<PAGE> 1
REVIEW AND DISCUSSION DRAFT #2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to ______________
Commission file number: 0-28353
INTEGRAL TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in it charter)
<TABLE>
<S> <C>
NEVADA 98-0163519
- -------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
</TABLE>
#3 - 1070 WEST PENDER STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6E 2N7
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(604) 685-9933
---------------------------
(issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [ X ] [the
issuer did not become subject to such filing requirements until January 31,
2000].
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: AS OF FEBRUARY 8, 2000, THE ISSUER
HAD 22,137,062 SHARES OF COMMON STOCK OUTSTANDING.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C> <C> <C>
ITEM 1. FINANCIAL STATEMENTS. 3
Integral Technologies, Inc. and Subsidiaries
December 31, 1999 and 1998
Consolidated Balance Sheets
June 30, 1999 and
December 31, 1999 and 1998 (unaudited) 2
Consolidated Statements of Income (Loss)
From Inception (February 16, 1996) to December 31 ,1999 (unaudited) and
for the three months ended December 31, 1999 and 1998 (unaudited) and
for the six months ended December 31, 1999 and 1998 (unaudited) 3
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended December 31, 1999 (unaudited) 4
Consolidated Statements of Cash Flows
for the six months ended December 31, 1999 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS 15
PART II - OTHER INFORMATION 17
SIGNATURES 18
</TABLE>
ii
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INTEGRAL TECHNOLOGIES AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(UNAUDITED)
1
<PAGE> 4
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
AT AS AS AT
DEC 31/99 JUNE 30/99
----------- -----------
<S> <C> <C>
ASSETS
CURRENT
Cash $ 95,648 $ 647
Advances employees 1,143 0
Deposits-suppliers 30,062 0
----------- -----------
TOTAL CURRENT ASSETS 126,853 647
----------- -----------
FIXED
Fixed assets, cost 81,073 81,075
Less: accumulated depreciation (42,835) (38,837)
----------- -----------
TOTAL FIXED ASSETS 38,238 42,238
----------- -----------
OTHER
License agreements and intangibles 1,622,928 1,622,928
----------- -----------
TOTAL ASSETS 1,788,019 1,665,813
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable and accruals 409,726 544,511
Due to West Virginia University 397,296 397,296
Due to minority interest 79,412 79,412
Customer deposits 63,263 0
----------- -----------
TOTAL CURRENT LIABILITIES 949,697 1,021,219
----------- -----------
LONG TERM DEBT 0 376,170
----------- -----------
TOTAL LIABILITIES 949,697 1,397,389
----------- -----------
SHAREHOLDERS' EQUITY (DEFICIENCY)
PREFERRED SHARES
$0.001 par value; 20,000,000 shares authorized,
664,410 shares 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 shares issued and outstanding 4,170,846 4,016,267
PROMISSORY NOTES RECEIVABLE (84,068) (284,068)
OTHER COMPREHENSIVE INCOME 44,679 44,679
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (3,957,545) (3,508,454)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 838,322 268,424
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS EQUITY (DEFICIENCY) $ 1,788,019 $ 1,665,813
----------- -----------
</TABLE>
2
<PAGE> 5
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
CONSOLIDATED STATEMENT OF LOSS
FOR THE QUARTER ENDED
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE SIX SIX PERIOD FROM
MONTHS MONTHS MONTHS MONTHS INCEPTION TO
ENDED ENDED ENDED ENDED (FEBRUARY 16/96)
DEC 31/99 DEC 31/98 DEC 31/99 DEC 31/98 TO DECEMBER 31/99
----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 0 $ 0 $ 21,797 $ 0 $ 21,797
----------- ----------- ----------- ----------- -----------
EXPENSES
Interest on beneficial conversion feature 566,456
Write-down of license and operating assets 424,654
Research and development 1,707 908,113
Travel and entertainment 12,066 3,513 25,924 3,513 293,314
Consulting 45,250 48,300 95,950 57,850 708,945
Salaries and benefits 91,484 52,500 175,896 105,000 690,255
Legal and accounting 10,500 24,468 10,500 31,468 258,401
Bank charges and interest, net 16,169 (19,000) 100,319 67,048 236,662
Advertising 1,950 1,950 86,081
Telephone 8,460 4,943 11,522 12,959 115,451
General and administrative 11,928 36,782 25,457 5,864 166,794
Rent 10,286 8,559 19,371 8,559 88,725
Depreciation and amortization 2,000 2,000 4,000 4,000 38,334
----------- ----------- ----------- ----------- -----------
Total expenses 210,093 162,065 470,889 297,968 4,582,185
----------- ----------- ----------- ----------- -----------
Loss before extraordinary item 210,093 162,065 449,092 297,968 4,560,388
Extraordinary item-cancellation of debt 0 0 0 0 (602,843)
----------- ----------- ----------- ----------- -----------
NET LOSS FOR THE PERIOD 210,093 $ 162,065 $ 449,092 $ 297,968 $ 3,957,545
----------- ----------- ----------- ----------- -----------
DEFICIT, BEG OF PERIOD 3,747,452
DEFICIT END OF PERIOD $ 3,957,545
NET LOSS PER COMMON SHARE $ .01
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 22,076,306
</TABLE>
3
<PAGE> 6
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 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
PAYMENTS TO
PROMISSORY NOTE 200,000 200,000
COMMON
SHARES ISSUES
For cash 550,000 79,579 79,579
Conversion
Of debenture 75,000 75,000
NET LOSS
FOR THE PERIOD (449,092) (449,092)
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 22,637,062 $ 4,170,846 $ (84,068) $ 44,679 $(3,957,546) $ 838,321
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
4
<PAGE> 7
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
DEC 31/99 DEC 31/98
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (449,092) $ (297,968)
Item not involving cash
Depreciation and amortization 4,000 4,000
----------- -----------
(445,092) (293,968)
----------- -----------
CHANGES IN NON-CASH WORKING CAPITAL
Accounts payable (135,927) 174,857
Advances to Emergent Technologies Corp. (4,500)
Customer deposits 63,263
Deposits-suppliers (30,062)
Long term debt (376,170) 15,755
----------- -----------
(478,896) 186,112
----------- -----------
(923,988) (107,856)
----------- -----------
FINANCING ACTIVITIES
Promissory note 200,000
Issuance of common shares 154,579 127,901
Issuance of preference shares 664,410 0
----------- -----------
1,018,989 127,901
----------- -----------
INCREASE (DECREASE) IN CASH 95,001 20,045
CASH, BEGINNING OF PERIOD 647 480
----------- -----------
CASH, END OF PERIOD $ 95,648 $ 20,525
----------- -----------
</TABLE>
5
<PAGE> 8
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 $3,957,545. 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.
6
<PAGE> 9
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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:
Machinery, furniture and equipment -5years
Computer hardware and software -5years
Leasehold improvements -3years
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).
7
<PAGE> 10
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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.
8
<PAGE> 11
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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.
9
<PAGE> 12
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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
------------
ACCUMULATED
AMORTIZATION
AND
COST DEPRECIATION NET
------ ------------ ------
<S> <C> <C> <C>
Machinery, furniture and equipment 56,581 24,632 31,949
Computer hardware and software 20,825 14,536 6,289
Leasehold improvements 3,667 3,667 0
------ ------ ------
81,073 40,835 38,238
------ ------ ------
</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.
10
<PAGE> 13
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 reveues
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.
11
<PAGE> 14
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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
<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.
9. STOCKHOLDERS' EQUITY
(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 establishment of each such
series .
(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
12
<PAGE> 15
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
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.
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 annuam, 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.
13
<PAGE> 16
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE CO.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1999
(UNAUDITED)
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.
14
<PAGE> 17
Item 2. Plan of Operation
As a development stage company, the Company has had no revenues from operations
from inception (February 12, 1996) through December 31, 1999, and has incurred a
net loss of approximately $3.96 million for that period. To date, the Company
has relied on loans from management and management's ability to raise capital
through debt and equity private placement financings to fund its operations. The
current financial condition of the Company raises doubt as to its ability to
continue as a going concern.
In December 1999, NextAntennas.com, Inc. ("NEXT"), a subsidiary of the Company,
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 Company 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).
Although no assurances can be given, management anticipates receiving orders for
an additional $500,000 of antennas from ARINC, Inc. during calendar 2000, as
well as orders from additional customers, based on the level of interest
indicated to date.
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 described above and the level of interest from ARINC,
Inc. and other potential customers expressed to date, revenues from the sales of
NEXT antenna products will allow the Company to meet some or all of its
projected cash needs of approximately $1.2 million over the next twelve months.
At a minimum, management believes that revenues should help partially offset the
Company's cash requirements, thus reducing the amount of additional funds that
management would need to raise.
In anticipation of the possibility that more funds than originally projected
will be required to enable the Company 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 Company 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 Company 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 Company presently intends to focus substantially all of its
resources on the commercialization and sales of the NEXT antenna products. As a
result, the Company 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 Company anticipates spending
approximately $500,000 over the next twelve months on this ongoing research and
development. Also, the Company has filed three provisional patent applications
with the U.S. patent office for various NEXT antenna products, and anticipates
filing additional provisional patent applications as warranted over the next
twelve months.
15
<PAGE> 18
The Company is not in the manufacturing business and does not expect to make any
capital purchases of a manufacturing plant or significant equipment in the next
twelve months. The Company will be relying on contract manufacturers to produce
the antenna products.
During the next twelve months, the Company does not expect any significant
changes in the number of employees, but may add one or two qualified sales
people, if the Company is in a financial position to do so.
The most significant current liabilities relate to salaries and consulting fees.
In the event that the Company is not able to pay these current liabilities as
they become due, the Company will be unable to retain key personnel who are
responsible for research, development and marketing. These functions are
critical to the operations of the Company.
Various factors affecting the Company 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 Company may require
additional financing. If required, no assurances can be given that financing
will be available to the Company in the amounts required, or that, if available,
the financing will be available on terms satisfactory to the Company.
The Company is not aware of any circumstances or trends which would have a
negative impact upon future sales or earnings. There have been no material
fluctuations in the standard seasonal variations of the Company's business. The
accompanying financial statements include all adjustments which in the opinion
of management are necessary in order to make the financial statements not
misleading.
16
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None.
ITEM 2. CHANGES IN SECURITIES
In November 1999, the Company issued a total of 405,000 shares of its common
stock to members of the Company'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 of 1933, as amended, no sales commissions were paid, and a
restrictive legend was placed on each certificate evidencing the shares. The
Company believes that transaction was exempt from registration pursuant to Rule
701 of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.
ITEM 5. OTHER INFORMATION - None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit Number and Brief Description
------------------------------------
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.)
17
<PAGE> 20
10.4 Sublicense Agreement between Integral Concepts, Inc. and the
Registrant dated February 15, 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.)
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/A1 filed
February 8, 2000).
27 Financial Data Schedule. (Filed herewith).
(b) Reports on Form 8-K - None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company
caused this report 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
Date: February 11, 1999
18
<PAGE> 21
EXHIBIT INDEX
NUMBER BRIEF DESCRIPTION
- ------ -----------------
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 15, 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.)
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/A1 filed
February 8, 2000).
27 Financial Data Schedule. (Filed herewith).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM A FORM
10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-QSB
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 95,648
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 126,853
<PP&E> 81,073
<DEPRECIATION> (42,835)
<TOTAL-ASSETS> 1,788,019
<CURRENT-LIABILITIES> 946,698
<BONDS> 0
0
664,410
<COMMON> 4,170,846
<OTHER-SE> 3,957,545
<TOTAL-LIABILITY-AND-EQUITY> 1,788,019
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 162,065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (162,065)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
