reported period. Actual
results could differ from those estimates and would impact future results of
operations and cash flows.
(i) Financial instruments
The Company's financial instruments include cash, investment in and advances to
affiliated company, accounts payable and accruals, due to West Virginia
University Research Corporation, long term debt and minority interest. 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.
(j) Income taxes
The Company uses 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 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.
(k) Stock based compensation
The Company applies APB Opinion No. 25 and related interpretation in accounting
for its stock option plans. Compensation expense is recorded when options are
granted to management at discounts to market.
(l) Interest on Beneficial Conversion
The beneficial conversion features relating to the 2% convertible debenture and
promissory notes are accounted for as interest. This policy conforms to the
accounting for these transactions announced by the SEC staff in March 1997.
F-25
<PAGE> 56
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
4. COMPARATIVE FIGURES
Certain of comparative figures were reclassified to conform with the current
year's presentation.
5. ACQUISITIONS
(a) By agreement dated March 11, 1997 (the effective date of acquisition), the
Company acquired a 100% interest in Integral Visions Systems, Inc. ("IVSI" (a
development stage company) for 100,000 common shares of the Company at a deemed
value of $2.75 per share (equal to one-half) the closing market trading price of
the Company's shares on the NASD market on March 11, 1997). The shares were
issued pursuant to an exemption from registration under the Securities Act of
1933 and are "restricted securities" as that term is defined in Rule 144. The
Company advanced $158,000 to IVSI prior to the acquisition date. The acquisition
has been accounted for by the purchase method.
The cost of the acquisition has been allocated in these financial statements as
follows:
<TABLE>
<S> <C>
Purchase price-100,000 common shares $275,000
Funds advanced to IVSI prior to acquisition 158,000
---------
433,000
Fair market value 41,419
---------
Purchase price discrepancy allocated to license agreement
(note 7(d)) $ 391,581
---------
</TABLE>
IVSI's net loss from operations for the year ended June 30, 1998 amounted to
$83,853 (1997 loss of $137,601) and these operating results are included in the
consolidated statements of operations.
The operations of IVSI have ceased while management seeks a new technology
partner. Accordingly the Company's investment in the license agreement of
$391,581 has been written down to a nominal amount of $1 and the net operating
assets of IVSI amounting to $33,073 have been written off.
(b) 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 common shares of the
Company and by funding ETC's research and development of the Contrawound
Toroidal Helical Antenna for government and military applications (note 1) to a
minimum of $1,200,000. 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 on March 11, 1999). These shares were released
from escrow and are recorded in these financial statements at $.34 per share,
the closing market trading price of the Company's shares in 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.
F-26
<PAGE> 57
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
During the year ended June 30, 1998, a third party investor contributed $470,588
for a 20% interest in ETC. The same investor contributed a further $79,412 which
they intend to convert into shares in ETC. This will dilute ITI's ownership
interest to 76.625%.
The cost of the acquisition has been allocated in these financial statements as
follows:
<TABLE>
<S> <C>
Purchase price (1,800,000 shares) $ 619,200
10% investment acquired in prior year 100,000
----------
719,200
Net assets acquired 895,474
----------
Purchase price discrepancy allocated to license agreement (note 7(a)) $1,614,674
----------
</TABLE>
6. FIXED ASSETS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
ACCUMULATED
AMORTIZATION
AND
COST DEPRECIATION NET NET
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Machinery, furniture and equipment 56,581 23,632 32,949 9,263
Computer hardware and software 20,825 13,536 7,289 9,311
Leasehold improvements 3,667 3,667 0 1,222
------------ ------------ ------------ ------------
81,073 40,835 42,238 19,796
------------ ------------ ------------ ------------
</TABLE>
7. LICENSE AGREEMENTS
(a) Toroidal Helical Antenna
ETC was formed to develop, commercialize, market and manufacture certain
proprietary Toroidal Helical Antenna Technology ("the Technology") (note 1). The
Company obtained an exclusive sub-license to the technology from Integral
Concepts, Inc. ("ICI"), a company 100% controlled by a shareholder of ETC, a
significant shareholder of the Company, and an employee of West Virginia
Research Corporation ("WVRUC") 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
WVRUC. WVRUC has the proprietary interest in and holds the patents to the
technology.
All development of the Technology is being done by the Company or WVRUC at West
Virginia University.
Pursuant to an agreement dated January 2, 1996 with ICI, the Company 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 WVRUC to maintain
the license in good standing. In addition a further 10% royalty of any net
revenues is payable to WVRUC 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.
F-27
<PAGE> 58
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
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 WVRUC
on behalf of ICI.
Either party may terminate this agreement upon 90 days written notice. The
Company is responsible for the reimbursement of project costs incurred by WVRUC.
(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 (note 1), 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 WVRUC on
behalf of ICI to maintain the license in good standing. In addition, a further
10% royalty of any net revenues is payable to WVRUC 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 WVRUC
on behalf of ICI
Pursuant to an agreement dated February 9, 1996 with WVRUC, the Company is
responsible for reimbursement of project development costs incurred by WVRUC. To
June 30, 1998, $445,570 of project development costs has been paid or is payable
to WVRUC (note 13). Either party may terminate this agreement upon 90 days
written notice.
(c) 2D Machine Vision Colorimetry
Pursuant to an agreement dated February 9, 1996 with ICI, the Company acquired
the right to manufacture and market the 2D Machine Vision Colorimetry (note 1),
a counterfeit currency determination software. The Company is obligated to pay a
$3,000 minimum annual royalty to WVRUC to maintain the license in good standing.
In addition, a further 10% royalty of any net revenues is payable to WVRUC 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 WVRUC
on behalf of ICI.
Pursuant to an agreement dated February 9, 1996 with WVRUC, the Company is
responsible for reimbursement of project development costs incurred by WVRUC. To
June 30, 1999, $350,151 of project development costs has been paid or is payable
to WVRUC (note 13). Either party may terminate this agreement upon 90 days
written notice.
(d) 3D Machine Vision Colorimetry
The Company's subsidiary, IVSI acquired the right to manufacture and market the
3D Machine Vision Colorimetry (note 1), a color quality control software. IVSI
is obligated to pay a $3,000 minimum annual royalty to WVRUC to maintain the
license in good standing. In addition, a further 10% royalty of any net revenues
is payable to WVRUC 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.
F-28
<PAGE> 59
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
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 WVRUC
on behalf of ICI. Either party may terminate this agreement upon 90 days written
notice.
On June 10, 1995 IVSI entered into an "Exclusive Limited Sublicense Agreement"
with REGI U.S., Inc. ("REGI") whereby REGI obtained an exclusive sublicense to
market and distribute the 3D Machine Vision Colorimetry in Canada. The
sublicense requires REGI to pay to IVSI 2% of the "Net Revenues" (as defined in
the sublicense) that REGI derives from the technology. Minimum royalty payments
are as follows:
<TABLE>
<S> <C>
1997 $3,000
1998 4,500
1999 6,000
Every year thereafter 6,000
</TABLE>
REGI shall have the option to renew the sublicense for successive one year
periods so long as REGI is not in default of the terms of the sublicense and the
Company's license is renewed by its licensor.
As described in note 5(a), IVSI has ceased operations while it seeks a new
technology partner.
8. LONG TERM DEBT
(a)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
10% Loan repayable on demand with one year's notice
to two officers and directors of the Company 0 351,579
-------- --------
</TABLE>
During the year ended June 30,1998, all rights, title and interest in a
revolving line of credit, due to an officer and director of the Company was
conveyed to the Company for $1 and the loan was cancelled. The line of credit
balance of $563,843 and accrued interest of $39,000 is recorded as an
extraordinary item in the consolidated statement of operations for the year
ended June 30, 1998.
(b)
During the quarter ended September 30, 1999, principal and accrued interest due
on a convertible debenture in the face amount of $75,000 were converted into
447,091 shares of common stock.
9. STOCKHOLDERS' EQUITY
(a) Authorized preferred shares
Subsequent to quarter ended September 30, 1999, 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 of $1.00
each.
F-29
<PAGE> 60
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(a) Authorized preferred shares -- continued
Cumulative dividends are accrued at the rate of 5% annually, payable at the
option of the Company. The shares may be converted to restricted common shares
at the average trading price ten days prior to conversion, and entitled to
votes equal to the number of common shares 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, or $2.00, $2.50, $3.00 and $3.50 in each of the subsequent four years
after date of issue.
During the quarter ended September 30, 1999, the Company settled $383,229
included in accounts payable and $281,182 included in long-term debt (an
aggregate of $664,411), both amounts due to two officers and directors of the
Company, by issuing 664,411 shares of Series A Convertible Preferred Stock.
(b) 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
shares in the capital stock of the Company to provide incentives to officers,
directors, key employees and other such persons who contribute to the success of
the Company. The exercise price of the Incentive Options (employees of the
Company or its subsidiaries) is no less than the fair market value of the stock
at the date of the grant and for non-employees the exercise price is no less
than 80% of the fair value (defined as the most recent closing sale price
reported by NASDAQ on the date of the grant).
The following table summarizes the Company's stock activity for the years ended
June 30, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
NUMBER PRICE EXERCISE
OF SHARES PER SHARE PRICE
------------ -------------- ----------
<S> <C> <C> <C>
Balance June 30, 1998 and 1997 1,990,000 $0.15 to $2.00 $ 0.24
Granted during the year 1,635,000 $ 0.15 to $.25 $ 0.17
Cancelled (1,260,000) $ .15 $ .15
Exercised (445,000) $0.15 to $0.25 $ 0.25
------------ -------------- ----------
Balance June 30, 1999 1,920,000 $0.15 to $2.00 $ 0.25
------------ -------------- ----------
</TABLE>
The exercise price per share at June 30, 1998 and 1997 was $0.50 to $2.00.
During the year ended June 30, 1999, 1,260,000 of the 1,990,000 stock options
were cancelled and 630,000 stock options were re-priced to $0.15 to $0.25. These
changes have been retroactively adjusted above.
F-30
<PAGE> 61
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(b) Stock options -- continued
During the quarter-ended September 30,1999, 87,500 and 665,000 additional share
options were issued under the plan for an exercise prices of $0.40 and $.23
respectively.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock option plan and accordingly, compensation expense of $70,600 was
recognized as salaries expense during the year ended June 30, 1999.
(c) Included in promissory notes receivable are:
(i) $31,500 on exercise of 210,000 stock options, interest of 10% per
annum, due November 1, 1999; and
(ii) $252,568 for issue of 1,683,789 common shares, interest at 6% per
annum, due January 17, 2001.
10. INCOME TAXES
A deferred tax assessment stemming from the Company's net loss carry forward,
has been reduced by a valuation account to zero due to uncertainties regarding
the utilization of deferred assets. At June 30, 1999 the Company has available a
net operating loss carry forward of approximately $2,448,000 which it may use to
offset federal taxable income. The net operating loss carry forward if not
utilized, will begin to expire in 2011.
11. INTEREST ON BENEFICIAL CONVERSION
The differences 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.
The difference between the market value of the Company's shares and the issue
price of 1,683,789 common shares for a promissory note in the amount of $252,568
was $168,379. These amounts have been recorded as interest expenses in the
statement of operations.
12. CONTINGENCY
A dispute exists between WVRUC 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 owing
to WVU of $397,296, however, it is the opinion of management that this amount
should be reduced to $43,052, Management intends to defend this position. As the
actual outcome cannot be determined at this time, any adjustments required will
be recorded by the Company when settlement occurs.
F-31
<PAGE> 62
PART III
ITEM 1. INDEX TO AND DESCRIPTION OF EXHIBITS
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
2.1 Agreement and Plan of Reorganization between the Registrant and
Integral Vision Systems, Inc. dated March 11, 1997. (Incorporated by
reference to Exhibit 2.1 of the Registrant's registration statement
on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
2.2 Agreement and Plan of Reorganization between the Registrant and
Emergent Technologies Corporation dated December 10, 1997.
(Incorporated by reference to Exhibit 2.2 of the Registrant'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 the Registrant'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 the Registrant's registration
statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
10.1 Sublicense Agreement between the Registrant'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 the Registrant's registration statement
on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
10.2 Agreement between the Registrant 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 the
Registrant's registration statement on Form 10-SB (file no. 0-28353)
filed December 2, 1999.)
10.3 Agreement between the Registrant 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 the
Registrant's registration statement on Form 10-SB (file no. 0-28353)
filed December 2, 1999.)
10.4 Sublicense Agreement between Integral Concepts, Inc. and the
Registrant dated February 15th, 1996, relating to the design,
construction and operation of a Plasma Ignition System.
(Incorporated by reference to Exhibit 10.4 of the Registrant's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
10.5 Employment Agreement between the Registrant and William S. Robinson
dated October 1, 1997 and Addendum dated March 15, 1999.
(Incorporated by reference to Exhibit 10.5 of the Registrant's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
10.6 Employment Agreement between the Registrant and William A. Ince
dated October 1, 1997 and Addendum dated March 15, 1999.
(Incorporated by reference to Exhibit 10.6 of the Registrant's
registration statement on Form 10-SB (file no. 0-28353) filed
December 2, 1999.)
</TABLE>
29
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO DESCRIPTION
------- -----------
<S> <C>
10.7 Employee Benefit and Consulting Services Compensation Plan, as
restated January 10, 1999. (Incorporated by reference to Exhibit
10.7 of the Registrant's registration statement on Form 10-SB (file
no. 0-28353) filed December 2, 1999.)
10.8 Sublicense Agreement between the Registrant'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 the Registrant's registration statement on Form 10-SB/A-1
filed February 8, 2000.)
21.1 List of Subsidiaries. (Incorporated by reference to Exhibit 21.1 of
the Registrant's registration statement on Form 10-SB (file no.
0-28353) filed December 2, 1999.)
27 Financial Data Schedule. (Incorporated by reference to Exhibit 27 of
the Registrant's registration statement on Form 10-SB (file no.
0-28353) filed December 2, 1999.)
99.1 Form 10-QSB for the period ended December 31, 1999.
(Incorporated by reference to the Registrant's Quarterly Report
on Form 10-QSB for the period ended December 31, 1999, filed
February 11, 2000.)
</TABLE>
30
<PAGE> 64
SIGNATURES
Pursuant to the requirements Section 12 of the Securities Exchange Act of 1934,
the Registrant has duly caused this report or amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTEGRAL TECHNOLOGIES, INC.
By: /s/ William S. Robinson
-------------------------------------------------
William S. Robinson, Chairman, Chief Executive
Officer, Treasurer and Director
By: /s/ William A. Ince
-------------------------------------------------
William A. Ince, President, Secretary,
Chief Financial Officer and Director
By: /s/ Denzel Jack Parsons
-------------------------------------------------
Denzel Jack Parsons, Director
Dated: March 9, 2000
31
